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





    EMERGING THREATS: ASSESSING DOD CONTROL OF SURPLUS CHEMICAL AND 
                   BIOLOGICAL EQUIPMENT AND MATERIAL

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

                                HEARING

                               before the

                   SUBCOMMITTEE ON NATIONAL SECURITY,
                   EMERGING THREATS AND INTERNATIONAL
                               RELATIONS

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 7, 2003

                               __________

                           Serial No. 108-121

                               __________

       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


                                 ______

92-564              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

                     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 National Security, Emerging Threats and International 
                               Relations

                CHRISTOPHER SHAYS, Connecticut, Chairman

MICHAEL R. TURNER, Ohio
DAN BURTON, Indiana                  DENNIS J. KUCINICH, Ohio
STEVEN C. LaTOURETTE, Ohio           TOM LANTOS, California
RON LEWIS, Kentucky                  BERNARD SANDERS, Vermont
TODD RUSSELL PLATTS, Pennsylvania    STEPHEN F. LYNCH, Massachusetts
ADAM H. PUTNAM, Florida              CAROLYN B. MALONEY, New York
EDWARD L. SCHROCK, Virginia          LINDA T. SANCHEZ, California
JOHN J. DUNCAN, Jr., Tennessee       C.A. ``DUTCH'' RUPPERSBERGER, 
TIM MURPHY, Pennsylvania                 Maryland
WILLIAM J. JANKLOW, South Dakota     CHRIS BELL, Texas
                                     JOHN F. TIERNEY, Massachusetts

                               Ex Officio

TOM DAVIS, Virginia                  HENRY A. WAXMAN, California
            Lawrence J. Halloran, Staff Director and Counsel
                  J. Vincent Chase, Chief Investigator
                        Robert A. Briggs, Clerk
                    David Rapallo, Minority Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on October 7, 2003..................................     1
Statement of:
    Estevez, Alan F., Assistant Deputy Under Secretary of 
      Defense, Supply Chain Integration, Department of Defense; 
      Frederick N. Baillie, Executive Director, Distribution and 
      Reutilization Policy, Defense Logistics Agency; and Patrick 
      E. O'Donnell, Commander, Defense Reutilization and 
      Marketing Service..........................................   113
    Kutz, Gregory, Director, Financial Management and Assurance 
      Team, U.S. General Accounting Office, accompanied by Gayle 
      L. Fischer, Assistant Director, Financial Management and 
      Assurance Team; John J. Ryan, Assistant Director, Office of 
      Special Investigations; Keith Rhodes, Chief Technologist, 
      Applied Research and Methods; and Shelton Young, Director, 
      Readiness and Support Directorate, Office of Inspector 
      General, Department of Defense.............................    12
Letters, statements, etc., submitted for the record by:
    Baillie, Frederick N., Executive Director, Distribution and 
      Reutilization Policy, Defense Logistics Agency, prepared 
      statement of...............................................   122
    Estevez, Alan F., Assistant Deputy Under Secretary of 
      Defense, Supply Chain Integration, Department of Defense, 
      prepared statement of......................................   115
    Kutz, Gregory, Director, Financial Management and Assurance 
      Team, U.S. General Accounting Office, prepared statement of    15
    O'Donnell, Patrick E., Commander, Defense Reutilization and 
      Marketing Service, prepared statement of...................   130
    Ruppersberger, Hon. C.A. Dutch, a Representative in Congress 
      from the State of Maryland, prepared statement of..........     8
    Shays, Hon. Christopher, a Representative in Congress from 
      the State of Connecticut:
        Prepared statement of....................................     3
        Various letters........................................ 87, 104
    Young, Shelton, Director, Readiness and Support Directorate, 
      Office of Inspector General, Department of Defense, 
      prepared statement of......................................    63

 
    EMERGING THREATS: ASSESSING DOD CONTROL OF SURPLUS CHEMICAL AND 
                   BIOLOGICAL EQUIPMENT AND MATERIAL

                              ----------                              


                        TUESDAY, OCTOBER 7, 2003

                  House of Representatives,
Subcommittee on National Security, Emerging Threats 
                       and International Relations,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2154, Rayburn House Office Building, Hon. Christopher 
Shays (chairman of the subcommittee) presiding.
    Present: Representatives Shays, Turner, Janklow, 
Ruppersberger, and Bell.
    Staff present: Lawrence Halloran, staff director and 
counsel; J. Vincent Chase, chief investigator; R. Nicholas 
Palarino, senior policy analyst; Thomas Costa, professional 
staff member; Joseph McGowan, detailee; Christopher Skaluba, 
Presidential management intern, Robert Briggs, clerk/
professional staff member; David Rapallo, minority counsel; 
Karen Lightfoot, minority communications director/senior policy 
analyst; and Jean Gosa, minority assistant clerk.
    Mr. Shays. A quorum being present, the Subcommittee on 
National Security, Emerging Threats and International Relations 
hearing entitled, ``Emerging Threats, Assessing DOD Control of 
Surplus CB Equipment and Material,'' is called to order.
    Since the anthrax attacks of October 2001, much has been 
done to strengthen national defenses against biological 
warfare. Millions have been spent amassing pharmaceutical 
stockpiles, developing new antidotes and modernizing public 
health surveillance and response capacities.
    The Department of Homeland Security has begun monitoring 
imports and exports of items like these in this hearing room 
sought by terrorists, but the increased threat of bioterrorism 
here at home has not yet affected the way the Department of 
Defense [DOD] handles the disposition of surplus lab equipment 
and protective gear that could be of use to would be 
bioterrorists.
    Lax controls may mean DOD may be selling critical 
components of the bio weapons manufacturing process to persons 
or nations who wish us harm. Poor inventory controls mean 
protective suits and masks could end up shielding terrorists 
while defective suits are given to America's local first 
responders.
    In June of last year, the subcommittee heard testimony from 
the General Accounting Office [GAO] that new protective gear 
was being sold cheaply on the Internet as surplus while 
military units were trying to purchase the same equipment for 
an obviously far higher price. So we asked GAO to look more 
closely at what was being sold from the Pentagon's bargain 
basement.
    GAO audited sales of several items that might appear on a 
bioterrorist's shopping list. Between October 1, 1999 and March 
31st of this year, DOD sold more than 600 pieces of lab 
equipment and more than a quarter of a million protective 
suits. The equipment found its way to Canada, the Philippines 
and even the Middle East. To demonstrate how easily and cheaply 
these potentially sensitive items can be acquired, GAO actually 
purchased lab equipment and protective gear. The material you 
see here, and more, originally cost DOD $46,900. It was 
purchased online for about $4,100, 10 cents on the dollar.
    After our earlier hearings, DOD said all defective chem/bio 
suits could be found and taken out of active circulation and 
that other surplus suits would no longer be available for 
public sale. The GAO was able to acquire hundreds of the older 
battle dress overgarments, some of which were from the 
defective lots GAO has been trying to cull from the supply 
chain for more than 3 years. Incredibly, some of those bad 
suits had been given to a local first responder unit. GAO 
concludes almost 5,000 of the defective suits may have been 
issued to State and local law enforcement agencies and others. 
Vague recall notices by the Defense Logistics Agency mean some 
first responders may still be relying on protective gear that 
won't work.
    Why raise this subject publicly? We're certainly not trying 
to give terrorists any ideas. The fact is they already know it. 
Someone has obviously already thought through the process of 
making and mailing deadly anthrax, and we're not trying to stop 
legitimate military surplus vendors. They provide a valuable 
service to DOD and the public, but the risk of biological 
terrorism has to be confronted openly and aggressively. 
Business as usual will not neutralize the potentially lethal 
combination of lax inventory management, nonexistent end use 
controls and weak accountability over the germs terrorists want 
to weaponize.
    Yes, much of this equipment can be acquired elsewhere. That 
may point to a much larger problem. But that portion of the 
problem attributable to the Department of Defense can be fixed. 
DOD should not be a discount outlet for bioterrorism equipment. 
Witnesses from GAO, the DOD Inspector General's office and the 
Department of Defense will describe the scope of these 
challenges and what can be done to reduce the risk of homegrown 
biological terrorism. We welcome their testimony and their 
service to our country.
    At this time the Chair would recognize Mr. Bell.
    [The prepared statement of Hon. Christopher Shays follows:]

    [GRAPHIC] [TIFF OMITTED] T2564.001
    
    [GRAPHIC] [TIFF OMITTED] T2564.002
    
    Mr. Bell. Thank you, Mr. Chairman. The findings of GAO's 
undercover investigation are extremely troubling. As you 
stated, Mr. Chairman, the Defense Department is actively 
selling to the public equipment that can be used to produce and 
disseminate biological weapons. To me the most disturbing issue 
is that these sales aren't one-time accidents or bureaucratic 
lapses. Quite the contrary. Incubators, evaporators, even 
protective suits for personal protection were available via the 
Internet to anyone with a credit card; protective suits that we 
fail to provide to our men and women in uniform fighting on the 
front lines in Iraq and Afghanistan, available on the Internet.
    These same protective suits were sold by DOD for less than 
the cost of a McDonald's happy meal and were easier to purchase 
than a Gap sweater off of eBay.
    Mr. Chairman, I apologize for my sarcasm, but this is not 
what my constituents or the American people would consider 
adequate homeland security. It is an outrage to think that DOD 
could have sold equipment used to produce biological agents 
such as anthrax at one-tenth of its cost to would-be 
terrorists.
    Since the tragic events of September 11th, we no longer 
have the luxury of waiting for reports like this one to prompt 
action. Secretary Rumsfeld has recognized this, at least in 
public appearances. On September 22, 2002, the Secretary asked, 
do we believe it is our responsibility to wait for a chemical 
or biological or even nuclear September 11th, or is it the 
responsibility of free people to take steps to deal with the 
threat before we are attacked? Of course we know the answer. We 
must act now to protect this Nation. So why didn't the Pentagon 
do so?
    Why didn't the Department heed the warnings from the 
Customs Bureau and the Department of Homeland Security last 
December when they warned that all five items purchased by GAO 
could be used by terrorists to produce biological weapons? The 
dots were not just connected. They drew a bold-faced arrow 
directly to this Pentagon Web site. I certainly hope our 
witnesses can shed some light on these events.
    Finally, Mr. Chairman, I would like to convey the regrets 
of Representative Schakowsky and Representative Kucinich, the 
other two Members who originally requested this investigation. 
Both of them wanted to be here to see GAO's presentation, but 
they are attending a funeral for Mervin Jones, the late husband 
of my colleague, Representative Stephanie Tubbs Jones. I know 
they wanted to attend this hearing because they have been 
working on this issue for several years, and if this latest 
report is any indication of the progress so far, there is much 
work to be done.
    Thank you, Mr. Chairman.
    Mr. Shays. Thank you, Mr. Bell.
    At this time the Chair will recognize the vice chairman of 
the committee, Mr. Turner.
    Mr. Turner. Thank you, Mr. Chairman. Mr. Chairman, I want 
to continue to thank you for your leadership in this committee 
and bringing to light the numerous areas of which we have 
threats to our homeland security, sometimes through our own 
government and our own agencies. You've caused this committee 
to look at issues concerning DOE, Department of Energy safety, 
Department of Defense and also private industry and things that 
we're not doing that we need to be doing and things we are 
doing that we shouldn't be doing.
    Today we're going to be looking at an issue that is 
outrageous when you look at the context of where our country is 
in trying to defend the citizens of the United States. We're 
not looking at an issue of bureaucratic rigidity. We're looking 
at issues that seem to violate common sense. They are 
outrageous when you look at price and just the disposition of 
government property, when you look at the need domestically and 
homeland security and first responders and when you look at the 
threat that we're always trying to diminish in our country. We 
know we have the knowledge since September 11th of the types of 
threats that we are facing. I appreciate the chairman bringing 
to light that also in this process we need to keep in mind the 
issue that some--in this disposition process some defective 
suits may be in the hands of local responders, why we have this 
type of equipment possibly going into the hands of those who 
want to harm Americans, and, Mr. Chairman, I thank you for your 
efforts.
    Mr. Shays. I thank the gentleman.
    At this time the Chair would recognize Mr. Ruppersberger.
    Mr. Ruppersberger. Again, Mr. Chairman, I also thank you 
for your leadership in bringing this issue to our attention. I 
must admit that before this hearing was called I, like a 
majority of my constituents, was unaware that so much military 
equipment and materials was not only being sold to the public 
but being sold over the Internet. Without passing judgment and 
whether selling these resources was a good or bad idea, I was 
anxious to learn more about the inventory, the supply chain, 
the procedures by which these resources were sold and, most 
important, the oversight throughout the entire process.
    It is this oversight that has disappointed me the most. As 
the GAO report being released today notes, the American 
government is now in the business of selling resources at a 
fraction of the original cost. If that was not disturbing 
enough, it is these--in these tough economic times, much of 
that equipment is still needed elsewhere in the military or 
even by America's first responders.
    I don't understand how we can purchase top-dollar chemical 
and biological protective suits and then sell them online for 
$3 when these suits are needed elsewhere by our military, 
police or firefighters. I think our new world requires a new 
way of thinking and a new way of doing business.
    With limited dollars, we need to remember that we are all 
on Team America, and we must provide all responders, those 
abroad and at home, with the equipment they need to keep us 
safe. If one military unit has excess, it should go to another. 
If the military has excess overall, it should go to first 
responders.
    I know this is how it is supposed to work in theory, but 
this report leads me to believe that this is not happening. I 
look forward to the testimony today and learning more about 
this process, how this process works and how the decisionmaking 
process works throughout.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. C.A. Dutch Ruppersberger 
follows:]

[GRAPHIC] [TIFF OMITTED] T2564.003

[GRAPHIC] [TIFF OMITTED] T2564.004

    Mr. Shays. I thank the gentleman.
    At this time the Chair would recognize Mr. Janklow. Welcome 
back.
    Mr. Janklow. Thank you, Mr. Chairman, very much, and, 
again, I'd like to reiterate what the others have said. Your 
leadership in these areas that deal with the security of our 
country and its people in a very nonpartisan, bipartisan way is 
really astounding and commendable.
    Mr. Chairman, as I read the testimony of the various 
witnesses, the GAO report and the testimony of the witnesses, I 
thought I was reading fiction. I had no idea that this was 
nonfiction. It doesn't make any difference where you look. One 
has to wonder what are these people doing that are responsible 
for the safety, the security of this type of equipment? With 
respect to the physical security, of 27 reports, 23 of the 
reports found weaknesses in physical security. Now, 27 reports, 
23 identified weaknesses in control for personal access. Of 27 
reports, 23 reported weaknesses in inventory controls, several 
of them not even able to figure out what their inventory is 
with respect to these agents, these materials, this equipment 
that can cause huge havoc and destruction and devastation to 
people.
    With respect to contingency plans, they were defective. 
Export-import agents, management oversight, the list is 
endless.
    In addition to that, I find it amazing that it isn't that 
you can buy this stuff on the Internet. It's what are they--who 
is responsible? We need to know who are the people that are 
truly responsible for not doing anything. It would be better to 
have nobody in some of these positions. Then at least we could 
say that we have to do something about it. What we're stuck 
with are people that actually have titles and have 
responsibilities in these areas as they sell defective suits or 
donate them to local first responders at the same time they can 
buy the good suits if you want to just make a general purchase 
over the Internet or another way.
    And then as I read the testimony over and over. Some 
phrases are--people like to use them. We share your concerns, 
as it says on page 2 of one report, we share your concerns it 
says on page 3 of a report; we share your concern, as it says 
another place on page 3. Sharing concern isn't enough, Mr. 
Chairman. This is ludicrous. It's absurd. We need to know who 
is responsible. We need to know what is being done to fix it, 
why isn't it being done on a crash basis.
    Daily we worry about other countries and their distribution 
of weapons of mass destruction. Daily we worry about 
radioactive isotopes that could escape from other countries and 
go out into the chain of the world. Daily we worry about 
weapons of mass destruction like anthrax, Ebola, smallpox, what 
you can do with livestock with hoof and mouth disease. We read 
in the news where somebody recovers from a pond a cooler, like 
an igloo cooler with holes cut in it with places for rubber 
gloves where they can manipulate anthrax or other agents. Why 
do they do that? Why ruin a cooler when they can just buy it 
from the Department of Defense at a reduced price? This is 
crazy.
    Mr. Chairman, I look forward to this hearing and the 
testimony of these witnesses. This is a great service that 
you're performing for the people of America. Now what we need 
to do is get to the bottom of the problem and see how it gets 
fixed.
    Thank you.
    Mr. Shays. I thank the gentleman.
    This is a team effort, and Ms. Schakowsky had been--when 
she was a member of the committee, had been very active in this 
issue, and I also want to say, having been at Congress 16 
years, that we have very devoted people in our departments who 
try to wrestle with these problems and the spirit of this 
effort, and this committee will try to understand what their 
challenges are and to see how we can move the process along in 
a constructive way.
    Before recognizing our first panel, I ask unanimous consent 
that all members of this subcommittee be permitted to place an 
opening statement in the record and that the record remain open 
for 3 days for that purpose, and without objection so ordered.
    I ask further unanimous consent that all witnesses be 
permitted to include their written statements in the record, 
and without objection so ordered.
    At this time the Chair would recognize the Chair of the 
full committee, Mr. Tom Davis, who has done an extraordinary 
job as chairman of this committee, and we're all very proud I 
think on both sides of the aisle to work with him and 
appreciate his leadership.
    Chairman Tom Davis. I'll just be very brief. Thank you. I 
think a picture is worth 1,000 words. What we see here, I think 
to all of us and to the public, is very disturbing, so I'll be 
interested to hear what the explanations are, where we proceed 
from here and how something like this could happen. But I 
appreciate you holding this hearing today. I think it will shed 
some light on some of the practices that we can then visit I 
think after we've heard the information that is imparted to us.
    Thank you.
    Mr. Shays. Thank you, Mr. Davis, and we appreciate all the 
resources you provide to this subcommittee so we can do our 
job.
    At this time the Chair would just recognize our panel. We 
have Mr. Gregory Kutz, Director, Financial Management and 
Assurance Team of the U.S. General Accounting Office; 
accompanied by Ms. Gayle L. Fischer, Assistant Director, 
Financial Management and Assurance Team; Mr. J. John Ryan, 
Assistant Director, Office of Special Investigations; Mr. Keith 
Rhodes, Chief Technologist, Applied Research and Methods. 
Additionally, we have a second testimony from Mr. Shelton 
Young, Director, Readiness and Logistic Support Directorate, 
Office of the Inspector General, Department of Defense.
    At this time if our witnesses would stand up, and if there 
is anyone else that may be called on to respond to questions, 
I'd like them to stand up so we don't have to swear them in a 
second time.
    [Witnesses sworn.]
    Mr. Shays. Thank you. We'll start with you, Mr. Kutz. Thank 
you.

STATEMENTS OF GREGORY KUTZ, DIRECTOR, FINANCIAL MANAGEMENT AND 
ASSURANCE TEAM, U.S. GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY 
GAYLE L. FISCHER, ASSISTANT DIRECTOR, FINANCIAL MANAGEMENT AND 
  ASSURANCE TEAM; JOHN J. RYAN, ASSISTANT DIRECTOR, OFFICE OF 
   SPECIAL INVESTIGATIONS; KEITH RHODES, CHIEF TECHNOLOGIST, 
  APPLIED RESEARCH AND METHODS; AND SHELTON YOUNG, DIRECTOR, 
READINESS AND SUPPORT DIRECTORATE, OFFICE OF INSPECTOR GENERAL, 
                     DEPARTMENT OF DEFENSE

    Mr. Kutz. Mr. Chairman, members of the subcommittee----
    Mr. Shays. Let me just say that we're going to do a 5-
minute time, then roll over the clock another 5 minutes. I 
understand your testimony may creep a little over 10, but I 
think it's important for you to set up this issue, and so we 
understand that your testimony may be a little longer than 
usual.
    Mr. Kutz. I appreciate that, and thank you for the 
opportunity to be here to discuss the sale of DOD excess 
property. As you mentioned, last year we told this subcommittee 
that DOD was selling JSLIST chem/bio suits on the Internet for 
pennies on the dollar, while at the same time buying new ones.
    Public sales of the suits our soldiers wear today raise 
concerns about security issues such as reverse engineering. Now 
we've identified another problem with controls over the sale of 
excess property. Today our bottom line is that DOD is selling 
excess property that could be used to produce and disseminate 
anthrax or other biological agents.
    My testimony has three parts. First, background on controls 
over biological source agents and the expertise needed to 
produce anthrax. Second, the sale of excess DOD biological 
equipment and protective clothing. And third, controls over 
public sales of these items.
    First, the anthrax attacks of 2001 have heightened the 
public's awareness to the risk of a biological attack on the 
United States. Experts advised us that the production of 
biological agents for use as a weapon of mass destruction would 
require substantial expertise and sophisticated equipment. 
However, they told us it was more likely that terrorists could 
produce and disseminate a crude form of anthrax that could be 
used to cause fear, significant economic consequences and some 
deaths.
    The biological source agent is also needed to produce 
anthrax. Subsequent to the anthrax attacks of 2001, GAO and 
agency IGs assessed controls at laboratories that handle 
biological source agents. Substantial problems were identified 
such as inventory control, physical control and transfer 
controls. As a result, biological agents may have fallen into 
the wrong hands.
    Moving on to my second point, we found that DOD is selling 
excess property that could be used to produce and disseminate 
anthrax. Similar property is available from other sources such 
as medical industry suppliers, indicating a broader problem.
    As you requested, we established a fictitious company and 
purchased excess DOD property over the Internet from 
govliquidation.com. We spent $4,100 to purchase these new and 
usable items. We have with us today the biological equipment 
and some of the chem/bio suits and related protective gear that 
we purchased. The biological equipment currently has no 
restrictions for sales to the public.
    Let me walk you through the six exhibits which you'll 
probably have difficulty seeing from up there, but they will be 
on the monitor at the same time. First, and to my far right, we 
purchased a biological safety cabinet. We found that at least 
18 similar cabinets were sold by DOD over the last 3\1/2\ 
years. Although purchased by DOD several years ago, this 
cabinet appears to be unused.
    Second, a bacteriological incubator, we found that DOD sold 
at least 199 similar incubators over the last 3\1/2\ years, 
including larger versions.
    Third, a laboratory centrifuge, we found that DOD sold at 
least 521 centrifuges over the last 3\1/2\ years.
    Fourth, a laboratory evaporator, we found that DOD sold at 
least 65 laboratory evaporators over the last 3\1/2\ years.
    Experts told us that the final two exhibits, chem/bio suits 
and related protective gear, would be critical to the 
protection of terrorists during the production, handling and 
dissemination of anthrax.
    Unlike biological equipment, DOD's policy is that the chem/
bio suits and protective gear should not be sold to the public. 
However, as our fifth exhibit clearly shows, this policy has 
not been effective.
    In June and August 2003 we purchased two DOD bid lots that 
included over 500 chem/bio suits. We found that DOD sold at 
least 286,000 chem/bio suits over the last 3\1/2\ years.
    Several of the suits you see exhibited are unused in sealed 
packages and have not exceeded their expiration date for 
effectiveness. To purchase these suits, we submitted fictitious 
information to DOD and had an end use certificate issued for 
these purchases.
    In addition, 379 of the suits we purchased were defective 
battle dress overgarments. As you may recall from prior 
hearings of this subcommittee, DOD has been unable to account 
for about 250,000 of these defective suits. Our investigation 
found that all 379 of the defective suits that we purchased had 
previously been issued to local law enforcement agencies. In 
addition, 4,700 suits that may be defective were also issued to 
local law enforcement.
    In addition to chem/bio suits, DOD was selling restricted 
protective gear similar to our sixth exhibit. We found that DOD 
sold several hundred thousand pieces of protective gear over 
the last 3\1/2\ years.
    Because protective gear was only available in large bid 
lots at the time we made our purchases, we bought these items 
from a private sector vendor that sells them to DOD. We paid 
$190 for the items shown on the table, including a mask, 
filters, hood, gloves and boot covers.
    We also found that DOD excess property is feeding a robust 
secondary market. The purchase and sale of DOD excess property 
appears to be a profitable venture with many individuals and 
businesses involved. We investigated 42 buyers of our case 
study items. We found that 15 of these buyers exported used 
laboratory equipment to countries such as the United Arab 
Emirates and the Philippines. Individuals in these countries 
are known to be involved in transshipments to terrorist-
supporting countries.
    One of the buyers we investigated had been contacted 
previously by the FBI has part of the anthrax investigations 
from 2001. The FBI contacted this buyer about the disposition 
of several micromilling machines purchased originally from DOD.
    My third point is that Federal regulations and policies do 
not restrict DOD from selling our case study biological 
equipment to the general public. Initiatives exist to monitor 
and control exports of the type of items that we purchased, 
such as Customs Operation Shield America and the Australia 
Group Agreement. However, there are no Federal regulations for 
control of domestic sales of any of these items.
    In summary, sales of biological equipment and protective 
clothing is a much broader issue than DOD excess property. The 
biological equipment and protective gear being sold by DOD are 
available from a number of sources worldwide. However, 
uncontrolled public sale of DOD excess property increases the 
risk that terrorists could obtain and use these items to 
produce and deliver anthrax within the United States.
    Our related report includes two basic recommendations for 
DOD, which they concur with. First, a risk assessment of excess 
property sales should be done in conjunction with the DOD 
scientific community and the Department of Homeland Security. 
It may be that several of the items that we purchased or other 
items should not be sold to the public.
    Second, DOD needs to establish mechanisms to ensure that 
protective suits and related gear are not sold to the public. 
Lack of adherence to valid policies is a chronic problem at DOD 
that in this case could have significant consequences.
    Mr. Chairman, this ends my statement. Mr. Rhodes, Special 
Agent Ryan, Ms. Fischer and I will be happy to answer any 
questions.
    [The prepared statement of Mr. Kutz follows:]

    [GRAPHIC] [TIFF OMITTED] T2564.005
    
    [GRAPHIC] [TIFF OMITTED] T2564.006
    
    [GRAPHIC] [TIFF OMITTED] T2564.007
    
    [GRAPHIC] [TIFF OMITTED] T2564.008
    
    [GRAPHIC] [TIFF OMITTED] T2564.009
    
    [GRAPHIC] [TIFF OMITTED] T2564.010
    
    [GRAPHIC] [TIFF OMITTED] T2564.011
    
    [GRAPHIC] [TIFF OMITTED] T2564.012
    
    [GRAPHIC] [TIFF OMITTED] T2564.013
    
    [GRAPHIC] [TIFF OMITTED] T2564.014
    
    [GRAPHIC] [TIFF OMITTED] T2564.015
    
    [GRAPHIC] [TIFF OMITTED] T2564.016
    
    [GRAPHIC] [TIFF OMITTED] T2564.017
    
    [GRAPHIC] [TIFF OMITTED] T2564.018
    
    [GRAPHIC] [TIFF OMITTED] T2564.019
    
    [GRAPHIC] [TIFF OMITTED] T2564.020
    
    [GRAPHIC] [TIFF OMITTED] T2564.021
    
    [GRAPHIC] [TIFF OMITTED] T2564.022
    
    [GRAPHIC] [TIFF OMITTED] T2564.023
    
    [GRAPHIC] [TIFF OMITTED] T2564.024
    
    [GRAPHIC] [TIFF OMITTED] T2564.025
    
    [GRAPHIC] [TIFF OMITTED] T2564.026
    
    [GRAPHIC] [TIFF OMITTED] T2564.027
    
    [GRAPHIC] [TIFF OMITTED] T2564.028
    
    [GRAPHIC] [TIFF OMITTED] T2564.029
    
    [GRAPHIC] [TIFF OMITTED] T2564.030
    
    [GRAPHIC] [TIFF OMITTED] T2564.031
    
    [GRAPHIC] [TIFF OMITTED] T2564.032
    
    [GRAPHIC] [TIFF OMITTED] T2564.033
    
    [GRAPHIC] [TIFF OMITTED] T2564.034
    
    [GRAPHIC] [TIFF OMITTED] T2564.035
    
    [GRAPHIC] [TIFF OMITTED] T2564.036
    
    [GRAPHIC] [TIFF OMITTED] T2564.037
    
    [GRAPHIC] [TIFF OMITTED] T2564.038
    
    [GRAPHIC] [TIFF OMITTED] T2564.039
    
    [GRAPHIC] [TIFF OMITTED] T2564.040
    
    [GRAPHIC] [TIFF OMITTED] T2564.041
    
    [GRAPHIC] [TIFF OMITTED] T2564.042
    
    [GRAPHIC] [TIFF OMITTED] T2564.043
    
    [GRAPHIC] [TIFF OMITTED] T2564.044
    
    [GRAPHIC] [TIFF OMITTED] T2564.045
    
    [GRAPHIC] [TIFF OMITTED] T2564.046
    
    [GRAPHIC] [TIFF OMITTED] T2564.047
    
    [GRAPHIC] [TIFF OMITTED] T2564.048
    
    [GRAPHIC] [TIFF OMITTED] T2564.049
    
    [GRAPHIC] [TIFF OMITTED] T2564.050
    
    Mr. Shays. Thank you, Mr. Kutz. Thank you for the good work 
that GAO does.
    At this time the Chair would recognize Mr. Shelton Young, 
Director of Readiness and Logistic Support Directorate from the 
Office of Inspector General. Welcome, Mr. Young.
    Mr. Young. Thank you.
    Mr. Shays. Is your mic on, sir?
    Mr. Young. OK. Thank you. Mr. Chairman, members--is it on? 
Is it on now?
    Mr. Shays. You just need to get closer to it, sir, if you 
would.
    Mr. Young. Mr. Chairman and members of the subcommittee----
    Mr. Shays. I think it was on. I think we turned it off on 
you here. Tap the mic just so we can see here. And we're going 
to get you a little closer. Thank you. And take your time.
    Mr. Young. OK. Mr. Chairman, members of the subcommittee, 
thank you for the opportunity to appear before your committee 
today to address your questions regarding controls over 
disposal of DOD surplus equipment and controls over select 
biological agents.
    Like the General Accounting Office, we at the DOD IG have 
identified problems with controls over the disposal of DOD 
surplus equipment. In our June 2003 report on the Law 
Enforcement Support Office Excess Property Program, we found 
that DOD was distributing excess property to law enforcement 
agencies without the accountability necessary to ensure that 
property was properly and appropriately transferred.
    My main focus with my testimony focuses on a June--or an 
August 2003 interagency report on security controls over 
biological agents. The report consolidates the issues 
identified in 27 reports published by the OIGs of Agriculture, 
Army, Defense, Energy, Health and Human Services and Veterans 
Affairs. The 27 reports included 236 government facilities, 4 
contractors and 9 universities.
    In this open hearing I cannot identify any specific 
laboratories or agencies with vulnerabilities. Instead, I'm 
addressing the nine systemic problems that we did find. We are 
pleased to report that corrective actions were initiated by the 
six agencies on the recommendations in the individual agency 
reports.
    Five of the six agencies identified problems with physical 
security controls. For example, three agencies reported that 
some laboratories lacked adequate physical controls over 
freezers or units used to store biological select agents. Four 
agencies identified the lack of intrusion detection systems or 
physical barriers that were easily bypassed. Also as shown in 
our written testimony are examples of open and accessible 
biological agent storage rooms, open access to research 
facilities and a research laboratory housed in a mobile 
trailer.
    We also found problems with physical access controls which 
were identified by five of the six agencies. Three agencies 
identified lack of access restrictions for foreign nationals, 
scientists or students. Four agencies reported that some 
laboratories gave employees access without any background 
investigations or pending the results of background 
investigations.
    All six agencies identified problems with inventory 
accountability and controls. For example, one agency reported 
that of 62 locations required to keep inventories, only 39 kept 
inventories, and only 22 updated their inventories annually.
    Another agency reported that laboratory inventories were 
not reliable because the way researchers introduced biological 
agents into the facilities, including use of personal or 
government credit cards to directly purchase these agents from 
private vendors, independent reproducing of cultures without 
adjusting the inventory records and by undocumented sharing of 
specimens with colleagues from other facilities.
    We also found three agencies that identified problems with 
the adequacy of contingency plans. For instance, one agency 
could not perform a vulnerability assessment because they 
lacked a consolidated data base to track the types and 
locations of agents stored and used.
    We also found problems with Centers for Disease Control and 
Prevention registration. Problems included two agencies' 
identified laboratories that did not know which agents require 
CDC registration. One laboratory did not comply with the CDC 
transfer requirements, because it was unaware of the existence 
of biological agents at its own facility.
    Import and export of agents was another area that was 
looked at. Three agencies address import and exports of 
biological agents. Concerns about the import of agents was 
addressed by one agency, stating in their report that its 
components lacked a system to track the number of shipments 
that came into the Nation--our Nation under any individual 
import permit.
    As GAO mentioned, certain biological agents and related 
technology are export controlled. Two agencies identified 
examples of inadequate reporting of biological agent shipments. 
One agency identified the shipment of a biological agent 
without obtaining an export license.
    Four agencies identified the lack of safety and security 
training, to include personnel controlling access to a facility 
that had received no security response training.
    All six agencies identified management oversight and lack 
of adequate policies and procedures as the major contributing 
factors to the previously discussed inadequate controls. For 
instance, it was reported that management emphasis and 
oversight focused on bio safety for laboratory personnel rather 
than bio security.
    In summary, Federal agencies, contractors and universities 
as holders of biological agents do have a responsibility to 
ensure the security of the biological agents, but senior 
officials at each agency have initiated corrective actions to 
improve security controls over these agents.
    That concludes my testimony.
    [The prepared statement of Mr. Young follows:]

    [GRAPHIC] [TIFF OMITTED] T2564.051
    
    [GRAPHIC] [TIFF OMITTED] T2564.052
    
    [GRAPHIC] [TIFF OMITTED] T2564.053
    
    [GRAPHIC] [TIFF OMITTED] T2564.054
    
    [GRAPHIC] [TIFF OMITTED] T2564.055
    
    [GRAPHIC] [TIFF OMITTED] T2564.056
    
    [GRAPHIC] [TIFF OMITTED] T2564.057
    
    [GRAPHIC] [TIFF OMITTED] T2564.058
    
    Mr. Shays. Thank you, Mr. Young.
    At this time the Chair would recognize Mr. Turner. What 
we're going to do is we're going to have 8-minute questioning. 
We'll have a second round if we need it. So we'll go to Mr. 
Turner and then to Mr. Bell.
    Mr. Turner. Mr. Kutz, if you could walk me through this 
process a little bit, because it--I mean, your testimony, as 
you can tell from the reaction that you received when we were 
giving our opening statements, is pretty strong and shocking, 
and as our chairman of the full committee said, a picture is 
worth 1,000 words. You can look at this equipment and without a 
whole lot of knowledge with your giving us an understanding of 
what it represents, it can tell that this should not have 
occurred.
    But the process I would like for you to walk us through is 
that initially you looked at this issue with GAO, and there was 
a period of time where there were not policies in place at the 
Department of Defense concerning some of these items, and then 
subsequently there were policies which apparently are not being 
followed.
    In looking at your testimony, you go on to say that overall 
DOD sold at least 286,232 chemical and biological protective 
suits in fiscal year 2000 through March 2003, including about 
4,000 after implementation of the January 2003 policy 
restricting them to DOD use only.
    So in the first part we have a lack of a DOD assessment of 
a problem. Then we have a policy, and then it not being 
followed. And then applying it past the suits, there are areas 
where you say that there are still not policies in place. My 
concern obviously is that even when you conclude at the end of 
this hearing that you need additional policies if the process 
is not working or not being followed, we're not going to 
achieve much.
    Could you walk us through that process of the DOD's 
policies and how they are supposed to be implemented and how 
this failure could have occurred.
    Mr. Kutz. Right. With the suits, before January 2003 the 
suits were required to go through a process called an end use 
certificate where the buyer is required to provide certain 
information to DOD that really provides a trail, but is not a 
preventive control, it is more of a detective control, and so 
that was the policy in place. I mentioned that what we did to 
circumvent that policy was submit fictitious information. So 
that is a policy that is not effective.
    Mr. Turner. That apparently no one confirmed?
    Mr. Kutz. Well, they tried to confirm, and Special Agent 
Ryan can give you more details, but they were not able to 
determine that we were a fictitious company. And I'll have him 
elaborate on that in a moment.
    Mr. Turner. That would be great.
    Mr. Kutz. So starting in January 2003, and I believe 
because of the hearing you had last June and October, they put 
in place controls where the suits were not supposed to be sold 
to the public; and after that we were able to buy 15,150 suits 
and protective gear. The policy was for both the suits, the 
mask, the boots, the gloves, etc. So after that they still sold 
over 15,000 of these items, including the ones that we 
purchased in June and August 2003. That's when we purchased the 
suits from DOD.
    The biological equipment, there are no policies and 
procedures in place for restriction of those at this point, and 
that's what we've asked them to take a look at, is to do a risk 
and vulnerability assessment of whether or not the equipment 
should be sold to the public. So right now as of today, the 
suits and protective gear are not supposed to be sold to the 
public, and they are looking--I believe they've frozen the 
equipment from sale right now to the public as they're doing a 
risk and vulnerability assessment in conjunction with the 
Department of Homeland Security.
    Mr. Turner. OK. Back to the two issues then, the one issue 
where there is a policy in place but it's not followed, and the 
other that we need a policy, but obviously putting a policy in 
place doesn't help us if the policies themselves, the process 
that we're following, is defective. So, yes, I'd love you to 
elaborate on the way that you acquired these through a 
fictitious company, where the policy was circumvented.
    Mr. Ryan. The committee asked us to set up the company, 
which we did. The items other than the bio/chem suits, like 
Greg said, there's no policy. So there's no end use certificate 
that is required. For the bio/chem suits, there was an end use 
certificate that was required. In that particular case, we 
filled out the paperwork, we put down information that we had 
made up, then we forwarded it to them.
    They called us and wanted to check on a particular piece of 
information which we--I would say altered a document and 
forwarded back to them. After we forwarded the document back, 
we were given our clearance and allowed to pick up the suits.
    Mr. Turner. Let's just break this one down also. So what 
you're saying is you didn't even set up an elaborate deceptive 
process other than credit contact between the fictitious 
company and DOD?
    Mr. Ryan. There is nothing elaborate--there's nothing 
elaborate about what we did. There is absolutely nothing 
elaborate. This is a basic scheme to defraud. You assume the 
identity, you pass on the documentation, and you get what you 
need.
    Mr. Turner. You didn't even need third parties then to 
attempt to verify your fictitious information? It was only a 
DOD and fictitious company exchange?
    Mr. Ryan. Yes.
    Mr. Turner. Well, obviously that continues to be troubling, 
because you go to the next level of saying for the materials 
that we have in front of us for which there was not a policy, 
if we do put a policy in place, if DOD is not sufficiently 
following them, then we have no real confidence that we're not 
going to have the same presentation in front of us for those 
items which a new policy applies.
    In addition to your recommendations on the risk assessment 
through the DOD of homeland security, talk a bit about the 
failures in the Department of Defense obviously for the 
policies to be affective.
    Mr. Kutz. Well, it would be a combination of I believe 
after January some of the suits were in, I'll call it, the 
pipeline. The way it works is the Defense Reutilization 
Marketing Service provides them to a private sector contractor 
who sells them to the public on the Internet. That is 
govliquidation.com.
    Some of the suits were already in the pipeline, and they 
did not--were unable to get them successfully back out of that 
pipeline. The other part is the chronic issue of the----
    Mr. Turner. Do you know why? You said they were not 
successful in getting them out of the pipeline.
    Mr. Kutz. They probably got some out of the pipeline but 
the rest of them stayed in the pipeline and were sold, some of 
them to us. So that is one of the things. So that should no 
longer be the case. They should be able to prevent those from 
getting in the pipeline. The other is just getting out the 
information to all of the different organizations and units out 
there involved in this process and providing some sort of a 
mechanism to ensure that the policy is enforced, and I 
mentioned in my opening statement it's a chronic issue at DOD. 
You have a lot of good policies at the Department, but it's so 
large and so stovepiped and decentralized it's very difficult 
to get consistent compliance with those policies across this 
very, very large organization.
    Mr. Turner. Well, that's another area that I have a 
concern. In looking at your recommendation of--for the items 
that there currently isn't a policy, you had indicated that a 
risk assessment should be undertaken between DOD and Homeland 
Security. Apparently there is not a process within DOD wherein 
that risk assessment--you're comfortable that they're able to 
identify what items need to be controlled.
    Mr. Kutz. In conjunction with the scientific community and 
the scientific community over at the Department of Homeland 
Security, they should have the bigger picture, and keep in mind 
this picture is much broader than the Department of Defense 
excess property. You're talking about lots of people out there 
that are selling this equipment domestically and worldwide. So 
whatever solution they have--they might be able to fix this 
problem, but it is a broader problem, because there's a lot of 
other organizations and companies out there selling this, and 
as I mentioned in my opening statement, there's a large 
secondary market for this equipment that DOD was feeding into. 
And so Agent Ryan when he was doing his investigations of the 
buyers found that there was a lot of this equipment going 
around, and certainly DOD was a large feeder of equipment into 
this process, but probably in the whole scheme of things they 
were a very small piece of the puzzle.
    Mr. Shays. Thank you. Mr. Bell.
    Mr. Bell. Thank you, Mr. Chairman. After September 11th we 
heard the term ``connecting the dots'' used a great deal, and a 
lot of times it was used because there was concern that Federal 
agencies weren't taking adequate proactive measures to keep the 
Nation safe, and after September 11th we told ourselves that 
this would never happen again, but Mr. Kutz, it's clear from 
your testimony that it has. And your report also seems to 
suggest that the Defense Department was warned about this 
particular problem and then chose to take no action. Is that 
fair?
    Mr. Kutz. With respect to the suits, I would say that's 
fair. I'm not sure about the equipment. I believe that the 
equipment has flown under the radar screen, and it was not 
really thought about in a way that this could actually be used 
to harm us. And so the suits there was certainly ample warning 
on, and they have made an attempt. I mentioned in my opening 
statement that we found JSLIST suits. That is the current suits 
being used by the soldiers today that were used in Iraq being 
sold last year. We saw no evidence since your hearing last year 
that any more of those suits have gone out. So the only suits 
that we saw going out were what's called the battle dress 
overgarments, which is the prior generation of technology. But 
with the equipment, I honestly believe that this was just 
something that had kind of slipped under the radar screen.
    Mr. Bell. Well, let's talk about that, because obviously 
one of our purposes here today is to try to figure out how we 
got to this point, how this problem was created so that we can 
do something about it.
    Can you tell me about the effort by Customs and the 
Department of Homeland Security to identify equipment that 
could potentially be used by terrorists?
    Mr. Kutz. Yeah. A little bit, and then I'll let my 
colleagues chime in on this, but the Customs has the Operation 
Shield America that I mentioned, and we did meet with the 
agents from Customs, who as part of Homeland Security here, 
with respect to that. And that really is warning people and 
getting an awareness out there of suspicious activity of 
purchasers of new equipment for the most part, and it's also 
focused on export of that equipment. So Customs does have a 
program, and they did brief the Department on this program. 
And, again, I don't think the Defense Department did a lot 
after that briefing, which is another warning possibly with the 
equipment, as you mentioned. But Customs does have an active 
program. There are lots of investigations that they have 
underway looking at suspicious activity with respect to 
primarily new equipment.
    Mr. Bell. Well, a list was created, was it not, of items 
that could be potentially used by terrorists?
    Mr. Kutz. Correct.
    Mr. Bell. And isn't it as correct that all five of the 
items that you ultimately purchased from the Department of 
Defense were on that list?
    Mr. Kutz. They were either on the list or they were very 
similar to items on the list. That was one of the issues is 
that in looking at the list from a narrow perspective, if you 
only looked at the hundred items on that list, you may very 
well miss important items, but they were similar items to the 
items that were on the Customs Operation Shield America and the 
Australia Group Agreement. That is more of an international 
group looking to try to stem the proliferation of biological 
weapons worldwide. But they were very similar to the items on 
those, and in some cases they may have been the same 
technology. They might have also been a step down in 
technology. Mr. Rhodes can probably add to that. That could 
actually be configured in a way that could be used for the same 
purpose.
    Mr. Bell. Mr. Rhodes, do you want to add to that?
    Mr. Rhodes. Yes. Thank you. One point that I would make 
goes to the heart of the recommendation about the risk 
assessment and, is that if you look at any of these lists and 
you take any one of these individual devices narrowly and you 
say I'm going to look at the centrifuge, for example, and you 
look at the specification of the centrifuge and you say, all 
right, that individual device in that configuration does not 
meet the threshold of the list, fine. What is the weapon you're 
trying to build? This equipment cannot make material equal to 
what was sent through the mail in October--September and 
October 2001. It can, however, make anthrax, and it can make 
anthrax in the crude form that Mr. Kutz is talking about, which 
is not necessarily going to be at that level, but you are going 
to be able to make anthrax and you are going to be able to 
wreak havoc with it.
    There's an added benefit of being able to buy all of this 
equipment, because the suit adds value to the bio safety 
cabinet, which adds value to the centrifuge, which adds value 
to the incubator, which adds value to the other equipment. 
That's really at the heart of the risk assessment is to look at 
all of this as an ensemble rather than this particular 
evaporator needs additional equipment in order to be at the 
level to break the threshold on a list. So that's what we're 
getting to at the heart of this risk assessment.
    Thank you.
    Mr. Bell. Mr. Kutz, at some point are you aware of whether 
the Customs officials met with the Department of Defense to let 
them know that they were selling equipment that could be used 
in the manufacture of biological weapons?
    Mr. Kutz. Customs did meet with DOD and provided the same 
presentation I believe that they provide to private sector 
companies. I don't know--go ahead.
    Ms. Fischer. Customs agents told us that they met with the 
Under Secretary of Defense for Policy related to 
counterproliferation----
    Mr. Bell. Do you know who that was?
    Ms. Fischer. Lisa Bronson--in December 2002 and briefed her 
on their concerns with regard to the items on their Operation 
Shield America list.
    Mr. Bell. And they didn't immediately halt their sales 
though, did they?
    Ms. Fischer. No, they didn't. We tried to meet with Deputy 
Under Secretary Bronson ourselves to determine what action DOD 
might have taken as a result of that briefing, and she declined 
a meeting with us.
    Mr. Bell. She declined the meeting?
    Ms. Fischer. Yes. She sent us a letter that basically said 
that they follow the Federal regulations that only control the 
specific items that Mr. Rhodes mentioned to you a few minutes 
ago--items that are controlled for export purposes, but we were 
more interested in what DOD thought about the range of items 
that could be used for the same purpose, and we didn't get an 
answer to that question.
    Mr. Bell. Well, let me get this straight, because you all 
were investigating this issue at the request of Congress, were 
you not?
    Ms. Fischer. Correct.
    Mr. Bell. And on what basis then did she refuse to 
cooperate?
    Ms. Fischer. I think you would probably have to ask her 
that question. She----
    Mr. Bell. So as far as you know, they just continued to 
sell the equipment after being confronted with it?
    Ms. Fischer. Yes. Her written response was that they follow 
the guidance in the Federal regulations, and it just stopped 
there. It didn't go any further to say whether they were 
considering broader controls or not. Since we did not get to 
meet with her, we really weren't able to discuss this issue 
further.
    Mr. Bell. Well----
    Mr. Shays. Could the gentleman suspend a second?
    Mr. Bell. Sure.
    Mr. Shays. This is something the committee will followup 
and appreciate the gentleman pursuing these questions. We want 
to know why she didn't meet with you, and so we'll follow it 
up.
    Mr. Bell. So the sales were not halted even after the 
information was brought to the attention of the Defense 
Department. At some point they were finally halted, and in your 
opinion was that just because of the threat of bad publicity?
    Mr. Kutz. It was as a result of our recommendation to them 
to do a risk and vulnerability assessment. So I think that they 
took that very seriously. And as a result of that in the 
meantime while they're doing the risk assessment, which may 
take several months, they are freezing the sale of those items.
    And let me clarify on the Customs Operation Shield America, 
they don't prohibit private sector organizations from selling 
equipment. What they do is they try to educate them that if a 
suspicious pattern of purchasing activity happens with some of 
the people who are buying from you or if a buyer you are not 
familiar with is trying to acquire some of these items, call us 
and we will investigate. And that would get into the kind of 
purchases we made. We made a pattern of purchases here that, 
again, I think no one was really looking to see if something 
suspicious was happening.
    Mr. Bell. Just to wrap this line of questioning up, Mr. 
Kutz, or anyone else on the panel, what would your 
recommendation be to the Defense Department in terms of being 
more proactive in the future?
    Mr. Kutz. I believe that they--in addition to looking at 
biological here, they will be looking at chemical also. If you 
look at the excess property pipeline, there is a tremendous 
amount of items that go through there. A lot of those items are 
demilitarized. They are supposed to be controlled from being 
sold to the public. Or if they're sold to the public, they're 
altered so that they don't meet their initial purpose. I 
believe they're going to take a broader look, and you can ask 
the next panel, to determine if not only this type of equipment 
but chemical, other types of equipment, may be going out that 
should be restricted in some way. And I concur that would be 
the right move here.
    Mr. Bell. Thank you, Mr. Chairman.
    Mr. Shays. I thank the gentleman.
    Mr. Janklow.
    Mr. Janklow. Thank you very much, Mr. Chairman. Mr. Young, 
or you, Mr. Kutz, any of you, if the Department of Defense were 
to be searching in a country and found large numbers of safety 
cabinets, incubators, centrifuges, lab evaporators, chemical, 
bio gear and milling machines, I assume that we would think 
that we had found weapons of mass destruction in a country. 
Would that be correct? Mr. Rhodes, maybe you can help me.
    Mr. Rhodes. It would definitely signify intent. I mean, 
you're looking for an adversary----
    Mr. Janklow. And these are all the things that we're 
disposing of through the Department of Defense or other 
agencies?
    Mr. Rhodes. Yes, sir.
    Mr. Janklow. And we talk about them falling under the radar 
screen. One has to wonder does it really take Members of 
Congress and people asking for special investigations and 
audits and Inspector Generals to figure out that this stuff 
could be dangerous in the wrong hands to this country or 
another country? I guess it's a rhetorical question.
    Mr. Rhodes. Following your question, prior--I mean, we were 
surprised at what we could buy, and our assumption had always 
been prior to this job and the previous work, that----
    Mr. Janklow. That it wasn't happening?
    Mr. Rhodes. Well, that, OK, there's some pieces of this 
equipment that will sneak through, and there may be a suit or 
two, but you don't have to worry about it, because no one can 
get the source material. But as you've heard from the Inspector 
General, that's not true.
    Mr. Janklow. Mr. Young, I'm really--as I read your 
testimony, you found one laboratory that maintains salmonella 
and didn't even know it.
    Mr. Young. That's correct.
    Mr. Janklow. You found another one that--where the 
secretary of an agency was misreporting to the Department of 
Homeland Security that the location was not using BSL-3 agents 
when in fact you found Bluetongue, which is a livestock virus, 
a deadly livestock virus, highly contagious, and vesicular 
stomatitis virus; and they were misreporting saying they didn't 
even have these items.
    Mr. Young. That's correct.
    Mr. Janklow. Sir, what I'm wondering is as the Inspector 
Generals did their analysis or their reports, are we dealing 
with legal problems, are we dealing with indifference, are we 
dealing with incompetence or a combination of all three? What 
else is there that we're dealing with?
    Mr. Young. Well, I think before the anthrax mailings, their 
emphasis was on bio safety of the lab personnel. That was their 
emphasis of management controls over that, and they were not 
too concerned about bio security----
    Mr. Janklow. But, sir, that is prior to anthrax. When did 
the anthrax thing take place?
    Mr. Young. This was September 2001--October 2001.
    Mr. Janklow. And this is, if I remember, past September 
2003. When were these Inspector General reports done? They were 
done this year, weren't they?
    Mr. Young. Some of the reports were done before September 
11, 2001 or October 2001. Some of the reports were ongoing 
before that event, and so the timeframe of the reports is from 
2001 through 2003.
    Mr. Janklow. Sir, is there anybody that you know of that's 
responsible in the government of the United States to deal with 
these types of issues that deal with what I'll call atomic, 
biological, chemical types of issues in the security of the--
and the dissemination of that to the public improperly?
    Mr. Young. Well, from the Federal perspective, the CDC has 
to--should be looking at these labs to see if they do meet 
standards as far as bio safety, and it would be my 
recommendation that they also look at least at the physical 
controls at the lab to make sure the lab itself has adequate 
controls.
    But from a DOD perspective, it's a combination of offices 
between under Secretary of Defense for Intelligence, they have 
a role; under Secretary of Defense for Acquisition Technology 
and Logistics, they also have a different role; and Lisa 
Bronson's office, as you've mentioned before, she's concerned 
with the export side.
    Mr. Janklow. Is this too complicated? Is there a way to fix 
this, or have we got a pretty good system that just isn't being 
followed?
    Mr. Young. Primarily we need guidance and procedures that 
didn't exist, and so we've issued interim policies and 
procedures in the Department for--such as for safeguarding 
select agents they've issued interim policy and guidance on 
export controls over biological agents.
    Mr. Janklow. Sir, they issue guidances, and nobody follows 
them.
    Mr. Young. Well, this is in response to our reports. In 
response to our four reports, these are some of the corrective 
actions they took. They assigned a full-time staff officer to 
establish policy and procedures. They issued guidance on 
safeguarding select agents, and they issued guidance on export 
controls.
    Mr. Janklow. Sir, should this be different for different 
agencies? Why shouldn't this be uniform? We have laboratories. 
What difference does it make if they're in the Veterans 
Administration or CDC or in the Defense Department or on a 
contract agency in some university from the Federal Government? 
Why isn't this all being administered under one set of 
controls?
    Mr. Young. Something like Code of Federal Regulations, to 
come out with some standard minimum security standards or--
right now it's up to each Federal agency to establish their own 
controls.
    Mr. Janklow. But that doesn't make sense, does it, for the 
safety of America?
    Mr. Young. Right.
    Mr. Janklow. If I could also ask you, sir, one agency 
couldn't perform a vulnerability assessment because the agency 
lacked a consolidated data base to track the types and 
locations of agents stored and used. That particular agency, 
was it required to have a data base?
    Mr. Young. They weren't required to. It's something that 
they should have had, because, how do you know--that's the 
agency that misreported to the Department of Homeland Defense 
or Homeland Security that they didn't have these types of 
agents, and yet they did, but they didn't have a data base. 
That's one of the recommendations that was made, and each 
Federal agency is to establish a data base.
    Mr. Janklow. If there was a centralized office or 
individual that was responsible for these things in the 
government, it would really make more sense; wouldn't it?
    Mr. Young. Yeah.
    Mr. Janklow. Another area dealing with the import and 
export, I noticed concerns about the import of pathogens was 
addressed by one agency, which stated in its report its 
components lacked the system to track the number of shipments 
entering the country under any individual permit, or to ensure 
that any incoming shipment is actually associated with a valid 
import permit.
    My question is, sir, these agencies that find all these 
problems in administering the law, are you aware of any system 
whereby they ever notify their superiors or an administration 
or the Congress or anybody that they're having problems 
implementing what they're supposed to be doing?
    Mr. Young. No----
    Mr. Janklow. Or just when they have problems they just 
ignore them.
    Mr. Young. Well, it takes auditors and reports to raise 
mass awareness of the problem, so they can take corrective 
action.
    Mr. Janklow. Management isn't expected to do that on their 
own?
    Mr. Young. That's correct, because lack of oversight is one 
of the main reasons we have a problem.
    Mr. Janklow. And it says disperse from the Agriculture 
Department to the Veterans Administration to the Defense 
Department. And I notice the Army is involved in there. What 
about the Navy and the Air Force?
    Mr. Young. They didn't participate in this effort.
    Mr. Janklow. Thank you, Mr. Chairman.
    Mr. Shays. I thank the gentleman. Mr. Ruppersberger.
    Mr. Ruppersberger. Yes.
    You made a comment that I would like to explore a little 
bit, the fact that the Department of Defense generally has been 
known to really not to be--you give the statement. I'm asking 
for your statement, not being listening, adhering to certain 
policies that could be relevant to situations like today, what 
was that comment?
    Mr. Kutz. Right, I mean in the work that we've done, in the 
financial management, inventory management and other areas, and 
keep in mind DOD today has nine high-risk areas on our list of 
26, so they have lots of challenges in the area of business 
support, but certainly, the adherence to valid policies and 
procedures we see in many of the studies we do. And again, I 
believe it gets back to a large decentralized organization and 
diffuse power across the Department as to, you know, compliance 
with policy. So, again, there is a lot of good policy, but it 
is a chronic issue we've seen.
    Mr. Ruppersberger. Well, that's what I think, really. We're 
talking about one issue today, an example of, I believe, that 
your mission was to go in the area of biological and chemical 
and we have what we have here today just because of that.
    What concerns me is the systemic problem that exists with 
DOD and how we're going to have oversight and hopefully 
recommend how things are going to be changed so we do not have 
these situations.
    On page 32 of your report, the GAO report, I just quote 
just a small part: ``our ability to purchase these items 
demonstrates ineffective DOD supply chain management.''
    Do you agree with that?
    Mr. Kutz. Yes, absolutely.
    Mr. Ruppersberger. And why do you agree with that 
statement?
    Mr. Kutz. Well, with respect to the defective suits in 
particular, which is what I believe we're talking about, the 
problem they've had in controlling the suits is that once they 
leave the Defense Logistics Agency's warehouse they go up to 
the various services, Army, Navy, Air Force, Marines. Those 
services do not have consistent systems or policies for 
tracking the suits once they leave the DLA warehouses; for 
example, some have systems, some have spreadsheets, some use 
pen and paper, some use nothing. And so, when you try to get 
visibility from the top of all the suits, when do they expire, 
there's absolutely no way to roll it up, so what happened was 
when the defective suits have gotten out to the Department, 
they were unable to recall and find for sure 250,000 of them, 
and it gets into something I looked into for the subcommittee 
last year.
    I took a visit to Wal-Mart and we looked at Wal-Mart at 
their supply chain management, which is world class, and they 
were able to find a tube of toothpaste in a minute, that was--
how many tubes of toothpaste were there in Fairfax, VA in 1 
minute. Here we are, 3 years later, with the defective 
biosuits----
    Mr. Ruppersberger. That's a good point, because it seems 
like the DOD was attempting to run a business. It was 
attempting to really have an inventory chain. It wasn't managed 
properly. You know, I'm sure Wal-Mart, whatever they sell, they 
have certain licensings they have to go through, and these are 
all problems that I'm sure that you did find because you 
testified to that today.
    Mr. Kutz. And what Wal-Mart told us, interestingly, was 
remember the Tylenol scare 10 years ago? They needed to get 
that off the shelves in a matter of hours and they feel they 
need to get things off the shelves that have problems within an 
hour or two.
    Again, I know the Department is trying to modernize their 
systems so that they have that same kind of world class supply 
chain management, but another one of our high-risk areas has 
been the inability to modernize high-risk systems. So that's 
going to be a critical element in dealing with the problems 
you've just identified.
    Mr. Ruppersberger. And you talk about the inventory 
control. It's my understanding that defective suits were sold, 
defective suits that really probably should have been 
maintained by DOD to use for training?
    Mr. Kutz. Correct.
    Mr. Ruppersberger. And then those defective suits were sold 
and those suits, and I am not sure whether that was in the 
report, but I thought I read it, but those suits were literally 
sold back to us; is that correct?
    Mr. Kutz. Well some of them were turned over to local law 
enforcement agencies who then returned them to DOD who sold 
them to us; 379 of the ones that we purchased came back from 
local law enforcement agencies. Others, it appears that as many 
as over 100,000 of the 250,000 defective suits could very well 
have been sold to the public.
    In looking at our data base out of the 286,000 suits that 
were sold over the last 3\1/2\ years--it's possible that as 
many as 158,000 of them could be defective, based on the 
national stock numbers. It's unlikely that all of those are 
defective because there were multiple manufacturers of these 
defective suits. Isratex is the one that manufactured the 
defective suits.
    Mr. Ruppersberger. What I'm interested in, we have hearings 
after hearings, and hopefully, we will benefit from the 
hearings so that we can try to have an effect and have change. 
That's Congress's oversight mission, so to speak. What I'm 
interested in, and DOD's going to be the second panel and we're 
going to be able to ask them certain questions, and this is 
probably not the most joyful hearing for them, what could we 
do, from your position or from where you stand, what could we 
do to try to effect it and I think really probably a lot of 
problems start at the top so we're going to have to effectuate 
a recommendation that will go to the top level of DOD to change 
the system. And, for example, I love the comparison you made. 
You have Wal-Mart who has inventory and was able to find 
something right away, and yet DOD cannot.
    Help me out. What questions would you want me to ask the 
Defense Department? Were they on the next panel? I haven't done 
that before, but I thought it was a pretty good question.
    Mr. Kutz. Well, with respect to this, and I think even in 
the written statement, they said they would be in a position in 
3 months to try to come up here and deal with these issues, so 
you may want to have another hearing and have them come back up 
and hold them accountable and say have you fixed these problems 
and we can see whether these problems have been fixed. The 
things that get DOD's attention are the things before us today 
or dealing with the money issue and cutting parts of the budget 
where there is poor performance, so those are the ways that you 
can impact.
    Mr. Ruppersberger. And also good management setting a 
deadline and holding them accountable for the deadline.
    Mr. Kutz. Right.
    Mr. Ruppersberger. But in your opinion, it's going to have 
to go to a high level to effectuate this?
    Mr. Kutz. Right. This should be from the very top levels of 
DOD that this is important, and it can be done; I mean, if you 
look at the DOD from a mission and we always break it into 
mission and mission support. If you look at mission, the 
ability to fight and win wars, they get an A. If you look at 
mission support, as my boss David Walker has said, they get a 
D.
    Mr. Ruppersberger. Well is it a technology problem, is it a 
lack of technology.
    Mr. Kutz. It isn't a lack of technology. It's a lack of 
effective technology.
    Mr. Ruppersberger. What do you mean?
    Mr. Kutz. Well, they spend $18 or $19 billion a year on 
their business systems, and those systems are dysfunctional at 
this point.
    Mr. Ruppersberger. Well, that's an important issue and 
that's something specific that I think we can look at that you 
feel the systems that they have in DOD generally are 
dysfunctional for what the needs are today.
    Mr. Kutz. That's correct, and Chairman Shays has had 
hearings on that before, and so this subcommittee has had 
oversight over that issue.
    Mr. Ruppersberger. Another thing that concerns me greatly, 
this is just one small investigation, what else is out there 
that could even have more impact on what we're dealing with 
today?
    Mr. Kutz. I mean, I obviously cannot tell you, but 
certainly this is a small example of a broader management 
challenge the Department faces that gets into, again, the high-
risk areas.
    Mr. Ruppersberger. Do you feel that the leadership and DOD 
is putting their head in the sand as relates to this phase of 
running the Department?
    Mr. Kutz. When you say, which phase do you mean?
    Mr. Ruppersberger. Well, the phase of inventory control, 
management, we're giving an A on fighting the wars, but on 
actual inventory control, accountability, those issues?
    Mr. Kutz. I believe mission always gets priority over 
mission support, but I do believe they're taking mission 
support very seriously, and they are trying very hard to 
modernize their systems; I mean, they have represented that the 
supply chain management for the Iraqi war is much improved over 
what they had 10 years earlier, and they can maybe talk to you 
about that as part of the second panel.
    Mr. Ruppersberger. Mr. Chairman could I just ask one more 
question of my time.
    Mr. Shays. Yes.
    Mr. Ruppersberger. One more question, where I would just 
ask if you have any information whether we sold equipment and 
bought it back? Can you give me some examples of this?
    I think maybe Mr. Ryan might know that more than you.
    Maybe Mr. Ryan might know that more than you.
    Mr. Ryan. In the case that you refer to, Congressman, it's 
an area in which they were turned in, these suits were turned 
in. There was a large quantity of these suits that were turned 
into DRMO's. They're what they call reutilized. Someone went 
in, didn't purchase them, but within DOD they were reutilized.
    That was a special DODAC--that was a law enforcement 
support organization requisitioned those, California's State 
coordinator requisitioned over 700 of these suits.
    Out of that, one particular law enforcement group in 
southern California got over 400 of these suits. They were 
going to use them for an exercise, a mock exercise. The mock 
exercise did not work. They turned them back in to DOD. At that 
point, they should have been taken out of service--they should 
have been taken off line and sent for destruction because there 
was a notice to destroy those suits.
    While they were doing that, there were three other units 
within DOD that requisitioned them. They got them. The others 
were then placed in GL's custody for sale, at which time we 
bought them.
    Mr. Ruppersberger. But what I was referring to also was a 
Wall Street Journal Article of May 13 about plane parts?
    Mr. Ryan. I----
    Mr. Ruppersberger. Did you know that?
    Mr. Kutz. No.
    Mr. Ruppersberger. They were referring to plane parts that 
were sold and that we bought back.
    Mr. Ruppersberger. I guess you haven't read the article.
    Mr. Kutz. I haven't, no.
    Mr. Shays. It's not like they have enough to do; I mean one 
of the challenges we have with the Department of Defense, we've 
had tremendous challenges financially and with inventory 
control that stretches back decades and decades; I mean, at one 
point, there was an audit that said 7 trillion transactions in 
DOD were not auditable, and that went down to 1 trillion today, 
a little more than that.
    Now, that's obviously the same item and the same dollars 
going back-and-forth and so on, but it's a number that just 
defies logic. The reason why, in my judgment, you do not get a 
handle on it is DOD knows that like in any other government 
agency, we're not going to shut them down, so it just doesn't 
get the priority, and that's one of the reasons we have these 
hearings, to have it show up on the radar screen, and frankly 
to give it a little more public emphasis.
    Let me just start with you, Mr. Kutz. In your written 
testimony, first let me set it up. This is equipment that you, 
Mr. Ryan, were able to buy.
    Mr. Kutz. That's correct.
    Mr. Shays. And, in your testimony in response to questions, 
you pointed out that you could do basic chemical--biological 
agents, terrorist agents, such as anthrax. The difference here 
would be it wouldn't be milled anthrax, but let me come to your 
statement, Mr. Kutz. You said we also know that DOD excess 
property sales included other items that would use full 
laboratory equipment for the production of anthrax, such as 
microscopes, not here, and micro milling machines also not 
here. Micro milling machines are high-speed grinders that can 
be used to grind dried anthrax into small particles for 
dissemination. While anthrax can be ground by hand, a milling 
machine makes the process more efficient and ensures the 
production of microscopic particles.
    DOD sold 13 milling machines over the Internet since June 
2001. That was in your testimony.
    Now, I'm told that the anthrax that made its way to the 
Capitol, a handful of anthrax was potentially a billion spores, 
so we're talking about not a million, a billion, and, at one 
point, we were told that they might even have to tear apart the 
Hart Building and build a new building; I mean, that's how 
difficult this stuff became for us, so it's your testimony that 
while Mr. Ryan was not able to buy a micro milling machine, 
it's your testimony, since 2000, June 2001, 13 were sold; is 
that correct?
    Mr. Kutz. Right. They just weren't available during the 
time we were doing your investigation.
    Mr. Shays. Is it your testimony that some of these 13 were 
sold after September 11?
    Mr. Kutz. Yes.
    Mr. Shays. So they weren't all sold between June 2001 and 
September 2001?
    Mr. Kutz. Correct. Some were sold through March 2003. I do 
not remember the last date of sale, but they were sold during 
the period of June 2001 to March 2003.
    Mr. Shays. So, if we added both the microscopes and the 
milling equipment, milling machines, would you have been able 
to build a more sophisticated biological agent, Mr. Rhodes?
    Mr. Rhodes. Yes.
    Mr. Shays. And then to reiterate, the only difference is, 
Mr. Ryan, you weren't able to buy them at that point, but they 
were for sale sometime since June 2001?
    Mr. Ryan. That's correct.
    Mr. Shays. And after September 11, 2001?
    Mr. Ryan. That's correct.
    Mr. Shays. This is--yes.
    Yes, Mr. Rhodes.
    Mr. Rhodes. I also wanted to make one point about the 
equipment. This is notional equipment; notional, I mean, you've 
given us a threshold on time and money. Three additional points 
we will make. There were biological safety cabinets that were 
the size of this hearing table that were available. There were 
centrifuges that were the size of washing machines. There were 
incubators that were the size of refrigerators, so----
    Mr. Shays. For sale?
    Mr. Rhodes. For sale.
    Mr. Shays. Over the Internet.
    Mr. Rhodes. Yes; and I just want to make one point, that, 
in our discussions with other folks in the counterterrorism and 
biowarfare community, we were discussing relative volume, what 
can you make, and we all understand that this would make a very 
small, very, very small amount of material, but, when I was 
discussing the larger pieces of equipment then everyone became 
nervous. You know, they said well this will be good for a 
notional discussion, but when you're talking about a biosafety 
cabinet that's the size of this hearing desk, you're talking 
about centrifuges that are as large as washing machines, and 
you're talking about incubators that are as big as 
refrigerators. Now you're talking about volume. And now, you're 
talking about you become--you reach a point at which you can 
overcome the inefficiencies of material development.
    Mr. Shays. And is it your testimony that this equipment was 
for sale and also sold?
    Mr. Rhodes. It was for sale. I do not know that the larger 
equipment was sold, but the lots were moving, and to get to the 
point about intransit visibility, 1 day when we went to 
delivery sites, the storage sites, the person that walked us 
into the building was absolutely certain that there were no bio 
suits, no chem-bio suits available, and we looked into a 
container and the container was actually marked for boat 
equipment. It was life vests and brass fittings and things like 
that, and the suits were in there, so----
    Mr. Shays. My understanding is sometimes lots are sold with 
a variety of equipment in it. It's almost like a miscellaneous 
shipment that you buy and then you kind of open up with some 
interest, as to what you've purchased.
    Mr. Rhodes. It's like----
    Mr. Kutz. It's like a grab bag, yes; I mean there might be 
some good things in there that you never envisioned were in the 
box.
    Mr. Shays. But you're willing to take the risk of what you 
buy; is that correct?
    Mr. Kutz. That might be what certain buyers have learned 
over time because a lot of people are buying this from the 
Department.
    Mr. Shays. I wasn't intending to ask this line of 
questioning, but we were presented with the requested meeting 
with Lisa Bronson, and Mr. Bell's rightfully raising some 
question about that frankly really surprised me, not that he 
raised it, but the results of the questions.
    In the e-mail you sent, we understand that this is a longer 
e-mail to Mr. Shortwell; is that right?
    Ms. Fischer. Shotwell.
    Mr. Shays. Yes. It says we understand the customer 
manager's briefed Lisa Bronson, who is Deputy Under Secretary 
of Defense Technology Security Policy and Counterproliferation, 
and it said we understand the customs managers briefed Lisa 
Bronson on their Operation Shield America program last year. We 
would like about 30 minutes of Under Secretary Bronson's time 
to discuss the following: Has DOD prepared a vulnerability 
assessment that considers the risk associated with sale of 
certain excess biological laboratory equipment to the public; 
No. 2, what, if any, consideration has DOD given to controlling 
or restricting the release of its excess biological or 
laboratory equipment items outside DOD; so that's bottom line 
what you requested.
    You got an answer that, basically, it's so short I'm just 
going to read it, and then we will submit it for the record.
    In response to your e-mail request dated June 6, 2003, for 
information regarding controls over JSLIST suits, the following 
is provided our primary focus on this issue is from an expert 
control perspective, rather than an inventory control 
perspective. As of November 27, 2002, military clothing and 
mass design to protect against chemical and biological agents 
would include the JSLIST suit have been added to the U.S. 
munitions list. Excerpts from the State Department's final laws 
appeared in the Federal Registry as attached. For your 
information, effort is underway to add protective suits, so do 
you feel that her letter to you was, in any way, responsive to 
your questions?
    Ms. Fischer. No, we do not, Mr. Chairman.
    Mr. Shays. I mean, the obvious fact is it wasn't. I'm 
surprised that you even needed to say you only wanted 30 
minutes of her time. Is it that meeting, is it that difficult 
to have a meeting to do your job?
    Ms. Fischer. When we asked for a meeting, we worked through 
Mr. Shotwell, the Under Secretary's special assistant. They 
said they were very busy, Ms. Bronson was going out of town and 
didn't have much time available, and that's when we offered to 
meet for just 30 minutes.
    Mr. Shays. Let me just say for the record, and I think some 
of you know that I shouldn't have to say this, that the next 
time this happens, we shouldn't and you shouldn't be faced with 
this. You should contact the committee and the committee should 
inquire, as to why there's not this kind of cooperation, 
because not only did she not meet with you, she didn't even 
respond to your questions, which raises a heck of a lot of 
questions in our minds, so we will obviously be in touch with 
her and we look forward to you accompanying us.
    Ms. Fischer. OK.
    Mr. Shays. And well, without objection, submit this for the 
record.
    [The information referred to follows:]

    [GRAPHIC] [TIFF OMITTED] T2564.059
    
    [GRAPHIC] [TIFF OMITTED] T2564.060
    
    [GRAPHIC] [TIFF OMITTED] T2564.061
    
    [GRAPHIC] [TIFF OMITTED] T2564.062
    
    [GRAPHIC] [TIFF OMITTED] T2564.063
    
    [GRAPHIC] [TIFF OMITTED] T2564.064
    
    [GRAPHIC] [TIFF OMITTED] T2564.065
    
    Mr. Shays. My time is running down but let me just pursue. 
Mr. Young, in your testimony, and you're here because you're 
the other part of the story. You're the part of the story that 
says we have this lab equipment and this lab equipment can make 
biological agents and basically, your testimony, it seems to 
me, you raise serious concerns over potential availability of 
the germs anthrax, the terrorists who would want to cook in 
this equipment lab. Do not know where the biological agents are 
in some cases you found, so they do not control physical access 
to the agents, you found that out as well, they do not control 
who has access to the agents. They do not always know where the 
agents are being exported; is that correct?
    Mr. Young. That's correct.
    Mr. Shays. So, when you combine this to your part of the 
story, I'm a lot more concerned than I was before we started 
this hearing. This is far more serious than even I had been led 
to believe.
    Here's what we're going to do. We're going to do 5 
minutes--we haven't even talked in the kind of length that I 
would like just about how it's possible that our first 
responders could get protective gear that may be defective, how 
we could grab them this faulty gear back and then reput it out 
again is simply something that, you know, takes my breath away.
    Mr. Bell, we're going to go with you first and then we will 
go to Mr. Turner, so you have 5 more minutes, give or take. If 
you need more, use it.
    Mr. Bell. Thanks a lot, Mr. Chairman.
    I guess if we were just talking about a single instance of 
this happening, a single purchase slipping under the radar 
screen, perhaps, we wouldn't be responding in quite such a 
dramatic fashion, but we're not talking about just one item. 
We're talking about five items that appear to be critical to 
the process of making biological weapons, and I'm just curious: 
On that fact alone, Mr. Kutz, should there be some warnings or 
some alarms going off somewhere within the Department of 
Defense.
    Mr. Kutz. What do you mean, with respect to the sheer 
volume?
    Mr. Bell. Right.
    Mr. Kutz. Of sales of this?
    Certainly with respect to what we did, there would have 
been potentially a pattern with respect to the purchases of 
what we put together here.
    On a broader perspective on the volume, with respect to the 
protective gear, 903,000 of hoods, masks, etc., have been sold 
over the last, I guess that's the last year and a half, so I 
think it's just something that was done. I'm not sure. Should 
there have been a thought of this?
    Yes. I wouldn't make any excuses for the Department, 
they'll have to answer why there wasn't, but the world hasn't 
necessarily--it hasn't changed how hard it is to make anthrax, 
necessarily, but the risk of it is more visible because of 
what's happened, so maybe the thought process should have been 
what could possibly have been going out the door now that we 
have the threat.
    Mr. Bell. And that was the whole idea of post-September 11, 
that people would have to reevaluate, that some of these things 
that perhaps wouldn't have sounded alarms before September 11, 
the idea was to reevaluate and make sure that they would in the 
future.
    Mr. Ryan, let me ask you this, because you were responsible 
for overseeing the undercover investigation; were you not?
    Mr. Ryan. That's correct.
    Mr. Bell. Was the same credit card used----
    Mr. Ryan. Yes, it was.
    Mr. Bell. For all purchases?
    Mr. Ryan. And the same address for delivery; so, from an 
intelligence standpoint, if you were looking to gather 
information, what you're talking about is opening up the sky 
and looking at more things that are going on.
    We try to stay consistent with that and seeing if there was 
any clue who would identify who we were.
    Mr. Bell. And the same names were used for all the 
purchases?
    Mr. Ryan. Same name.
    Mr. Bell. Same credit card, and there was a fictitious 
business name and address, correct?
    Mr. Ryan. That's right.
    Mr. Bell. And there were false identities that were being 
used to make the purchases, correct?
    Mr. Ryan. Yes, we used a made-up name.
    Mr. Bell. And then did you forge or alter documents?
    Mr. Ryan. Yes. We did.
    Mr. Bell. OK; so that could have been a basis for denying 
the sales?
    Mr. Ryan. If they would have caught it.
    Mr. Bell. Right.
    Do you know why they didn't?
    Mr. Ryan. I think you'd have to ask them on how much 
importance they put on doing appropriate followup to the 
information they received. We tested the system. We believe 
that the system was vulnerable to beat, and that was our goal 
and we did it.
    Mr. Bell. Well, let me ask anyone: What is it about a 
negative assurance system that allows something like this to 
happen?
    Mr. Kutz. Well, this end-user certificate, I mean, and I'll 
give you my view on it. It is not a protective control. It's a 
detective control that in a best case scenario that could help 
you identify who did it after it happened. I do not think it's 
necessarily going to prevent something from happening, and, 
again, I do not believe they would have been able to find Mr. 
Ryan if something had happened with this equipment.
    Mr. Ryan. The end-user certificate kind of puts the 
emphasis on the person who's filling it out to be truthful. If 
you try to be deceptive, you can beat the system, so there's a 
reliance that people are going to be truthful, and that's my 
experience. It doesn't always happen.
    Mr. Bell. Well, what's frightening about this, terrorists 
aren't always known for their truthfulness.
    Mr. Ryan. I would agree with you and----
    Mr. Bell. And isn't this precisely or exactly the way a 
terrorist might operate in order to get his hands needed on 
equipment to make a biological weapon?
    Mr. Ryan. Absolutely.
    Mr. Bell. And shouldn't any system that we design be at 
least capable of catching some of these discrepancies?
    Mr. Ryan. I think they need to do an assessment deciding 
what is the best way to go about it, using what systems and 
what information we have available in the law enforcement 
community and Intelligence Community to decide if the 
information being submitted is accurate and correct and could 
be verified.
    Mr. Bell. Thank you very much, Mr. Chairman.
    Mr. Shays. Mr. Turner.
    I thank the gentleman.
    Mr. Turner. Thank you.
    Mr. Kutz, we were talking about the issue of the end-user 
certificate and the Department of Homeland Security and the 
Department of Defense working together on a threat assessment 
for these materials for this equipment. Wright-Patterson Air 
Force Base is located in my district, which as you probably 
know, has a significant research laboratory area which is 
responsive to the Air Force's needs for weapons systems in the 
future, and I know if you walked through their labs, you would 
see some of the types of equipment that you see here.
    One thing that strikes me is I know in walking through 
those labs, if I stopped and talked to the people who are 
utilizing the equipment, that they'd be able to, with their 
equipment and their expertise, to very adequately tell me what 
the threat is of the potential equipment, if it should fall 
into the wrong hands, regardless of the fact that they're using 
it for something completely unrelated to biohazard or chemical 
hazard, and I wondered in your review of the system, whether 
you found any originating years or participation in the 
Department of Defense's determination, as to how material 
should be disseminated?
    Mr. Kutz. With respect to the biological equipment, I do 
not think there was any, and that is why our recommendation to 
them--we do not know the answer necessarily to this challenge 
here, but what we did believe was the risk assessment should be 
done with heavy consultation with the DOD scientific community, 
because they have some of the top people in the world who 
should know which of this stuff could be used, and Mr. Rhodes 
has interacted with those people before and maybe could even 
add to that.
    Mr. Rhodes. Your example of going through wright lab, for 
example, and seeing the scientists using their equipment and 
saying well, what specifically is the threat, that's a good 
assessment, because that's the operator using the equipment, 
and she or he would understand, but then there's a broader--the 
consultation that we're talking about is a broader view in 
saying: If I were your opponent, would this be good enough to 
do something, because sometimes the scientist working with the 
equipment will say, yeah, the threat is here, but I would use 
something different or I would do this or I would do that, and 
in that kind of discussion, then the individual items fall 
below the radar.
    It's to make certain, as Mr. Kutz has said, that the broad 
thinking in DOD, both the covert thinking, as well as the overt 
thinking in the scientific community steps up and says, well, 
if I can get this suit and I can get this and I can get this 
and I can get this, then I have a cumulative effect, and 
therefore, I can make it, material of this grade; and that can 
wreak havoc, and that's really the risk. We're trying to get 
the Department to view risk as a broader issue than just what 
can I do with one thing and what can I do with certain 
knowledge and what can I do with certain material. It's, well, 
what can I do that's good enough, not perfect.
    Mr. Turner. I appreciate that, and I believe that your 
recommendation on the Department of Defense working in 
conjunction with homeland security is a very important one; I 
mean, I think you have illustrated that in your discussion of 
how do you put these pieces together and what you're then able 
to amass, that is a threat that alone each individual piece 
would not, but it does strike me that, in addition to that, 
we're not just dealing with an issue of the Department of 
Defense not having internally the knowledge.
    And that's why I asked the question, is because I think 
it's certainly important to look at what are the resources that 
we have in homeland security that can supplement what the 
Department of Defense is doing, and on a critical basis, to 
what you're doing because some of these pieces may not even 
come from the same locations, but at the point that I'm 
concerned about, it would seem to me, again, looking at the 
common sense issue of this, that the Department of Defense does 
have within it the knowledge for someone to pause and say, you 
know, we really ought not to do this. It should take GAO in a 
congressional hearing for the Department of Defense to say it 
probably isn't best.
    And so I was wondering in your processes, if you saw any 
effort to engage the user, because it would seem to me that if 
I'm working in my labs at Wright-Patterson Air Force Base and a 
piece of this equipment is going to go somewhere that I'm 
probably not involved in the system at all, that it just 
disappears and goes away into the vast bureaucracy of the 
Department of Defense, and I would think that more valuable 
than the end-user certificate that doesn't require any third-
party verification might be an originating user certificate 
that has some--description of a threat assessment by the 
originating user. Do you see value in that or have you even 
seen any process that uses that?
    Mr. Ryan. If I can use what you're talking about also to 
bring out the point that DOD has a lot of contractors, and 
there's a lot of colleges and universities and hospitals that 
get grant money and Federal money to continue the research of 
what you're talking about, not only in the DOD labs. If you 
follow through on your same thought pattern in regards to 
making them accountable, they're also adding additional 
equipment into the secondary market.
    If there was some type of a control that was put in place 
whereby DOD would also have to step in and do an analysis of 
that type of equipment that's being disposed of, again, that 
would be the original person using it would have to make some 
assessment, and that also gets back into trying to limit the 
amount of property that's getting into the secondary markets 
that's causing the problem.
    Mr. Turner. My time is up, but an interesting topic that I 
do want to discuss at some point is in looking at the values--
thank you, Mr. Ryan, if you do not mind, the question that 
comes to mind when you look at this is original acquisition 
value $46,960 worth of equipment that you purchased for $4,100, 
and following on what you're saying, Mr. Ryan, there's this 
huge resale market, there is a resale market because someone 
sees profits; meaning that the $4,100 that this is sold for is 
less than its value, and there aren't controls that are being 
placed on that recent market. You basically have Sanford-and-
son type groups that are being formed that are utilizing high 
level technology Department of Defense equipment without regard 
to the same controls the Department of Defense is supposed to 
be following in their policies.
    What would you say is the value of this in the resale 
market, the $4,100 worth of equipment?
    Mr. Kutz. Well, I think it probably is--the way it's being 
sold, since we bought it for that, that would be by definition 
the market, but what happens is this is a little different than 
eBay. These are typically very large lots, which is why we 
wound up buying the masks from the DOD vendor because they were 
selling the gloves like in lots of 10,000 pairs of gloves. We 
didn't want to buy 10,000 pairs of gloves. They wouldn't fit in 
the GAO building probably, so what happens is it's almost like 
a wholesale type of an eBay where you're selling these large 
bid lots to wholesalers who cut them up into the small pieces 
and sell them singly, either on eBay, on Web page or something 
else.
    So is there potential for some more revenue on this? 
Possibly, I do not know, but it is a little more different than 
eBay in that there's much more bulk and it limits the 
individual. Like an individual might not want to buy 500 suits 
at a time but, if they had to chance to buy one for hunting 
purposes or something like that, they might do that. So on eBay 
they might sell them one or two at a time, versus DOD might 
sell 300 at a time.
    Mr. Ryan. And following up on that, there was one lot that 
went up for sale that they were bidding on, the agents were 
tracking it, and they had the microscopes, they had the 
Heidolph.
    Well, we really wanted the Heidolph, but we were willing to 
buy the batch, the lot. We end up losing that bid by about $50.
    Well, what we did is we found out who the buyer was and, 2 
weeks later, we contacted them and asked them hey, by the way, 
do I have a Heidolph for sale. Guy says, oh, yeah, I just 
happened to get one in a lot and he sold it to us and basically 
we saved the taxpayers about $800 because we only paid $400 
where we lost the lot for $1,300, so there is a secondary 
market.
    The primary goal of that buyer was not to buy the Heidolph, 
but to buy the microscopes because they were worth a lot more 
money.
    Mr. Kutz. The Heidolph is the exhibit for the evaporator 
that we purchased.
    Mr. Ryan. So given the fact that they're breaking the lots 
down and yes, they are selling them in individual pieces and 
making money off them.
    Mr. Shays. It's hard to get to the next panel because you 
keep, you know, revealing a little more information. It's 
fascinating.
    Mr. Ruppersberger.
    Mr. Ruppersberger. I will try to ask one question so we can 
get to the next panel.
    We're all trying to find a way, including the Department of 
Defense, I'm sure, to resolve and fix the problem. We talked 
about systems and maybe the technology's there, but we do not 
have the appropriate systems or whatever that is.
    I'm going to ask a question I'm sure you cannot answer, but 
I want to have your opinion: What's it going to cost to really 
resolve this issue as it relates to the inventory control and 
the background checks that might have to be looked at, 
depending on the type of equipment that you're going to sell, 
and I ask that question, and again, your opinion, I'm sure you 
will not have any specificity as to the cause, but also is it 
really worth having this program to begin with?
    I mean, how much money are we getting back in the 
Department of Defense, how much money are we getting back in 
and the amount of hours that we're putting in with DOD 
personnel and then all of the issues and the problems that 
exist, and this is just one small part, so what do you feel the 
cost factor would be if you have any idea to really resolve 
this and to fix it right.
    Mr. Kutz. Right--well, with respect to the Defense 
Reutilization marketing service, we do not believe conceptually 
that's a bad idea. We think that's probably a good idea. 
There's a lot of good that's been done.
    They re-utilize a large number of property. A lot of it 
doesn't get sold to the public. A lot of it does appropriately 
get reused within the Department of Defense.
    A lot of it goes to Federal agencies, State and local 
governments and other needy organizations, so I believe 
conceptually that it makes sense. It's a matter of controlling 
sensitive military equipment from going out improperly or 
biological or chemical equipment or other things like that, so 
assuming you can put good controls in place over it, it does 
make business sense.
    To solve the broader supply chain management of inventory 
problems, I cannot tell you if and when they'll fix it, but 
they certainly plan to spend billions of dollars to do so.
    Mr. Ruppersberger. In my comment earlier on, it's going to 
take a commitment from the top level of management, and the 
people on the next panel coming here today are the people doing 
the work every day. If they're not given the resources or the 
ability to do the job, how are they going to do that? There has 
to be a strong commitment there.
    Somehow I hope we can develop that in the next panel, so 
I'm going to stop so we can get to that.
    Mr. Kutz. No, and sustained top level leadership in this 
and other business or mission support areas of DOD we have said 
is one of the key elements to success, and we agree with you on 
that.
    Mr. Ruppersberger. OK.
    Thank you, Mr. Chairman.
    Mr. Shays. Thanks, gentlemen. Mr. Janklow.
    Mr. Janklow. Thanks, Mr. Chairman.
    Mr. Young, I just have a couple questions: One, in the end 
of your report in your summary, you talk about the different 
agencies responding in different ways. There were 27 reports 
issued by, I believe, six different agencies or six different 
cabinet level departments, and I'm pretending the Army's one 
for purpose of discussion.
    One of them set up a task force. One of them appointed a 
full-time staffer to deal with bioexports. One of them created 
an informational Web site. And one of them initiated followup 
actions to determine status of actions taken.
    What did all the rest do? Anything?
    They do not appear to be very substantive. With problems of 
the magnitude that you've suggested in your reports that you've 
found from the 27 reports; appointing a full-time staffer to 
deal with bioexperts' agency; setting up an informational Web 
site by another agency; setting up a task force by a third 
agency; and a fourth one initiating followup actions to 
determine status of actions taken; that's all that was done?
    Mr. Young. There were 27 reports, and I'm just using the 
assumption that there were probably four recommendations per 
report. It's probably over 100 recommendations in those 
reports. All we did in our summary report was highlight some of 
the recommendations that were at the top level of the agency. 
Obviously, the recommendations at a given university would be 
to fix the controls at that individual university. But again, 
we were just summarizing the results at the high level, and 
some of the recommendations came to us that were classified so 
they were not included in our report.
    Mr. Janklow. Mr. Kutz or Mr. Rhodes, I do not know which 
one of you gentlemen, was this report--was the GAO report 
shared with the agencies prior to the time of this hearing 
today?
    Ms. Fischer.
    Ms. Fischer. Our draft audit report, Congressman Janklow, 
our draft audit report was provided to DOD for comment on 
September 16.
    Mr. Janklow. Did they comment?
    Ms. Fischer. Not yet. They have until October 14.
    Mr. Janklow. Right.
    Have you had any feedback at all, as to whether or not they 
agree or disagree with what you folks have written?
    Ms. Fischer. They told us they concurred with our 
recommendations and would be taking action.
    Mr. Janklow. Ms. Fischer, do you sense a sense of urgency 
by them, in terms of what it is that's escaping from the 
Defense Department and other agencies out that we do not know 
who?
    Ms. Fischer. Yes, I do, Congressman Janklow. When we 
briefed them in mid-August, they pulled back many of the 
chemsuit sales from the Internet.
    However, they were unable to identify those in mixed batch 
lots, the grab-bag type sales and some of those continued to be 
sold. They did freeze the sales of the biological equipment 
prior to this hearing.
    Mr. Janklow. One has to wonder where in the world anyone 
would think in this country there would be a market for 286,000 
of those suits that had been declared surplus by them and I 
realize there's a lot of first responders, but they could have 
gotten them by donation, they didn't have to go buy them, and 
so they were passed up in the donation chain, in order to get 
to the dot com sales.
    Mr. Kutz. The ones who bought the ones that we had 
investigated, and Agent Ryan can add to this, were hunters and 
farmers, and I am not sure what the farmers planned to use them 
for, but----
    Mr. Janklow. They probably deal with more chemicals than 
the hunters.
    In terms of the systems that appear to be a problem in the 
Defense Department, one understands the magnitude, or at least 
tries to understand the magnitude of hundreds of billions of 
dollars' worth of spending annually, millions of different 
items and trying to have inventory control. But in substance, 
it's not really different than what Wal-Mart's doing, it's just 
maybe different items, but Wal-Mart has a lot of stores, 
probably as many stores as military bases, probably more. They 
certainly do not have as many items, but maybe the answer is to 
go have Wal-Mart or Sears or somebody go help these folks put 
their systems in place. Spending billions of dollars inventing 
your systems to help keep track of inventory doesn't make a lot 
of sense in today's world.
    Mr. Kutz. I mean the Department has outreached. I know 
Secretary Rumsfeld has an outside group of experts, including 
people from Sears and other companies who are experts in this 
area, so they are trying to get the best and brightest input 
into their modernization efforts, but they've done that before 
and not be successful, so, again, it's going to take sustained 
leadership and a lot of good things happening.
    Mr. Janklow. Can I ask one last question, Mr. Chairman, 
very briefly?
    It's to you, Mr. Young, Mr. Kutz, and Mr. Rhodes. What 
were, if you were in the Congress, what would you try to do to 
try and solve this problem to make it safe for the American 
people and the world? And if I could just ask you, Mr. Rhodes, 
and I will just ask you three folks.
    Mr. Rhodes. The first step would be to enforce the controls 
that the IG has spoken of. The equipment is important, but the 
source material is most important, so, from your legislative 
point of view, as Mr. Kutz described earlier, you have both 
tools at your disposal. You have the legislation that 
establishes the law and you also have the legislation that 
gives the money, and the thing that worries me the most, yes, 
buying this equipment scares me but being able to get the 
source material scares me the most, and that would be the first 
step that I would take.
    The parallel step, of course, would be to use those same 
tools that you have at your disposal to make certain that there 
is inventory visibility to enforce the points that Mr. Turner 
was making about the operator being in the loop on the 
discussion of how the material should be disposed, the 
equipment should be disposed of, as well as the higher levels 
inside the Department of Defense.
    Those would be the parallel tracks I would recommend.
    Mr. Kutz. I would say what you're doing today is one of the 
things, consistent oversight. You've had several hearings on 
these suits, I know, and so that ultimately, hopefully, we can 
get that one solved. It's consistent oversight, a demand for 
results, and followup, using GAO and the Inspector General to 
let you know that the issues have been resolved would be my 
view on what we can do.
    Mr. Young. I agree with what you're saying. The problem is 
a lot bigger than DOD. Because if you look at agriculture, 
they've got 336 labs, Veterans Administration's 88 labs, and 
DOD's got 21 labs. That's a really huge problem, and it's going 
to take across-the-board Federal agencies working together, 
implementing their recommended actions to get a handle on this.
    Mr. Shays. Would you give those numbers again?
    Mr. Young. Agriculture is 336 labs, Veterans 
Administration's 88 labs, and DOD has 21 labs.
    Mr. Shays. And do those include labs at universities?
    Mr. Young. Well, there is, also, nine universities as part 
of the study, but there's other ongoing audits right now at the 
universities.
    Mr. Shays. Because there's a lot more than nine.
    Mr. Young. There's a lot more than nine.
    Mr. Shays. So these were not--thank you.
    You've answered the question. I just have a few more 
questions and then we will get to our next panel.
    With the battle dress overgarment, is it your testimony, 
Mr. Kutz, that the battle dress overgarment, some of which were 
defective, were sold both to commercial enterprises and given 
to government first responders?
    Mr. Kutz. Some were sold to GAO. Some to the commercial 
people and have been provided to local law enforcement.
    Mr. Shays. And is it your testimony that some of those 
battle dress overgarments were defective or may be defective?
    Mr. Kutz. The ones that we purchased were definitely 
defective. The ones, the 4,700 with local law enforcement may 
be, and that's why we said for them to followup and as many as 
158,000 of the ones sold to the public could be of the numbers 
tens of thousands.
    Mr. Shays. But the bottom line is when someone goes to 
purchase this, this is a battle dress overgarment. They believe 
that it will protect them, and it may be defective, correct?
    Mr. Kutz. That's correct. Now, if it's already out of the 
sealed package, it doesn't matter whether it's defective, or 
not, it's not good, but if it's in a sealed package and it 
hasn't exceeded its expiration date, one might assume that it 
would be effective.
    Mr. Shays. And you did buy some that were in a sealed 
package?
    Mr. Kutz. Correct.
    Mr. Shays. So what did we do to get these back when we had 
our hearings earlier from our own military, because originally 
we had a hearing that pointed out that our military was getting 
these defective suits.
    What did DOD try to do to get those back?
    Mr. Kutz. It would have been data calls.
    Again, they do not have the systems from a top level 
standpoint that can find out in an hour or two, like Wal-Mart 
could, where all of the defective suits, lot numbers, contract 
numbers are, so it was a massive data call and it was 
unsuccessful; I mean, they were able to recall, as I believe, 
hundreds of thousands of about 800,000 defective Isratex suits, 
but there were still 250,000 unaccounted for as of your last 
hearing.
    Mr. Shays. Right.
    Now, when they sent out the notice to the military, on the 
top, they had death or serious injury to soldiers will occur if 
the instructions in this message are not followed. That kind of 
gets your attention.
    Mr. Kutz. Yes.
    Mr. Shays. The memorandum for all State coordinators that 
and law enforcement agencies [LEA's], is a warning on chemical 
protective or battle dress overgarment.
    The purpose of this memorandum is to advise the State and 
the LEA's of the issues involving chemical protection of BDO 
suits that your agency may have received through defense 
reutilization marketing.
    It says the protection suits used by today's military is 
state-of-the-art and provides excellent protection in a variety 
of situations. The same cannot be assured for old or excess 
equipment which has been provided to Federal and State agencies 
in an as-is condition.
    Due to the change of our national threat, the Defense 
Logistic Agency is concerned that persons having older excess 
suits may be under the impression they are afforded a level of 
protection higher than actually exists.
    I'm not reading that they might say that death or serious 
injury to individuals who use it, so have you looked at both of 
these----
    Mr. Kutz. Yes.
    Mr. Shays. What was your reaction when you saw these?
    Mr. Kutz. The one to the military services got my attention 
more than the other one.
    Mr. Shays. Yes, OK, but it is your intention that the 
public and the first responders may have defective suits?
    Mr. Kutz. Correct.
    Mr. Shays. I think that I'm going to--is there anything 
else that we have--oh, yes.
    Let me ask each of you to address this question because it 
will come up. How will it reduce the risk of bioterror to 
control the sales of this equipment when so many others are 
selling it as well; for instance, and I will put in the record, 
that we've received a number of letters from people who were in 
the business. They buy it and they sell it and if they can buy 
it at 10 cents on the dollar, and if they can get brand-new 
stuff at 10 cents on the dollar or less, it's quite a nice 
business.
    We are going to put their letters in the record and the 
gist of their letters are, you know, what's the big deal, 
because GSA is selling this equipment and others as well, DOD 
and so on, so my question to you is, how will it reduce the 
risk of bioterrorism and control DOD sales of this equipment 
when so many others are selling as well, GSA, private firms, 
and so on?
    [The information referred to follows:]

    [GRAPHIC] [TIFF OMITTED] T2564.066
    
    [GRAPHIC] [TIFF OMITTED] T2564.067
    
    [GRAPHIC] [TIFF OMITTED] T2564.068
    
    [GRAPHIC] [TIFF OMITTED] T2564.069
    
    [GRAPHIC] [TIFF OMITTED] T2564.070
    
    [GRAPHIC] [TIFF OMITTED] T2564.071
    
    [GRAPHIC] [TIFF OMITTED] T2564.072
    
    [GRAPHIC] [TIFF OMITTED] T2564.073
    
    Mr. Kutz. I will start; I mean, we've talked about this 
internally, and certainly this is a small part of a much 
broader challenge, and dealing with the DOD would certainly 
help but not resolve the issues.
    And dealings with the DOD would certainly help, but not 
resolve, the issue. So that's why we have recommended to DOD 
that they look at this within the Department of Homeland 
Security, not just what the government is selling, but, again, 
back to the Customs Operations Shield America and all the 
private sector and other sources of this material to take a 
look at this and find out if what we're doing today makes sense 
from not just DOD, but from a governmentwide and nationwide 
standpoint.
    Mr. Shays. So you're basically saying don't make the 
argument that since GSA is doing it, it's OK for DOD. Your 
argument is we need to look at GSA, what the Department of 
Agriculture may sell independently or through GSA and so on, 
and see if we need to tighten up there as well.
    Mr. Kutz. Correct.
    Mr. Shays. Anyone else choose to add anything more to that?
    OK. You kind of take our breath away. Congratulations for 
doing this work. I will just say, Mr. Ryan, I want the 
testimony to reflect accurately, do you feel--and I think it 
does, but I'd like you to answer this question again. Do you 
feel that you did anything out of the ordinary to deceive the 
government or DOD so that you could buy, or could someone like 
me or anyone else have done the same thing you did?
    Mr. Ryan. Anyone can do it. You can do it. Anybody can do 
it.
    Mr. Shays. And you could have set up many different 
purchasing agents, so, for instance, if you were starting to 
develop the whole picture for developing anthrax, but wouldn't 
want to bring someone's attention to the fact that you bought 
this, this and this, though I'm not sure DOD controls would 
have noticed, but just to protect yourself you could have 
bought from someone else who had bought, as you did, or you 
could have had five or six or seven different purchasers that 
you set up to have bought little parts and then collected it 
together, correct?
    Mr. Ryan. That's fine. I could have a conspiracy with 
several people and each buy one item and have it shipped to a 
different place not to bring attention to exactly what's going 
on, you know, the creation of a lab or whatever you wanted to 
do with the materials.
    Mr. Shays. And the bottom line is the people who would want 
to do this already know they can do it.
    Mr. Ryan. Yes.
    Mr. Shays. So we're not telling them anything they don't 
know.
    All right, folks. Thank you so much for your testimony. 
Anything you want to put on the record before we go to the next 
panel? Anything that needs to be put on the record? I don't 
want you to tell me afterwards we missed something.
    Ms. Fischer. Yes. Mr. Chairman, I do want to point out that 
last year Congress passed the Public Health Security and 
Bioterrorism Preparedness and Response Act, and that did 
address some of the issues with respect to controls over source 
agents, including a requirement for inventories of those 
materials. The Department of Health and Human Services issued 
regulations last December to start implementing those controls. 
It may not be perfect yet, but Congress has taken some action 
in that regard.
    Mr. Shays. Thank you very much. We'll get to the next 
panel, and Mr. Turner will take over from there.
    Mr. Turner [presiding]. Are we missing Mr. O'Donnell? 
Colonel O'Donnell. There he is.
    Our next panel will consist of Mr. Alan F. Estevez, 
Assistant Deputy Under Secretary of Defense, Supply Chain 
Integration, Department of Defense; Mr. Frederick N. Baillie, 
Executive Director, Distribution and Reutilization Policy, 
Defense Logistics Agency; and Colonel Patrick E. O'Donnell, 
Commander, Defense Reutilization and Marketing Service.
    Gentlemen, if you'd please stand for administering the 
oath.
    [Witnesses sworn.]
    Mr. Turner. Note for the record that the witnesses have 
responded in the affirmative.
    Mr. Estevez, I will be beginning with you.

STATEMENTS OF ALAN F. ESTEVEZ, ASSISTANT DEPUTY UNDER SECRETARY 
 OF DEFENSE, SUPPLY CHAIN INTEGRATION, DEPARTMENT OF DEFENSE; 
  FREDERICK N. BAILLIE, EXECUTIVE DIRECTOR, DISTRIBUTION AND 
REUTILIZATION POLICY, DEFENSE LOGISTICS AGENCY; AND PATRICK E. 
   O'DONNELL, COMMANDER, DEFENSE REUTILIZATION AND MARKETING 
                            SERVICE

    Mr. Estevez. Mr. Chairman, distinguished members of the 
subcommittee, I'm Alan Estevez, Assistant Deputy Under 
Secretary of Defense for Supply Chain Integration. With me 
today is Mr. Fred Baillie, Executive Director for Distribution 
and Reutilization Policy of the Defense Logistics Agency; and 
Colonel Patrick O'Donnell, Commander of Defense Reutilization 
and Marketing Service. We welcome the opportunity to address 
your concerns regarding the disposal of DOD excess chemical and 
biological suits and laboratory equipment.
    I'm responsible for developing policy regarding materiel 
management within the Department of Defense. During my 
testimony I will briefly discuss the Department's view of the 
GAO report and provide a brief discussion of relevant materiel 
management policy. I will be followed by Mr. Baillie, who will 
provide specific responses to the GAO report.
    To begin, let me state that the Department recognizes the 
findings and recommendations of the General Accounting Office 
report on excess property. We are keenly aware of the tragedy 
the Nation endured on September 11, 2001, and the need for 
heightened awareness of the potential threat that our Nation 
faces. The Department concurs with the GAO recommendation to 
conduct a risk and vulnerability assessment to determine if 
additional controls are necessary to ensure excess DOD supplies 
and equipment are not accessible by those who in turn may use 
those assets to develop chemical and biological agents with the 
intent to harm the United States.
    As recommended in the GAO report, the Assistant Secretary 
of Defense for Homeland Defense has agreed to take the lead in 
bringing together an interagency group to conduct the risk and 
vulnerability assessment. In addition, we have begun a review 
of DOD logistics policies and procedures used in processing 
excess property. We will stay actively engaged with the team 
developing the risk assessment to determine if new or amended 
guidance is needed. The risk assessment will focus not only on 
the laboratory equipment identified in this report, but on the 
broad scope of DOD excess property that could be used to 
develop chemical or biological agents. This will be a large 
undertaking and will require coordination within the Department 
and among Federal agencies to ensure that the risk is assessed 
appropriately and consistent implementing policies are 
developed. We anticipate being able to update this committee on 
our progress in approximately 3 months.
    The results of the risk assessment will play a pivotal time 
role in the creation and/or revision of our policies regarding 
the sale of excess property by the Department of Defense. There 
are a host of policies, rules, and regulations regarding the 
disposal of excess property. Some of those rules include 
interactions or involvement with the Department of State and 
Department of Commerce and other Federal agencies. While these 
policies are detailed and quite specific, they do need to be 
reassessed, and, in light of the post-September 11 climate, to 
ensure that they achieve the goals of accountability and 
control of the items that could be used against the United 
States or its allies.
    We are aware and understand the potential terrorist threats 
to the general public, but offer the following to keep this 
issue in perspective: While we have some control over the 
extent to which the public can acquire supplies and equipment 
through the Department of Defense that can be used to harm the 
United States, the items cited in the report are readily 
available on the commercial market.
    In closing, Mr. Chairman, I would like to reiterate the 
fact that we take the potential threat of terrorism at home and 
abroad very seriously. If that requires us to change our 
materiel management policy, we will certainly do so.
    Thank you, sir.
    Mr. Turner. Thank you.
    [The prepared statement of Mr. Estevez follows:]

    [GRAPHIC] [TIFF OMITTED] T2564.074
    
    [GRAPHIC] [TIFF OMITTED] T2564.075
    
    [GRAPHIC] [TIFF OMITTED] T2564.076
    
    [GRAPHIC] [TIFF OMITTED] T2564.077
    
    [GRAPHIC] [TIFF OMITTED] T2564.078
    
    Mr. Turner. Mr. Baillie.
    Mr. Baillie. Mr. Chairman, distinguished members of the 
subcommittee, I'm Fred Baillie, the Executive Director for 
Distribution and Reutilization Policy of the Defense Logistics 
Agency. Like Mr. Estevez, I welcome the opportunity to address 
the disposal of DOD excess nuclear, biological and chemical 
[NBC], protective equipment and the potential use of excess 
medical laboratory equipment for the production of chemical and 
biological agents. My office is responsible for implementing 
policy on the reutilization, transfer, donation and sale of 
excess surplus DOD property and equipment. As such, we agree 
that effective control measures are needed to prevent excess 
DOD property and equipment from falling into the hands of those 
who wish the United States and its allies harm.
    DLA is responsible for managing millions of pieces of 
equipment for DOD. As stewards of this property and equipment, 
our focus is to maximize accountability and insure that 
internal controls that are in place are followed or upgraded as 
needed. We continue to incorporate the results of our own 
internal assessments with external checks by GAO and the 
inspector general to validate established measures and affect 
improvement as necessary.
    We recognize the problems identified in the GAO report that 
excess DOD NBC clothing and equipment could be used to make and 
disseminate biological agents. We also are concerned that first 
responders not receive faulty NBC protective gear. We take both 
problems identified very seriously. Actions have been taken to 
address them already, including, as you noted, notifying the 
affected agencies of established policies and providing 
disposition instructions for NBC gear and equipment.
    We are doing even more. If the property meets current NBC 
protective standards, it will be issued to the military 
services. If not, it will be utilized for training purposes 
only or destroyed.
    As GAO identified, our surplus sales contractor, Government 
Liquidation [GL], received NBC suits that were fit for training 
only to sell to the public. We have addressed this matter. 
First, we are reviewing all clothing turned in, removing any 
chemical and biological suits, and sequestering them. 
Additionally, GL is returning to DLA all NBC suits in its 
possession.
    State and local law enforcement agencies are eligible to 
receive excess and surplus DOD property under special programs 
authorized by Congress. Each State has a coordinator and works 
through DLA's Law Enforcement Support Office [LESO], to receive 
excess property. We have contacted these coordinators about the 
NBC suits, issuing a warning alert and personally notifying 
them that the suits may be defective. We requested that those 
law enforcement agencies in possession of NBC suits in question 
take the suits out of service by using them for training 
purposes only or disposing of them.
    The recommendations directed toward DLA in the GAO report 
are valid, and we concur with their usefulness in our efforts 
to maintain accountability, issue only serviceable equipment, 
and to maintain control of that equipment. We also concur with 
the recommendation for the conduct of a risk assessment to 
determine what controls are necessary to ensure all excess DOD 
supplies and equipment are not accessible to those who may use 
them to develop chemical or biological agents to use against 
the United States.
    We welcome and appreciate the Assistant Secretary of 
Defense for Homeland Defense taking the lead in bringing 
together an interagency group to conduct this risk and 
vulnerability assessment. DLA will be an active member of that 
risk assessment group.
    We recognize the problems noted in the GAO report and are 
addressing these problems. We understand what is at stake here. 
The procedures we have in place today are being thoroughly 
reviewed and are being changed as appropriate to ensure 
adequate control measures are in place to prevent excess DOD 
property and equipment from falling into the hands of 
terrorists. The procedures we implemented to dispose of NBC 
protective equipment, coupled with quality control actions 
recently initiated will help ensure our military and first 
responders have effective, safe and serviceable equipment.
    Mr. Chairman, that concludes my testimony. I look forward 
to answering your questions. I will be followed by Colonel 
O'Donnell, Commander of the Defense Reutilization and Marketing 
Service.
    Mr. Turner. Thank you.
    [The prepared statement of Mr. Baillie follows:]

    [GRAPHIC] [TIFF OMITTED] T2564.079
    
    [GRAPHIC] [TIFF OMITTED] T2564.080
    
    [GRAPHIC] [TIFF OMITTED] T2564.081
    
    [GRAPHIC] [TIFF OMITTED] T2564.082
    
    [GRAPHIC] [TIFF OMITTED] T2564.083
    
    [GRAPHIC] [TIFF OMITTED] T2564.084
    
    Mr. Turner. Colonel.
    Colonel O'Donnell. Mr. Chairman and distinguished members 
of the subcommittee, I am Colonel Patrick O'Donnell, Commander 
of the Defense Reutilization and Marketing Service for the 
Defense Logistics Agency. I welcome this opportunity to address 
your concerns regarding the disposal of DOD excess nuclear, 
biological and chemical [NBC], protective equipment and 
laboratory equipment. DRMS is responsible for the execution of 
DOD policy on the reutilization, transfer, donation, sale, 
environmentally responsible disposition and control of DOD 
excess property.
    DRMS supports U.S. forces worldwide, screening their excess 
for redistribution within DOD, or transfer to other Federal 
agencies, donation to authorized organizations, sale to 
authorized purchasers, and contracted disposal of 
environmentally regulated property. As such, we share your 
concerns regarding effective control measures to prevent excess 
DOD property from falling into the hands of those who wish the 
United States harm. To that end, DRMS has always placed a 
primary emphasis on protecting national security through 
compliance with processing excess DOD property according to its 
assigned demilitarization [DEMIL] code.
    Items requiring demilitarization are destroyed under U.S. 
Government control at secure facilities. Items subject to State 
Department or Commerce Department controls are only sold when 
the purchaser has been cleared by the Defense Criminal 
Investigative Agency. Environmentally regulated property is 
disposed of in accordance with all Federal, State and foreign 
country laws and regulations.
    Mr. Chairman, we take our stewardship responsibilities for 
protecting the public's interest very seriously. It is 
important that those items identified in the GAO report and 
other items that can be used against the United States be 
assessed for the risk they pose to our national security and 
homeland defense. We wholeheartedly support and look forward to 
participating with our parent agency, the Defense Logistics 
Agency, and the interagency group to conduct the risk and 
vulnerability assessment recommended by the GAO.
    In addition, DRMS has taken a number of actions to reduce 
risk and vulnerability while the Department is conducting the 
interagency assessment. As recommended by the GAO, Government 
Liquidation [GL], has returned, and DRMS has confirmed all 
potential restricted DOD-use-only items of chemical and 
biological protective clothing in its possession to DRMS. 
Government employees are now performing a 100 percent 
inspection of all suspected potential restricted DOD-use-only 
in order to sequester those items pending the completion of the 
Department's risk assessment, risk and vulnerability 
assessment.
    DRMS has also stopped delivery and sales of all laboratory 
equipment pending completion of the risk assessment. DRMS 
routinely works with the DLA, Demilitarization Coding 
Management Office [DCMO], to improve controls over the 
assignment of DEMIL codes to restricted items. DRMS has added 
an inspection protocol to ensure that excess chemical and 
biological protective clothing is being properly controlled at 
its defense reutilization and marketing offices.
    To the quarterly DRMO self-assessment checklist. Every 3 
months each chief of each DRMO performs an internal inspection 
of the DRMO using inspection protocols developed by DRMS 
headquarters staff to reflect potential at-risk situations. The 
DRMO certifies in writing compliance or noncompliance with each 
protocol being inspected. For those situations where the DRMO 
is not in compliance with the protocol, the DRMO chief must 
submit a corrected plan of action to one of my two field 
commanders.
    The chemical and biological protective clothing protocol is 
in use this quarter. This protocol has also been added to the 
command compliance assessment visits of the DRMOs that are 
performed by the DRMS headquarters staff and members of Mr. 
Baillie's staff. DRMS is assisting the program manager for the 
Law Enforcement Support Office [LESO], to recover any defective 
battle dress overgarment LESO recipients may have inadvertently 
received. Pending the Department of State commodity 
jurisdiction determination, DRMS suspended the processing of 
any textiles with the potential to have the infrared reflectant 
[IR], properties.
    Mr. Chairman, distinguished committee members, we recognize 
the problems noted in the GAO report and took the appropriate 
measures necessary to ensure--identify items that pose risk to 
our national security and homeland defense are not released to 
unauthorized parties. DRMS stands ready to execute all policy 
and procedure changes that ensure adequate control members for 
items identified as being restricted use items.
    Thank you, Mr. Chairman.
    Mr. Turner. Thank you.
    [The prepared statement of Colonel O'Donnell follows:]

    [GRAPHIC] [TIFF OMITTED] T2564.085
    
    [GRAPHIC] [TIFF OMITTED] T2564.086
    
    [GRAPHIC] [TIFF OMITTED] T2564.087
    
    [GRAPHIC] [TIFF OMITTED] T2564.088
    
    [GRAPHIC] [TIFF OMITTED] T2564.089
    
    Mr. Turner. We will now turn to our chairman to begin an 8-
minute round of questions.
    Mr. Chairman.
    Mr. Shays. Thank you, gentlemen. Thank you for being here. 
Thank you for your service to our country.
    I would like to know what, if anything, did you hear from 
the first panel or from the Members of the Congress who sit on 
this committee that you disagree with or want to qualify?
    Mr. Baillie. Regarding the trade security control and the 
GAO investigation that was conducted, I'd like to state that 
while, in fact, the undercover operation began in May 2003 and 
progressed through June and July, there are also checks and 
balances throughout the process of issuing that end user 
certificate. DLA's Office of Criminal Investigation Activity 
does conduct postsale investigations. During one of those 
postsale investigations, we did discover the company that was 
set up by Mr. Ryan and his investigators. So while certainly a 
dedicated, informed individual can access the vulnerability of 
the system up front, there are checks and balances that, at 
least in this case, did catch the fact it was a fictitious 
corporation.
    Mr. Shays. Just so we can be more specific, when did you 
discover it?
    Mr. Baillie. I believe early August was when our people 
found--conducted the postsale investigation and subsequently 
determined that was, in fact, a fictitious organization.
    Mr. Shays. August of----
    Mr. Baillie. 2004. I believe May 2003 is when Mr. Ryan----
    Mr. Shays. Had they already made most of their purchases by 
then?
    Mr. Baillie. I believe so, yes, sir.
    Mr. Shays. OK. Anything else?
    Mr. Estevez.
    Mr. Estevez. Yes. I'd just like to add that the equipment 
here, none of this equipment is on the Commerce control list or 
the U.S. munitions list, so there's no restrictions on the 
export of equipment; fully agree with GAO that there's a 
pattern here that we need to look at, which is why we concur 
with their recommendation of doing the risk assessment on how 
we do it. But this equipment is available on the commercial 
market, exportable, so the fact that we're accessing it is just 
one small part of the thing that needs to be done.
    Mr. Shays. Any other part that you would qualify? Colonel?
    So basically, though, you would concur with, as you 
remember them, what was said from the panel and what was said 
from up here at the dais? Is there anything else that we said 
that you might want to just qualify?
    OK. Just getting on that side of the equation, dealing with 
the suits. I mean, there's three issues here. One is the end 
use controls, the lab equipment, as I see it, and the other is 
inventory controls for protective suits. Why was it possible 
for these protective suits to be sold after it had been 
determined and committed to Congress that they would not be 
sold, would not be issued to any military people unless they 
were marked as potentially defective, and, therefore, as 
practice suits and not suits you'd use in battle? Mr. Baillie.
    Mr. Baillie. Yes, sir. Mr. Chairman, once the GAO 
identified that this was an issue, that they were being sold, 
Colonel O'Donnell's people went back and did a complete scrub 
of the processes that we used to move that equipment through 
the system. As the first panel mentioned, there are a number of 
turn-ins that are done in batch lots, if you will. A batch lot 
literally is a very large box that sits on a pallet probably 
half the size of this testimony table. In there, when the 
services turn in equipment and goods, it is literally stacked 
in without potentially full accountability. As part of 
assessing the process, it was determined that was one of the 
major ways these suits were making it through the screening, 
through the policy that had been set up.
    Subsequent to the GAO findings, Colonel O'Donnell has 
instituted a process change where all of those batch lots will 
literally be torn apart and inspected item by item. So while 
this will add substantial time to his processing time, we 
believe this is a serious enough issue that's the kind of 
action we need to take.
    Mr. Shays. As it relates to the notification, I saw a real 
difference between what we told our military personnel last 
year, death could result, versus really a vanilla-type 
notification to the commercial folks. First off, it's true we 
don't know who has the battle dress overgarments, correct?
    Mr. Baillie. We know at least from the GAO report that 
there's approximately 718 individuals out there with suits; 
California Office of Criminal Justice, Nevada Department of 
Public Safety and the Sacramento FBI Office. Of the 718, 474 
were subsequently turned in. We have not only sent out the 
across-the-board warning letter that you mentioned, sir, but 
have personally contacted each of those individual coordinators 
with the identified suits, in addition to which this week, in 
Atlanta, we are currently having a--our regular recurring 
conference where we bring all the States together. This subject 
is being discussed in detail within the confines of that 
particular conference.
    Mr. Shays. When you say that those are the local 
governments that have suits potentially for their first 
responders, it is very possible that other local governments, 
counties, have them for first responders that we don't know 
about, correct?
    Mr. Baillie. It's possible, yes, sir.
    Mr. Shays. It's also possible, I mean, also dealing with 
the whole issue of the commercial sales, when people see these 
suits, they have reason to believe they work, particularly if 
they are sealed and within expiration date. How many suits do 
we have out in the commercial market; do we know?
    Mr. Baillie. I don't have that figure offhand sir.
    Mr. Shays. I mean, the bottom line is we really don't know; 
isn't that correct?
    Mr. Baillie. I don't know.
    Mr. Shays. Colonel O'Donnell, do you?
    Colonel O'Donnell. Sir, at this time I could not give you 
an accurate answer.
    Mr. Shays. But there is a reason why. I mean, it's not that 
you haven't looked at your notes. It's there were some that 
were batched that you don't know were bad.
    Colonel O'Donnell. Yes, sir. In other words, as Mr. 
Baillie's indicated, when property goes out in batched lots, 
it's----
    Mr. Shays. So when you say ``at this time,'' you wouldn't 
be able to tell me at any time.
    Colonel O'Donnell. No, sir. In fact, after I said that, I 
thought, you know, we don't track as that property goes out 
whether or not those items are still in the bags or out as a 
part of a batch lot.
    Mr. Shays. But even if they're not in the bags, even if 
they are in the bags, they could be defective.
    Colonel O'Donnell. Yes, sir. From the standpoint when they 
are taken out----
    Mr. Shays. No, you need to hit that again. I'm sorry.
    Colonel O'Donnell. When those suits are taken out of the 
bag----
    Mr. Shays. No, I don't need to go that way. When they're 
taken out, there's no guarantee of anything. But you didn't 
send bags that were taken out. You sent bags that were sealed 
that may still be defective. I mean, these are like a no-
brainer kind of answer. I mean, don't drag this one out. I'm 
just basically asking a point of fact that some of the suits 
that we sent out were defective. If they're not in their 
protective container, they are deemed not to be proper to use. 
If they are, you can make an assumption, particularly if the 
expiration date hasn't been reached, that they work. And the 
fact is that some of them don't work properly; isn't that 
correct?
    Colonel O'Donnell. Yes, sir.
    Mr. Shays. And it's also correct we don't know who has 
those suits.
    Colonel O'Donnell. That is also correct.
    Mr. Shays. OK. Thank you.
    Thank you, Mr. Chairman.
    Mr. Turner. Mr. Bell.
    Mr. Bell. Thank you, Mr. Chairman. And thank you all for 
your testimony here today.
    Mr. Baillie, you testified that the Department of Defense 
detected that it was dealing with a fictitious company, Mr. 
Ryan's fictitious company.
    Mr. Baillie. Yes, sir. Mr. Bell, that is the information 
that our criminal investigation people have passed on to me 
prior to this hearing.
    Mr. Bell. So you're not basing that on your personal 
knowledge, but what you have been told; is that correct?
    Mr. Baillie. Yes, sir.
    Mr. Bell. Would it surprise you to know that the GAO 
actually informed the Department of Defense in August that it 
was a fictitious company with which it had been dealing?
    Mr. Baillie. My information, sir, was that somewhere before 
August, GAO informed that they were running an investigation 
like this, but did not identify the company. What I have been 
informed is that the postsale investigation identified the 
company.
    Mr. Bell. But the purchases were actually made--well, let 
me clarify what you just said. That they had been told, given 
some information by GAO, regarding a fictitious company, but 
not the name of the company?
    Mr. Baillie. Right; that GAO was conducting the undercover 
audit, and that it was ongoing. Other than that they were not 
provided the name, as I was informed.
    Mr. Bell. And so after that point, the Department of 
Defense was able to uncover----
    Mr. Baillie. The particular organization or individual's 
name, yes.
    Mr. Bell. And I'm not going to belabor the point, but that 
type of excuse is what troubles me, because obviously, if we're 
not dealing with an undercover investigation, if it is actually 
a terrorist who's making these purchases, they're not going to 
provide that kind of information to the Department of Defense.
    Mr. Baillie. Yes, sir.
    Mr. Bell. And the purchases were made between May and July, 
and during the time that the purchases were being made, there 
was no detection whatsoever that this was a fictitious company, 
despite the fact that the same credit card was being used, that 
false names were being used, documents were being forged, etc. 
Would you agree with that?
    Mr. Baillie. Yes, sir.
    Mr. Bell. Would you also agree that the red flags and 
alarms should have sounded long before GAO made any type of 
report to the Department of Defense that an undercover 
investigation was being conducted?
    Mr. Baillie. Certainly the process in and of itself should 
have identified those things, yes, sir.
    Mr. Bell. Mr. Estevez, I'm somewhat fascinated by the 
safety cabinet that we have here today, because according to 
the GAO--and I have never shopped for a safety cabinet, so I 
certainly couldn't say one way or the other, but according to 
the GAO, it appears to have never been used. Is that--do you 
know?
    Mr. Estevez. I'm sorry. No, sir, I don't.
    Mr. Bell. If that's correct, and let's assume that it is, 
why would the Defense Department be selling a new high-quality 
safety cabinet for pennies on the dollar if it had never been 
used?
    Mr. Estevez. I can't address specifically why this cabinet 
was turned in for reutilization.
    Mr. Bell. Or any new large piece of equipment such as that.
    Mr. Estevez. The using unit has excess or has no need for 
this, any piece of equipment, they turn in into the Defense 
Reutilization and Marketing Service. And I'll let the colonel 
walk through the process, but essentially other defense 
activities can then requisition that while it's in DRMO. At 
some point DRMO passes it over for resale if--depending on what 
its militarization characteristics are and export controls, 
etc., and we recoup what we can based on the value of the item 
on the open market.
    Mr. Bell. So if it's no longer----
    Mr. Estevez. Required by the Department, by the activity in 
the Department.
    Mr. Bell. Can you say that nobody else in the Defense 
Department purchased a new safety cabinet during this same 
timeframe that we're talking about?
    Mr. Estevez. I can say while this was available in DRMO, no 
one purchased one when they could have gotten this one. I can't 
say that no one was out looking for one in the same time period 
when this one was no longer available.
    Mr. Bell. Colonel, do you know?
    Colonel O'Donnell. No, sir, I don't.
    Mr. Bell. OK. Did you want to add to Mr. Estevez's answer 
on the process?
    Colonel O'Donnell. Well, I think, in a short answer, he's 
encapsulated how the process works. Each of the services at 
each of its--their different installations determines, you 
know, locally what is excess to their requirements. There are 
processes within those services to review property across the 
board or at some level across the organization and make those 
internal adjustments, and the property is then turned in to a 
DRMO. It is offered for redistribution DOD-wide. If at the end 
of that screening process, which is exclusive to DOD, that 
window of opportunity to observe the property by authorized 
Federal agencies and other authorized screeners, they've got 
access to view the property over our Web site, and at the end 
of that reutilization transfer and donation screening process, 
a disposition decision is made with respect to what's going to 
happen on the property. And then in the case of these 
particular items, they were transferred to our commercial 
partner, government-liquidations.com, for sale.
    Mr. Bell. A policy directive was issued by the Department 
of Defense in January to restrict sales of chemical and 
biological protective suits from being sold to the public. But 
in spite of that directive, the Department of Defense has 
continued to sell the protective suits to the public, and the 
GAO has found that you're selling them to the public to this 
very day. Whoever wants to answer the question may, but I'm 
curious as to why the Department of Defense has failed to 
follow its own directive.
    Mr. Baillie. Yes, sir. That goes to the batch lot issue 
that I discussed before and that the first panel commented on. 
We do not allow the suits to go when they are identified if 
they are, in effect, mixed in with very large batch lots of 
things. Prior to Colonel O'Donnell's changes his----
    Mr. Bell. Well, let me stop you there, because GAO 
purchased two lots of chemical and biological suits, and I 
believe one was in April, and the other purchase was in June, 
and they bought hundreds of suits, and there was nothing in 
those lots except those suits. There was no question about 
separating the suits from other equipment. So let me go ahead 
and ask you again why didn't you all follow your own directive?
    Mr. Baillie. OK. We have not actually analyzed the 
particular purchases that GAO made, sir.
    Mr. Bell. Will you go back and do so now that you know that 
they were not mixed in with any other equipment?
    Mr. Baillie. Absolutely. In order to ensure that we make 
those changes to the process, it's key to us that we find out 
what broke down, and that we in turn change the process to fix 
that.
    Mr. Bell. I think it's also troubling to this committee 
that after Customs and the Department of Homeland Security had 
made the Department of Defense aware of the dangers posed by 
uncontrolled sales and some of the activity that was going on, 
that no action seems to have been taken to restrict the sale of 
the biological equipment after the briefing. Do you know why no 
action was taken?
    Mr. Baillie. I think I need to turn to Mr. Estevez at the 
OSD level to address that, sir.
    Mr. Estevez. Sir, of course I can't address, having not 
been the person that Customs came to talk to. I will say that 
my understanding from USD policy is at the time it was a 
general briefing. We were focused on going to war in Iraq, and 
we were certainly taking it seriously at this point. We will be 
focused on this.
    Mr. Bell. You're certainly not suggesting that everything 
else just comes to a standstill at the Department of Defense 
when we're preparing for war.
    Mr. Estevez. Absolutely not, sir.
    Mr. Bell. OK. Well--and you all did decide to restrict 
sales after the GAO report came out, correct?
    Mr. Estevez. That is correct.
    Mr. Bell. My time has expired, Mr. Chairman. Thank you.
    Mr. Turner. Mr. Janklow.
    Mr. Janklow. Thank you very much, Mr. Chairman.
    Mr. Estevez, your testimony indicates we were asked by the 
subcommittee to determine whether the sale and disposal of 
excess medical and laboratory equipment and protective CB 
clothing pose a national security risk. Have you done that?
    Mr. Estevez. In the area of clothing we've obviously 
restricted the sale.
    Mr. Janklow. Let's go to the medical equipment.
    Mr. Estevez. Yes, sir. For the equipment, that is why we 
are going to do the risk assessment that the GAO has suggested 
that we do. All this equipment in and of itself is available. 
There are no restrictions on it from export controls, from the 
Commerce control, from U.S. munitions list. So we have to look 
at things that are not necessarily in and of themselves a 
danger, and we are going to do that risk assessment.
    Mr. Janklow. When are you going to do it?
    Mr. Estevez. Based on the GAO finding, we are initiating it 
now under our Assistant Deputy Under Secretary, our Assistant 
Secretary for Homeland Defense.
    Mr. Janklow. Are you still continuing to get rid of the 
equipment in the interim?
    Mr. Estevez. The equipment identified by GAO is no longer 
for sale, and we have suspended sales while we do this risk 
assessment.
    Mr. Janklow. You know Government Liquidators, you 
referenced them as a partner; is that right, Mr. Baillie, or--
--
    Colonel O'Donnell. Yes, sir. They are a commercial venture 
partner.
    Mr. Janklow. Do they pay you for this stuff, or do you pay 
them for doing their work?
    Colonel O'Donnell. No, sir. We have a profit split 
arrangement with GL; 80 percent of the proceeds that they 
receive for the property sold in any given lot or any given 
sale is returned to----
    Mr. Janklow. Why do they think--let's take the laboratory 
equipment. When you said you wanted it back, that it was 
already in their custody, why did they think they didn't have 
to return it; that if they did, it would be gratuitously?
    Colonel O'Donnell. We have an extremely positive 
relationship with GL in terms of our working relationship.
    Mr. Janklow. Which means when you give them something, they 
don't ever have to give it back even if you want it? Is that 
right?
    Colonel O'Donnell. The title for that property that's 
passed to GL, sir, passes to that company. If they were to----
    Mr. Janklow. Excuse me. It passes before it's sold?
    Colonel O'Donnell. Yes, sir.
    Mr. Janklow. OK.
    Colonel O'Donnell. Title passes to GL. But if in those 
instances where--in this particular instance where we have 
asked them to return property to DOD control, they have 
complied with those requests.
    Mr. Janklow. I know that, but I just wondered why they 
didn't think they had to if they didn't want to.
    Can I ask all three of you, why--isn't most of this we're 
talking about today common sense, whether or not these things 
could be of danger to the people of America if they're not used 
properly? Isn't this really common sense? And to defend by 
saying, well, you can go out and buy it someplace else, that's 
kinds of what the kids say when they sell dope. Well, 
everybody's doing it, so what's wrong with us doing it?
    What I'm really curious about is that why did it take a 
congressional GAO audit to uncover this stuff and then prompt 
someone to fix it? Isn't that your job, Mr. Estevez? Isn't that 
your job, Mr. Baillie? Isn't that your job, Colonel? Isn't that 
what your titles imply?
    Mr. Estevez. Sir, I'm focusing on the overall material 
management policy for the Department of Defense. This is 
certainly part of my job, identifying a pattern. I agree--you 
know, I have to agree with you. We probably should have stepped 
up to this sooner. However, I do have to point out, again, in 
and of itself this equipment is used by laboratories, 
hospitals, universities around the world, and there's no 
restrictions on it. So focusing on our small piece of this is 
not going to solve this problem, which, again, is why we're 
going with Homeland Security, the Department of Homeland 
Security, and our Assistant Secretary on Homeland Defense to 
lead the entire risk assessment of this. It's going to involve 
State, Commerce and other activities in order to get this 
right.
    Mr. Janklow. But I'm puzzled. My question is, does it--just 
because it's commercially available, does that mean you ought 
to be selling it at 10 percent of its value to get it out of 
your inventory? Take protective suits. Why don't you just give 
them away to all the local governments, which you do? And why 
are you keeping defective ones for any purpose?
    The fact of the matter is you've set up a pretty elaborate 
system on how you're going to now audit every couple of years 
to make sure of all of these local governments that have these 
suits are using them for training purposes only. Isn't that a 
little futile really?
    Mr. Baillie. You're absolutely correct, sir, as far as the 
defective suits. I believe some prior Department policy had 
said to use them for training purposes. Subsequent policy has 
said the defective suits, the Isratex suits, that this 
committee discussed a number of years ago are to be destroyed. 
They are currently the ones that we identify in the Department 
being processed by Colonel O'Donnell's people at Red River. 
They are being shredded and put in a landfill.
    Mr. Janklow. Now, what about the ones that are out there? 
Wouldn't it behoove us to just tell them turn them in, we'll 
trade you--there aren't that many of them out there, are 
there--and give them what you get when you sell the new ones? 
Why don't you just trade them; tell them, turn them in, and 
we'll give you more out of inventory?
    Mr. Baillie. You're absolutely right, sir. Our instructions 
are for the, I believe, 16 stock numbers that the Isratex suits 
include, we have said return them to us. We will dispose of 
them. For the other older BDOs, we are allowing people the 
choice of either disposing of them, using them for training 
purposes, which is a legitimate action. But the defective 
suits, sir, you're correct, we need to retain control of them 
and ensure that they are disposed of, shredded, put in the 
landfill down at Red River.
    Mr. Janklow. Let me ask you, this spins off of something 
Mr. Estevez indicated, are the functions that each of you 
perform so great--and they very well may be; I mean, I don't 
suggest for a moment you're not busy--that the concerns about 
certain types of equipment being disposed of to--we'll call to 
the general public and getting into the wrong hands, should 
that be handled by a single entity someplace within the 
government with a very strict set of controls, and not within 
your three particular bailiwicks, or can you all handle it? And 
we're just dealing with the Defense Department, with you. We're 
not dealing with the Energy Department, the Veterans 
Administration, the Agriculture Department, all these other 
agencies that were the subject of IGs' examinations.
    Mr. Baillie. Sir, at least speaking for the Defense 
Logistics Agency, there is nothing more important than making 
sure that people's lives are protected. The issue, I think, as 
the first panel identified, is that this is exceptionally 
broad, ranges across the whole government, not to mention the 
entire Department of Defense.
    Within DLA we have subsequently on our--we had on our own, 
prior to the GAO investigation, identified other areas that are 
similar risks to the public. One, I believe, was noted in the 
GAO report, the infrared reflectant technology in a lot of our 
clothing. That was identified by the Demilitarization Coding 
Management Office in DLA. We have also identified some issues 
with gas masks. Colonel O'Donnell's people have identified 
additional things to include such common items as fertilizer. 
You know, following the Oklahoma City tragedy, Colonel 
O'Donnell's folks went through and pulled fertilizer off as an 
item for sale.
    So I think the reason we welcome this hearing is that it 
focuses all of us on the much, much bigger issue. We can take 
individual actions within DLA, but this is clearly a 
governmentwide issue.
    Mr. Janklow. Mr. Chairman, can I ask one more quick 
question? It will be very brief.
    Mr. Turner. Sure.
    Mr. Janklow. Thank you.
    With respect to the hearings that have been had in a 
legitimate way, if you were in Congress--let me just ask anyone 
of the three of you to respond. If you were in Congress, what 
would you do? Is there anything you think you could do to make 
this situation better, or is this something that can be fixed 
within the executive branch?
    Mr. Estevez. I'd like to be able to answer that. I really 
can't, sir. I can say that we in the executive branch, 
certainly speaking for the Department, I can't speak for the 
executive branch as a whole, are now focused on this, and we 
will be focused on this issue. And it is not--it is a complex 
issue because each and every one of these items in and of 
itself can't, you know, produce bad things. It's the pattern 
and how do you tie that pattern together, and we're going to 
work to get it right. If, you know, we need legislation, we 
would be happy to come to you and ask.
    Mr. Janklow. It's like bullets and rifles. You have to put 
them together to have a problem.
    Mr. Estevez. Absolutely, sir.
    Mr. Janklow. Colonel.
    Colonel O'Donnell. Well, I think that's been a common thing 
this morning that this is an extremely wide problem and no 
doubt a very, very complex one. Trying to make good judgments 
as to, you know, how all these various components can be put 
together to create biological weapons and/or other weapons of 
mass destruction is a very significant undertaking and 
requires, you know, expertise across all governmental agencies. 
I don't think anyone would hold themselves out to be an expert, 
you know, in an area that broad. So this is something that's 
far-reaching and has some pretty profound consequences.
    Mr. Janklow. Thank you, Mr. Chairman.
    Mr. Turner. Mr. Ruppersberger.
    Mr. Ruppersberger. Yes. The areas that we really are 
talking about here today are twofold. It is more the broader 
issue, the systemic problem generally of the inventory control 
and the program that is going on, and then second the more--the 
serious issue of--at this point is the biological.
    But before I get to some of those issues, I do want to get 
this clear as it relates to Ms. Bronson. You know, 
congressional oversight is extremely important. It's our system 
of government. And, you know, it's important that we have--the 
people doing the job for us have the ability to get 
information, and that people will see them, and that really 
disturbs me that there's lack of cooperation. And I wouldn't 
like to have a sting operation involved in my operation either, 
but, bottom line, there was a reason for it, and we have this 
hearing today because of it. But when someone does not 
cooperate in that regard, that's an affront, I think, to 
Congress and to the country.
    The first thing, I want to ask you a question. Did Ms. 
Bronson refuse to cooperate with GAO on her own, or was she 
directed not to cooperate? Does anybody know the answer to 
that?
    Mr. Estevez. Sir, my understanding from her office is that 
she did not refuse to cooperate. Her understanding was that a 
letter would suffice rather than a meeting. They did not refuse 
the meeting. Again, that's my understanding from her office.
    Mr. Ruppsersberger. Well, it seems to me that's her opinion 
about a letter should suffice. I think it's very extremely 
important that we make Ms. Bronson available to this committee 
just to make sure that we get it straight on what the roles 
that we do have and that we do have that cooperation, and I 
would hope that you could take that message back. But to say a 
letter would suffice on something as serious as this, that 
doesn't get it here, and I think it's something that we really 
need to deal with. And not--you know, her name has been 
mentioned today, and I'm sure this happens a lot, and it's a 
matter of a broader problem that we need to cooperate. No one 
likes it, but it's something that we are trying to get to the 
bottom so we can do what's best for our country.
    Now, on the issues of this program, the first thing I want 
to get into just the broader scale, and then I'll come into the 
chemical and biological. Should this system that we have, the 
distribution and what is it, reutilization program that you 
three are really very much involved, the GAO testified that 
they thought it was a good system for some situations. How do 
you analyze the systems that you or they are involved with? Is 
it really worth what we are doing? In other words, are we 
getting moneys back? Are we able--that are going to justify 
what we need to do? If, in fact, we have problems--and we have 
problems here today, and it worries me what the other problems 
might be because we don't have control over a large quantity of 
information and documents and whatever. Is it worth it to keep 
going on with that system, and if it is, how much is it going 
to cost to do from what you see from your perspective to give 
you the resources and the tools, including the manpower, to 
move forward in an appropriate way?
    Mr. Estevez. Let me address from the broad term, 
Congressman. We think it is a good system. It enables us to get 
some recoupment on the investment of excess property that we 
would have to pay to destroy if we weren't selling it. And, in 
fact, we do destroy equipment that has military characteristics 
that we can't put out on the market. So, for the stuff that has 
reuse, it makes it available to not only for sale, but prior to 
that for use throughout the Federal--you, know the Department 
of Defense first, then the Federal Government, and through 
donations to selected parties, law enforcement, some 
universities, etc.
    So it's a program that helps the general public. It helps 
us recoup some investment on inventory that is no longer needed 
within the Department of Defense.
    Mr. Ruppersberger. Bottom line, what does it cost to run 
this program? Will you please stop my time for a second? I'm 
just kidding.
    Colonel O'Donnell. Sir, last year, my annual revenue for 
actually fiscal year 2003, our operating budget was $292 
million.
    Mr. Ruppersberger. OK.
    Colonel O'Donnell. Total revenue generated by DRMS in 
fiscal year 2003 was $333 million.
    Mr. Ruppersberger. All right. Well, your budget includes 
what? Does it include manpower?
    Colonel O'Donnell. Manpower, sir, infrastructure, 
buildings.
    Mr. Ruppersberger. Technology?
    Colonel O'Donnell. Yes, sir.
    Mr. Ruppersberger. What kind of technology do you have for 
your inventory? What systems do you have?
    Colonel O'Donnell. We have Daisy, which is an internal--
which is a DRMS-unique program that manages our inventory; in 
other words, when this property is in our control, provides us 
a number of ways of looking at the property not only in terms 
of its location, but tells us a lot about the physical 
characteristics of the property, its acquisition value, its 
demilitarization code.
    Mr. Ruppersberger. Do you agree that there is an inventory 
control problem, the ability to identify what you have and 
where it's going?
    Colonel O'Donnell. Sir, I would agree that at least within 
DRMS we work real hard to follow all of the policies and 
procedures that are currently in effect with respect to the 
disposition of excess DOD property. Our ability to make 
management decisions relative to property that's in our custody 
is really a function of the quality of information that we 
receive from our customers or our generators in terms of the 
accuracy of the descriptions, the accuracy of the stock 
numbers, because, again, that's what my people make inventory 
management decisions based upon.
    Mr. Ruppersberger. Well, I can understand that, and that's 
maybe part of the problem. But, you know, we had testimony here 
today that a Wal-Mart or Sears within 1 minute can determine, 
you know, what they have as far as their inventory is 
concerned. And it seems to me that should be a goal of ours.
    But, you know, what I'm really leading to here, I know you 
can only deal with the information that you have, that you have 
in there, but when you have new equipment, you know, that is--
you can't identify it, when you have--and I'm sure of this. I 
have two Army bases in my district. They're always talking 
about getting more resources, and when you--is there any system 
there when, say, your military bases are asking for resources, 
and within that inventory that you can check to see whether or 
not what you're selling is something that someone else might 
need? Do you have any system in place that can deal with that?
    Mr. Estevez. Sir, we have a multitude of systems that do 
that. Each of the services has their own systems of wholesale 
and retail levels like at the national level and down at the 
base level. If you're at an Army base, and you're 
requisitioning an item, it'll search other Army bases to see 
whether they have that item before it'll go to the national 
level.
    With that said, because we have these multiple systems, 
there are gaps, and we are--as Mr. Kutz indicated, we have a 
fairly intensive effort to modernize our systems, and we are 
working with people like Wal-Mart and Sears to see how their 
practices work.
    Mr. Ruppersberger. I have to go because I see the yellow 
light's on. I want to get to the other phase, and we're not 
going to solve all this right here. I'm going to request that 
our chairman bring you back and that we give you a timeframe to 
give us a report on where the systems are, including how can 
you meet the same goal that the private sector has with respect 
to finding out where your inventory is. If you know what you 
have, it seems that solves part of the problem, and it is very 
important, I think.
    Now, I want to get into just--there's the red light. You 
told me I was going to have a couple of minutes. I want to get 
into the biological and chemical issue. To begin with, have 
you, as a result of what is out there and what we're concerned 
about--and you've said you've coordinated with Homeland 
Security. Have you given this information to the relative 
intelligence agencies so that they can deal with it, FBI, other 
groups such as that? Are they involved with determining and 
working with you on the risk assessment on where, what we have 
out there that we need to retrieve?
    Mr. Estevez. Sir, it's really preliminary. We are just 
kicking this thing off based on the report that we had and the 
recommendation. So we are just standing up this task force to 
do that.
    Mr. Ruppersberger. Well, it seems to me that it's an 
extremely high priority and something that really should be 
done right away.
    Second, in order to be able to retrieve some of this, these 
materials or equipment or whatever that is out there, there 
probably is going to be a legal problem, because once you have 
sold something to somebody, you've passed title. And I would 
think that--and I would again ask our chairman that we consider 
legislation that would allow us to retrieve that, those items 
that were necessary to get back into our control, because right 
now we could have a serious legal problem that we can't get it 
back because we've already--we've sold it, and the title has 
passed. Do you have any comments on that?
    Mr. Estevez. Actually, we've proposed legislation to that 
effect.
    Mr. Ruppersberger. Do you have it out there already, or you 
would----
    Mr. Baillie. In talking with our counsel, DLA has proposed 
to OSD and had approved by OMB for at least a couple of years 
legislation that would have allowed that. It has not made it 
into the subsequent final legislation. We do, in fact, have 
similar legislation working at OSD again this year. We would 
obviously welcome that kind of language in helping us with this 
issue.
    Mr. Ruppersberger. Well, I know our chairman is a man of 
action, so maybe we can help you along in that regards. And one 
other thing. If we find, based on the risk assessment, that we 
have vulnerabilities as it relates to our national security 
with respect to what has happened now, do you feel that part of 
your program should be shut down for at least 6 months or a 
year to make sure that we know exactly what we have, what we 
need to do, and to get it right?
    Mr. Estevez. I would say we would do what's necessary, and 
if that's what it takes, we will do that in order to get it 
right.
    Mr. Ruppsersberger. But you don't have enough information 
right now to analyze what you need to do in that regard.
    Mr. Estevez. That is correct, sir.
    Mr. Ruppersberger. I said it before, and I want to say it 
again: We have to get the attention of the leadership. I mean, 
you're sitting here taking it today, and that's your job, but 
you need resources. You need commitment from the top to make 
sure you can do what you have to do. And I know that it's very 
difficult, especially when you have a very strong leader, that 
you have to maybe say what you want to say at some times that 
might offend policy that could be different. But this is 
serious. This is something we have to work on, and we're going 
to hold you accountable to come back to make sure that we get 
this right.
    Mr. Baillie. If I may agree with Mr. Estevez's last 
statement, it's been somewhat unpopular, especially with the 
infrared technology issue. We've had that frozen now for at 
least 6 months, if not 9 months. We're getting a lot of concern 
from the commercial sector out there about it. But when you're 
dealing with people's lives, as Mr. Estevez said, we'll take 
the actions we need to take.
    Mr. Ruppersberger. OK. Thank you.
    Mr. Turner. Thank you.
    Gentlemen, as part of your opening statements, you made 
statements such as, you know, we agree with the GAO report. We 
recognize the issues. We have concerns. We're committed. We've 
revised modified policies. And, you know, I think the questions 
that you've been getting from this committee have been focusing 
on the issue of then what? And I know that in your statements I 
appreciate your identifying this issue as broader than just the 
Department of Defense by indicating that of course there are no 
restrictions on private sector sales of some of these types of 
equipment.
    And you've also talked about, you know, our education curve 
as we become more aware of threats that we are facing with 
different types of equipment, because similarly, as you 
identified, Mr. Baillie, I think, fertilizer, I mean, you could 
begin to put things over here in the exhibit that we have that 
we would not normally have thought of as terrorist tools; box 
cutters, for example. But some things are more easily 
identifiable as intuitively a problem, such as this lab 
equipment that we have in front of us.
    So even granting that there isn't similar controls in the 
private sector, and that some types of equipment that we 
wouldn't normally think of as terrorists using could also be 
used in this example, we do have a situation here where the 
Department of Defense either has policies in place that they're 
not following, or areas where we can easily view where there 
should be policies in place. And my concern, and my first 
question, relates to two things. One, in the areas where there 
are policies in place that obviously were not being followed, 
I'd like your comments on that, because any discussions that we 
have about expanding policies really don't give us any comfort 
level that's going to result in anything if there are existing 
policies that are not being followed.
    So I'd like you in my first question to discuss the issues 
of policies not being followed and how they could be more 
effective, and in that I'd like you to also talk about the 
issue of this ineffective end user certificate, because when we 
had our earlier testimony, GAO was saying that, you know, Mr. 
Ryan, who had coordinated this, would not be able to be located 
by any of systems. Once you ultimately did determine if you--
had independently determined that there had been a purchaser 
that was suspect, it sounds as if you have in place a process 
that doesn't do anything but push paper and is going to be 
ineffective in accomplishing its goal. If you would address 
that, please. Mr. Estevez first.
    Mr. Estevez. With regard to the policies not being 
followed, we have a number of mechanisms to identify problems 
in the Department of that regard. IG, GAO, the military 
services each have one of their own reports that come into my 
office, for instance, and this--and on DRMS activities. So 
while I would like to say that the process worked, in fact it 
did after a time, that's sort of the mechanisms that we rely 
on. And we were stepping up, in this area, our assessment 
teams, and I'll make sure that those reports get the Office of 
Secretary of Defense-level review.
    For the specific thing on the end user certificate, I'm 
going to have to turn that over to Mr. Baillie on the specifics 
on that.
    Mr. Baillie. Thank you.
    Yes, sir. We would agree the end user certificate process 
needs to be strengthened. The fact that Mr. Ryan was able to do 
what he was able to do causes us great concern. We are working 
with a number of the law enforcement agencies, Justice, 
Homeland Security, some of the other folks, to give us access 
to additional criminal information data bases that will allow 
us to do what the system should do, which is to prevent the 
kind of thing that happened in this case. So at this point the 
process, yes, could be strengthened. We are working to do that 
across the government.
    Mr. Turner. Colonel.
    Colonel O'Donnell. Sir, again, from the DRMS perspective, 
again we've got in place, I think, what appears to be a viable 
set of policies and procedures. Our execution of those policies 
and procedures, again, from the DRMS perspective, is as good as 
our ability to identify the property that flows through our 
various facilities. In terms of, again----
    Mr. Turner. I'm sorry. Let me interrupt you a second, 
Colonel. You just distinguished between policy and their 
implementation, and my suspicion--and correct me if I'm wrong, 
and tell me what the difference is--don't your policies include 
the implementation processes? I mean, are you saying that you 
have these policies of we won't do these things, and then 
separately the implementation processes are put together, and 
do you need to change those?
    Colonel O'Donnell. At the Department level policies are 
broad policy guidance decisions on how--what should be done and 
how the process should work. They don't go into the individual 
processes of how DMRS should operate. Those are implemented by 
Defense Logistics Agency down through their component.
    Mr. Turner. OK, Colonel. Then in making that statement, if 
you could be specific as to how the policies are good, but the 
implementation is not?
    Colonel O'Donnell. Well, the policies and ultimately the 
procedures are well thought out and are changed, you know, over 
time as conditions would indicate that there's a need to 
change. Our challenge is in terms of executing a lot of the 
policies, and I think about it in the context of this 
particular investigation where you have property that's 
introduced into the DRMS inventory. And as I indicated earlier, 
our ability to make management decisions or disposition 
decisions relative to that property is as good as the 
information that we're getting from our customers.
    I guess, having said that, you know, we don't have a way to 
look back up the pipeline to assess whether or not the 
information we've got is accurate. We deal with the here and 
now. I've got a series of stock numbers. I have property 
management codes, deauthorization codes that tell me I can do 
certain things or not, as the case may be, and we react or we 
execute accordingly.
    Mr. Turner. Taking that question that I had asked to the 
first panel was concerning the operator involvement. You had 
taken some action to look at end user identity, but, again, 
having Wright Patterson Air Force Base in my district, knowing 
the labs that are there, knowing and having spoken to operators 
of some of those labs, I know that would probably be a very 
fertile environment for initial assessment or description of 
the threat for threat assessment that some of the equipment or 
materials might pose, and I think I hear you saying that there 
is no operator involvement. At least when I asked the first 
panel, they were not aware of any. So I guess the question is, 
is there originating operator involvement in that threat 
assessment; and, two, if there isn't, do you believe it would 
be helpful?
    Let's start with the Colonel. He was discussing the issue 
of his lack of full and complete information.
    Colonel O'Donnell. The information that we get from a 
customer on a turned-in document doesn't indicate, other than 
if there's a demil code attached to a particular stock number, 
that there is a threat. So I'm not suggesting for a moment 
that, you know, operators or the owners or the proponents of 
that equipment haven't thought that process through.
    But in the case of things like textiles, for example, where 
you get in property that has locally assigned stock numbers, 
you don't have a code that, you know, gives you some 
restrictive guidance as to what you're supposed to do with the 
property; and----
    Mr. Turner. Colonel, I understand that. You described a 
very clear code before, and it sounded pretty much like your 
position is you were describing it was that of a traffic cop. I 
get in this. It goes there. I get that in, and it goes there. 
My question is, how do you think it would make your system work 
better; and, specifically, what additional information from the 
originating operator would be helpful?
    Colonel O'Donnell. Sir, I guess that goes back to, 
ultimately, the item manager for a given piece of equipment, 
and to have at the outset--in other words, at the beginning of 
the supply chain for an individual item a good, solid, reasoned 
determination as to what demilitarization requirements need to 
be ascribed to an individual piece of equipment, if any.
    Mr. Turner. So is that answer a yes?
    Colonel O'Donnell. Yes, sir.
    Mr. Turner. Thank you.
    Mr. Baillie.
    Mr. Baillie. Congressman Turner, the Colonel hit on another 
one of the key control issues that we discovered subsequent to 
the GAO report, and that's that local stock number. What the 
Colonel has had his folks do, in addition to tearing apart 
every batch lot, is to reject any submissions of clothing and 
textile that an operator submits with a local stock number. You 
know, sometimes the local operator does not know or can't find 
the national stock number, which is the key to all the things 
the Colonel was talking about. It's got the demil, it's got the 
identification, and it's what the daisy system runs off of.
    When something is submitted with a local stock number, that 
piece of the process just stops, and it's then----
    Mr. Turner. Back to my original question just for a second, 
because it just seems like, again, that we're asking a question 
that I can't imagine the answer isn't just yes, but I don't 
quite understand the answer I'm getting back. The question is, 
one, is the originating operator of the equipment that's being 
disposed involved in the assessment in DOD in determining its 
threat; and, if not, do you think that would be helpful?
    Mr. Baillie. The person who determines the threat in the 
Department is the procuring inventory control point. So the 
service or DLA inventory control point that buys a particular 
item, in this case I believe most of those are DLA items, that 
inventory control point is the one who puts the demil code and 
the kind of sensitivity on it. So, yes, sir, involving them is 
key.
    Mr. Turner. But that's not the original operator.
    Mr. Estevez. Actually, I was going to say what Mr. Baillie 
said, that the procuring activity who's buying it for that 
operator assigns the demil code. Of course, what we have here 
is any one of these items in and of itself would have no demil 
code. So that raises the complexity of how do you look at, you 
know, one thing--it goes back to putting the gun together. This 
is putting the gun together. So one thing may not have a demil 
code. Putting in a collective activity may require a different 
category.
    As we do our risk assessment, we'll certainly be working 
with the scientific community and the Department to determine 
what can be used for what and in what combinations.
    Mr. Turner. Thank you.
    Mr. Chairman.
    Mr. Shays. Thank you.
    The problem with the gun analogy is we're not talking about 
guns. We're talking about weapons of mass destruction. That is 
the real problem with this dialog, so there has to be a much 
heightened concern.
    First, on protective gear, the battle dress overgarment, 
Colonel, I don't understand, frankly, why this protective gear 
was sold in the commercial market. I don't understand why it 
was given to potentially a first responder, other than the 
argument that it was put in a batch that we didn't identify. 
But what I really don't understand is, once you track these 
suits that were defective, why they were reentered into the 
disposal process after the suits were returned by local law 
enforcement agencies. Why did that happen? You collected the 
bad suits that should never have been sent out in the first 
place, and then we resold them.
    Colonel O'Donnell. Sir, part of the problem I think in this 
particular situation is the fact that you had defective suits 
that had the same stock number--national stock number as 
nondefective or the older battle dress overgarments. Without 
having ready access to a contract number to go, you know, piece 
by piece against that contract number----
    Mr. Shays. Well, with all due respect, though, no suits 
were to be resold. So when you identified you had sent out bad 
suits, none of these suits were to be sold. Correct? That was 
the agreement that we had. Correct? Is that not correct, Mr. 
Baillie?
    Mr. Baillie. Yes, sir. That was the agreement.
    Mr. Shays. So there really is no good answer. Is that 
correct?
    Colonel O'Donnell. Sir, other than the fact that suits were 
in the pipeline, as was alluded to by the first panel, I'd have 
to agree with that.
    Mr. Shays. I've been trying to be respectful of the fact 
that this is a difficult situation, and I try to imagine that 
you are my constituents. So how would I feel if my constituents 
were being asked these questions? That just kind of gives me a 
little reality.
    But you did agree that--except in two exceptions, you 
agreed with what the first panel said, and you didn't disagree 
with anything that we said in the first one. It's pretty 
devastating stuff, but, Colonel, we swear our witnesses in not 
because we think they're going to lie but because we don't want 
it to be casual. And I felt that the question that you had 
said--this proactive comment to us that you had discovered Mr. 
Ryan's faults in operation--or the GAO's faults in operation in 
August was a little surprising to me, particularly after 
speaking to GAO, and Mr. Bell went through this; and I would 
like you to be what--I think less casual and be very precise, 
because it's important that you not give us a false impression.
    I want you to tell me if you think it is an impression you 
want me to have that you discovered in August on your own 
without any assistance that this was happening, or whether 
there may have been more to the story than that. And if you're 
getting it secondhand, I really would advise you to make sure 
that you're really precise on this. And I'm asking you, 
Colonel, because you are the one who brought it up--I'm sorry, 
Mr. Baillie.
    Mr. Baillie. No, I did, sir.
    Mr. Shays. OK. I'm sorry, Colonel.
    Mr. Baillie. My intention was, as Congressman Turner 
offered, was there any additional information that we wished to 
introduce into the record. Certainly it was not my intention in 
using that particular piece of information to convey any casual 
nature to this. This entire thing is very serious. My intention 
was to say for the completeness of the record that----
    Mr. Shays. I want to make sure that I ask it this way, just 
so you don't get yourself in a hole here. Did you on your own, 
without any knowledge or any indication from GAO, discover this 
operation?
    Mr. Baillie. No, sir. If you predicate it on knowledge of 
GAO, the information I was given----
    Mr. Shays. The answer is no, right? And I think that is a 
better answer.
    Mr. Baillie. Yes, sir.
    Mr. Shays. GAO did inform you that they had some operation 
going on. OK. I mean, even if you did, I would have said the 
operation had really concluded, but I just think it's a little 
misleading to us to have it seem like the system on its own 
discovered this, and I don't think that's accurate. And you've 
clarified the record.
    Mr. Baillie. Yes, sir.
    Mr. Shays. OK. Thank you, and I thank Mr. Bell for asking 
those questions. I'm done.
    Mr. Turner. Mr. Bell.
    Mr. Bell. Just a couple of questions to wrap up; and if you 
covered it when I was out of the room, I apologize.
    But earlier you heard the testimony from GAO regarding Ms. 
Bronson and her lack of cooperation when they sought to meet 
with her, and I'm curious as to whether, if you know, if Ms. 
Bronson refused to cooperate with GAO and basically with 
Congress since we had requested GAO to carry out this 
investigation, did she do that on her own accord or was she 
directed by someone not to cooperate?
    Mr. Estevez. And my response to that earlier, sir, my 
understanding is that Ms. Bronson was led to believe that 
writing a letter back to GAO was an adequate response and that 
no meeting was necessary.
    Mr. Bell. Do you know if she talked to any higher up----
    Mr. Estevez. Not to my knowledge, sir.
    Mr. Bell. I think it's important, as we go forward, as the 
GAO needs to meet with Ms. Bronson or anyone else, that there 
be greater cooperation on the Department. Would you agree with 
that?
    Mr. Estevez. Sir, speaking for myself, we stand fully ready 
to cooperate with GAO and Congress on any matters that they 
bring to us, and I think the folks behind me who have worked 
with me before would back me up on that.
    Mr. Bell. Based on what you all know today, do you plan on 
enhancing the post-sale followup and investigations in any way 
on the equipment that's being sold by the Department?
    Mr. Baillie. Yes, sir. As I stated before, we are actively 
working--our criminal investigation folks are actively working 
with Justice and other law enforcement agencies to get us 
access to additional criminal and terrorist data bases that we 
believe are necessary to screen out the kinds of things that 
happened in this case before they ever get into the system.
    Mr. Bell. Let me just say this in closing, that--and you 
all can comment if you care to--that I think we all realize 
what a difficult position you're in; and I'm also certain that 
this is probably--you're not--not your most pleasant experience 
coming here and having to answer these questions. But in my way 
of thinking and probably in the thinking of the other members 
of the committee, you've really been given somewhat of a gift 
here through this report, because proactivity is tough, and as 
creatures of government, we don't do it very well. We wait 
until there's a major blackout before we start talking about 
passing an energy bill. We wait until public education is in 
the tank before we start passing laws to improve public school, 
educate. We are reactive creatures in government, but September 
11th changed everything.
    I was sitting up here and I was trying to imagine what the 
first lines of a story would be if this had been different and 
you had been dealing with an actual terrorist instead of a GAO 
investigation. And I wrote something: Federal authorities 
reveal today that the anthrax believed responsible for killing 
hundreds over the course of the last 3 months was produced by 
terrorists using biological equipment they purchased on the 
Internet from the U.S. Department of Defense.
    I don't think any of us can begin to imagine what that 
would do to the trust of the American people, what the hearing 
would be like following such a story and how unpleasant that 
would be. So we're on notice now. We're on notice now, and 
hopefully the Department of Defense will take it very seriously 
and do everything they can not just to respond to what GAO has 
brought to light but whatever else comes to light, not sweep it 
under the rug but actually try to respond to it. I sense that 
will be your attitude going forward, and I hope it will be, and 
you're free to respond.
    Mr. Estevez. I couldn't agree with you more, sir. You know 
that we do not concur with every GAO report that comes our way. 
We wholeheartedly concur with this one. It is a good response, 
and we take it seriously and intend to take it seriously, and 
we're going to look at more than just these little items here 
that are out here. We intend to do this as a broad sweep of how 
we are--what we are putting out for sale and working with our 
interagency counterparts in order to get this right. You're 
absolutely right, sir.
    Mr. Bell. Thank you for your testimony.
    Mr. Chairman, thank you for calling this hearing.
    Mr. Turner. Mr. Janklow.
    Mr. Janklow. Thank you. I've got two quick questions.
    One, Mr. Baillie, you just talked about your working to get 
additional data base access. Doesn't that really belie the 
whole issue, sir? The reality of the situation is, to the 
extent that I can legally buy equipment from the Department on 
the bids or from an agency on the bids, you have no way in a 
practical sense to ever determine who I'm selling it to. So as 
long as I can clear your scrutiny, the rest of it's irrelevant. 
Wouldn't you agree with that?
    Mr. Baillie. I would agree, sir, that the entire process 
needs to be assessed as a part of the risk and vulnerability 
assessment. You're correct. We can----
    Mr. Janklow. And the second thing I'd like to ask you, 
you've all indicated you're undergoing this risk assessment, at 
least in the Defense Department. Is this Department-wide, or is 
this Army-based?
    Mr. Estevez. This is going to be interagency, sir. This is 
led by Homeland, Defense and the Department with Homeland 
Security.
    Mr. Janklow. How long do you anticipate this risk 
assessment will take? And, two, when would we be able to have a 
report of what's been accomplished or what's been implemented?
    Mr. Estevez. We're prepared to come back within 3 months to 
give you our progress status report on where we are.
    Mr. Janklow. Do you feel that you will have the risk 
assessment done and the plan in place by then?
    Mr. Estevez. I would hesitate to say that, sir.
    Mr. Janklow. OK. Thank you very much, Mr. Chairman.
    Mr. Turner. We thank you for your participating in this 
hearing, and I'd like to ask if throughout the questions and 
your answers if at this point you have any additional thoughts 
that you would like to include in the record before we adjourn?
    Does anyone from GAO at this point want to comment on 
anything that they have heard in this testimony on our second 
panel before we adjourn?
    If not, we thank you all for participating, and we'll be 
adjourned.
    [Whereupon, at 1:20 p.m., the subcommittee was adjourned.]

