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





 MAKING FINANCIAL MANAGEMENT A PRIORITY AT THE DEPARTMENT OF HOMELAND 
                                SECURITY

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

                                HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT EFFICIENCY
                        AND FINANCIAL MANAGEMENT

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 10, 2004

                               __________

                           Serial No. 108-174

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform


                                 ______

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                     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
NATHAN DEAL, Georgia                 C.A. ``DUTCH'' RUPPERSBERGER, 
CANDICE S. MILLER, Michigan              Maryland
TIM MURPHY, Pennsylvania             ELEANOR HOLMES NORTON, District of 
MICHAEL R. TURNER, Ohio                  Columbia
JOHN R. CARTER, Texas                JIM COOPER, Tennessee
MARSHA BLACKBURN, Tennessee          ------ ------
PATRICK J. TIBERI, Ohio                          ------
KATHERINE HARRIS, Florida            BERNARD SANDERS, Vermont 
                                         (Independent)

                    Melissa Wojciak, Staff Director
                   David Marin, Deputy Staff Director
                      Rob Borden, Parliamentarian
                       Teresa Austin, Chief Clerk
          Phil Barnett, Minority Chief of Staff/Chief Counsel

     Subcommittee on Government Efficiency and Financial Management

              TODD RUSSELL PLATTS, Pennsylvania, Chairman
MARSHA BLACKBURN, Tennessee          EDOLPHUS TOWNS, New York
STEVEN C. LaTOURETTE, Ohio           PAUL E. KANJORSKI, Pennsylvania
CANDICE S. MILLER, Michigan          MAJOR R. OWENS, New York
MICHAEL R. TURNER, Ohio              CAROLYN B. MALONEY, New York
------ ------

                               Ex Officio

TOM DAVIS, Virginia                  HENRY A. WAXMAN, California
                     Mike Hettinger, Staff Director
                 Larry Brady, Professional Staff Member
                          Sara D'Orsie, Clerk
            Adam Bordes, Minority Professional Staff Member


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 10, 2004...................................     1
Statement of:
    Ervin, Clark Kent, Inspector General, Department of Homeland 
      Security; and Andrew Maner, Chief Financial Officer, 
      Department of Homeland Security............................     4
Letters, statements, etc., submitted for the record by:
    Ervin, Clark Kent, Inspector General, Department of Homeland 
      Security, prepared statement of............................     7
    Maner, Andrew, Chief Financial Officer, Department of 
      Homeland Security, prepared statement of...................    24
    Platts, Hon. Todd Russell, a Representative in Congress from 
      the State of Pennsylvania, prepared statement of...........     2
    Towns, Hon. Edolphus, a Representative in Congress from the 
      State of New York, prepared statement of...................    30

 
 MAKING FINANCIAL MANAGEMENT A PRIORITY AT THE DEPARTMENT OF HOMELAND 
                                SECURITY

                              ----------                              


                       WEDNESDAY, MARCH 10, 2004

                  House of Representatives,
Subcommittee on Government Efficiency and Financial 
                                        Management,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2 p.m., in 
room 2247, Rayburn House Office Building, Hon. Todd R. Platts 
(chairman of the subcommittee) presiding.
    Present: Representatives Platts and Towns.
    Staff present: Mike Hettinger, staff director; Dan Daly, 
counsel; Larry Brady and Tabetha Mueller, professional staff 
members; Amy Laudeman, legislative assistant; Sarah D'Orsie, 
clerk; Adam Bordes, minority professional staff member; and 
Jean Gosa, minority assistant clerk.
    Mr. Platts. This hearing of the Subcommittee on Government 
Efficiency and Financial Management will come to order.
    In the interest of time management, we are going to skip 
formally presenting opening statements, my own and the ranking 
member, Mr. Towns, who will be here shortly. We will submit 
those for the record.
    I would quickly say that having just marked the 1-year 
anniversary of the Department of Homeland Security, we 
appreciate both of our witnesses being here and the important 
roles you play in the Department, on behalf of the Department 
personnel and certainly all American citizens. Having just 
concluded the audit of your first year financial statements, we 
also appreciate your participation in this timely hearing.
    [The prepared statement of Hon. Todd Russell Platts 
follows:]

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    Mr. Platts. I think we will swear both of you in, and if 
any of your staff who may be guiding you or giving advice as 
part of the testimony will stand and take the oath as well, 
then we will get into your opening statements.
    [Witnesses sworn.]
    Mr. Platts. We are pleased to have the Inspector General of 
the Department with us. We appreciate your participation and 
your service to our fellow citizens at the Department. We 
appreciate as well having our Chief Financial Officer for the 
Department. Andy, thank you for being here also.
    I am going to dispense with a brief bio on each of you in 
the interest of time if that is all right. I think we will go 
right into your testimony, Mr. Ervin, and then proceed to 
yours, Mr. Maner.

STATEMENT OF CLARK KENT ERVIN, INSPECTOR GENERAL, DEPARTMENT OF 
 HOMELAND SECURITY; AND ANDREW MANER, CHIEF FINANCIAL OFFICER, 
                DEPARTMENT OF HOMELAND SECURITY

    Mr. Ervin. Thank you very much, Mr. Chairman, and members 
of the committee, for the opportunity to be here this afternoon 
to discuss the fiscal year 2003 financial statement audit at 
the Department of Homeland Security and to provide an update on 
how DHS is addressing the inherent challenges involved in 
realigning its financial operations and addressing its 
financial system weaknesses. In that regard, we include 
financial accounting, contract management, grants management 
and information technology issues.
    With regard to the 2003 financial statement audit, when we 
provided testimony to this subcommittee some 6 months ago on 
September 10, 2003, we discussed the financial management 
challenges then facing DHS. One of the larger challenges of 
course preparing the auditable financial statements for the 
Department. At that time, the fiscal year 2003 financial 
statement audit was already underway but the outcome was 
unclear. The good news under the circumstances is that the 
Department received a qualified opinion on its consolidated 
balance sheet and statement of custodial activity as you know. 
I say good news because with just a few very specific 
exceptions, we can be reasonably assured that DHS has fairly 
presented its assets and liabilities as of September 30, 2003 
and the custodial revenues it collected over the first 7 months 
of operation. Those are key pieces of information needed for 
good stewardship and they provide an essential financial 
baseline for the new organization going forward.
    Regarding the other statements which we call collectively 
activity statements, the auditors were unable to complete their 
procedures and thus unable to provide an opinion for reasons 
that I explain in my prepared statement for the record.
    DHS is to be congratulated on producing its first set of 
financial statements for audit and for accepting the challenge 
last April when the Department was just establishing itself. 
Not only do we have a baseline for the Department's assets and 
liabilities but the process itself has been invaluable by 
providing focus on good financial management practices going 
forward.
    With regard to audit challenges for 2004, OMB has 
accelerated the reporting deadline for audited financial 
statements and the performance and accountability report to 
November 15. Two major keys to success are the commitment to do 
so starting at the top of the organization and a detailed plan 
to get there. Mr. Maner has assured us that this commitment has 
been made and in the next week we understand that his office, 
Bureau financial staff, and the auditors will be holding a 2-
day strategy session to plan for this.
    DHS also will have to deal with problems it was unable to 
overcome this past year. For example, as you know, weaknesses 
in inventory and valuation procedures at the Coast Guard for 
OM&S, operating materials and supplies, must be corrected and 
the Office of the Chief Financial Officer must address gaps in 
its staffing, create standard operating procedures that will 
guide the bureaus and support timely and accurate reporting, 
and establish clear organizational roles and responsibilities.
    With regard to contracts management, a major challenge for 
DHS is the identification and management of its procurements. 
Although the Department inherited procurement responsibility 
for 22 incoming organizations, only 7 procurement shops came 
into the Department. The remaining 15 components are receiving 
procurement services from organizations outside the Department, 
limiting the Department's ability to apply effective and 
consistent oversight to its procurements.
    Under these circumstances, the Department has struggled 
even to prepare a detailed and accurate listing of its 
procurements. DHS needs to begin integrating the procurement 
functions of its component organizations to ensure that good 
management controls are consistently applied.
    Also, some bureaus have large, complex and high cost 
procurements underway that need to be closely managed. By that, 
I mean the $5 billion ACE project and CBP, Coast Guard's 
Deepwater Project, $17 billion, taking two to three decades to 
complete and the U.S. visit system providing electronic entry 
and exit system at land, sea and airports of entry will too be 
a multibillion dollar program over the next 10 years. We will 
be reviewing all of these projects very actively.
    With regard to grants management, DHS inherited a variety 
of grant programs that provide money for disaster preparedness 
and response and prevention. Significant shortcomings have been 
identified in many of these programs in the past and the 
potential for overlap and duplicate funding has grown as the 
number of grant programs has grown.
    Furthermore, DHS program managers need to develop 
meaningful performance measures to determine whether the grant 
programs have actually enhanced State and local capabilities to 
respond to terrorist attacks and natural disasters. DHS has 
made significant strides in this area particularly in 
consolidating the preparedness grant programs. However, 
problems remain and means must be found to ensure that the 
first responder funds are being used effectively and getting to 
those who need them in a timely fashion.
    IG believes that progress has been slow because DHS may 
have underestimated the problem of consolidating the grant 
management systems. About 63 fiscal year 2002 grants and more 
than 83 fiscal year 2003 grants were integrated into DHS and 
yet the Grants Policy and Oversight Office was staffed by only 
one full-time person for much of the past year. The problem is 
receiving attention in fiscal year 2004 and we will continue to 
monitor the Department's progress.
    Finally, in the area of systems integration, DHS 
organizational elements have over 100 disparate, redundant and 
non-integrated systems used to support a range of 
administrative functions such as accounting, acquisition, 
budgeting and procurement. Because of the lack of 
standardization and systems interoperability in the current 
environment, many of these activities are tedious, manual and 
burdensome. To address these issues, DHS has established the 
eMerge2 program and we are actively monitoring that process. We 
understand it is scheduled for implementation by September 2006 
and our understanding is the Department is on schedule for 
that. We will monitor it closely with regard to both cost, 
timeliness and most importantly, effectiveness.
    Mr. Chairman, that concludes my prepared statement and I 
would be delighted to take questions when the time for that 
comes.
    [The prepared statement of Mr. Ervin follows:]

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    Mr. Platts. Mr. Ervin, thank you for your oral testimony 
here today as well as the extensive written testimony you 
shared with us. That was very helpful as we prepared for 
today's hearing.
    Mr. Maner, I will turn to you next and thank you for your 
service. As we shared notes as dads of young children who are 
putting in a lot of hours, you and me and not our young 
children, I appreciate your service to our Nation as well.
    Mr. Maner. Thank you, Mr. Chairman and members of the 
subcommittee, for the opportunity to be here and discuss the 
progress of DHS in the area of financial management. Let me 
also say thank you to the Congress and specifically this 
subcommittee for its continued interest, commitment and 
assistance to us in this area. I think we all agree that this 
area is critical to our overall future mission success of DHS.
    While I was only appointed as CFO in January, I have been 
part of DHS since its inception serving at U.S. Customs and 
later at CBP as its Chief of Staff as well as its Director of 
Transition Management, managing the largest reorganization 
within DHS. Adding this to my business education and experience 
in the private sector, I think has given me the benefit of 
seeing the DHS successes and many challenges it faces from 
different angles.
    I am keenly aware of the importance of sound financial 
management practices to the overall successful management and 
the importance and impact decisions made at the Department 
level have on Bureau operations and vice versa. I am personally 
driven daily by the need to provide a base for financial 
management goals, practices and systems that will aid the 
Department for decades to come and am energized by the 
opportunity to help lead DHS in this endeavor.
    Last week, as you mentioned, we celebrated our 1 year 
anniversary. I think all of us at the Department are very proud 
of the progress that we have made in the past 12 months. 
Specifically in my office, I am very encouraged by the 
accomplishments of last year but more so the goals we have 
created for ourselves this year. We have made tremendous 
headway in unifying and strengthening the Department's 
financial management, accounting, budgeting, strategic 
planning, performance measurement processes and systems, all 
the while dealing with the enormous challenges involved in 
standing up the third largest department in Government.
    In September of last year, my predecessor, Bruce Carnes, 
testified before you on a similar subject and I am pleased to 
report that in many of the areas you spoke, much progress has 
been made, either projects have been completed or are well 
underway in implementation.
    In the past year, we streamlined the number of financial 
management service providers in the Department from 19 to 10. 
We are implementing a consolidated bank card program that is 
reducing the significant number of bank card programs for 
purchase, travel and fleet throughout the Department down to 
about three. We developed and delivered to Congress on time our 
President's 2005 budget and accompanying CJ's. We instituted 
and recently collected preliminary data for the Department's 5 
year budget and planning process which is known as the FYHSP 
which will be coming to the Hill at a later date. We subjected 
ourselves to and completed an audit of our consolidated fiscal 
year 2003 financial statements. We submitted our first 
strategic plan to Congress and continued the work in perfecting 
a robust investment review and joint requirements process.
    We have made great strides in our attempt to build one 
resource management system known as eMerge2 which will link all 
these initiatives and processes in the future. Most 
importantly, all this has been accomplished with little or no 
negative impact mission operations.
    While we have much to be proud of, much remains to be done 
and we have big goals in 2004. We will continue to focus on the 
people, processes and systems in the areas of financial 
management systems and programs analysis and evaluation. The 
year 2003 was the year for the vision and design of our 
processes; 2004 is the year to operationalize and improve them.
    In 2003, one of our greatest accomplishments was that only 
2 months after our creation, DHS took on the challenge of 
subjecting ourselves to the rigors of a consolidated financial 
statement audit. More noteworthy was the ability to pass the 
scrutiny of an audit to the extent necessary to support a 
qualified opinion on our September 30 balance sheet. The 2003 
audit was paramount for the Department to have a basis for 
improvement in 2004. Although the audit identified 7 material 
weaknesses, this was a substantial improvement over the 18 
material weaknesses that were inherited from our component 
agencies. This means that nine material weaknesses were either 
corrected or partially corrected. The rest were consolidated 
into seven. Nevertheless, we are committed to resolving these 
remaining weaknesses in 2004 and have set forth an aggressive 
plan to do so. Within 30 days, corrective actions will be 
developed by each bureau and submitted to my office. We will 
also implement a DHS-wide tracking system to monitor the 
corrective action status. Starting next month, we will closely 
monitor the status of corrective actions through quarterly 
clean action plan meetings with each bureau or entity that has 
substantial or outstanding weaknesses.
    Additionally, we have taken steps early in the year, as my 
counterpart said, including an all hands offsite meeting next 
week with all the components to get ready for our November 15 
close.
    Good financial management is not just about accounting 
though. Essential to sound financial management is a robust 
financial management system. When DHS was created, we inherited 
over 100 resource management systems, few of which were 
integrated and many of which had limited functionality. To 
address this problem, the Department has undertaken a resource 
transformation initiative entitled eMerge2 that will 
consolidate and integrate our budgeting, accounting, reporting, 
cost management, asset management and acquisitions and grants 
functions. As eMerge2 is implemented over the next few years, 
it will greatly enhance our visibility oversight and 
accountability. The year 2004 will be a watershed year for 
eMerge2 as we move to assess requirements, prioritize and 
schedule the rollout and procure and pilot a solution.
    In closing, I would like to thank the committee again for 
the opportunity to appear before you today and assure you the 
Department and I are committed to achieving the goals we have 
established. We have already made good progress under 
challenging circumstances and I commend the experience and 
dedicated staff with whom I work. Now with a strong, growing 
and motivated staff, coupled with the continued support of DHS, 
OMB and Congress, I am confident we will realize even greater 
progress this our second year.
    That concludes my statement and I would be happy to answer 
questions.
    [The prepared statement of Mr. Maner follows:]

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    Mr. Platts. Thank you, Mr. Maner.
    I would like to recognize we have been joined by our 
ranking member, Mr. Towns, from New York. Thanks for being with 
us.
    I submitted opening statements for the record, if you would 
like to do the same?
    Mr. Towns. Yes.
    [The prepared statement of Hon. Edolphus Towns follows:]

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    Mr. Platts. We will get right into questions and hopefully 
will have 25 to 30 minutes and see where we are if the bells go 
off at that point for votes and play it by ear as that happens.
    I would like to start Mr. Maner with you. We have talked 
previously and this committee has been working with your 
predecessor, Bruce Carnes, and others at the Department on the 
issue of the structure of DHS as it relates to the Chief 
Financial Officers Act and how financial management is being 
prioritized at the Department.
    Congress in various ways in the 1980's and into the 1990's, 
said that the executive branch agencies were not making good 
financial management practices a priority in the Congress' 
eyes, so put a structure in statute to ensure better focus on 
these important issues on the expenditure of tax dollars.
    When we created the Department in the final version the 
Department was not brought under the CFO Act. I appreciate your 
statement in your testimony that today DHS complies with the 
provisions of the Chief Financial Officers Act of 1990 and will 
continue to do so. Mr. Carnes said the same when he testified 
before us 6 months ago but as I pursued with him, you actually 
are not following the CFO Act in all the requirements of it and 
that relates to the structure of it. I would like to explore 
some aspects of that.
    The reason I am focusing on it today and will continue to 
focus on it really goes to your second paragraph, and I commend 
your approach, where your daily efforts are about ensuring a 
base of financial management goals, practices and systems that 
will aid the Department for decades to come. To me that is what 
Congress sought to do through statute, that for decades to come 
all departments and agencies of this magnitude had a structure 
in place. That is what my bill which would bring the Department 
under the CFO Act seeks to do.
    As an example, start with the structure of your office and 
how it relates to the Secretary. One of the things Congress 
said they thought was important was direct communications from 
the CFO to the Secretary so there is no opportunity for 
miscommunication, lack of information, that the ultimate 
decisionmaker, the Secretary, has everything they need to 
ensure good financial practices.
    I don't believe you report directly to the Secretary. You 
report to Under Secretary Hale, I believe?
    Mr. Maner. That is right.
    Mr. Platts. Why do you feel comfortable saying that you are 
complying with the CFO Act if you really aren't reporting 
directly to the Secretary as the act requires?
    Mr. Maner. Again, I guess there is reporting on an org 
chart and then there is reporting in reality and I guess like 
my predecessor, I have only been in the job about 60 days but I 
have really unfettered access to the Secretary. Using a number 
of things in my office that we have done to date, first the 
2005 budget, then the audit, now the FYHSP, I enjoy unfettered 
access to the Secretary and that is something he and I have 
discussed. So in terms of access and his commitment to 
financial management, I feel we are in compliance, but you are 
right, by definition of the CFO Act, we are not there directly. 
I do report through Under Secretary Hale. This was a structure 
that was laid out as you said in the legislation that created 
the Department. It is a structure that is working. It is a 
structure that allows me to work with Under Secretary Hale and 
she has all of the chiefs reporting to her, the Chief 
Procurement Officer and some of the other Chiefs. That makes 
for a tight grouping as well to be with my peers, the Chief 
Procurement Officer and others. So that has worked well.
    Mr. Platts. I will say up front, having had the privilege 
of serving with Secretary Ridge in his position as Governor, I 
have absolute great respect. His record of public service both 
in uniform as a decorated veteran and in State and Federal 
Government, a prior Member of Congress, Governor and back here 
as Secretary, is remarkable. He and his family have sacrificed 
tremendously for the good of all American citizens. I don't 
doubt, and I think much of what he and you and others at the 
Department are doing are good faith efforts at good financial 
accountability, but there is a difference between unfettered 
access and reporting day in and day out or week in and week out 
directly to him. Saying I can go to him if I need to versus my 
daily or weekly, my periodic updates are directly to him, I 
believe from your answer I am taking that your regular updates 
are to the Under Secretary as far as updates on where things 
stand with the audit. You are not giving that same regular, 
periodic update to the Secretary but to the Under Secretary. Is 
that right?
    Mr. Maner. That is correct.
    Mr. Platts. That is contrary I believe to what the Congress 
intended. They wanted the Secretary to regularly hear directly 
from the CFO. That is the intent of the CFO Act. When they 
passed the Integrity Act in 1982 and tried to reform the 
management practices, Congress decided we didn't get it right 
and came back 8 years later and said, we are going to get it 
right and for every Cabinet level department but the Department 
of Homeland Security, we require it. That is but one example. 
The fact that you are not required and not fulfilling the 
requirements of the Federal Financial Management Improvement 
Act. You are not doing that and that is a requirement of the 
CFO Act, so again it seems inappropriate to say that you are 
complying with the CFO Act if that is an important part of it.
    Can you give an explanation of why you feel comfortable 
saying you are in full compliance?
    Mr. Maner. Again, I agree with your point and while I meet 
daily, many times daily with the Under Secretary, like any 
Secretary, he has demands on his time and when we have an issue 
we believe he needs to hear, know about and be updated on, we 
go and see him about that and enjoy that access.
    Mr. Platts. My hope is with passage of the bill that as 
Congress sought to ensure that level of interaction between you 
and the Secretary as opposed to you and the Under Secretary, it 
becomes the norm. I think it also diminishes the perceived 
focus on financial management because of the position you hold 
not being a Senate-confirmed position. In the hierarchy of 
Washington, it is viewed as the level of authority you are 
given. I appreciate your vast private sector experience and the 
public experience you brought from Customs, but it is seen from 
a different level than a Senate-confirmed appointee as far as 
the hierarchy and the weight we are giving to your role.
    I raise that to start because I think for us to have a 
frank discussion I am very comfortable with you and anyone from 
the Department saying we believe we fulfilling the intent of 
the CFO Act. But when Mr. Carnes testified 6 months ago and you 
today, I am not comfortable with saying we are complying with 
the act when in fact you are not. We should acknowledge that 
and move forward and have a more frank discussion.
    I have more specifics but I want to give Mr. Towns a chance 
to jump and we will go from there.
    Mr. Towns. Thank you very much, Mr. Chairman.
    This question I would like to ask both of you to respond. 
Can you tell us what specific actions you have taken to address 
the inadequate controls over security screener contracts at the 
Transportation Security Agency in the past year? Apparently 
inadequate monitoring of contracts allowed contractors to 
charge TSA up to 97 percent more than the contractors charged 
air carriers prior to Federalization. Do you know how much 
money was lost through this overcharging and whether the 
Department has made an attempt to recover the funds?
    Mr. Ervin. I would be happy to start, sir. We are very much 
involved, the Office of Inspector General, in looking at the 
NCS Pearson contract. At this point we don't have an exact 
dollar figure with regard to what the potential overcharge 
might be but we do know that based on the audit work that has 
been done, both by the Office of Inspector General and by DCAA, 
the Defense Contracting Auditing Agency with which we are 
working very closely, the range started at $100 million and now 
we are up to around $700 million or so.
    The problem there is the contract was not definitized, 
which is to say that the terms of the contract were not set 
before it was let. There wasn't due oversight on TSA's part 
with regard to that contract and so in partnership with DCAA or 
working with DCAA, we are trying right now to sort out all this 
and figure out what the terms were, and figure out what the 
costs were.
    Mr. Maner. Congressman Towns, I have not much more to add 
on that. We are very aware of the issue and we have met with 
TSA from my angle which is the financial angle about various 
weaknesses, both material and management controls, this being 
one of those that was identified. We spoke of it as recently as 
2 days ago but I can't provide you any further update on that. 
From a procurement standpoint, I would want to have procurement 
expertise in the room as well.
    Mr. Towns. So you don't have any idea in terms of how much 
money we are talking about?
    Mr. Maner. We don't have any idea at this time.
    Mr. Towns. Mr. Maner, one of the challenges identified in 
creating a coherent financial management system for the 
Department of Homeland Security is developing a centralized 
blueprint of financial management for all of the component 
agencies under DHS. Can you update us on the progress being 
made in integrating the 22 agency components into the cohesive 
and operational financial management system? What are the major 
financial management issues that remain from the integration of 
DHS?
    Mr. Maner. First of all, in order to stand up a cohesive 
financial management structure, we have to develop and 
implement and document standard operating procedures for our 
component parts and agencies. In our first year, as we 
developed and went through our audit and certain aspects of it, 
we were doing things for the first time, we were issuing 
guidance, direction of how we wanted to do things for the very 
first time. In the fact we have completed our audit, we are now 
moving into the area of documenting a lot of these policies and 
procedures. The first thing we want to do is document so that 
these policies can outlast people that come and are steadfast. 
That is probably the first area in which we have tried to 
focus.
    The second area that we tried to focus is on financial 
systems. I think any agency head, any CEO in the private sector 
realizes that in order to have true financial management, you 
need to have visibility into your financials, your grants data 
base, your procurements and you need to have one system or one 
suite of systems that does not. The second area we have given 
great focus is systems and eMerge2 is underway to move to a 
consolidated resource management system which encompasses all 
the way from budget to cost accounting to procurement and 
grants management and asset management. That is a medium and 
long term goal that we have undertaken.
    However, in the short term, we also need to find quick wins 
so we are not just waiting 2 years from now for this system to 
roll out. We have closed down or consolidated a number of 
accounting offices, thereby consolidating the number of systems 
we use. We are also developing and starting a data warehouse so 
that before the system is rolled out we at least have one 
visual end to all of our information.
    To answer your question, first is to set out standard 
operating procedures for our entities. They all came from 
different levels of rigor in financial management, different 
levels of systems, so we want to level the playing field and 
second, turn to the systems. Those are the two primary focuses 
at this time.
    Mr. Towns. How long do you think it is going to take, 
approximately?
    Mr. Maner. To get to a standard set of practices and 
systems?
    Mr. Towns. Yes.
    Mr. Maner. I think on the systems side, it will take us 
probably into 2006-2007 to have a really standard system where 
we have all of our agencies. However, because we have certain 
agencies and components that are already doing a lot of good 
things, we want to set the vision for them and start to meet 
it. Completion, frankly, I don't think you are ever complete 
with financial management but on the systems side, probably 
2006 or 2007.
    Mr. Towns. Thank you, Mr. Chairman.
    Mr. Platts. Mr. Maner, as I pointed out in your opening 
statements and in your statements to Mr. Towns, you actually 
helped make the case of what I am trying to do through statute. 
Your statement was you are trying to put ``policies that 
outlast people as they come and go and replace policies with 
statutory requirements.'' That is exactly what we are trying to 
do, so it is not based on who is or is not there but good sound 
financial management. I think that is what my predecessors 
wanted and again, that is what we are trying to do.
    In the Inspector General's testimony relating to the 
structure, and I would ask you about this appreciating you have 
been in your role for roughly 60 days but the Department is now 
a year old. The Inspector General in talking about the 
structure said, ``The Office of Chief Financial Officer has not 
yet established a hierarchy of financial reporting authority or 
an entity-wide financial management organization chart that 
clearly defines roles and responsibilities and assists with 
identification of critical human resources needed to ensure 
that all financial management responsibilities are assigned. 
The OCFO has not yet developed standard operating procedures 
that will result in consolidated financial reports that are 
consistent, timely, accurate and in compliance with Federal 
accounting standards.'' It goes on to say, ``These conditions 
were not unexpected for a newly created organization, 
especially one as large and complex as DHS.''
    I agree, not unexpected and challenges that are significant 
but given that we are now a year into it, where do we stand. 
Are we still without SOPs, without a Department-wide financial 
management infrastructure and the hierarchy being delineated? 
Early on I believe that would be understandable but a year in, 
because both of those issues really go to that foundation you 
start with as you then build a good financial management 
system, having that hierarchy delineated and having the SOPs in 
place. Could you tell us where we stand today?
    Mr. Maner. Mr. Chairman, I think that we are on a journey 
as we talked about toward perfecting our financial management 
practices and we want to continually make steps to get there. 
One thing I would point out is that the Department is new, is a 
year old and many of the entities within the Department are as 
old as 214 years, so there are big portions of the Department 
that are not new and not in a startup mode as relates to 
financial accountability and management.
    In terms of a lot of our work, we have some components that 
are doing great work and have done great work and are working 
on material weaknesses and the only thing we need to ``guide 
and put out'' are our SOPs on how to deal with the new 
department. Customs knew how to deal with Treasury, the old INS 
knew how to deal with Justice, so that is our role. We will be 
putting that out this spring on how to deal with us from an 
audit and financial management standpoint.
    We are not starting from scratch and I think that is 
important to note. However, over time and with our use of 
bodies like the CFO Council that I chair within Homeland, we 
are working through all of our issues which relate to financial 
management and accounting, the eMerge2 project and financial 
systems, so we have had a great track record of getting 
together, solving problems, getting together to listen to how 
our bureaus do things so that we are not starting from scratch. 
We have a lot of very good practices within Homeland Security 
that I want to make sure we don't just throw out. I have asked 
our managers to be careful and be thorough but we do need to 
get our SOPs out, especially if we expect to do things like an 
early close for November 15.
    Mr. Platts. It would seem the fact that you are not 
starting from scratch, it is all the more important to have an 
entity-wide hierarchy in place because you have all these CFOs 
and the component entities that are coming from different 
departments, reporting to different people in a different way, 
all the more you would want to have that up front so that you 
have uniformity.
    As we saw with the Federal Government's financial 
statements in total, because of one particular component, DOD, 
we can't get a clean opinion on the big picture. When you bring 
that down to the department level, unless all your entities are 
working on the same page and understand who has the 
responsibility and authority within the Department across the 
board, it is going to be that much harder to get to the goal 
line of a good reporting process in place.
    To me the things you said are all the more reason why up 
front and not 12 months later we are still talking about trying 
to get there. We should have gotten there first and then moved 
forward. Some of that goes to your predecessor and Mr. Carnes 
isn't here to answer why he didn't prioritize that and you 
would have inherited that already in place.
    Mr. Maner. Mr. Chairman, I don't want to lead on that we 
are not considering that a priority. Again, we inherited a lot 
of agencies at different places in their financial management. 
What I mean by that is we have startup organizations, IAIP, 
SNT, who are going up a learning curve. We have some agencies 
that pieces of them came over from Justice and we have others 
that came over in total. So we have different people at 
different phases of the spectrum.
    We have had to give our attention to those at different 
levels, so I think we have done a good job of bringing them 
together. The Department is still considering more rigorous 
capitalization plans where maybe there needs to be a more 
formalized reporting chain for various financial management 
people through the Office of the CFO and we are looking at that 
but that hasn't hampered me. I can't speak for my predecessor. 
These are attentive bureaus who want to solve problems, who 
judge themselves on how they are doing financial management, 
Coast Guard, Customs take it very seriously. So I don't want to 
lead on that structure is not important.
    Mr. Platts. Let me ask you specifically how it is working 
for you. The CFOs and the component entities, are they 
reporting directly to you and through you to the Under 
Secretary, are they also able to report directly to the Under 
Secretary regarding issues you are trying to implement?
    Mr. Maner. The financial people within the bureaus?
    Mr. Platts. Yes.
    Mr. Maner. We have had a relationship to date where I 
chaired and my predecessor chaired the CFO Council which would 
be usually the CFO of an agency.
    Mr. Platts. Was it also to the Under Secretary? It is a 
delineated authority down to you, you to Under Secretary Hale?
    Mr. Maner. There is no organization chart at present that 
lays out the reporting structure. Right now a CFO of a bureau 
reports to their bureau head or their assigned person and we 
consider it to be a dotted line to me but it is not formalized.
    Mr. Platts. Mr. Ervin, that is where maybe I bring you in. 
That seems to be one of the concerns you raised, that it is not 
formalized, that there is uncertainty about the reporting line 
of authority and who has what authority regarding the financial 
hierarchy as well as the SOPs. If you could expand on your 
written testimony in those two specific concerns you raised and 
whether you believe that getting the standard SOPs and 
hierarchy in place, the sooner the better, how critical that is 
or isn't to the big picture?
    Mr. Ervin. Absolutely, Mr. Chairman. I would be happy to 
expand on that. There are a number of things to be said, so let 
me start.
    I think it is absolutely critical that the organization 
chart be formalized to make it clear who does what and who 
reports to whom. With regard to the Office of the Chief 
Financial Officer, the staffing of that office so as to oversee 
the overall financial services enterprise, for want of a better 
term, is also very important.
    There are relatively few, fewer than 10 as we understand 
it, accountants in the Office of the Chief Financial Officer to 
oversee the process of consolidating this financial information 
from 10 different accounting service providers, 4 of which are 
outside the Department. That leaves little if any time for the 
people in the office of Chief Financial Officer to oversee the 
data that comes in, to develop analytical procedures, to test 
for data integrity. Also to develop the expertise in-house, it 
is necessary to oversee the reporting complexities in an entity 
as large and as complex as DHS. That is one thing in addition 
to the organization chart. The standard operating procedures 
which both you and Mr. Maner mentioned, it is absolutely 
critical that those be formalized as quickly as possible, 
particularly given the accelerated reporting schedule. We 
understand the Department is considering whether contractors 
should be brought in either to do that or to help supplement 
the process of doing it. It doesn't matter to us whether it is 
contractors or full-time personnel, those standard operating 
procedures absolutely must be formalized.
    Further, the whole issue of control. Mr. Maner, to be fair 
to him as he said and as you know, has been on board only for 2 
months or so and he is in the process, as he tells us, of 
developing relationships with the various component CFOs and 
obviously relationships are very important. I don't doubt for a 
second that there is cooperation from those component CFOs but 
ultimately as he acknowledged, they report to the head of their 
respective bureaus and not to him.
    We think that direct organizational chart reporting where 
he has the power to hire and fire, he writes the performance 
evaluations, he determines budget, all of that is very, very 
important in order to ensure and to institutionalize making 
sure the CFO at the organizational level, at the top level has 
what he needs.
    By the way, I would say this whole control issue, this 
organizational control issue, the information technology issues 
are very important on their own and also with regard to 
financial integrity, the CIO of the Department is not in 
control of the various component CIOs, that is likewise the 
case and that is also true in the procurement area. The Chief 
Procurement Officer is not in charge in all of the component 
procurement offices. There are 22 different procurement 
systems, 15 of those remain outside the Department, only 7 of 
them are within the Department. The 7 within the Department are 
managed at the component level, so the Department's Chief 
Procurement Officer does not have the power to reallocate 
resources among those 7 units to deploy them where he thinks it 
is necessary for the good of the organization.
    This brief, those are the concerns we have about all of 
those issues, all of which are interconnected, needless to say.
    Mr. Platts. Based on your knowledge of other departments 
and agencies, what would be the norm as far as having that 
authority over the component entity CFOs? Is this more the 
exception that currently there is not a delineation, that the 
Department CFO has that authority to hire and fire and they 
report directly to him versus through their entity? That may be 
something out of the scope of your knowledge.
    Mr. Ervin. I would like to get back to you on that if I 
may. I have only limited experience outside HHS. I was the 
Inspector General at the State Department. My understanding is 
that at the State Department, the CFO did have much more 
control over the various component parts than was the case at 
DHS. As to the rest of government, I would like to get back to 
you on that.
    Mr. Platts. If you could followup with the committee, that 
would be great.
    Your assessment in reading between the lines of just 10 
accountants in the Office of Chief Financial Officers led me to 
believe that your assessment is that there is not the number of 
financial expertise to both oversee, evaluate and actually 
critique what is received versus simply compile what is 
received?
    Mr. Ervin. Precisely.
    Mr. Platts. Is that your concern? They have the people to 
put it together but are unable to really assess it in form and 
fashion?
    Mr. Ervin. That is exactly right. To be precise, I really 
mean fewer than 10, somewhere between 1 and 10 and there is 
disagreement about exactly how many people can be characterized 
as accountants but certainly fewer than 10.
    Mr. Platts. Mr. Maner, your comments on that and the 
ability of your office from the staffing you have been given 
and the type of staffing, the expertise of the staffing, to 
truly have the knowledge base to look at what you are receiving 
and really try to ensure the integrity of what is compiled as 
opposed to just putting it together to pass on?
    Mr. Maner. Staffing is always a big question at DHS. I 
don't think anyone contemplated creating a department with 
thousands of people in the 500 series because we have 
accountants in the bureaus. In terms of my own staff, I feel 
very good with what they were able to do this year in sort of 
taking us through the consolidated audit coaching, the bureaus 
that needed coaching, working and training people on the new 
systems they would be using. I am confident in how we did last 
year. I always worry about burning out staff and making sure we 
have enough staff to make sure we are coaching and being 
strategic about action plans.
    That said, the only thing I would add is this year we are 
very excited because we are going to have to do a lot less of 
that, we don't have to train people on tiers and all these 
other things, so we can always use more people but I feel 
pretty good about where we are.
    Mr. Platts. I appreciate the efforts of everyone at the 
Department given the largest transformation in 50 years. I 
don't want to demean the good faith efforts of all staff there, 
including those in your office. Again, do they have the 
knowledge base and expertise to be able to do what we are 
asking them to do? It sounds like you basically are saying that 
although you may not have that financial expertise, because 
that expertise exists at the component level, you are trusting 
of what you have been given as opposed to have that same level 
of expertise in your office.
    Given that you are now overseeing entities that brought 18 
material weaknesses almost overwhelmingly related to internal 
controls, if I were you I would want my own people there 
verifying what those entities that had those 18 material 
deficiencies sending to me as opposed to relying on them to put 
my reputation on the line. At this point it sounds like you 
really are relying on those component entities to give you 
credible information and not really assess it. Is that an 
accurate statement?
    Mr. Maner. First of all, you get data from the components, 
you work with your auditor and you are getting information. It 
is what you do with that information. We are getting 
information about how we are doing from plenty of sources. It 
is now how do we spend that into SOPs moving forward.
    Mr. Platts. But it is not just getting the information but 
being able to assess the integrity of the information and not 
just what you do with it but how credible it is.
    Mr, Maner. The only thing I would add is that my comfort 
level varies within the Department. Within the startups, they 
need more attention.
    Mr. Platts. Depending on what component is sending you the 
information?
    Mr. Maner. Sure. Some components have been through 
standalone audits for a long time and very comfortable with the 
process, are very comfortable with their integrity. You are 
absolutely right, this is all on my watch and it is my 
integrity at stake.
    Mr. Platts. Are you considering taking the Inspector 
General's recommendation that you have direct authority over 
hiring and firing those component entity CFOs and requiring 
them to report directly to you instead of to their entity 
heads? Is that something currently being reviewed within the 
Department?
    Mr. Maner. It is currently being contemplated at all parts 
of DHS, so in procurement, IT, CFO and all these things. I have 
inputted my beliefs on that process. While I and the Department 
want to do that at once, doesn't want to do it one way for CFO 
and wants to be very comprehensive when it does it. The only 
part that I have been mindful of, and I feel extremely 
gratified and granted I have only been here 2 months, I did see 
it from the other side when I was at the Bureau, at the support 
I get from the bureau level CFOs. I get all information in a 
timely manner that allows me to make great use of it.
    I also am mindful that I want the Bureau CFO to have an 
intimate relationship with his or her bureau head and don't 
want to take them away from the intimacy of knowing the insides 
of that part. It is a very fine balance.
    Mr. Platts. I would agree but I think it also would be 
helpful if that component head knows their financial books are 
going to go right to the CFO of the Department and eventually 
to the Secretary through the Under Secretary, that they are 
going to focus on that report, that aspect of the entity a 
little more than if it comes to them and what they pass on is 
up to him or her. The advantage of having that for certain 
oversight is something I hope you weigh.
    If I could ask you to followup with the committee on two 
aspects of this discussion. One, is that you share with us once 
that determination is made of what changes are going to be made 
specifically relating to your authority over component CFOs and 
whether you have authority over hiring and firing and them 
reporting directly to you as well as to their component heads.
    Also on the SOPs, give an estimated timeframe for when you 
will have those SOPs in place and once they are in place, that 
they be shared with us.
    I would turn to the ranking member. I hope you didn't mind 
my kidding about our long tenure. As a new chairman, I hope to 
hold on to it for at least a little while.
    Mr. Towns.
    Mr. Towns. Thank you.
    Mr. Ervin, the independent auditor's report describes 
several discrepancies in documentation of certain property 
plans, equipment and operating materials and other material 
weaknesses in the financial reporting mechanism of the U.S. 
Coast Guard. Can you bring us up to date as to what is going on 
with that?
    Mr. Ervin. Yes, I would be happy to.
    With regard to PP&E, property, plant and equipment at the 
Coast Guard, there weren't procedures in place to ensure that 
documentation was received in time before the audit had to be 
completed to support $2.9 billion in PP&E at the Coast Guard. I 
want to be clear about that. That is not to say that $2.9 
billion of property was missing; the property was there and 
indeed the documentation was ultimately produced. It just 
wasn't produced in a timely enough fashion such that it could 
be factored into the financial statement audit. We understand 
that the documentation has been submitted and that should not 
be a problem going forward.
    With regard to OM&S, operating materials and supplies at 
the Coast Guard, the figure there was $497 million, almost $1 
billion. There the problem was the procedure calls for two 
things, a review of the record as to exactly what the inventory 
is and also an observation of what the inventory is. With 
regard to observing the inventory, that was difficult because 
sometimes the ships were out to sea, for example, and in those 
instances where there was inventory to observe and check 
against the documentation, there were discrepancies and those 
discrepancies couldn't be reconciled or at least they couldn't 
be reconciled in a timely fashion. Go forward, that issue 
likewise needs to be taken care of if these problems are not to 
recur in 2004. That is it in a nutshell.
    Mr. Towns. Mr. Maner, I sort of regret asking this question 
because you have only been around 60 days but do you really 
feel you have the material and staff to really make what we are 
asking you to do a reality?
    Mr. Maner. I believe that in Homeland there is the staff 
and the expertise to do and put forth, manage and perfect 
financial management practices and systems. Yes, I believe that 
expertise exists within the Department. That said, as we have 
discussed with the chairman, we have to put out SOPs that say 
how we want to do these things. Yes, I do believe the expertise 
exists.
    Mr. Towns. Is there anything on this side you think we need 
to do? Let us reverse our roles. You are the member.
    Mr. Maner. That is quite a role reversal.
    Mr. Platts. Besides shelving 2886.
    Mr. Towns. I think that is it, that is very important. 
[Laughter.]
    Mr. Maner. I have had conversations with a lot of people 
who have asked my opinion as I have moved from bureau to the 
Department and I think people should look at what Homeland has 
done in the past year, not just on the mission side, I think 
those are well documented but I think we should look at what we 
have done on what I will call the mission support side in our 
office. We have in place now and are utilizing a very robust 
investment review process, yes, modeled after DOD. We have done 
our audit, we are making progress. I take very seriously 
dollars that are misspent or anything that comes into my 
purview but we need some patience in terms of what we are 
trying to do.
    We want to put in our SOPs but we want people to remember 
at the same time we have very well run, well constructed 
bureaus within our department. We are not starting from scratch 
so we do ask for patience. We have almost 300 GAO audits going, 
we have several hundred issues with the IG now. We are 
testifying a lot, we have reports to Congress and we should do 
all this but we are working very hard and have the staff to 
make great progress this year.
    Mr. Towns. I grant you it is a huge task, there is no 
question about it. We all agree. Yet sometimes I wonder if you 
really have the necessary tools to be able to do what we are 
asking. I wonder about that.
    Mr. Ervin, your testimony mentions the creation of a Grants 
Management Council intended to provide advice on issues 
specifically related to the Departments grants. Can you 
characterize for us the efforts that will be made through the 
Council to improve the disbursements and stewardship of first 
responders grants or the emergency terrorism preparedness and 
the award process?
    Mr. Ervin. With regard to the Grants Management Council, 
the Department is to be commended for establishing the Council. 
As we understand, the first meeting of the Council took place 
last month in February. We attended that meeting. We are a part 
of that process as an observer to give our input and 
recommendations for the Department to accept or reject as it 
sees fit. The concept of it is a good one and that is to 
provide some department level oversight over the grants award 
process to promote efficiency and integrity and economy, and 
also to develop some metrics by which, as I said in my prepared 
testimony, a determination can be made as to how the money that 
is being spent is used and whether the country is more 
prepared, the recipients are more prepared as a result of those 
expenditures. That in a nutshell is the concept behind the 
Council and that is a good concept. We will continue to 
participate in that process and oversee it.
    We ultimately hope there will also be a grants management 
system, a financial system, that will support the Council and 
support the grant process. There are a number of things that 
such a system should have as a part of it, namely complete and 
accurate funds control and several other things I could 
elaborate on.
    With regard to the State and local grants which you also 
asked about, I should tell you that we have completed an audit 
of this very newsworthy issue of how well the Department has 
done in getting these first responder grants out to States and 
localities. That draft report is with the Department for 
review. Our practice is to give the Department 30 days for 
comment. In this instance because it is such a topic of 
interest to the Congress and the American people, we are hope 
we will receive the Department's comments sooner than that but 
at the latest we expect to issue that report in April.
    I can tell you that generally the audit finds a good story 
for the Department. The Department has done, generally 
speaking, a good job of getting the money out to the States and 
localities. We find largely the hangup is at the State and 
local level. The States, in certain instances, have not 
disbursed the money quickly, sometimes for good reasons because 
the States want to ensure that there is a procedure in place to 
justify the expenditure of the money at the local level and to 
make sure not every locality in a given State gets the same 
amount of money or is given an amount of money for the same 
purposes. They are rather complex procedures obtaining between 
the States and localities in certain instances, so there are a 
number of reasons for that, but on the whole, the Department 
has done a good job of getting the money out.
    I would be happy to give you some specifics on that if you 
have one more moment.
    Mr. Towns. Mr. Chairman.
    Mr. Platts. Sure.
    Mr. Ervin. We have a breakout of what we are finding there. 
We looked at these States in particular: California, Texas, New 
York, Florida, Illinois, Pennsylvania, Ohio, Michigan, New 
Jersey, Georgia and Massachusetts. As of November 2003, 
Pennsylvania had drawn down relatively little of the awarded 
funds but it obligated almost all of the funds. Ohio had drawn 
down almost half but had obligated almost all. New York, your 
State, had drawn down almost nothing but obligated less than 
half. There are different stories with regard to the various 
States but again, the Department has done a pretty good of 
getting the money out.
    Mr. Towns. Can I get a copy of that?
    Mr. Ervin. Yes, I would be happy to give you a copy of what 
I just gave you. With regard to the draft report itself, as I 
say, it is with the Department for comment.
    Mr. Towns. Actually, just that part there.
    Mr. Ervin. Absolutely.
    Mr. Towns. Because you mentioned New York.
    Mr. Platts. And Pennsylvania. Probably not by chance.
    Did you have others?
    Mr. Towns. No.
    Mr. Platts. We are estimating the first vote in about 15 
minutes which will give us about 30 more minutes. We will see 
where we are, if we can get through and not have you wait, but 
time will tell here.
    Mr. Maner, I want to followup on the staffing. You talked 
about your confidence that the Department has the personnel and 
expertise. I wanted to make that more specific with respect to 
your office. Does the CFO Office have the staffing numbers and 
expertise that you need to be able to truly make an informed 
assessment of what you are provided by all the component 
entities when you are compiling and forwarding it? It may exist 
elsewhere in the Department but do you have what you need to do 
what you are charged with?
    Mr. Maner. I do have what I need at present to do what I am 
charged with. I think as we evolve, we will probably need to 
grow in the Office of the CFO. I feel comfortable about our 
staffing right now. We are just starting to get to our 
authorized level and I think we have done some pretty good 
things with that number of people.
    Someone in my position always has a greater vision for 
where you want to take financial management. I know you asked 
me not to focus on that but I will use resources in the 
components to help us get there. In DHS, you can't sit in the 
ivory tower, so we have been very good at using what we call 
details, some short term, some long term, on our eMerge2 
project which is a huge not only systems project but it is 
going to be our process. So it is not only developing our 
process but our system. We might have 200 or so people over 
there. That is a mix of contractors, detailees and full-time 
staff. I like that blend. I think you get a lot from that 
blend.
    Your specific question was about my staffing and I feel 
decent about where it is right this very minute.
    Mr. Platts. So currently you are not requesting any 
additional staff? You don't have any pending requests for 
additional staff?
    Mr. Maner. I don't at this moment.
    Mr. Platts. I appreciate the economy of scale using 
resources that are maybe being under utilized in a component. 
My concern is ultimately your office is responsible not just to 
compile but to attest to the accuracy of what is going to be 
audited. The importance of your people responding to you, 
especially since the component CFOs don't answer to you, are 
not hired and fired by you, that their independence is more at 
issue because they answer to somebody else. I appreciate that 
you are looking at that. In a similar way the IG is independent 
within your department, you are independent to attesting to the 
accuracy of the material the component entities are submitting 
to you.
    Turning to the issue of internal controls, reading from a 
statement is what I understand is referred to as the Green 
Book, the GAO Standards for Internal Controls, ``A good 
internal control environment requires that the agency's 
organizational structure clearly define key areas of authority 
and responsibility and establish appropriate lines of 
reporting. The environment is also affected by the manner in 
which the agency delegates authority and responsibility 
throughout the agency.'' In the words of the Green Book, having 
a delineation of authority is something that is critical to 
good financial practice, especially regarding internal 
controls.
    Given that all material deficiencies identified relate to 
internal controls, it seems we come back to the issue of 
delineation of hierarchy and authority be the top priority. We 
have to get that in place. I start there in reiterating what we 
already talked about a bit but the option of that delineation 
existing today.
    Mr. Maner, if you could give us an update on how your 
department is trying to comply with the Integrity Act 
requirements relating to attesting to the internal controls of 
the Department?
    Mr. Maner. I would start by recognizing that internal 
controls, as you suggest, are what you can look at more than 
just in audit to see how you are doing and where your assets 
are and how well you are controlling your assets. For us we 
have to focus first and foremost on our SOPs for how we are 
going to learn about and correct our weaknesses, many of which 
are as you suggest at internal controls.
    We are going to focus on trying to correct all our material 
weaknesses and reportable conditions this year. How do you do 
that? First, you have to obtain the commitment from the places 
where these material weaknesses are at the highest level to 
correct these. That we have done. I have already had some 
meetings as recent as yesterday about some of these problems to 
learn how the Bureau has been briefed, are we working on plans 
to correct these deficiencies and internal controls. For us, we 
are very focused on a rigorous approach to solving these 
problems.
    Mr. Platts. In complying with the Integrity Act which 
relates to the accuracy of your internal controls or 
appropriateness of those controls, the auditor found 14 
reportable conditions relating to internal controls, 7 of which 
were considered material weaknesses, yet your Integrity Act 
report didn't identify any of those. There seems to be an 
inconsistency for which I would appreciate your explanation.
    Mr. Maner. Our report as I understand, as I have read it, 
was one of the very first things that I approved, has been 
signed by the Secretary and it actually did recognize most of 
what the auditor found in terms of our internal controls, if I 
read it correctly. In terms of our compliance, I think last 
year we had a very difficult situation in doing a mid-year 
startup, in taking on some of the challenges we did. That said, 
we were comfortable in the work my office did in signing a 
report that did represent internal controls.
    I do want to make the point that as I have read it, I 
believe most, maybe two that our auditor found were not in our 
report.
    Mr. Platts. In your expressing objection to requiring an 
audit opinion on internal controls, you talked about the 
excessive costs and staff required. Do you have an estimate of 
what that cost in dollars and staffing time would be in saying 
it would be excessive?
    Mr. Maner. I have very limited data, as do a lot of people 
around the Government. As best we can tell from working with 
the IG and our auditor, it does seem to be about 30 percent 
above and beyond. That is sort of the average number I have 
heard above and beyond the cost of our audit.
    Mr. Platts. So instead of $10 million, perhaps $13 million?
    Mr. Maner. Yes.
    Mr. Platts. Doesn't it seem that would be a wise 
investment? Mr. Towns gave the example of the TSA contracts and 
if we were doing audits of internal controls, we may have more 
quickly and better understood those problems before the huge 
loss of dollars. A related example, not necessarily dollars 
paid out to somebody outside the Government but OSHA has 
reported that the Transportation Security Administration had a 
20 percent injury and illness rate for 2003. I believe that 
rate is 26 percent for the first quarter of 2004. The average 
across the Federal Government is 3.7, 20 percent versus 3.7 for 
illness and injury of its employees. On lost time, the 
Department had 9 percent of the TSA workers actually have lost 
time because of being sick or hurt versus a 1.7 percent average 
governmentwide. Those numbers tell us that there is a way above 
average illness and injury incident at TSA in lost time, way 
above average.
    In both of those cases, Mr. Towns' example and the 
contracts, lost time at TSA, both would seem to make a pretty 
strong argument that an audit of internal controls, why do we 
have that and how do we fix and would save a lot of dollars as 
opposed to costing $3 million. Your thoughts?
    Mr. Maner. I don't mean to imply and hope my statement 
didn't imply that an audit of internal controls is a bad use of 
dollars. I don't mean to imply that. Anyone from the private 
sector or public sector knows it is a very useful tool in 
managing your agency and knowing your weaknesses. I would never 
want the record to reflect that.
    That said, there is a lot of work and talk going on in the 
Government right now about the subject of mandating audits on 
internal controls, there are folks at OMB studying this issue, 
doing cost benefits that I am learning about. I learn something 
new about that each week.
    I am saying to have the timing right of doing this audit on 
internal controls, I read once that the Social Security 
Administration does this and this was their cost and I just 
caution people that is one agency with one set of internal 
controls and we are not one set of internal controls, we are 
multiple, perhaps seven or eight.
    Yes, we need to do this. It is a question of time. Homeland 
is not currently in its final structure. The fans are still 
moving out of TSA into ICE, CVP and ICE have not fully 
completed their restructuring. I think there is a time and 
place for this audit. That is all I wanted to reflect, that now 
didn't seem to be the time for that.
    Mr. Platts. Paraphrasing, you think an audit of your 
internal controls will be a good and worthy investment but it 
is a question of when, not if?
    Mr. Maner. I would love to have some data from an 
independent body or someone that tells me the cost benefit of 
it within the Government. I know of it more from the private 
sector and I think people are doing that now, so yes, it is a 
question of time.
    Mr. Platts. Kind of which came first, the chicken or the 
egg, because I am not a CPA, my background is not in this area 
and I have worked hard in the last 13 months to get myself up 
to speed to be able to fulfill my responsibilities as Chair but 
my understanding is having sound internal controls is one of 
the most important foundation items in your financial 
management system. So every year that we don't do them, we are 
farther along in developing a system that maybe is not based on 
a good knowledge base because of the internal controls not 
being as good as they need to be and our understanding of those 
not being what it needs to be.
    In my layman's understanding of internal controls and 
auditing, it would be the sooner the better because that allows 
us to go forward. I would welcome your opinion on the wisdom of 
auditing internal controls by an outside entity and would you 
recommend doing that now versus waiting for another year or 
more? When I say now, I mean the 2005 fiscal year with us 
already being well into 2004.
    Mr. Maner. I can confirm, based on our understanding, that 
the issue of cost benefit is in fact being studied in the 
Government now. The PCIE, for example, the President's Council 
on Integrity and Efficiency, the Consortium of US 
Presidentially appointed Inspectors General are studying that 
issue and likewise the CFO Council is consulting with a number 
of agencies like Social Security Administration which Mr. Maner 
mentioned and FDIC and GSA, so we should know soon what that 
cost benefit analysis is.
    Once the cost is determined, then we will have that data. 
Clearly during the course of the financial statement audit 
obviously certain material weaknesses were unearthed. The 
question is what additional ones might be unearthed and at what 
additional cost. We will have that information soon.
    At a minimum, I think it is fair to say that having an 
opinion at the appropriate time, and I think sooner rather than 
later, on internal controls and also with regard to this 
management assertion, I think that could be helpful if it does 
nothing other than focus management's attention on internal 
controls, on reviewing them, on evaluating them, on assessing 
what the Department is doing with regard to that and indeed, as 
I said, during the course of that process still more internal 
control weaknesses might be unearthed.
    Mr. Platts. I am one who certainly believes in holding 
ourselves to the same standards we are requiring of the private 
sector. In Sarbanes-Oxley, we said to the private companies, 
you have to do audits of internal controls and they are working 
through that to meet whatever the challenges are in making that 
happen. It seems somewhat hypocritical if we are saying to the 
private sector, you need to do it but we are resisting it. 
Making an informed decision I think is wise and may be that 30 
percent will be way off. Maybe it is 500 percent and it gets 
more questionable.
    In your department specifically, the examples we are seeing 
with the TSA contracts with the lost time, there is a lot of 
money that relates to the internal control issue that seems 
could likely be saved and diminish those losses if we are more 
informed with our internal control process.
    Mr. Ervin mentioned the CFO Council. Do you participate in 
the CFO Council?
    Mr. Maner. I do, yes.
    Mr. Platts. I am glad to hear that. I wasn't sure. That 
being statutorily created by the CFO Act, I am glad to know 
that you are an active participant.
    Mr. Maner. In fact, it has come into play very quickly in 
my tenure in that they have done under Ms. Springer's guidance 
a lot recently on the early close, helping to educate, using 
people who have done it in the past to help educate those of us 
who have not.
    Mr. Platts. For the November 15th deadline?
    Mr. Maner. Exactly. It has been very helpful.
    Mr. Platts. Finally on the internal controls, it seems in 
complying with the Integrity Act, you should be a long way 
toward having your internal controls in place for a good audit. 
As you are looking at that cost benefit, it seems that is 
something you want to weigh by what you are required to do 
under that act, you are a long way there. I hope that is being 
factored into that assessment of cost benefit.
    Mr. Maner. I agree with you.
    Mr. Platts. Mr. Towns.
    Mr. Towns. One question. I can't leave without asking this. 
I feel that excluding the CFO of a department with so many 
operational components really would be short-sighted on our 
part if we did. If all the other CFOs in the executive branch 
are confirmed, can you explain or convince me why you shouldn't 
be?
    Mr. Maner. I believe that confirmation and some of the 
other items are very important processes within government. I 
just don't want you, the Congress or the American people to 
think that we need that legislation to make us uphold to the 
portions of the CFO Act that are very important or to consider 
financial management as an important and critical piece of 
running a department.
    Whether or not Senate confirmation is a good or a bad 
thing, I won't debate. It is certainly a lengthy process.
    Mr. Towns. I agree with that.
    Mr. Maner. We certainly just want to make sure that someone 
like myself or someone who follows me is at work and not 
waiting for confirmation which in Homeland has taken some time. 
I would leave it at that. I don't think anything more needs to 
be said but I just don't want people to think that would lead 
to us caring more, paying more attention to financial 
management. It is one of the driving goals of the Department to 
excel in this arena already.
    Mr. Towns. I think the chairman said it well already, it is 
not really about you, it is in terms of the future. I served in 
the Congress with Secretary Ridge and have great respect for 
him. I think he is a very capable person. I think the issue 
here is that putting a structure in place that we know in 
moving forward would be there to do the kind of things that 
need to be done. That is my concern. I say it without 
reservation because I feel pretty strongly about it and knowing 
the Secretary as I do, him and I played basketball together, so 
we know each other, and I think he is a very competent and 
capable person. It is nothing to do with any of that or you. I 
just think it is important to put this in place so years and 
years to come, we will know it is working and working properly.
    On that note, Mr. Chairman, I yield back.
    Mr. Platts. Thank you.
    Given his size, I assume the Secretary was a good inside 
player. [Laughter.]
    I am a guy who stays out on the perimeter and tries to 
shoot over the big guys.
    Mr. Maner, Mr. Towns gave a good summary. It is not about 
you or the Secretary but about the process. Unfortunately, 
history told Congress that when left to their own decisions, 
previous departments and agency administrators didn't 
prioritize financial management as high as needed and that is 
why the Integrity Act, that is why the CFO Act and the 
Management Improvement Act were all adopted.
    I appreciate your ability to be with us today and your 
sitting here to testify and say you want to stand by and make a 
commitment on your successors or 5 years from now, their 
successors efforts, whoever it may be. That is what it is 
really about. It is about institutionalizing good management 
practices, having a commitment from the individual that the 
process requires good management as opposed to the people 
requiring it as well. We want both. The benefit I think is to 
have both.
    A specific question on one of the component entities is 
INS, BCIS, CIS, I am not sure, there are a number of acronyms, 
but one of the serious material weaknesses inherited regarded 
INS and their processing applications and recording revenue and 
the fact they had to shut down for 2 weeks at the end of the 
previous fiscal year mainly to count where they were. The 2003 
audit listed this as a reportable condition. If both of you 
could address where you believe we are on that specific aspect 
of the audit report?
    Mr. Ervin. Our recommendation, Mr. Chairman, has been so as 
to avoid this for 2004, that CIS undertake to do what is called 
cycle counts which as I am sure you know is simply a process of 
having various field locations do the process of comparing the 
applications they have in process on their system and the 
actual number of applications, do that for a few field 
locations during the course of the year and see if there are 
discrepancies. If there are discrepancies early on, then work 
out procedures to resolve those discrepancies as opposed to as 
you say waiting until the end when the heavy hand of the 
financial statement audit is upon us to shut down the entire 
system.
    We understand that the Department is considering cycle 
counts. It may be that cycle counts are underway. If they are 
not underway, we urge that they get underway because we think 
that is a very good system that could be put in place now, at 
least to lessen the likelihood that a year of shut down would 
have to occur again.
    Mr. Platts. Would an analogy be with the quarterly 
financial reports, trying throughout the year to stay ahead of 
the process instead of at the end?
    Mr. Ervin. Precisely because the longer there are these 
discrepancies between the count and the inventory and the 
actual physical applications, the bigger the problem and the 
harder it is to resolve at the end, needless to say.
    Mr. Platts. Mr. Maner, your view on where you are and how 
you are trying to address that reportable condition?
    Mr. Maner. I have not had my meeting with CIS to know 
specifically about the corrective action planned that is in 
place. As I understand from briefings with my staff, they have 
seen some obvious improvement in the situation, largely due to 
systems improvements. As it was told to me, I think they have 
quite a ways to go, so I would have to get back to you on that.
    Mr. Platts. If you could followup and give us that 
assessment. I raise that specifically because at my office in 
the district we process a lot of INS work and one of the 
challenges we find is their inability to manage the volume they 
are dealing with. It really has kind of a snowball effect 
because they are getting further behind on processing the 
initial application, then having to issue interim work 
authorizations and things related that are temporary which then 
takes more staff time and gets worse and worse. It is something 
we are looking at which maybe relates more to the government 
efficiency side of our subcommittee more than the financial 
management but it certainly is something that is going to 
impact the financial management because if you have to again 
shut down for 2 weeks, that is having a financial impact as 
well as an efficiency impact. Your taking a look and followup 
would be great.
    As I read your testimony, I made all sorts of notes and I 
just want to followup with you. I think through the questions 
we touched on pretty much everything I had. It is probably good 
timing with the bells going off and the votes. I am glad that 
worked out because I always feel bad if we hold you and your 
staffs here while we are voting and take up more of your day.
    I would conclude with my sincere thanks to both of you for 
your participation here today and your testimony and especially 
for the work you are doing day in and day out, you and your 
staffs.
    Mr. Maner, some of my questions are maybe more pointed at 
where you are and why aren't you doing this, it is a year gone 
now, a year for the Department, 60 days for you but as the 
chairman and given the oversight responsibility the committee 
has, I feel obliged to pursue the issues that are raised and to 
stay with them as we will. I do appreciate the effort and the 
good faith effort you are making in a challenging environment.
    I hope that within the Department you will give 
consideration to and advocate for the administration better 
embracing what we are trying to do with the legislation which 
to me your good actions make the case of why we want to make it 
permanent. You will work with us as partners in achieving the 
ultimate goal of good financial management and good efficiency 
in the operation of the Department as we go forward.
    I thank you for your efforts and your testimony. We will 
keep the record open for 2 weeks for some of the followup 
materials we asked for and appreciate your participation as 
well as all in the audience today being here.
    This hearing stands adjourned.
    [Whereupon, at 3:30 p.m., the subcommittee was adjourned, 
to reconvene at the call of the Chair.]

                                 
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