[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
DHS IN TRANSITION: ARE FINANCIAL MANAGEMENT PROBLEMS HINDERING MISSION 
                             EFFECTIVENESS?

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

                                HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
                      FINANCE, AND ACCOUNTABILITY

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 27, 2005

                               __________

                           Serial No. 109-82

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                      http://www.house.gov/reform



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                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut       HENRY A. WAXMAN, California
DAN BURTON, Indiana                  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
GIL GUTKNECHT, Minnesota             CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana              ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio           DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania    DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee       DIANE E. WATSON, California
CANDICE S. MILLER, Michigan          STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio              CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California          LINDA T. SANCHEZ, California
GINNY BROWN-WAITE, Florida           C.A. DUTCH RUPPERSBERGER, Maryland
JON C. PORTER, Nevada                BRIAN HIGGINS, New York
KENNY MARCHANT, Texas                ELEANOR HOLMES NORTON, District of 
LYNN A. WESTMORELAND, Georgia            Columbia
PATRICK T. McHENRY, North Carolina               ------
CHARLES W. DENT, Pennsylvania        BERNARD SANDERS, Vermont 
VIRGINIA FOXX, North Carolina            (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 Management, Finance, and Accountability

              TODD RUSSELL PLATTS, Pennsylvania, Chairman
VIRGINIA FOXX, North Carolina        EDOLPHUS TOWNS, New York
TOM DAVIS, Virginia                  MAJOR R. OWENS, New York
GIL GUTKNECHT, Minnesota             PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana              CAROLYN B. MALONEY, New York
JOHN J. DUNCAN, Jr., Tennessee

                               Ex Officio
                      HENRY A. WAXMAN, California

                     Mike Hettinger, Staff Director
               Tabetha Mueller, Professional Staff Member
                         Nathaniel Berry, Clerk
            Adam Bordes, Minority Professional Staff Member





















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 27, 2005....................................     1
Statement of:
    Hale, Janet, UnderSecretary for Management, Department of 
      Homeland Security; Andrew Maner, Chief Financial Officer, 
      Department of Homeland Security; Linda Combs, Comptroller, 
      Office of Federal Financial Management, Office of 
      Management and Budget; and Richard Skinner, Acting 
      Inspector General, Department of Homeland Security.........     6
        Combs, Linda.............................................    23
        Hale, Janet..............................................     6
        Maner, Andrew............................................    11
        Skinner, Richard.........................................    29
Letters, statements, etc., submitted for the record by:
    Combs, Linda, Comptroller, Office of Federal Financial 
      Management, Office of Management and Budget, prepared 
      statement of...............................................    25
    Hale, Janet, UnderSecretary for Management, Department of 
      Homeland Security, prepared statement of...................     8
    Maner, Andrew, Chief Financial Officer, Department of 
      Homeland Security, prepared statement of...................    14
    Platts, Hon. Todd Russell, a Representative in Congress from 
      the State of Pennsylvania, prepared statement of Mr. Ervin.     4
    Skinner, Richard, Acting Inspector General, Department of 
      Homeland Security, prepared statement of...................    31





















DHS IN TRANSITION: ARE FINANCIAL MANAGEMENT PROBLEMS HINDERING MISSION 
                             EFFECTIVENESS?

                              ----------                              


                        WEDNESDAY, JULY 27, 2005

                  House of Representatives,
Subcommittee on Government Management, Finance, and 
                                    Accountability,
                            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 Russell 
Platts (chairman of the subcommittee) presiding.
    Present: Representatives Platts, Gutknecht, Duncan, and 
Towns.
    Staff present: Mike Hettinger, staff director; Dan Daly, 
counsel; Tabetha Mueller, professional staff member; Jessica 
Friedman, legislative assistant; Nathaniel Berry, clerk; Hailey 
Gilmore and Lauren Kovarik, interns; Adam Bordes, minority 
professional staff member; and Jean Gosa, minority assistant 
clerk.
    Mr. Platts. This hearing of the Government Reform 
Subcommittee on Government Management, Finance, and 
Accountability will come to order.
    We are going to begin with opening statements, with the 
hope of getting through both Member and witness opening 
statements before the first round of votes, then have probably 
about a 25 minute recess during the votes, and then come back 
to Q and A, depending on the time of Mr. Towns, Mr. Souder, and 
others who we believe will join with us at some point. Either 
they will offer their statements for the record or have 
opportunity to present them, as well.
    Financial management of the Department of Homeland Security 
is regrettably somewhat in disarray. Recent reports have 
revealed serious accounting problems, including mismanagement 
of large contracts at the Transportation Security 
Administration, ineffective control of grants processing, and 
budget shortfalls at the Bureau of Immigration and Customs 
Enforcement.
    In a statement prepared for this hearing, former DHS 
Inspector General Clark Kent Ervin highlighted the operational 
impact of this budget shortfall, and I would like to read a 
brief statement from that ``ICE was forced to institute a 
hiring freeze. The agents had insufficient funding to fill 
their cars with gas, pay confidential informants, and even use 
their cell phones.''
    We owe it to the men and women who protect our borders and 
put their lives on the line day in and day out to do a better 
job managing their department. We owe it to the taxpayers to do 
a much better job keeping track of the dollars they entrust to 
us to secure the homeland.
    We cannot continue to have contracts mishandled because the 
appropriate controls are not in place. We cannot continue to 
spend money and not know where it went. We cannot continue to 
experience budget shortfalls because projections were made with 
unreliable and inaccurate data. This must be a top priority for 
Secretary Chertoff and all senior management officials at the 
Department.
    Luckily, we have a blueprint for a sound financial 
management foundation: the Chief Financial Officers Act of 
1990. The CFO Act was debated over a period of 5 years and 
passed in response to financial management crises not unlike 
those currently being experienced at DHS. The CFO Act 
established a centralized financial management structure 
designed to provide CFOs with the authority to make 
improvements and the responsibility to be held accountable for 
their efforts. This law applies to every major department in 
the U.S. Government.
    Congress provided an important tool by applying the 
provisions of the CFO Act to the Department of Homeland 
Security, giving the Department a mandate to adopt the 
appropriate financial management foundation. Behind the scenes, 
this committee has been working for over a year with the 
Department to ensure that this law was appropriately 
implemented and that all requirements were met. We worked with 
the Department in good faith, allowing a dual reporting 
structure so that the CFO could interface both with the 
undersecretary for management, while still reporting directly 
to the Secretary.
    The Department recently completed its second stage review; 
but, unfortunately, the version of the new organizational chart 
that the Secretary presented to the Congress and the public did 
not include any reference whatsoever to the Office of the CFO. 
I am pleased to say that a new version of this chart, which I 
received last evening, does, in fact, represent a structure 
that gives the CFO a clear delineation and direct reporting 
relationship to the Secretary.
    We do not presume to think that implementing this structure 
will be a silver bullet and solve all the problems at DHS, but 
it is a foundation that will ensure that financial management 
is a top priority and that the CFO has the necessary standing 
to impose the needed reforms, and that this standing and 
prioritization is understood throughout the Department and with 
all partners of the Department.
    One requirement of the law that has not been addressed, 
however, is the fact that the CFO candidate must be confirmed 
by the Senate--something that has not yet occurred. I am 
interested to hear what steps will be taken to remedy this 
situation and where we currently stand.
    Yesterday marked exactly 58 years since President Truman 
signed the National Security Act, creating the Department of 
Defense on July 26, 1947. In the nearly six decades since its 
creation, DOD has yet to get a handle on its financial 
management. We cannot afford to have DHS go down the same road, 
and appropriate focus on financial management sooner rather 
than later at the Department of Homeland Security is a key step 
to avoiding a repeat of DOD's longstanding financial problems. 
Complying with the CFO Act is not onerous, and it is clearly 
not optional.
    Today we are pleased to hear from the Honorable Janet Hale, 
Undersecretary for Management at the Department of Homeland 
Security; Mr. Andy Maner, the Department's Chief Financial 
Officer; the Honorable Linda Combs, Comptroller of the Office 
of Federal Management at the Office of Management and Budget; 
and the Honorable Richard Skinner, the Acting Inspector General 
at the Department of Homeland Security.
    We certainly thank each and every one of you for being 
here, along with your staff--your presence here today, as well 
as the testimony in writing you submitted in advance, and your 
willingness to take our questions.
    Before we continue, I would like to ask unanimous consent--
as the only one present, I guess that will be an easy one. We 
will probably reaffirm that with Mr. Towns once he arrives. We 
would include the statement I referenced from former Inspector 
General Clark Kent Ervin. That statement will be included in 
the record.
    [The prepared statement of Mr. Ervin follows:]





    Mr. Platts. While we await Mr. Towns' arrival, and that may 
occur after the votes, I think what we will do is proceed to 
our witnesses' opening statements. As a practice of the full 
committee and the subcommittee, we would ask all of our 
witnesses to stand and be sworn in, and any staff that will be 
giving you guidance as a part of your testimony, if they would 
also stand and be sworn.
    [Witnesses sworn.]
    Mr. Platts. Thank you. The clerk will note that all 
witnesses affirmed the oath.
    Again, we appreciate your written testimonies. If you can 
do your best to try to stay to about 5 minutes, that would 
allow us to hopefully get everyone in before the votes.
    Secretary Hale, we will begin with you.

   STATEMENTS OF JANET HALE, UNDERSECRETARY FOR MANAGEMENT, 
DEPARTMENT OF HOMELAND SECURITY; ANDREW MANER, CHIEF FINANCIAL 
    OFFICER, DEPARTMENT OF HOMELAND SECURITY; LINDA COMBS, 
COMPTROLLER, OFFICE OF FEDERAL FINANCIAL MANAGEMENT, OFFICE OF 
 MANAGEMENT AND BUDGET; AND RICHARD SKINNER, ACTING INSPECTOR 
            GENERAL, DEPARTMENT OF HOMELAND SECURITY

                    STATEMENT OF JANET HALE

    Secretary Hale. Thank you, Mr. Chairman. Thank you for 
having all of us here today to reemphasize our personal 
commitments as well as the professional commitments of the 
Department of Homeland Security to financial integrity and 
accountability.
    As you have heard all of us say over the last 2\1/2\ years, 
this was a divestiture, a merger, an acquisition of a dot com, 
and startup of an international conglomerate. It was brought 
together to strengthen the security of this homeland, but to do 
so with integrity and strong financial resources being 
dedicated to that front-line mission. That is why it is so 
important for us to do just the sort of things that you have 
referenced in your opening remarks.
    There were 180,000 people, $31 billion, and 22 agencies 
that came into this Department. We took our stewardship of both 
front-line mission, but integration of those programs with, 
again, maximizing the resources to the front line and being 
able to consolidate into a much more efficient and effective 
manner over these last 2\1/2\ years. In my testimony you will 
see some of the accomplishments. I am so proud of the men and 
women who have been able to accomplish that.
    Secretary Chertoff in his very early days reemphasized, as 
he did again in the last 2 weeks when he reemphasized in second 
stage review, the importance of financial integrity and 
procurement. He asked Acting I.G. Rick Skinner and the Chief 
Procurement Officer, Greg Rothwell, to come to his office in 
those very early days to sort of say how can we exactly address 
the sort of issues that you have talked about. He wants to be 
sure that we spend the taxpayers' money wisely and, in fact, 
has asked all of us to be vigilant of that task.
    You did reference in his second stage review the 
organization chart, and I would like to just emphasize again to 
you, sir, that this was an attempt to actually lay out the 
organizational structure. I was pleased to be able to submit 
with my testimony that clarification. There is no doubt in our 
mind that Andy Maner, the CFO, is a direct report to the 
Secretary, and I do truly appreciate your leadership in 
recognizing the dual report in your legislation.
    Andy, the CFO, needs to have that relationship with the 
Secretary, the Deputy Secretary, and with the agency heads, as 
well as the dual report, so he has that. He has it through 
small, but tremendously meaningful daily meetings with the 
Secretary. He has it in sort of the ability to develop, 
formulate, and execute the budget and to lead the financial 
management aspects of the Department. We see him as a leader. 
We see that access, that direct report, but also that dual 
report is incredibly important.
    I would like to just take a couple seconds on why that dual 
report is important because we all recognize that support and 
access that he needs to have to the Secretary. But, as you 
referenced, the Chief Procurement Officer, the Chief 
Information Officer [CIO], the Chief Human Capital Officer--
that is a management team that, in fact, the synergies between 
them can strength and guide our financial management and our 
accountability throughout the Department. I think they have 
been a great team, and I think that dual report is one that has 
been important. Again, sir, I recognize and thank you for that 
leadership in recognizing that.
    You asked about the requirement of the law to submit a 
nomination for the CFO. We do take that seriously in the 
Department. As you and I have talked and as others in the 
Department have talked with you, we are actively recruiting a 
CFO and hope to have one selected in the very near future. I 
can and will again reaffirm to you that we will keep this 
committee apprised of the progress and actually look forward to 
having a selection, as I said, in the near future.
    We take this act seriously. We take your leadership and 
your stewardship and your oversight of the Department 
seriously. I actually think that I will leave the details of 
the financial act to Andy Maner as he talks about it. But, 
again, I want to thank Andy for his professional leadership in 
the CFO as he has done it before the act and during the act.
    Thank you, Mr. Chairman, for the opportunity to testify in 
front of you today.
    Mr. Platts. Thank you, Madam Secretary.
    [The prepared statement of Secretary Hale follows:]




    Mr. Platts. Mr. Maner.

                   STATEMENT OF ANDREW MANER

    Mr. Maner. Thank you, Mr. Chairman. I want to also thank 
you for inviting me up here today. It has been about a little 
over a year since I have been up here. I just would ask that my 
full written statement be submitted for the record.
    I appreciate the work that this committee has undertaken 
and its ongoing concern and support for financial 
accountability at DHS. I also appreciate the support of my 
fellow panel partners here that they have given to DHS as we 
have stood up the Department in our efforts to instill sound 
practices throughout the Department. The recent attacks in 
London remind us DHS has an incredibly important mission. 
Protecting this Nation and its citizens from the threat of 
terrorism is why this Department was created and is the No. 1 
priority of this Department.
    That said, as Undersecretary Hale alluded to, financial 
management is also extremely important. Secretary Chertoff, in 
his announcements this month, has reaffirmed his commitment to 
the stewardship of national resources as an element and one of 
the key imperatives that he wants to monitor as we drive his 
near-term agenda at DHS.
    The vision for financial management at DHS is one where 
there exists a framework of people, processes, and systems 
which stakeholders such as leaders, managers, people like 
myself are to have accurate, timely, and useful information to 
make effective decisions in support of our missions. This 
vision means that we can support an unqualified opinion on our 
financial statements, we can make reasonable assurances over 
our internal controls, and we can relate our spending to our 
performance, and that we have an integrated financial 
management system or group of systems, and, finally, that we 
have a cadre of dedicated and highly talented financial 
managers to pull this together.
    As CFO of the Department, I am keenly aware of the 
importance of sound financial management and am proud of the 
great progress the Department has and continues to make in 
furtherance of this vision.
    In January we set forth a 3-year strategy for receiving 
unqualified opinion on our consolidated financial statements 
and eliminating all material weaknesses. This strategy involves 
achieving full visibility of our financial management issues 
and challenges, correcting our material weaknesses, and 
complying with the internal control provisions of the Financial 
Accountability Act.
    We are hard at work on correcting material weaknesses 
identified in our 2004 audit. Many of the underlying issues 
behind the weaknesses are very complex, and in most cases have 
no quick fix, but we are taking aggressive, methodical, and 
appropriate steps to address them.
    As for the material weaknesses involving financial 
management and the structure and processes in my office and 
around my office, significant accomplishments have been made to 
date. We have instituted stronger quality control processes by 
issuing guidance to our components much earlier in the process. 
We have hired and contracted many additional skilled accounting 
personnel. In fact, the FTE in my office has nearly doubled 
since I was here last.
    We have initiated a comprehensive internal control 
assessment of our process. We have significant open 
communication and regular reporting with the Secretary, his 
team, key leadership, and stakeholders such as OMB, the IG, 
GAO, and our auditors.
    The Secretary has clearly communicated in writing our goals 
for financial improvement to our agencies. We have actively 
engaged our components through monthly CFO councils, weekly 
working groups, and, of course, our internal control meetings. 
All organizations with internal weaknesses have developed their 
corrective action plans and spell out how they will remediate 
these actions. We hired a Deputy CFO who is probably among the 
best in Government to lead a lot of these efforts.
    We are also making progress in our efforts to improve our 
financial management systems, which is a key component of all 
this. Since I have testified before this committee, we have 
completed an exhaustive Department-wide requirements definition 
and design phase, hired a systems integrator; and we have 
identified a comprehensive, Department-wide, not just Bureau-
wide, Department-wide solution. We have completed an 
enterprise-wide buy for software. We have begun work on e-
travel and on other financial management issues such as a 
dashboard and other payroll improvements.
    We are also developing performance metrics so that we know 
how we are doing and our CFOs and other agency heads know how 
they are doing against those goals.
    As far as implementation of the Financial Accountability 
Act, we are making great progress here and I am very proud of 
our efforts.
    While I believe that GAO's criteria for assessing whether 
an organization is ready to support such an audit would suggest 
that DHS might not be ready, it is, nonetheless, a requirement 
that we are addressing with vigor. The task of examining and 
documenting internal controls over financial reporting is time 
consuming and very challenging, as many in the private sector 
and the Government would attest, but we agree that it is 
imperative that DHS move as swiftly as possible to implement.
    As Secretary Chertoff reported to you last month in a 
letter, DHS has initiated extraordinary steps to organize the 
Department to prepare for and execute an audit of our internal 
controls. We established an Internal Control Committee 
comprised of senior DHS executives to orchestrate our 
implementation of the act. We have developed and published an 
implementation guide for complying with those provisions of the 
act. We have initiated a comprehensive internal control 
assessment of the reporting processes within my office, and 
Coast Guard, one of our largest components, has also initiated 
process level documentation files. And over the summer we will 
be executing a detailed and technical seven-step plan to 
support the Secretary's assertion this year and to prepare for 
our audit next year.
    I am obviously very pleased with our trailblazing 
implementation of an internal controls process. Implementation 
concerns aside--and there are many--the Department's initial 
efforts are ernest, credible, and I intend for DHS to be a 
leader in the Federal Government in establishing best practices 
in reporting on internal control.
    In closing, let me thank you personally and the 
subcommittee and assure you that DHS and I are committed to all 
parts of the Financial Accountability Act, and we believe that 
effective internal control is, indeed, a key to accountability.
    DHS leadership is committed to a culture of integrity, 
accountability, and effectiveness, and we will continue to work 
with Congress, OMB, GAO, and the IG to ensure inherited 
weaknesses do not become ingrained into our operation.
    Thank you, Mr. Chairman.
    Mr. Platts. Thank you, Mr. Maner.
    [The prepared statement of Mr. Maner follows:]



    
    Mr. Platts. Dr. Combs.

                    STATEMENT OF LINDA COMBS

    Ms. Combs. Thank you, Chairman Platts and members of the 
committee. I thank you for the opportunity to appear before you 
again today to discuss the financial management issues at the 
Department of Homeland Security.
    The administration has made improving financial management, 
as you know, one of its top priorities. The President, through 
his management agenda, is holding executive departments and 
agencies accountable for achieving clean audits, building 
strong internal controls, and creating an atmosphere here 
timely and accurate financial data is used by agency leaders on 
a day-to-day basis to inform key decisions and strategies 
within their departments.
    It is through these financial disciplines that the 
Government can ensure that the American public has good 
stewards at the helm for the American taxpayers; also, that 
Government leaders are making smart decisions, and that those 
dollars that the Federal agencies have can carry out their 
mission successfully.
    Nowhere are these objectives more important than at the 
Department of Homeland Security. We all know the critically 
important mission that has just been discussed by my colleagues 
here that this Department is charged with, and we all know the 
enormous challenges that the Department has faced in bringing 
together numerous and complex organizations to help achieve 
their mission.
    In my role in the Office of Management and Budget as 
Comptroller, I am charged with carrying out the President's 
management improvement initiative and financial management 
Government-wide; therefore, I work closely with Homeland 
Security on these efforts. I am pleased to be able to sit here 
with my colleagues today, who I believe are very strong leaders 
and have a very clear and strong understanding of financial 
challenges that they face. They are committed to doing what is 
necessary to meet those challenges, and they have developed an 
aggressive schedule for implementing critical improvements, and 
they have had significant and important accomplishments that 
are serving as a foundation for further progress.
    In fiscal year 2003, the year of the DHS existence, they 
conducted an audit of significant parts of financial operation, 
and even though they were not required to do that at that 
particular time. But this process provided the Department with 
an early visibility into internal control and other financial 
vulnerabilities and provided a very good foundation for moving 
forward.
    In fiscal year 2004 DHS completed a more comprehensive 
review of financial management activities, and did so just 2 
days past the 45-day deadline that was accelerated, and the 
previous year I think they had reported in 136 days, as opposed 
to 45. That is a significant accomplishment.
    DHS has also been working aggressively to ensure that its 
corrective actions lead to fewer material weaknesses in its 
2005 audit report. They have moved quickly to comply with 
requirements for an audit opinion on internal controls pursuant 
to public law 108-330. The Department has taken many critical 
steps, some you have heard about already and some you will hear 
about further today, including the establishment of the 
Internal Controls Committee. And, having done that before in 
previous agencies myself, I can attest to how important that is 
throughout the Government in having that in the individual 
departments.
    Developing an implementation guide and strategy and 
adopting the GAO internal control management and evaluation 
tool, aligning those efforts with the Government-wide 
implementation guidance for circular A-123, those are heroic 
efforts.
    In closing, the administration remains committed and 
remains dedicated to improving overall financial management 
across Government.
    Given the Department of Homeland Security's unique and 
vital purpose of protecting our homeland, I can assure you that 
we are committed to closely monitoring the Department's 
progress; to ensure that it continues to take the necessary 
steps; to improve its financial reporting, financial 
management, and internal control processes; and offer any help 
that we can along the way in terms of assuring their success.
    I look forward to maintaining an ongoing dialog with this 
subcommittee on the specific efforts and progress that Homeland 
Security is making to meet its financial management and 
reporting goals and requirements.
    Thank you, Mr. Chairman, for the opportunity to be before 
your committee today. I am pleased to answer any questions.
    Mr. Platts. Thank you, Dr. Combs.
    [The prepared statement of Ms. Combs follows:]



    
    Mr. Platts. Mr. Skinner.

                  STATEMENT OF RICHARD SKINNER

    Mr. Skinner. Thank you, Chairman Platts, for the 
opportunity to testify today about the OIG's work regarding 
financial management at the Department of Homeland Security.
    I would like to summarize three issues from my prepared 
statement that I have submitted for the record, and that is the 
Department's current financial reporting status, implementation 
of internal control requirements, and the role of the CFO.
    First, concerning the state of the Department's current 
financial reporting, as you know, DHS received a disclaimer of 
opinion on its 2004 financial statements. However, this 
disclaimer obscured some very good news, and that is, for 
several DHS components with accounting operations, we noted 
relatively few problems that contributed to the Department's 10 
material weaknesses. When one analyzes the reasons for the 
disclaimer in the material weakness, the critical path for 
improving financial reporting becomes clear; that is, fix the 
process at Immigration and Customs Enforcement [ICE], and at 
the Coast Guard and at the Department's CFO office.
    I am pleased to report that the Department has taken 
significant steps in addressing our recommendations regarding 
the structure of the CFO's office. The CFO's office, as Andy 
Maner has already pointed out, has hired a deputy and several 
accountants and contracted with an accounting firm to evaluate 
the consolidated financial reporting process. Also, the CFO has 
developed automated procedures that identify abnormalities in 
financial reporting. The bureaus research the abnormalities and 
the CFO monitors the bureaus' progress in correcting them. We 
will be reviewing the utility of these changes in our current 
audit cycle.
    The Coast Guard has also made some structural improvements. 
It has hired an experienced civilian financial manager to 
coordinate its financial reporting in order to lend continuity 
to the rotational environment of the military. The Coast Guard 
also has hired a contractor to evaluate its internal controls 
for certain financial processes as part of the Department's 
overall effort to implement the DHS Financial Accountability 
Act.
    ICE presents the most difficult financial reporting 
challenge for DHS. Its financial management problems have 
reverberated throughout DHS, consuming large amounts of 
management time and affecting the accounts of other significant 
DHS components. We reported in 2004 that ICE fell seriously 
behind in its basic accounting functions. Many of these 
problems persist today. To help address these issues, ICE has 
recently appointed a new acting CFO and financial management 
director.
    Second, concerning the implementation of the internal 
control requirements of the DHS Financial Accountability Act, 
this presents a tremendous challenge to DHS, a challenge that 
the Department is taking very seriously. The CFO is committing 
Department and bureau resources to the project and has taken or 
is taking the necessary actions to meet this requirement. But 
this is not going to be an easy task. The Department is 
starting in the hole, so to speak; that is, as a new, not-yet 
fully integrated organization with 10 material weaknesses, a 
disclaimer on its 2004 financial statements, and major 
accounting problems with two of its critical components, ICE 
and Coast Guard. Nevertheless, with the right resources, a 
genuine commitment, and a sustained leadership, DHS can be 
successful implementing this requirement.
    Finally, concerning the need to strengthen the role of the 
CFO, I had previously reported my concern about the CFO's 
authority within the Department in our 2004 management 
challenges report. My concern was that under the Department's 
management directive the CFO does not have direct authority 
over financial management personnel at the component level. 
Component heads retained control over the financial management 
resources in the respective organizations. This concept of 
operation tends to divide the responsibility for financial 
management from the authority to command the resources needed 
for good financial management.
    Notwithstanding my concerns in this regard, however, I am 
encouraged by the Secretary and Deputy Secretary's commitment 
to financial management. In my meetings with them, it became 
clear to me that they have made financial management in the 
Department a priority, as evidenced by the CFO's direct 
reporting responsibilities to the Secretary on all financial 
management issues.
    The results of our ongoing audit of the Department's 
financial reporting will go a long way in determining whether 
new authorities vested in the CFO is sufficient for good 
Department-wide financial management.
    Mr. Chairman, that concludes my remarks. I will be happy to 
answer questions.
    Mr. Platts. Thank you, Mr. Skinner.
    [The prepared statement of Mr. Skinner follows:]



    
    Mr. Platts. I appreciate all four of your opening 
statements. I am going to recess now to the call of the Chair 
and hopefully be back in 20 or 25 minutes. I apologize for 
keeping you waiting.
    [Recess.]
    Mr. Platts. We will reconvene the hearing.
    I am pleased to have been joined by our ranking member, Mr. 
Towns from New York. He is going to submit his opening 
statement for the record without objection.
    I know Mr. Duncan will be here shortly.
    We are going to go into the questions. Again, I thank each 
of you for your written statements and your testimony here 
today. I want to say up front that, while we want to have a 
frank and substantive dialog with you today, that I certainly 
appreciate the dedicated work of each of you and your 
colleagues in your respective offices, and appreciate the 
efforts you are making on behalf of all of our fellow citizens.
    I think we are all after the same thing, which is an 
accountable Federal Government and, in specific in this case, a 
well-run and efficient Department of Homeland Security that can 
well fulfill its critically important mission. As Mr. Maner 
said, given the attacks in recent weeks in Great Britain, all 
the more important a reminder of the nature of that mission. It 
is why we, quite frankly, have spent as much time as we have on 
the financial management of the Department, because clearly the 
better we do on financial management the more resources are 
available to that front-line mission, and that we really are 
after achieving that ultimate goal.
    I want to begin, Mr. Maner, with the internal control audit 
issue. I appreciate directly in our conversations and in other 
forums you have expressed concerns about the process for moving 
forward with the internal control audit and the timing of it 
for the 2006 fiscal year. One of the things I have read, or 
maybe I have taken from your comments, is the concern that your 
audit is not going to be maybe a good audit, in other words, a 
clean audit or a very positive audit, because of not being able 
to have everything done in advance that you would like to. 
Quite honestly, I would expect it to highlight some 
deficiencies and do not think that is a bad thing though.
    The analogy would be to last week when Dr. Combs was here 
with us on improper payments, and I said it may sound a little 
unusual but I am hoping that this year's number is higher than 
last year's $45 billion because we know the money is out there 
and I would rather we identify the improper payments because 
then we can go after and try to prevent them in the future by 
uncovering them. That is really what we see with the internal 
control audit is to help identify problem areas.
    That being said, where do you stand today as far as a 
comfort level of us going forward and that we are not looking 
for a clean audit but just to get to that better--and, in fact, 
your statement kind of made it for me. You were talking about 
2004 being your baseline audit because you address the 
additional four statements as opposed to the 2003 audit, and in 
your words, ``The harder and deeper you test a system, the 
truer, more complete an assessment you get and the more 
weaknesses you are likely to find. My goal is to get to 
bedrock.'' That is exactly what we are after in the internal 
audit, and, again, where you are today.
    Mr. Maner. Sure. Well, first of all, I think many in the 
Government, we are trying to all find our way through this. 
This audit, probably one of this size has not been attempted 
before, so we are working with OMB, working with our auditor. 
And so where am I today? Again, GAO has spoken on this issue, 
which is: when is an entity ready for an audit of this size and 
of this scope? That is really what I have been talking about. 
It does not do you all the good that you want to do an audit if 
you are not ready for an audit.
    What do I mean by that? So much of an internal controls 
audit, really, so much of any audit, is the planning and 
documentation phase. In other words, an auditor is going to 
come into a room on internal controls just as they would a 
balance sheet and say, ``OK, show me your documentation.'' If I 
do not and the Department and every component that is viable 
does not have that documentation done, the auditor could say, 
``I cannot. I do not have enough information. I have to 
disclaim this audit.'' And so my statement and my thinking is I 
just believe that we need to be ready for the audit, and that 
is producing for an internal controls audit, as you know, a 
massive amount of documentation.
    So we are going down the road. We have put our planning 
guidance out, as you know, and we are going to do it. But I am 
mindful of the statements GAO has made about when is someone 
ready for an audit. I am mindful of the push back and the 
issues we have discussed within our own Internal Controls 
Committee, but, to the broader point, we are going to do it, we 
are going to do it as best we can, and we are going to get 
better every year.
    Mr. Platts. I agree that the audit readiness and 
preparation is key here, and really one of the reasons of when 
we agreed to 1 year, doing 2006 instead of 2005, was to give 
that opportunity. But I also look at it that if we had said 
2007, somehow we would fill all the time between now and 2007. 
If we had said 2008, in other words, human nature is if we have 
a deadline we all the more work to make that deadline. That is 
part of that push.
    You reference in your testimony, in talking about the 
internal control audit, one of the challenges apparently is in 
the staff, and, in your words, very taxing on a thin financial 
management cadre. It is something I believe the Inspector 
General has referenced, as well, as far as the ability from the 
human capital resources to have enough experts, enough 
individuals.
    When I read both the IG's statement and yours, I take that 
perhaps you do not have enough staff, by what you are saying. 
If that is the case, have you made requests for additional 
staff in order to comply with the law, which is to be ready for 
that 2006 audit?
    Mr. Maner. Sure. Before I address staffing, let me just 
make one follow-on point to your comments about your delay.
    You are absolutely right. You will fill the time. I just 
want to continue to assure this subcommittee that, because we 
have 10 material weaknesses on international controls already 
identified by ourselves and our auditor, I just want to make 
sure all realize that those are serious weaknesses that give 
us, that have us moving in the right direction, so the ball is 
moving forward. I just wanted to make that point.
    In terms of staffing, of course, because this is relatively 
new in the Government and new even to the private sector, it is 
not about numbers of people. It is certainly about the quality 
of the people. People have undergone something this rigorous. 
And so I believe we do have the right number of people, but we 
have asked for and the appropriation has been generous to date 
for additional dollars so we can get some advice from the 
outside, and we have done that.
    So at present I am pleased with our staffing in that our 
financial management shop and in my office total our staffing 
has doubled since I have been there. So numbers of people not 
as important, but both ourselves and our components are going 
to need to add this expertise, for sure, to be able to do this.
    Mr. Platts. What did you mean then by the thin financial 
cadre? I mean, because in your written statement it seems like 
you do not have enough.
    Mr. Maner. No. I believe that with the challenges DHS has 
in front of it with regard to our financial statements, and 
that includes some of the things you mentioned in your opening 
statement about ICE, challenges at the Coast Guard, all of our 
weaknesses. We could all be busy morning, noon, and night with 
just that audit, and on top of it the new audit just is 
additional requirement. So we have asked for, the 
administration has provided, and to date the Congress has given 
us additional people, as well. So I did not mean to imply we 
are not growing, because we are growing to meet that 
requirement.
    Mr. Platts. A followup question on this and then I want to 
get to Mr. Towns, and we also are pleased to have been joined 
by Mr. Duncan from Tennessee.
    On the audit, itself, I think in the 2006 budget request, 
the $5 million that I believe is specifically for the cost of 
the audit being done, in our dialogs, the committee's dialog 
with some entities in the field that may be a low number. Are 
you confident that is going to cover the cost of the internal 
control audit?
    Mr. Maner. Well, there's actually, we intend to use the 
resources that we have and have asked for for really three 
pockets, which is, one, people on our own staff. Two would be 
preparation, getting ready for the audit. And then three would 
be the cost of the audit. Some of those will be done with 
appropriated dollars and some we will, when it is a shared 
cost, we will use our working capital fund for the various 
bureaus. From now as we go forward, bureaus will be expected to 
ask for and we will put dollars for that in their budget from 
this point forward. So we have ingrained that requirement into 
our budget cycle. It is a well-known thing now.
    Mr. Platts. So the $5 million is additional money basically 
to the CFO for the audit, but you are also going to be looking 
for all of the entities within the Department to kick in 
dollars from their own budgets?
    Mr. Maner. They will have to begin to do that, yes, to 
prepare for the audit and then also pay for the audit.
    Mr. Platts. And carry a share of the cost of the audit?
    Mr. Maner. Right.
    Mr. Platts. And your three items, it sounds like you again 
said you have asked for additional staff?
    Mr. Maner. I would love to get back to the committee even 
while we are here today, because I believe the money that I 
asked for in the 2006 budget was for getting ready and for five 
additional FTE to help us on the internal controls, but I will 
make sure I clarify if that is not correct.
    Mr. Platts. OK. Thank you, Mr. Maner.
    Mr. Towns.
    Mr. Towns. Thank you very much, Mr. Chairman.
    Mr. Maner, I am not sure I understand why you think that an 
audit at this time would be counterproductive. I am not sure I 
understand that, because you are talking about readiness and 
you are talking about planning and documentation. I mean, with 
a new agency, I mean, it seems to me that you should be ready, 
I mean, because I could see if you were the Department of 
Defense, but a new agency, why would not you be ready for and 
also be receptive to it at this point in time? It is not clear 
to me.
    Mr. Maner. Well, let me first say that I absolutely embrace 
the active law and I intend to, and we have talked internally 
and externally that we intend to embrace the law in its 
totality. In previous conversations with the committee last 
year, I raised some issues about it, but the law is the law and 
we intend to comply with it.
    As for being ready for it, again, as this committee knows 
and others know, there is internal controls work in your 
financial statement audit, so we are learning. We have 10 
material weaknesses already, so we have, again, plenty to do.
    In terms of it being duplicative, again, it is the law and 
we are going to get ready for it and we are going to do it, but 
I will say that people should not underestimate the amount of 
rigor and amount of documentation and planning that needs to be 
done to do this right. So will we be there in a year? We will 
not be there in a year. But we will do it, and when we do our 
first audit next year we will go as far as we can go. We have 
embraced it with the full vigor of the leadership of the 
Department.
    Mr. Towns. It is not a staffing problem?
    Mr. Maner. The internal controls audit certainly relates to 
staffing, but you need to do a tremendous amount of 
documentation. I cannot overemphasize the amount of 
documentation. Now, I must tell you I must confess I have not 
done one of these before, so I am learning from people in the 
private sector, I am learning from people within the Government 
who have done it.
    In fact, one of our bureaus, Customs and Border Protection, 
has done one of these a few years ago before they came to 
Homeland. What I have learned, it is about documentation, 
documenting all processes, everything from start to finish, and 
it is just time consuming.
    Mr. Towns. OK. Let me ask you a question about a letter 
here. I have a copy of a letter here dated July 20th from 
Congressman Benny Thomas to Secretary Chertoff. It questions 
DHS on its decision to award a single vendor a blanket purchase 
agreement for the new MAX HR system. Has DHS responded to 
Congressman Thomas' inquiry?
    Secretary Hale. I know that if it has not actually been 
sent that we are in the throes of doing it and that we have 
been in discussion with the committee staff. I am just not sure 
whether the signature is on the letter, but we have been in 
discussion with the committee staff on that, I believe.
    Mr. Towns. All right. So it will be happening very soon?
    Secretary Hale. Yes.
    Mr. Towns. Thank you.
    Mr. Maner, as you well know, our committee has been active 
in pursuing new policies and activities for agencies to reduce 
the extensive amounts of improper payments identified by GAO. 
What efforts are underway at DHS to further identify and reduce 
such payments in the future? What are you doing to correct 
that?
    Mr. Maner. Well, certainly improper payments is part of our 
overall audit process and we had, I believe, a few of our 
bureaus undergo specific audits, themselves, to determine how 
extensive the issues are at Homeland. Improper payments exist 
certainly everywhere, and it is our responsibility to limit 
that. We had one particular instance at FEMA, one of their 
accounts that scored in an area that we would be uncomfortable 
with above the OMB level, and we have addressed that issue.
    But certainly the work of this committee, the work of Dr. 
Combs and others on this, we are going to be very mindful of 
this going forward. But it continues to be something we track 
on our monthly dashboard. In other words, our components submit 
to us and we put out to everyone for everyone to see how 
everyone is doing in improper payments, so it continues to be a 
key metric for us as we evaluate our components and ourselves.
    Mr. Towns. Mr. Chairman, is that our red light or yours?
    Mr. Platts. I think it is yours.
    Mr. Towns. I yield.
    Mr. Platts. We will be back to you. Thank you, Mr. Towns.
    Mr. Duncan.
    Mr. Duncan. Well thank you, Mr. Chairman. I do not have a 
lot of questions. I will say this: it gets kind of 
discouraging, though, when we hear over and over and over again 
about all these billions that are being lost or misspent or 
whatever you want to say about it. I mean, a couple of months 
ago we heard that the Defense Department had mis-spent $35 
billion in Iraq and had lost $9 billion in additional money, 
just lost $44 billion.
    Of course, nobody is supposed to criticize the Defense 
Department now, but still that seems to me to be a pretty 
horrible thing to mis-spend or lose $44 billion. Then last week 
we heard about several other departments and agencies that had 
mis-spent--other than the Defense Department--that has mis-
spent I think it was $45.1 billion in our hearing. Was it last 
week that we had that hearing?
    And nothing ever happens to anybody. Nobody gets fired. 
Nobody is really held accountable. It does not come out of 
their pocket, so far too many people do not seem to care, and 
then we talk about these billions so often that it just goes 
right over people's heads.
    I mentioned one other time that Charlie Cook, the very 
respected political analyst, said in a speech I heard about a 
year ago, he said nobody can humanly comprehend a figure over 
$1 billion, and I guess that is really true. But it just gets 
really discouraging at times to keep hearing this from every 
department and agency in the Federal Government.
    I do not know that there's any way really to stop this 
unless we just really drastically down-size the size and cost 
of the Federal Government. I do not think we are going to do 
that. I tore out this article a few days ago about the TSA. It 
says, ``TSA lost control of over $300 million spent by this 
contractor to hire airport screeners after 9/11.'' It just 
seems like we read stuff like that every day. I just do not 
know.
    I will say this: I sure appreciate you continuing to hold 
these hearings and call attention to these things, because if 
we are going to have any hope to do anything about these things 
this is the best way to do it. But I tell you, after you hear 
this year after year after year you just become convinced that 
the Federal Government cannot do anything in an economic or 
efficient or especially in a frugal way.
    I yield back.
    Mr. Platts. Thank you, Mr. Duncan.
    I wanted to come back to the internal audit control issue. 
We have had some informal discussions on the issue and the 
support within the Department for doing this. Mr. Maner, you 
referenced that you are fully behind this and understand the 
importance of it, embracing it.
    I do want to ask, though, back to the ongoing 
appropriations process. On January 30th this year then Deputy 
Secretary Loy had sent a memo to all the undersecretaries and 
others. From the copy I received it does not appear that it 
came to you as CFO but to others in the Department to ``impress 
upon the importance of the internal control requirements of the 
DHS Financial Accountability Act.'' Seven days later, the 
President's budget comes up with the request for a year delay 
on the terms of that legislation that was just referenced.
    I guess, first, are you aware of what the genesis of that 
memo was, and did you receive it? And, Secretary Hale, did you 
also receive a copy of that memo?
    Mr. Maner. Yes. Sir, I would have helped write that memo 
for the Deputy Secretary. Again, the previous discussions, I 
guess it is a bit of if I had three wishes back then, maybe one 
of them was to have 1 more year to get ready. But I fully 
recognize that the committee passed and the full House and 
Senate passed and the President signed, and we started to get 
ready for it.
    I think what you referenced in the budget document was an 
oversight, part of a previous discussion, but I hope that the 
memo and the series of memos since from our leadership, 
including Secretary Chertoff, have made it to you and that you 
see that we are fully behind it, and the work that we did. We 
always appreciate a dialog and the way you engaged us and OMB 
in the drafting of the legislation, we appreciated it. We 
appreciated the extra year. We may have wished for two, but now 
we are fully behind it.
    Mr. Platts. Secretary Hale, had you received a copy of that 
memo, to your memory?
    Secretary Hale. As Andy, the CFO office, said, it worked 
with the Deputy Secretary's office, and yes, I saw it as it was 
in preparation and then again as it was distributed.
    Mr. Platts. I guess I have gotten conflicting 
understandings of how that request even got in the budget 
document, whether it was OMB's initiative or the Department's. 
I would be interested in both of you sharing your understanding 
of how it came to be in the document and who drafted it and 
signed off on it being in there.
    Mr. Maner. Yes. The accountability lies with me, certainly, 
which general provisions which go into the budget, which there 
are sometimes hundreds, lots of fine print. They start to get 
prepared many months before the submission of the budget, both 
to OMB and then ultimately to the Congress the first Monday of 
February. So there are lots of general provisions and it got in 
there.
    Mr. Platts. So it is your initiative to have it included?
    Mr. Maner. It was my initiative when we initially did a 
call in the summer for general provisions.
    Mr. Platts. And this was after the law was signed by the 
President?
    Mr. Maner. Probably before when it was first drafted, but 
then certainly after once it got in, so accountability lies 
with me. It should not have been in there. It is our mistake. 
But hopefully the dates of other things show you that we have 
not just recently gotten going on the audit. We have been doing 
it for some time.
    Mr. Platts. In the Senate appropriations bill for DHS there 
is language that addresses this request as if it is still a 
valid, open request from the Department that you would like a 
year delay. Given your acknowledgement that it was contrary to 
the President's wishes, since he signed the law, and you have 
said several times, including earlier this year when we 
discussed it, that it should not have been in there and you 
regret it was in there, did you make any effort to the 
appropriators to the House or Senate and say, ``Page 574, I 
think it was, or so, that is null and void, that request. We 
stand by the President's signing the act into law.''
    Mr. Maner. Sir, I had not known that it was in the Senate 
bill, but we have certainly, I have certainly talked with folks 
and people know that we are embracing the bill. So it shouldn't 
be in there.
    Mr. Platts. The Senate and House appropriators know that 
you do not want a year delay?
    Mr. Maner. I suspect they do, but I do not know for sure.
    Mr. Platts. Would you feel comfortable making sure they are 
aware that you do not want a year delay?
    Mr. Maner. I do.
    Mr. Platts. If you would do so and copy the committee with 
that----
    Mr. Maner. We will do it.
    Mr. Platts. That way we are all on the same page, not just 
the authorizers but the appropriators, they know that you stand 
by the 2006 and we are moving forward?
    Mr. Maner. Happy to do it.
    Mr. Platts. OK. Thank you.
    Dr. Combs, in a letter from Clay Johnson earlier this year, 
April 6th, to--it was in response to a letter to Secretary 
Chertoff and Director Bolton from myself, Mr. Towns, Chairman 
Davis, Chairman Cox, Mr. Waxman, Mr. Thompson, that the 
importance of meeting the audit requirements of the DHS 
Financial Accountability Act. In response to our letter, Mr. 
Johnson wrote back, and in his letter he stated that ``OMB will 
continue to support the need for DHS to fully prepare itself 
for meeting internal implementation deadlines and complying 
with its internal control requirements.'' It raised a little 
concern with me that, while there's an acknowledgement of the 
act's requirements, that the focus is going to be on meeting 
internal deadlines in the Department or OMB, as opposed to, 
again, the letter of the law. Are you aware of any deadlines 
that are being used for guidance in DHS in complying with the 
internal control audit that are different than the law, itself?
    Ms. Combs. No, sir, I am not aware of anything except full 
administration support of the law, itself, and of doing 
everything we can to fully support our colleagues here in the 
administration and fully adhering to that.
    Mr. Platts. Thank you.
    Secretary Hale, Mr. Maner, we did not receive a letter, a 
response from the Department to that April 6th letter until 
just last week. It was dated May 9th, but turned up in our 
hands July 20th, and my understanding is the other recipients 
of the letter received it about the same time, last week.
    I guess, one, I was wondering why the delay. What happened? 
It seems like the letter perhaps was written in May but never 
shared with us. Are you aware of the reasons for the delay in 
it being actually communicated to us?
    Mr. Maner. No. I have the letters here. That is 
unacceptable. We received your letter, it looks like, on April 
6th and our response, as you say, is dated May 9th, so I see no 
reason why that should not have been up here sooner.
    Mr. Platts. Yes. If it was just mine with mail here I would 
maybe understand. Sometimes that happens with mail.
    Mr. Maner. We do not tend to mail. We bring things up. That 
should not have----
    Mr. Platts. Mr. Skinner, were you aware of the request for 
the delay in the budget document?
    Mr. Skinner. No, not until we saw it in the budget request.
    Mr. Platts. How did you come to be aware of it? Actually, 
your staff had seen it in the budget request?
    Mr. Skinner. Yes.
    Mr. Platts. Once the budget was submitted to Congress or 
prior to that?
    Mr. Skinner. No. Once it was submitted to Congress.
    Mr. Platts. Did you raise any concerns or issues about that 
since it was the letter of the law was 2006 and 2 months after 
the----
    Mr. Skinner. I think our staff did, in fact, have 
conversations with people in the office of the CFO, and my 
recollection is that there was concern that the Department was 
not ready, because they had rolled up their sleeves and were 
going full speed ahead with regards to trying to address or 
develop corrective action plans for the material weaknesses, as 
well as attempting to integrate their financial management 
systems and producing financial statements that we could opine 
on, an opinion that would be qualified as opposed to a 
disclaimer. I think all the attention was over on the 
preparation of the financial statements. People believed this 
was a diversion and a distraction and----
    Mr. Platts. I want to stop you there. So it was conveyed to 
you by others in the Department that doing--complying with the 
internal control audit would be a distraction from their 
responsibilities?
    Mr. Skinner. During this year, yes. Everyone believed, 
since we did the 2004 statements that was our base year, 2005 
was a very critical year for the Department to break away from 
the disclaimer into a qualified opinion.
    Mr. Platts. I appreciate your frankness and would suggest 
to the Department that there clearly is a difference of 
opinion, then, between this committee and the Department that 
doing an internal control audit is a distraction from the work, 
the financial management work of the Department.
    I will not go into great detail but I am going to get into 
the TSA audit that was referenced by Mr. Duncan. There's other 
TSA audits, the ICE debacle at the end of year 2002, the $300 
million short. Those are all internal control problems, and the 
sooner we get after them the more responsible we are for the 
taxpayer funds and the sooner we can better fulfill the mission 
of the Department.
    Mr. Skinner, your opinion is doing an internal control 
audit would be beneficial to the Department and its fiduciary 
duties to the taxpayers?
    Mr. Skinner. Most certainly. If we can attest to the 
internal controls with regard to financial reporting, I think 
that adds another level of assurances that the financial 
statements that you see and the public sees are accurate and 
reliable. I think an audit of those assertions will also aid 
management to identify any gaps--any problems they have with 
their processes that can be fixed and hopefully in the future 
eliminate all internal control or material management 
weaknesses.
    Mr. Platts. I share that opinion, and all the more why we 
will continue to push the issue here.
    I want maybe just one final question in this area before 
yielding back to the ranking member. Ms. Hale, on July 15th of 
this year, 2 days after we had submitted our request for the 
Department to come up and testify regarding compliance with the 
DHS Financial Accountability Act, as well as the 2004 audit, 
Secretary Chertoff sent a memo to agency personnel regarding 
compliance with the Financial Accountability Act, and on the 
copy that was provided to us a handwritten note from the 
Secretary saying ``This is very important.''
    My understanding is that is the first of his referencing 
the act in specific in documents, and the fact that it happened 
2 years after our request, I guess I am glad we made the 
request because it maybe help put it on his radar. I was 
interested if you could share with us your knowledge about that 
memo and kind of what generated it at that time versus earlier 
in the process, given he had been in office for several months 
and this law has been on the books at this point for 10 months.
    Secretary Hale. I think Andy is just reminding me that 
during the 2SR process I think the 2SR team reviewed--this is 
one of the areas that he had set up and during that process 
sort of reviewing the financial management in the Department. 
So while it may have been coincidence in timing, I believe--and 
Andy would have much more detail--that it had been in 
preparation before, again, because his concern about financial 
management and why he set that up as one of the 2SR reviews, 
why we had Deputy CFO Eugene Schied as one of the key leaders 
in that second stage review.
    Mr. Maner. One of the key findings, sir, of that team that 
we briefed was that, as fast as possible, much like a lot of 
the other 2SR areas, which encompassed most everything the 
Department does, one of the key findings was to make sure that 
after Secretary Chertoff had a couple months to be in the 
office, that he communicate his goal and his commitment, too, 
so that was one of the things we took on and why we put that 
out.
    Mr. Platts. And I appreciated, as one who spends a lot of 
time on financial accountability, that the second stage review 
included referencing financial accountability. I guess I was 
somewhat surprised, then, in the Secretary's letter to Chairman 
Davis of this committee on July 13th, 2 days earlier, 
referencing the second stage review and a lot of the ongoing 
work and the reallocation of functions and things, that nowhere 
in the, I think it is about a seven or eight-page letter, is 
financial accountability mentioned once. Did I miss something 
that was separate from this letter?
    Secretary Hale. Not having a copy of that letter in front 
of me, I believe that is probably our 872 letter that talks 
about the movement of organizations, and because your statute 
had passed, he was a direct report, we do not need to do a 
reorganization notice, so that was literally the notification 
to the Congress of those organizational elements that were 
moving.
    Mr. Platts. And so, because my legislation had already 
passed, it is not something new.
    Secretary Hale. Right.
    Mr. Platts. And that is not in this letter?
    Secretary Hale. That is correct, sir.
    Mr. Platts. That leads into the next issue with the 
reorganization and the identification of the CFO within the 
management structure. But before I get into that I am way over 
my time, and that is now my red light, Mr. Towns. I will yield 
to the ranking member, Mr. Towns.
    Mr. Towns. Thank you very much, Mr. Chairman.
    Dr. Combs, good to see you again.
    Ms. Combs. Thank you, Mr. Towns.
    Mr. Towns. How engaged were you and other OMB staffers in 
developing Secretary Chertoff's proposal, reorganization 
proposal?
    Ms. Combs. I am sorry? Could you repeat the question?
    Mr. Towns. Yes. I was just saying how engaged were you and 
others at OMB in the review and development of Secretary 
Chertoff's reorganization proposal? Were financial management 
concerns a significant component of this?
    Ms. Combs. I can assure you Secretary Chertoff and his 
staff developed their proposal and I was not, of course, 
confirmed until 3 weeks ago, so I personally have not been 
involved in that.
    Mr. Towns. OK. Does the mission of DHS, along with its 
decentralized structure, pose a significant barrier to 
effective financial management practices?
    Ms. Combs. I am not quite sure how decentralized the 
thought is. I think what, frankly, the centralization housed 
within the CFO is probably more pervasive than one might guess 
by looking at the organizational chart or perhaps even looking 
at some of the material that has been subsequently presented to 
you. I think the appropriate question here might be for Mr. 
Maner to explain some of the things that he and I have talked 
about, about how very, very strong his CFO shop actually is in 
reaching into the component areas, and I think you would be 
good to actually hear some of the things that he has actually 
done over the last year to strengthen the CFO shop within DHS.
    Mr. Towns. Let's yield to him.
    Ms. Combs. Let's.
    Mr. Maner. Thank you, Doctor. This has been something that 
has been very important to me in how we execute the 
relationship between our office and our bureaus. In fact, at 
last year's hearing when I was here we had a nice dialog about 
it. What we have focused on very much since I have been there 
is this centralization of processes and systems between our 
bureaus.
    In other words, we do not want to have 10 different ways to 
close our books. We do not want to have 10 different ways to 
process a travel voucher, 10 different ways to do PCS moves. We 
have focused on integrating so that we have standard operating 
procedures [SOPs], in the Department where when you come in as 
a new employee and you are at the Secret Service or you are at 
Customs you open a book and say, ``How do I do X?'' ``In the 
Department we do it this way.''
    So we have put a fair amount of capital and a fair amount 
of human work into having people help us develop those SOPs, so 
that is on the process side and I believe--this has been my 
belief-- that is one of the most important things we can do out 
of the box is to standardize the Department.
    The second is to continue working to streamline our 
financial management systems. When we first started the 
Department we had 19 financial providers in the Department, 
people getting accounting service from 19 providers. We have 
taken that to 10, and then in the last year we have reduced 
that to 8. I want to continue to work and streamline and reduce 
those, and certainly when an agency is in need of a new system 
we want to provide a Department-wide financial system. We are 
also working to provide a dashboard for management so we know 
what everyone's financial performance is.
    So the themes here out of the gate are processes and 
systems. More about people, which is, I think, an important 
aspect, how I interact with the other CFOs at the components, 
it has been an important part of my term as CFO. We have lots 
of interaction. Certainly I have a monthly CFO council. We have 
weekly meetings, as well.
    But I think how do you get that closeness to those people 
and how do you get that integration? To me it does revolve 
around performance management and how these people are rated 
and compensated, how they are hired, and if need be, fired. And 
I have full authority given to me in management directives 
signed by Secretary Ridge to do all of those things.
    So even in the last few months we have literally responded 
to questions for help from our agencies who are looking for 
CFOs, found them qualified people, and put them in.
    So as it relates to people, process, and systems, I do not 
think it would be correct to say we are not centralized. I 
think we are centralized in a meaningful way without severing 
the important dual relationship between a bureau CFO and their 
agency head.
    Mr. Towns. All right. Thank you very much.
    Mr. Chairman, my time has expired.
    Mr. Platts. Thank you, Mr. Towns.
    Mr. Gutknecht from Minnesota.
    Mr. Gutknecht. Thank you, Mr. Chairman.
    I do not really so much have a question but a comment and a 
compliment. To sort of pursue what has been said already, 
particularly by my colleague from Tennessee, we spend an awful 
lot of money on these kinds of programs.
    In fact, one of my disappointments was that when we created 
the Department of Homeland Security it was supposed to be the 
consolidation of an awful lot of programs that were in diverse, 
various different departments, that by consolidating those 
ultimately the cost would be less, certainly not any more than 
we were spending before. Of course, that was then, this is now, 
and we have seen the cost of this Department be substantially 
more than we were promised at the beginning.
    In my opinion, that is bad enough, but when you add in that 
there is an awful lot of money that cannot be accounted for, 
that makes it even more difficult to defend.
    Finally, and I think this is for the benefit of everybody 
here, in a little over a month we will celebrate the 4-year 
anniversary of that terrible attack on the United States. I 
think we need to be reminded once in a while when we say, well, 
maybe next year we can do something about this, or maybe we are 
working on that.
    When the United States of America wants to do something we 
have proven that we can do it and we can do it rapidly. I 
remind you that we won World War II in less than 3\1/2\ years, 
and if you think about what all went on to make certain that 
happened, it just boggles my mind that we cannot come up with 
sound accounting systems in almost 3\1/2\ years.
    So, Mr. Chairman, I appreciate this hearing. I hope you 
will continue to hold these hearings, because I think our 
constituents and the people who pay the bills expect no less.
    I yield back.
    Mr. Platts. Thank you, Mr. Gutknecht. For good or bad for 
everyone involved, we do plan to continue our oversight 
responsibilities and the importance of getting this right the 
sooner the better for all involved.
    I want to come back to where we left off with my last round 
of questions on the reorganization issue. I want to start with 
the organizational chart. In any department that puts these 
out, in my office we have a similar organizational chart. One 
of the purposes for doing it is to convey to all parties in the 
entity in question and outside of the entity the line of 
authority and where everyone falls and so there is no 
misunderstanding.
    That being said, as was referenced in the last question's 
answer, the letter did not reference the CFO position change in 
the July 13th letter to Chairman Davis because it was done as 
of last October, I was a little surprised when the 
organizational chart came out as part of the second stage 
review and had no CFO. To me that sends a terribly wrong 
message, that the message that has been conveyed to me by the 
Secretary, by the Deputy Secretary here today, by officials is 
that this is a priority, this is a position we see as was 
intended by Congress in the passage of the CFO Act of 1990 that 
the CFO is a strategic manager, one of the key people in each 
and every major department or agency. Yet we have an 
organizational chart that did not even identify him anywhere. 
This seemed problematic and seemed inappropriate, not to 
mention non-compliant with the law.
    I guess I would start with Secretary Hale. How did that 
come to be? Were you involved in the development of the 
original organizational chart, and specifically the lack of the 
CFO being identified in that chart?
    Secretary Hale. Sir, I was involved and let me again 
emphasize to you the importance of the CFO and that direct 
reporting relationship.
    Hindsight and your, I think, quick pointing that out to us 
is why we made a very important and I think clarifying part of 
this. What we were trying to do, and every once in a while 
hindsight is a good part for us, we were, again, like that 872 
level trying to talk about the moving parts.
    But clearly understand that it is important, as you have 
said, to both internal and external. I think internal inside 
DHS they understand the role, the leadership that the CFO plays 
in general, and this one in specific. Andy Maner is involved in 
absolutely every single major financial issue in this 
department and sits at the right hand of the Secretary and the 
Deputy Secretary, so I think it is important that we did 
clarify it, sir, and want to have absolutely no 
misunderstanding that we take that direct responsibility, 
direct reporting because of the importance of financial 
management to the Secretary.
    Mr. Platts. Your statement was that the chart was a focus 
on the moving parts, and the CFO was not moving, but it was not 
in the organizational chart prior, right, delineating direct 
report?
    Secretary Hale. Yes. Interesting, on the day of the 
announcement--and I can only tell you that of all the things we 
do in the Department, charts may not be our strength. But one 
of the moving parts was the Office of Security from the Deputy 
Secretary reporting back to me, and so I had the opportunity to 
go see the Office of Security Personnel, who were quite 
concerned about an organization chart that had an old one on 
the Undersecretary for Management. I can tell you from the 
development of our charts and with the day-in and day-out 
operation, we do understand and we do support the direct report 
to the Secretary.
    Mr. Platts. The reason I am focusing on this is not because 
I think a chart makes a difference, but it does send a message 
because you do not get to speak to every person in the 
Department or every partner who is acting with the Department 
outside, and so people do give a lot of weight to these and 
say, ``Does he really have the authority that they say he 
does?'' So that is part of the importance of reflecting, 
notwithstanding the fact that also the law says----
    Secretary Hale. Absolutely.
    Mr. Platts [continuing]. He's got direct reporting 
authority. Even in your new chart I will make one more 
suggestion.
    Secretary Hale. We always listen.
    Mr. Platts. I take the work of previous Congresses and 
Presidents as they are intended to be, as the letter of the law 
of the land, the law of the land, the intent of the CFO Act 
when it was passed, of how important a position this is. Even 
in the revised chart I appreciate the dual reporting showing 
that Mr. Maner has that direct report to the Secretary and 
Deputy Secretary, as well as to you as Undersecretary.
    The chart to your right, my left, is how I would suggest it 
to say to the world at large, the public at large, that yes, 
our CFO position is equal to our assistant secretary for public 
affairs, our assistant secretary for congressional and inter-
governmental affairs. In fact, our CFO is by law a direct 
report to the Secretary. Those other positions I believe are 
not. And to say, this is not a sub-level. This is equal if not 
more important because it is the people's money.
    I would make that suggestion and would be interested in the 
realignment that is identified in the reorganization chart, and 
that being made clear to all Department employees as it goes 
to, Mr. Maner, one of your statements about your authority. I 
think I understood you right that, per a directive of then 
Secretary Ridge, you do have the authority to fire entity CFOs 
within the Department?
    Mr. Maner. Yes. I enjoy some authorities already in the CFO 
Act, but certainly management directives are what guide a 
Department, and in consultation with agency heads we can affect 
variable compensation, performance ratings, that sort of 
things, so yes.
    Mr. Platts. Including the right to fire?
    Mr. Maner. Yes. We have that, too.
    Mr. Platts. Of all CFOs in all the 22 agencies?
    Mr. Maner. We really do not have 22 agencies, per se, but 
in our major operating entities in which there is a key 
financial person----
    Mr. Platts. Right.
    Mr. Maner [continuing]. The answer would be yes.
    Mr. Platts. And are you also consulted in the hiring of 
those positions?
    Mr. Maner. Yes, absolutely. And in most cases I might lead 
that effort or help the agency identify candidates.
    Mr. Platts. I am very pleased to hear that. I think that is 
key. The Inspector General has referenced that in his written 
testimony and I think here today, as well. Long-term, that is, 
to me, critical. We have been working with NASA, and they have 
seen some improvements from a disjointed structure where the 
CFO, in essence, took what arrived on her desk but at least 
initially did not have the ability to go out into the various 
NASA centers and say to the CFOs, now you need to answer to me, 
as well, because I have to put my name on what you are giving 
me. They have sought to improve that and it sounds like you are 
making good headway in doing the same at the Department of 
Homeland Security.
    The issue of a permanent CFO--and, Secretary Hale, you have 
raised or spoke about an ongoing effort. As we have expressed 
in conversations, as well as in writing between you and others 
in the Department and myself and the committee, the requirement 
said 6 months to have a Senate-confirmed CFO in place. Ten 
months have passed since the requirement was enacted. We are 4 
months overdue. I appreciate in your comments here today and my 
conversation with Secretary Jackson last week that there is a 
serious effort to move forward and comply with the law to have 
a Senate-confirmed CFO in place.
    First I would be interested in whether you have begun 
interviews?
    Secretary Hale. Yes, sir.
    Mr. Platts. When was the first interview conducted, 
roughly?
    Secretary Hale. Last November.
    Mr. Platts. I take it, the fact that there was not a 
submission between November and now, as we speak, that initial 
candidate or candidates was, for whatever reason, not 
acceptable?
    Secretary Hale. Let me talk a little bit about it if I may, 
sir?
    Mr. Platts. Yes, please.
    Secretary Hale. As you and I have discussed, there is, in 
my humble estimation, no more important position to fill right 
now in Department of Homeland Security. The Secretary may look 
at some of his other boxes, but it is critical for us. One of 
the things that is terribly important is to get the right 
person in the right job, and we want to be sure that they have 
the knowledge, the drive. This is a leadership position. It is 
a leadership, as you have well indicated here, and, so, we want 
to be sure.
    I hesitate to say this, but I know that it has been a 
challenge in the rest of the Government to get appropriate 
CFOs, qualified and nominated. We take this terribly serious. 
We also want to be sure that, probably to use the wrong 
expression, I do not want to just fill the box. I want to be 
sure that we have the right person in the job. This Department, 
this mission, and, as you all in this hearing today 
demonstrate, we have large challenges in front of us. We have a 
very good CFO that is at the helm right now, and we will 
continue to drive, as we have said, to fill that position in 
the very near future with a recommendation and keep you 
informed.
    Mr. Platts. I have reason to believe that we will see a 
name submitted some time in August to the President for 
consideration of submission to the Senate? Is that accurate?
    Secretary Hale. It is our absolute goal to do that.
    Mr. Platts. Well, my hope is that will occur. I agree you 
want the right person, but we also need to comply with the law.
    Secretary Hale. Sure.
    Mr. Platts. How many individuals have been interviewed 
since the law was passed to this date?
    Secretary Hale. There have been a series of interviews done 
by me and by others, but I have probably talked to seven or 
eight in the last 2 months and sort of have done extensive 
outreach to be sure that we have a wide range of candidates as 
we have looked across the Government.
    Mr. Platts. Prior to the last 2 months, and specifically in 
the 6-months that would have allowed compliance with the law, 
how many people were interviewed and in what depth were those 
interviews? How senior were they? Were the Secretary, the 
Deputy Secretary at those interviews?
    Secretary Hale. Actually, the process inside the Department 
for all of the chiefs have been one that I would do a 
significant amount, so as we have sort of filled, whether it 
was the CIO or a couple of the other ones that may be vacant, 
that I would try and reach out again because of my expertise--I 
have served as a CFO in several different departments--to try 
and sort of do that.
    The Deputy Secretary, the Secretary have all been sort of 
engaged in looking at the types of candidates and have asked me 
to do the early screenings, and so it is, again, with sort of 
knowledge of who the candidates are, the types of people we are 
looking at.
    Mr. Platts. So how many people in that first 6 months were 
interviewed in depth?
    Secretary Hale. Sir, I would hate to give you a number, but 
it is somewhere between 7 and 10.
    Mr. Platts. Not in the last 2 months, but in the 6-months--
--
    Secretary Hale. In that period about sort of finding 
candidates, reaching out, in-depth interviews sitting in my 
office, 5, 7, 10. I am not sure. I can get you that number.
    Mr. Platts. If you could, I would be interested in actually 
who they were that were interviewed and the timeframe.
    Secretary Hale. I would actually be happy to share that 
with you, sir. I think some of these, as you reach out to 
people as they are obviously either interested or not 
interested, there are some privacy issues, but I would be very 
happy to talk to you about that.
    Mr. Platts. And not just those where there was just an 
informal conversation, I am looking for someone who actually 
came in and interviewed to be considered. I appreciate the 
privacy concerns there.
    The reason for the question is again, Congress passed the 
law, the President said it is a good idea, and it needed to be 
a priority. I think we have someone who is very dedicated in 
the position to now, has been working diligently, and I am sure 
if his wife and children were here they would say too 
diligently, I imagine, in the hours you are putting in, and I 
respect that. But I do not think it took 10 months for us to 
find Andy.
    Secretary Hale. It took me a little time to talk him into 
it. And, again, we did the same kind of exhaustive search. Our 
first CFO was fabulous. It was Bruce Carnes who was here at the 
Department and then went back to the Department of Energy. And 
I am not sure how long between Andy sort of being able to 
identify, because you start with sort of a set of let's go get 
the best financial person, let's go find somebody that has 
Homeland Security knowledge. Let's go be sure that we have 
somebody that has the leadership skills.
    So I am not sure how long it was, but it was probably 4 or 
5 months between knowing that Bruce was leaving and before we 
actually had Andy locked, loaded, and in the chair. And, sir, 
again, that was without the Senate confirmation. The period 
sometimes for Senate confirmation is, as you well know, 
sometimes longer.
    Mr. Platts. But the concern is that we appreciate the 
challenges, but we continue to fill positions, CFO or deputy 
CFO positions, throughout the Department, and when we have an 
instance where it is a statutory requirement, it seems to be 
taking longer than when it is not a statutory requirement. I 
think that we need to be compliant as quickly as possible.
    I am sure that in your various positions you have given 
deadlines to subordinates to meet, and if they fail to meet 
them there were consequences, and when my citizens back home 
fail to comply with the law there are consequences, and we have 
clear failure to comply with the law. Whether we like it or 
not, that is what the law is. It seems like there are not any 
consequences here at the Federal Government level. And so I 
hope we will see compliance as quickly as possible.
    I have some additional questions. Mr. Towns, did you have 
others?
    Mr. Towns. Yes, I do. Thank you, sir.
    Mr. Skinner, some airports have turned again to private 
contractors instead of TSA for screening duties. What can you 
report to us about the performance of these contractors, and 
what controls are in place to monitor their performance? Will 
the new structure of DHS management functions aid the oversight 
of TSA contractors?
    Mr. Skinner. I believe you are referring to the pilot 
program. TSA has piloted five airports across the country----
    Mr. Towns. Right.
    Mr. Skinner [continuing]. In using private contractors to 
provide screening services.
    Mr. Towns. Right.
    Mr. Skinner. At this point in time we have not done any 
assessments of their utility, that is, how well or how 
effective and efficient they are, in fact, operating. That is 
something that is on our radar screen, however, for the very 
near future.
    Mr. Towns. What bothers me, I am sort of wondering, until 
we sort of tie some of these things down and sort of know where 
we are going or what we are doing, should we do anything else 
until we sort of get some of this under control? I am thinking 
in terms of the statements made by both of my colleagues on the 
other aisle in reference to the fact that we just have too many 
things that are just loops. To experiment with something at 
this point in time, I mean, really, is it a good thing to do, I 
mean, just from your own background and experience?
    Mr. Skinner. I think that the pilot project is part of the 
legislation that was created that set up the Federalization of 
the screening process at the airports. The reason for that is, 
after a 2, 3, 4-year assessment period, we can make a 
determination whether some airports can opt out of the 
Federalization program and go back to using private screeners 
so long as there is sufficient oversight by the Federal 
Government, or, in this case, the Department of Homeland 
Security.
    In my experiences with regard to contracting these type of 
activities out, I do not see that would create a problem so 
long as there is a strong procurement oversight function in the 
Department, one that monitors and holds contractors 
accountable. Without that oversight and monitoring role, that 
is, holding people accountable, yes, you can get yourself in 
trouble.
    As far as I know from our general contact with these 
airports--we have visited them as part of our penetration 
tests, as you may know--we have found no anomalies or anything 
to suggest that they are out of control. They are not 
performing any better or any worse than our Federalized 
airports.
    Mr. Towns. On that note then, Ms. Hale, has Congress 
provided adequate resources for DHS to comply with its 
administrative responsibilities and internal control functions? 
Are financial resources preventing DHS from improving upon its 
internal control functions? Are there personnel barriers? I 
mean, we want to help. Just trying to get a handle on 
everything.
    Secretary Hale. Thank you, sir, for both yours and the 
chairman's support in this area. I think, as Andy Maner 
indicated, this is partially a learning curve for us. We have 
the resources in the budget. I anticipate that we will get 
those, although there were some rather large reductions taken, 
but I guess not in the CFO area, so I think we are probably OK 
as we go into conference here.
    I think we will be fine. It is, again, both with the 
leadership, the documentation, and the planning that Andy Maner 
discussed before, we are committed to doing this task and we 
think we have the resources necessary. And I think in this 
regard if we do not I do not think we will be shy about it 
because, again, we are very committed to this and we are 
developing right now the 2007 budget request, so we will sort 
of look and have some time under our belt to see what it takes 
and be sure that we ask for the resources in 2007, as well. Get 
it in 2006, started the planning in 2005, and be sure that we 
are a watchful eye as we go into the 2007.
    Mr. Towns. You have our attention, so now is the time to do 
it.
    Secretary Hale. Yes, sir. I think most importantly for us 
is to get the--as I know you all share this, as well--is to get 
the appropriations bill, be sure that we have the appropriate 
staff, the background, the folks that Andy has brought on 
board, and be able to lead that effort.
    Mr. Towns. Right. Thank you very much. I yield back, Mr. 
Chairman.
    Mr. Platts. Thank you, Mr. Towns.
    I will turn to some of the audit findings, the 2004 audit 
findings. Mr. Maner, one of the issues that jumps out is the 
ICE--Immigration Customs Enforcement--issue and the significant 
budget difficulties at the end of the year. According to the 
audit, ``ICE experienced significant budget difficulties due at 
least in part to the late preparation by the Office of the CFO 
of agreements to reimburse if a cost incurred on other's 
behalf. ICE fell seriously behind in basic accounting 
functions. This condition is very serious for ICE and for the 
Department.'' I think that also then gets into Clark Kent 
Ervin's written statement about agents being unable to put gas 
in their cars, pay informants, use their cell phones. Can you 
address your understanding of the audit findings regarding 
failures within your office?
    Mr. Maner. Well, first of all, I think it is important to 
understand the situation at ICE in 2004 and the latter part of 
2003. To understand that you have to understand that ICE was 
not only going through a very difficult but important merger, 
but something else was happening at the same time that is often 
forgotten about, and that is that the INS, an organization that 
existed for decades, was being dismantled.
    Both of these decisions were absolutely the right 
decisions, and creating an enforcement bureau like ICE was the 
right decision. This all was taking place last year. The 2003 
appropriations did not take into account the new structure, and 
the 2004 budget was the first time where the budget actually 
was able to reflect the new structures. The 2004 budget was 
just a basic estimation of what the new Customs and Border 
Protection and ICE would look like.
    So we spent--my office spent thousands and thousands of 
hours, and I personally spent nearly 20 to 40 hours a week on 
this issue for the better part of last summer.
    At the end of it, some very good Government things have 
happened. First of all, ICE was going through this merger. They 
were also the Department's accounting service provider. So we 
were very much attached at the hip as this was going on but it 
was not all bad, and I did read Mr. Ervin's statement and I 
have read a lot of media reports about ICE, and I have heard a 
lot of the lore about how they cannot wash their cars, cannot 
get their gas, that sort of thing.
    And some of that may be true. A 15,000-plus person agency. 
I can tell you their enforcement numbers for that time period 
were higher than they had been before in terms of a lot of 
their drug interdiction, alien removals, fugitive operations, 
that sort of thing. So the agency was performing, but they were 
doing so under some budget difficulties, which is why we were 
in a room trying to dismantle the regional structure and 
district structure of the INS, make sure the money was in the 
right bureau. There's no handbook for it. It has probably never 
been done for the past 50 years. We did it, put thousands of 
hours. It was the right thing.
    And with the help of the Congress, I might say, and OMB--
last year we were able to infuse some cash into ICE to make it 
through the year.
    So everyone played a key part in making sure ICE was 
solvent and was able to continue.
    In terms of the specific piece you mentioned, which is 
reimbursable agreements, let me just say one of the good 
Government pieces that Undersecretary Hale, myself, and the 
leadership wanted to make sure we did with these new bureaus is 
that they not be allowed to reproduce and create new 
organizational structures. That there be some shared services. 
That we not just say, oh, because I am a new bureau I get my 
own HR shop, I get my own procurement shop. So we put into 
place, under Ms. Hale's leadership, a group of people to make 
sure that was happening. This has come to be known as tri-
bureau shared services. It began with all through the year, and 
at the end of the year we had to put reimbursable agreements in 
place to reflect that. It took a long time. It was the right 
decision. But, as you suggest in your statement, it did take a 
little more time.
    Not to presuppose a following question, but I do want to 
report that in fixing ICE, which I know is important to the 
committee and certainly all of us at the table, we do not want 
to just fix it in the short term--in other words, make them 
solvent 1 year. We are interested in making sure they are an 
ongoing concern. So what we have done is put into place a 
pretty aggressive people, process, and system assistance 
package, if you will, to ICE, meaning they needed new financial 
management leadership, we needed to be more involved in their 
processes because of course they were also our financial 
accounting provider. And then we probably need to look at their 
systems, as well.
    So the fix for them long term incorporates all three of 
those aspects, and I just want you to know--Mr. Skinner 
mentioned in his opening statement new people we have put in, 
very hopeful for that. Also, in the supplemental the Congress 
the administration did for 2005, there was new budgetary and 
finance people included in that. So people side, we are getting 
there. My office, sir, as you and I dialogd last year, I think 
we are going to have times where, of our sort of 10 big 
operating bureaus, some are going to be on the left side of the 
bell curve, some are going to be OK, and some are just going to 
be cruising along. Right now ICE is in that in need part of 
their existence and we are trying to help them as best we can.
    Mr. Platts. I commend you for the approach of a long-term 
solution. We have had lots of hearings with lots of departments 
and agencies and sound like a broken record that we are not 
looking for heroic efforts at the end of the year that makes 
things look good for a day and then we move on, but to truly 
get to the core problem so we fix it permanently and have a 
long-term solution, so I agree with that approach.
    My understanding from the Inspector General's statement is 
there's an acting CFO at ICE. Where do we stand with that 
position from, again, a permanent position, appointee? Is that 
in the works?
    Mr. Maner. Yes. They have three key financial positions. We 
have put a budget director in there and a director of finance. 
Some of these are SESers, some of them are not. Right now the 
budget director is the acting CFO, and then they have to put a 
permanent person there. So I suspect that will be done. As you 
know, sir, they are also undergoing a leadership change at the 
moment and it is certainly my belief that one of the first 
things we will talk about with the new leadership is our 
recommendations and our suggestions of ways to help fill those 
permanently, but I can assure you that they are in pretty good 
stead in terms of people right now.
    Mr. Platts. Inspector General Skinner, you reference the 
efforts there and ongoing efforts, but you also state that your 
current findings lead you to believe there are still some 
significant accounting challenges or problems at ICE. Could you 
expand on that?
    Mr. Skinner. Yes. There most certainly is. As I speak right 
now, we are currently working in ICE evaluating their 
accounting problems. I do not want to draw conclusions at this 
point in time. We have not drawn any conclusions yet. But I can 
say our early observations suggest that they still have serious 
problems and it will take time to work them through.
    One of the most notable problems would probably be their 
financial reporting difficulties. We continue to find abnormal 
balances in certain accounts that cannot be explained. Until 
they can get to the bottom of why each month they are having 
substantial abnormal balances, the problem is going to persist. 
That is what they currently are working on.
    Mr. Platts. What dollar amounts are we talking about the 
balances that they cannot account for?
    Mr. Skinner. We are talking millions of dollars, 
substantial amounts. If it was immaterial, we would not be 
raising a red flag. These are significant amounts of money that 
cannot be easily explained.
    Now, they have made improvements since last year. Those 
amounts have been reduced. But still we have not really got to 
the bottom of what is causing the balances to be out of sync. 
That is what we are working on and that is what ICE is working 
on, as well.
    The new leadership they have in place has really added 
value and has accelerated their ability to improve their 
accounting and their financial reporting, but it is something 
that I think is going to require close attention by the CFO, 
close attention by ICE management, and close attention by 
Department management all the way up through the Secretary. If 
we want to get to the point where we can have qualified 
opinions this year, at best, unqualified opinions in the out 
years, then we have to fix the problems that exist in ICE.
    Mr. Platts. Secretary Hale, what is your familiarity with 
the ongoing problems that we are still having, apparently 
millions of dollars unable to be properly accounted for? 
Because I certainly accept Mr. Maner's statements that no one 
is suggesting this has not been a tremendous transformation, 
and 22 agencies, 170,000 employees, 18 material weaknesses 
inherited.
    But we are 2\1/2\ years along, and the fact that this late 
into the 2005 fiscal year we are still having end of month fund 
balance difficulties to the tune of millions of dollars causes 
me to believe apparently we are not throwing enough effort, 
manpower to get to the bottom of it if we are near now the end 
of the third quarter of the current fiscal year, the problem 
that we knew was a problem in last year's fiscal year. So your 
understanding of that issue?
    Secretary Hale. I think I share both the IG and the CFO's 
concerns about this and continue to sort of, mostly through the 
CFO, again with the leadership there, talk about sort of the 
importance of the financial management, being sure we have the 
resources that are there and they take the appropriate steps.
    We do two things in the Department. One, we have a CFO 
Council that Mr. Maner shares, and then I chair a Management 
Council where we have talked about some of the issues and the 
importance of this. We have actually talked about sort of 
taking these kinds of issues back again this month to them, 
both to the internal controls but also sort of where we are 
along the compendium so that we can get ready. So I share your 
concerns. I share, I think, Andy's, as well as----
    Mr. Platts. Are you aware of any specific reasons that have 
been identified yet for the lack of accountability for millions 
of dollars?
    Secretary Hale. I think it is, again, their sort of their 
statements and they are continuing to try and align their 
accounts.
    Mr. Platts. So your answer is no, you are not aware of 
specific reasons for the inaccurate end-of-month accounts?
    Secretary Hale. Other than the systemic ones that we are 
continuing with their corrective action plan to try and work 
through to be able to close the monthly accounts and be able to 
prepare the statements. I think that is why we have had the 
corrective action plans. We continue to work with them on 
those. So I think it is----
    Mr. Platts. Mr. Maner, you apparently would like to expand 
on that?
    Mr. Maner. Always happy to, because I spent a lot of my 
life doing it there. Again, there are still systemic problems 
at ICE and it is not enough to say we inherited them from DOJ 
because some of them are new. But what we have to do is--I just 
would not want the committee to think otherwise. It is a 
people, a process, and a system fix.
    The things that are happening at month's end and early 
close are issues. I want to also salute a lot of the hard-
working people at ICE. They had a tremendous attrition problem 
right at the beginning--this is before I arrived--right at the 
beginning of the merger where more than half of their senior 
financial management left ICE, so to build the people back up 
who know how to do this, who know how to do it like a drum 
beat, the things that happen every night, the people who put 
processes in place, and gets the internal controls because it 
is not just financial management people, it is the special 
agent in charge that is in the field and how they work within 
the financial system and financial confines. So it is totally 
and utterly systemic that will only be fixed if we attack all 
three of those areas equally. And I just want to assure you 
that they are not looking at just one.
    Mr. Platts. The example here with ICE, the conversation 
previously on the permanent CFO nominee, personnel challenges, 
Inspector General was referencing whether there's enough 
personnel within the CFO office to meet the demands we are 
placing on it--given how important the mission of this 
Department is, no greater important agency out there other than 
DOD, itself, and DHS and DOD kind of go one in the same, 
because for the national government the most important 
responsibility we have is protecting our citizens.
    Education is certainly a priority, environmental 
protection, transportation. Protecting the lives of our 
citizens is the most important responsibility we have. If there 
are management personnel challenges at the Department, I would 
expect that we would hear the Secretary of the Department at 
the top of his lungs saying, I need help over here, Mr. 
President, to get the best and the brightest from whatever 
other department to this Department.
    That is not happening. Because until we fix ICE's financial 
problems, until we fix TSA's financial problems, we are going 
to continue to spend a lot of money. And yes, the report 
numbers for ICE look good, but what we do not know is how many 
people slipped through, perhaps simply wanted to work here, 
perhaps wanted to create harm here. How many did we not catch?
    And so the fact that I hear that we are doing our best 
and--I accept that at least half of your senior management at 
ICE, in the midst of a dramatic transformation, that is a high 
hurdle to get over. But, given the role of that agency and the 
importance of it, it should be a Government priority. If it 
means we take somebody and say, ``We are moving you from HHS, 
from Ed, from EPA, from wherever, to DOD or to DHS,'' that is 
what we need to do. And that is not anything I have heard from 
the Secretary, from the President, from OMB, from anyone in a 
senior position of this administration. I hear that we are 
working on it.
    Given that this is about protecting the lives of Americans 
and making sure we are protecting their dollars so that we can 
then spend those dollars on protecting their lives, working on 
it is not good enough. Doing it is what is going to be good 
enough.
    I do not mean that in an antagonistic way, because I truly 
mean when I say we are on the same team. But I think the two of 
you and Inspector General Skinner at the Department, Dr. Combs, 
this is an alarm all of you should raise at the CFO Council 
meetings, with Director Bolton, with Chief of Staff Card, with 
the President, himself. You should all be raising that alarm 
that we do not have the personnel that we need to do what we 
are being charged to do, and then get their help in making it 
happen.
    I do want to raise quickly a couple of specific examples, 
because as we talked about ICE I think it is fair to say when 
we get to an audit of internal controls that is going to help 
us get to the cause of the problem such as we are seeing at 
ICE. Is that a fair statement? I would be interested actually 
in all of your opinions.
    Mr. Skinner. Yes.
    Mr. Platts. That is going to help us get to the bottom of 
it.
    Mr. Maner. Yes, it would.
    Mr. Platts. To that foundation problem. And I think it 
epitomizes, no matter what the internal control audit cost, 
given that we are unable to account for millions every month in 
their end-of-month balances, and then we get into some of the 
actual lost funds at TSA and elsewhere, whatever it costs we 
are going to recoup it very quickly.
    I do want to raise specifically the audit on TSA, and if 
you do not have the answers today you can followup with the 
committee. That would be great. I guess this would be to both 
Inspector General Skinner as well as Mr. Maner and Secretary 
Hale.
    Some of the audit findings, according to the news reports, 
my understanding is the audit, itself, has not been shared 
publicly yet, that is an ongoing review for a FOIA request?
    Secretary Hale. I think you are talking about the DCAA 
audit of the TSA.
    Mr. Platts. Of TSA. Right.
    Secretary Hale. This is the contract with Pearson----
    Mr. Platts. Right.
    Secretary Hale [continuing]. Where there has been much 
newspaper publicity about it. If I could just have a couple 
seconds on that, sir, and then I think you asked about sort of 
that audit, itself. It is correct to say that the contract 
grew. It has also not been reported that we disallowed almost 
$140 million worth of those invoices that were submitted. The 
DCAA--the TSA asked to come in to be sure that they looked at 
that contract.
    It is important, I think, to understand because there is, 
like you, no one in this Department that wants to waste 
American taxpayer dollars and, far more importantly, wants to 
put the money appropriated to the front-line mission. But, I 
was not part of the Department of Homeland Security. It 
occurred during its standup when it was part of the Department 
of Transportation. But, I have spent a little time looking at 
that contract or not specifically at the contract but the 
circumstances around it. I do think it is important to note 
that when they started that time and materials contract, 
meeting congressional deadlines, but also being sure that, as 
the scope changed, they did not know how many screeners they 
were going to hire, so very clear management oversight and 
involvement in that contract, when they met with the 
contractor, sort of went through this process and then 
themselves decided to pull in DCAA.
    So we have gone through that. DCAA is finished their audit. 
That was the basis on which then TSA had to make their own 
independent decisions about how much of the Pearson money to 
ultimately pay. I know the Inspector General has been very 
involved in that, as well. But we have not shared that 
publicly. There have been some FOIA requests and they are going 
through the redacted version of that. We would be happy to 
share, sir, with the committee under the appropriate 
circumstances.
    Mr. Platts. Well, I would urge the public sharing of that 
information. The earlier the better, certainly with the 
understanding of, if there are things that are sensitive 
relating to Homeland Security, to be redacted.
    In the Secretary's statements regarding the second stage 
review, he said--under stewardship he said, ``A commission to 
measure performance--'' which is what this audit was. It is 
measuring the performance of TSA and its handling of the 
contract. That is how I view performance, how do we operate 
this contract.
    The Secretary said, ``A commitment to measure performance 
and share results.'' So we have done an audit. What is reported 
in the press is that the audit said we did not do a very good 
job in overseeing this contract and we should share that and 
say mistakes were made and we are going to correct them.
    Just a couple. I do not want to keep you here past this 
round of votes. That is why, unfortunately, I am raising them 
here so you do not have to wait.
    One of the things highlighted, I do not know the substance 
of this but according to the statements in media, a $5.4 
million claim for 9 months salary for the chief executive of an 
event and logistics firm that received a contract before it was 
incorporated and went out of business after the contract ended, 
a contract for the hotels that were acquired instead of using 
the testing centers where the contract gave them 10 percent on 
whatever the charge for the room was, so there's incentive to 
get higher room costs and they make more money.
    I think that is one of the things that was identified in 
the audit that perhaps the Inspector General is aware of, point 
after point of terrible oversight of taxpayer dollars. If there 
are a viable and logical answer to some of these statements, 
the sooner that is public the more trust that the public is 
going to have in what the Department is doing.
    I realize TSA was not then under DHS, but it is today. So I 
am not going to get into all the various points, but the news 
article is pretty alarming if half of what is in here is true, 
and so I do urge the public sharing of that information, and we 
as a committee look forward to having a chance to review that, 
as well, because the reason that article caught my attention 
and I set it aside--as you can tell, I use blue markers, and I 
have lots of blue marks--is because it to me is all about 
internal controls and the breakdown of internal controls 
regarding what was originally a bill of $800-some million, I 
believe, that we negotiated down to $700-some, I believe.
    Secretary Hale. I think it would be interesting, sir, and 
we would be happy to set this up, to have the committee and 
even yourself, sir, hear about that contract.
    Mr. Platts. I think that would be very helpful to us.
    Secretary Hale. I think having listened to sort of the 
steps that they took at the time as they were obviously right 
after September 11th in setting this up after that terrible 
tragedy, but also the steps they have taken subsequent to that 
in their sort of acquisition process. I think both of those 
would be a very important sort of set of information for this 
committee to have.
    Mr. Platts. A final question regarding, again, if half of 
what is in here is accurate, I am concerned, regarding the TSA 
contract or the ICE. I think I know the answer to the question, 
but is anyone aware of anyone who was demoted or fired for any 
of the financial misdoings related to those two issues?
    Mr. Skinner. Congressman Platts, I can address the TSA 
issue in the Pierson contract. We will be issuing a report 
probably within the next 30 days addressing the TSA's oversight 
and management of that particular contract. I am not at liberty 
right now to discuss the details of that report.
    Mr. Platts. I appreciate that.
    Mr. Skinner. It is not public yet, but we will be making it 
public hopefully in the next 30 days, and, of course, we will 
be delivering it to this committee.
    The report is going to be highly critical, obviously, but 
one of the things we have to keep in mind, at that time, when 
that contract was awarded, there were only 12 people working at 
TSA. There was only one contracting officer at TSA to manage a 
multi-million, almost a billion-dollar contract.
    Mr. Platts. Terrible management breakdown.
    Mr. Skinner. It was doomed for problems.
    Mr. Platts. Yes. And that goes to----
    Mr. Skinner. No question about it. But TSA has come a long 
way and the Department has come a long way since then. They are 
still building and improving, and we need to recognize that. Of 
course, we are going to try to show that in our report--the 
steps that have been taken since. The problems back to 2002 and 
2003. We are in 2005 now. That is the issue that we should be 
addressing: where are we at in 2005?
    Mr. Platts. And that we learn from the mistakes of 2002 and 
2003.
    Mr. Skinner. Yes, sir.
    Mr. Platts. And that is why I even raise it, is that we can 
do a lot better in 2005 and 2006 if we make sure the internal 
control breakdowns of 2002 and 2003 are not repeated.
    Mr. Skinner. Most certainly. This is a poster child for 
what not to do to manage a contract.
    Mr. Platts. I apologize that I do need to run to get to a 
floor vote. Secretary Hale, did you have one last thing that 
you wanted to add?
    Secretary Hale. No, sir. Thank you, again.
    Mr. Platts. And the thanks is from us to you. In each of 
you, sometimes I may be critical and try to ask some tough 
questions, but it is because of that commitment that we all at 
the end of the day get to a shared goal of doing right by 
taxpayers and, in this case, right by protecting the lives of 
our citizens. I know each of you are putting in incredible 
hours.
    As a fellow dad with young children, Mr. Maner, I 
sympathize with your wife. My wife sympathizes especially with 
your wife. But we are grateful for your service and we will 
raise concerns when we have them. But hopefully it is 
understood that it is seeking to get to our shared goal.
    Thank you each for your testimony here today.
    We will keep the record open for 2 weeks for any additional 
information that we have requested. Again, we wish you well in 
your efforts.
    Thank you.
    We stand adjourned.
    [Whereupon, at 4:10 p.m., the subcommittee was adjourned.]

                                 
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