[Senate Hearing 109-550]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-550
 
   PROGRAMS IN PERIL: AN OVERVIEW OF THE GAO HIGH-RISK LIST--PART II

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

                                HEARING

                               before the

                  OVERSIGHT OF GOVERNMENT MANAGEMENT,
                 THE FEDERAL WORKFORCE AND THE DISTRICT
                        OF COLUMBIA SUBCOMMITTEE

                                 of the

                              COMMITTEE ON
                         HOMELAND SECURITY AND
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 15, 2006

                               __________



       Printed for the use of the Committee on Homeland Security
                        and Governmental Affairs



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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                   SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska                  JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
NORM COLEMAN, Minnesota              DANIEL K. AKAKA, Hawaii
TOM COBURN, Oklahoma                 THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island      MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah              FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico         MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia

           Michael D. Bopp, Staff Director and Chief Counsel
   Joyce A. Rechtschaffen, Minority Staff Director and Chief Counsel
                  Trina Driessnack Tyrer, Chief Clerk


   OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL WORKFORCE AND THE 
                   DISTRICT OF COLUMBIA SUBCOMMITTEE

                  GEORGE V. VOINOVICH, Ohio, Chairman
TED STEVENS, Alaska                  DANIEL K. AKAKA, Hawaii
NORM COLEMAN, Minnesota              CARL LEVIN, Michigan
TOM COBURN, Oklahoma                 THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island      MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah              FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico         MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia

                   Andrew Richardson, Staff Director
              Richard J. Kessler, Minority Staff Director
            Nanci E. Langley, Minority Deputy Staff Director
                    Emily A. Marthaler, Chief Clerk


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Voinovich............................................     1
    Senator Akaka................................................    10
    Senator Carper...............................................    12

                               WITNESSES
                       Thursday, October 6, 2005

Hon. David M. Walker, Comptroller General, U.S. Government 
  Accountability Office..........................................     3
Hon. Clay Johnson, III, Deputy Director for Management, Office of 
  Management and Budget..........................................     6

                     Alphabetical List of Witnesses

Johnson, Hon. Clay, III:
    Testimony....................................................     6
    Prepared statement...........................................    60
    Questions and responses submitted for the Record.............    62

Walker, Hon. David M.:
    Testimony....................................................     3
    Prepared statement...........................................    23

                                APPENDIX

Letter dated April 7, 2006, from Mr. Walker containing additional 
  information related to issues..................................    52
Questions and responses submitted for the Record.................    56


    PROGRAMS IN PERIL: AN OVERVIEW OF THE GAO HIGH-RISK LIST PART II

                              ----------                              


                       WEDNESDAY, MARCH 15, 2006

                                     U.S. Senate,  
          Oversight of Government Management, the Federal  
        Workforce and the District of Columbia Subcommittee
                                   Committee on Homeland Security  
                                           and Governmental Affairs
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:05 p.m., in 
room SD-342, Dirksen Senate Office Building, Hon. George V. 
Voinovich, Chairman of the Subcommittee, presiding.
    Present: Senators Voinovich, Akaka, and Carper.

             OPENING STATEMENT OF SENATOR VOINOVICH

    Senator Voinovich. The hearing will please come to order. I 
want to thank you for coming, and apologize that my colleagues 
are not here. The President of Liberia is speaking before a 
joint session of Congress.
    Today the Subcommittee on Oversight of Government 
Management, the Federal Workforce and the District of Columbia, 
meets to conduct a mid-course review of the Government 
Accountability Office 2005 high-risk list. This hearing marks 
the sixth time our Subcommittee has met to examine the high-
risk list this Congress.
    For the past 16 years, the GAO high-risk list has outlined 
government-wide and agency specific programs that are 
susceptible to waste, fraud, abuse and mismanagement.
    Comptroller General Walker, I commend GAO for its continued 
work on the high-risk list. I know how seriously you take it.
    Each of the 25 programs listed in the current high-risk 
series impacts the daily lives of citizens across the country. 
Many of the programs are dysfunctional and fail to deliver the 
intended services to the taxpayer. In other instances, high-
risk programs are wasting billions of dollars that could be 
better used for higher priority programs or cutting the 
deficit.
    Two of the most egregious examples of mismanagement 
explained on the high-risk list can be found at the Department 
of Defense and within the Medicare program. For example, the 
Secretary of Defense stated that DOD could save 5 percent, or 
more than $20 billion of its budget, by improving its business 
practices, in other words, transforming what they are doing 
over there. In addition, the high-risk list notes that 
Medicare's improper payments for 2004 were calculated to an 
astounding $20 billion. For a program with a $297 billion in 
total spending, that is quite a bit.
    Based on these examples, it is evident that the high-risk 
series provides an excellent road map for oversight and reform, 
and it should be taken seriously by Federal agencies, the 
Administration and Congress.
    To this end, Senator Akaka and I have taken steps to 
highlight the high-risk list with our colleagues. In addition 
to our hearing schedule, Senator Akaka and I wrote letters to 
the Chairman and Ranking Members of each Senate authorizing 
committee, detailing high-risk areas within their jurisdiction. 
We are going to do it again. This is an important step, but I 
believe that real progress in the high-risk list areas will 
only happen when the Appropriation Subcommittees begin funding 
programs based on their performance. I know that the Office of 
Management and Budget is rating programs, and I think that is a 
good step forward.
    Senator Akaka and I held our first hearings 13 months ago, 
and tremendous strides have been made in several high-risk 
areas.
    I would like to recognize Clay Johnson for his steadfast 
determination to ensure that Federal agencies are taking the 
high-risk list seriously, and through his leadership and 
commitment to improving the management of our government, Mr. 
Johnson is having a positive impact on the performance of 
Federal programs.
    Clay, I want to thank you for reinvigorating the management 
capacity of the Office of Management and Budget.
    At the Subcommittee's hearing in February 2005, the 
Comptroller General's testimony outlined a bleak situation for 
several of the high-risk areas. Much of Mr. Walker's attention 
focused on the longstanding issues facing the Department of 
Defense. There was evidence that DOD lacked a dedicated 
strategic plan for each of the areas on that high-risk list. 
That is why four of our six high-risk hearings this last 
February examined programs in DOD. During the hearing on DOD 
business transformation in April 2005, Mr. Johnson noted that 
OMB was working with DOD on an overall supply chain management 
improvement plan. This plan, produced in collaboration with 
DOD, OMB and GAO was unveiled in July, and outlines key 
programmatic improvements to supply chain management practices 
and process.
    In addition to the Subcommittee's hearings, a great deal of 
work is going on behind the scenes as my staff and Senator 
Akaka's staff has met with DOD, OMB and GAO on at least a dozen 
occasions to ensure that the goals and objectives of the supply 
chain management strategic plan are being met.
    Although the Department is still developing the long-term 
metrics to measure success, I believe the plan is a positive 
step in the right direction. Hopefully, with continued 
collaboration between DOD, OMB and GAO, the Department will 
implement useful long-range measures to track improvements in 
the supply-chain management process.
    In addition, the DOD supply chain plan has broader 
implications as well. I understand that OMB is using this plan 
as a template for the rest of the high-risk areas, and that 
plans have been developed for 19 of the 25 high-risk areas. I 
believe this is excellent progress. In fact, I was impressed 
with the Office of Personnel Management testimony before our 
Subcommittee last November, when they released their strategic 
plan to address the Federal Government's security clearance 
backlog, which at the time consisted of 232,000 pending cases.
    I am interested in hearing from Mr. Johnson on his progress 
as well as General Walker's assessment of the Administration's 
effort to improve the performance of high-risk program areas.
    Senator Akaka and I will continue our oversight into the 
supply chain management and personnel security clearance high-
risk areas until they are removed from the list.
    However, in some instances, improving the performance of 
the high-risk program area requires more than implementing 
sound business practices and oversight from Congress. That is 
why Senator Akaka and I have introduced two bills that would 
create chief management officers at the Department of Defense 
and Homeland Security. As indicated in the high-risk list, each 
of these Departments faces serious management challenges that 
are compounded by the unique importance of their mission. We 
believe creating a chief management officer at each Department 
would ensure that leadership continuity transcends changes in 
administration, thereby, fostering and sustaining a results-
oriented culture and continuous improvement.
    I know that General Walker is a staunch advocate of this 
and I have talked to Mr. Johnson about it on several occasions.
    I am grateful that you are here today. We have a tradition 
of swearing in the witnesses. Do you swear that the testimony 
you are about to give is the truth, the whole truth, and 
nothing but the truth, so help you, God?
    Mr. Walker. I do.
    Mr. Johnson. I do.
    Senator Voinovich. We are happy to have General Walker's 
wife here with us.
    Mr. Walker. Yes, and I am happy that she is here too. Thank 
you, Mr. Chairman, for recognizing her.
    Senator Voinovich. I want to thank you publicly for the 
sacrifice that you and your family make so that your husband 
can serve this country, as he has, in his capacity as 
Comptroller General. He has done a fantastic job, and we are 
grateful for everything he has done for this Subcommittee and 
for our country.
    Mrs. Walker. You are welcome, Senator. Thank you for your 
kind words.
    Senator Voinovich. General Walker, please proceed.

TESTIMONY OF THE HON. DAVID M. WALKER,\1\ COMPTROLLER GENERAL, 
             U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Walker. Thank you, Mr. Chairman. That is very kind of 
you.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Walker appears in the Appendix on 
page 23.
---------------------------------------------------------------------------
    It is a pleasure to be back before this Subcommittee to 
talk about GAO's high-risk list. I would respectfully request 
that my entire statement be included in the record.
    Senator Voinovich. Without objection.
    Mr. Walker. I know you have a series of votes, and so I 
will hit the highlights.
    Senator Voinovich. It will not start until 3 o'clock, so we 
have a little time.
    Mr. Walker. I will hit the highlights, and that way you 
will have plenty of time for Q&A.
    As you know, Mr. Chairman, our latest high-risk list was 
updated in January 2005, and we are scheduled to update it 
again in January 2007. I want to thank and commend you, Ranking 
Member Akaka, as well as this Subcommittee, for your dedication 
to looking at the high-risk areas. I am pleased to confirm that 
this is the sixth hearing that your Subcommittee has held since 
the list came out in January 2005. I am also pleased to note 
that according to my office, there have been over 60 hearings 
throughout the Senate and the House on GAO's high-risk list, 
covering at least 20 of the 25 high-risk areas since our list 
came out in January 2005.
    Candidly, Mr. Chairman, that is particularly gratifying 
given the fact that, with a few exceptions, including this 
Subcommittee and the full Committee, there is not enough 
oversight going on right now in the Congress. So I really do 
appreciate this.
    I would also like to confirm that this Administration has 
continued to take the management issue more seriously over 
time. I work with Deputy Director Johnson and others on a 
recurring basis. As you know, the President's Management Agenda 
was based in large part on GAO's high-risk list. There is a lot 
of synergy there, and I would also like to commend Deputy 
Director Johnson for his commitment to make sure that every one 
of the 25 high-risk areas has its own action plan for 
addressing and, hopefully, eventually getting off the high-risk 
list.
    As you noted, the area that is the prototype for this is 
DOD's supply chain management. A number of others have been 
completed, although with varying degrees of quality and 
thoroughness.
    We have had a high-risk list since the early 1990s. It 
commenced under the leadership of my predecessor, Chuck 
Bowsher. While for many years it was focused on how to fight 
fraud, waste, abuse, and mismanagement, under my tenure, the 
list has been broadened to also deal with a number of 
fundamental areas in need of transformation.
    As you know, Mr. Chairman, we issued in February of last 
year, our 21st Century Challenges Report, re-examining the base 
of the Federal Government. That document includes over 200 
illustrative questions of Federal programs, policies, functions 
and activities that are in need of re-examination, re-
engineering, to meet 21st Century challenges and capitalize on 
related opportunities. Our high-risk list is but a subset of 
some of those areas.
    I am pleased to say that over time we have removed 16 areas 
from the high-risk list since the beginning, 8 of which were 
among the original 14 programs, but there are still a number of 
programs that remain from the beginning, including many from 
the Department of Defense. The Department of Defense has, 
directly or indirectly, 14 of 25 high-risk areas.
    As you know, the purpose of the high-risk list is to bring 
light to areas in need of attention, because with light comes 
heat, and with heat comes action.
    Last, Mr. Chairman, I would note that because of recent 
events in the Gulf Coast dealing with the after effects of 
Hurricanes Katrina and Rita and the related flooding that has 
occurred down there, the National Flood Insurance Program has 
incurred within the last 10- to 12-month period, about $23 
billion in claims. During its entire existence it had only 
incurred $15 billion in claims, and now it has moved to the 
point where it has an unfunded obligation or an accumulated 
deficit of about $23 billion. As a result of this, and the 
importance of this program, not just to the Gulf Coast but also 
to other parts of our nation, we have decided to add the 
National Flood Insurance Program to our high-risk list, 
effective immediately, thereby bringing the list to 26. And 
just to reaffirm, we plan to issue a more comprehensive update 
in January 2007.
    So thank you, Mr. Chairman, and thanks to Ranking Member 
Akaka, for your dedication in sticking with these issues. You 
are making a difference, and by continuing to work together, I 
am confident that more progress can and will be made in the 
future. Thank you.
    Senator Voinovich. Thank you.
    Senator Akaka, would you like to make a statement before we 
hear from Mr. Johnson?
    Senator Akaka. Thank you very much, Mr. Chairman. I just 
want to ask whether we are running tight on time?
    Senator Voinovich. We have a vote, I think at 3 o'clock.
    Senator Akaka. Then, Mr. Chairman, let me welcome Mr. 
Walker and Mr. Johnson, and to ask that my statement be placed 
in the record.
    Senator Voinovich. Without objection. Thank you, Senator.
    [The prepared statement of Senator Akaka follows:]

                  PREPARED STATEMENT OF SENATOR AKAKA

    Thank you, Chairman Voinovich. As always, it is a pleasure to work 
with you to increase government accountability. I look forward to 
today's hearing, and I join you in welcoming David Walker, the 
Comptroller General, and Clay Johnson, the Office of Management and 
Budget's (OMB) Deputy Director of Management, to examine the progress 
being made on Government Accountability Office's (GAO) high-risk list.
    You noted that this mid-course review is our sixth hearing in 12 
months to focus on high-risk government programs identified by GAO. The 
people of Ohio and the nation are fortunate to have you in the Senate, 
Mr. Chairman. Your continued leadership--and that of our distinguished 
witnesses--is improving government operations.
    Reducing the number of programs susceptible to waste, fraud, abuse, 
or mismanagement will save the American taxpayers billions of dollars--
improve Federal services--and help reestablish the trust we should have 
in government.
    As the Rank Member of both this Subcommittee and the Armed Services 
Readiness Subcommittee, I am shocked that the Department of Defense 
(DOD) continues to have more programs on the high-risk list than any 
other Federal agency. Because of this outrageous imbalance, Senator 
Voinovich and I have focused our efforts on improving DOD's high-risk 
programs. One such area is supply chain management, which includes an 
inventory valued at $77 billion and an annual expenditure of over $7 
billion on logistics operations. And yet, supply chain management has 
been on GAO's high-risk list since 1990--that's 16 years!
    Ignoring the long-term, systemic problems associated with supply 
chain management harms our troops on the ground and is just plain 
wrong. However, I am optimistic that with the partnerships undertaken 
by DOD, OMB, and GAO, and with our continued oversight--we will be 
successful in strengthening supply chain management.
    I am particularly interested in one change--the Joint Regional 
Material Management (JRIMM) which is operated by the Defense Logistics 
Agency. The JRIMM concept seeks to eliminate duplicative inventories 
and streamline the flow of material. After a successful pilot program 
with the Navy in San Diego, the concept has been expanded to the Island 
of Oahu and encompasses all military Services. Right now the Services 
are testing the JRIMM concept by using the Defense Distribution Depot, 
Pearl Harbor, as the hub for inventory distribution throughout Oahu.
    I wish DLA and JRIMM success in what I hope will be a state-of-the-
art, centralized logistics supply center. GAO and OMB are working with 
DLA to ensure that this new system will have the needed metrics and 
controls in place to manage effectively DOD's supply chain system.
    Yet, despite positive steps forward, we must remember that without 
sustained leadership, neither incremental changes nor wholesale 
transformation will be integrated into an agency's management culture. 
That's why I have sponsored legislation with Senator Voinovich and 
Senator Ensign to establish a deputy director for management at DOD. 
Our measure was introduced at the recommendation of the Comptroller 
General, and I thank him for his steadfast support of the chief 
management officer concept. Senator Voinovich and I have also 
introduced similar legislation for the Department of Homeland Security 
to help the new department avoid the same long-term management problems 
plaguing DOD.
    Mr. Chairman, I look forward to our continued partnership in 
attacking waste and mismanagement of government programs. We must take 
this opportunity to instill sound management practices within Federal 
agencies so that the taxpayer's dollars are used most effectively. 
Thank you.

    Senator Voinovich. Mr. Johnson.

TESTIMONY OF THE HON. CLAY JOHNSON, III,\1\ DEPUTY DIRECTOR FOR 
          MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET

    Mr. Johnson. Mr. Chairman, Ranking Member Akaka, thank you 
both, and congratulations to you both for your support and your 
passion about fiscal restraint, good management, thinking of 
and treating employees like professional public servants, not 
like bureaucrats, for focusing our spending on real needs and 
making sure we get what we pay for. In short, thank you for 
your passion and commitment and support for results.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Johnson appears in the Appendix 
on page 60.
---------------------------------------------------------------------------
    General Walker and yourself have recognized, publicly and 
privately, to me the progress that this Administration has made 
on the high-risk list, the attention we pay, the priority we 
have given it, and I think those kudos are well deserved, if I 
do say so myself. I think a lot of attention is being paid to 
this, but there is more that can be done. I think the attention 
to the high-risk list exists in every area. It is inconsistent. 
It is high in probably half the areas, and it is not as high as 
it should be in probably the other half.
    It is all about getting results. One way to think about 
this is the risk. The other way to think about it is we are 
spending a lot of money, what are we getting for that money? 
The President's Management Aagenda is about establishing habits 
and disciplines and having agencies adopting these habits and 
disciplines; so that they have the ability to spend our money 
more wisely to get results, where we were not able to get 
results before.
    Senator Voinovich, you mentioned focusing more light on how 
programs work now. The website, Expectmore.gov, is something 
that we have spent a lot of time on this past year to develop. 
As David said, with light you get heat, and with heat you get 
action. We think it is important that the taxpayers know what 
they are getting for their money, what is working, what is not, 
and in every case, what we are doing about it.
    We think the first big step in that direction, or a very 
important step in that direction is to bring a lot of 
transparency to what is working and what is not. OMB's role in 
this is pretty straightforward. We, both in the PMA and the 
high-risk list, see our primary role as helping agencies, 
helping programs find success. What are we trying to do? What 
is the definition of success? This has to be done to 
everybody's mutual satisfaction, has to be done to the agency's 
satisfaction, and to OMB's satisfaction. And with regard to the 
high-risk list, it has to be done to GAO's satisfaction as 
well. Let us agree together on what we are trying to do.
    Our second role in all of this is to ensure that the 
agencies, with your oversight activities, are held accountable 
for doing what they say they are going to do. They have an 
action plan that calls for this to be done in the next 6 
months, and this to be done in the next year, and so forth and 
so on, holding agencies accountable for doing what they said 
they are going to do.
    I have done focus groups each of the last 2 years with 
Federal managers, SES and GS-14s and 15s, about management 
topics. And they talk about, ``We always have had plans, we 
always have had goals. We are really great. We like to do them 
in four color and black and white, and paper and PowerPoint. We 
can really do those plans.'' The new news in the last few years 
is: ``Somebody is actually holding us accountable for 
implementing the plans that we said we are going to 
implement.'' To me, that is the key in removing the risk from 
these high-risk items: Accountability causes programs to work 
and to spend money wisely. A lot of things go into it, but the 
level of accountability, I believe, has more to do with our 
success in spending the taxpayers' money than just about any 
other factor.
    Again, thank you for inviting me up here. Thank you for 
those kind words at the beginning of the hearing, and I welcome 
your questions.
    Senator Voinovich. Thank you, General Walker.
    General Walker and Mr. Johnson, on October 7, DOD approved 
the establishment of the Business Transformation Agency. Now, 
this agency is responsible for centrally managing some of the 
Department's largest business systems. Do you believe that the 
Agency has enough visibility and leadership clout within the 
Department to affect the necessary changes in DOD's culture, or 
should these responsibilities be handled by a chief management 
officer?
    Mr. Walker. First, Mr. Chairman, let me say that I think 
that was a step in the right direction. It shows that the 
Deputy Secretary is taking this issue seriously. It also shows 
that he is trying to commit some resources to it, and the 
approach that they are taking with regard to business process 
engineering and related systems update is, clearly, I think, an 
approach that is preferable to the one that they had before, 
but the jury is out on whether or not it will be successful.
    I continue to believe, Mr. Chairman, that in order for the 
Department of Defense to successfully address its eight 
individual high-risk areas, and the six others that it shares 
with other agencies across government, that one of the elements 
that it will ultimately need to do is to create a Level 2 
senior official reporting directly to the Secretary, 
responsible for the overall business transformation effort. We 
are talking about a professional with a proven track record, 
who would have a term appointment, a performance contract, and 
would be there long enough in order to place sustained 
attention that could last beyond indivudal administrations. I 
continue to believe that DOD will not be successful in 
addressing these areas in a reasonably timely manner unless 
they have that type of person there. I do not think there is a 
person on the planet, Gordon England included, who can be both 
Deputy Secretary for Policy, and alter ego to the Secretary, as 
well as place the time and attention necessary to deal with 
these many longstanding, deeply ingrained business 
transformation issues within the Department that have been 
there since 1947, in many cases.
    Senator Voinovich. Mr. Johnson.
    Mr. Johnson. I think Gordon England's answer to that 
question was he would like to look at it for 6 months or so and 
then get back to you, and I defer to him on that. OMB does not 
yet have an official position on that. My personal position is 
it can work, but there is nothing automatic about it. We have 
said in here, I have said in here before, and others have 
agreed, this is not a silver bullet. The key to transformation 
in the Department of Defense is whether the Secretary wants it 
to happen or not. If he really wants it to happen, it is going 
to happen, whether there is a chief management officer, whether 
the senior person driving this effort is the level person they 
appointed last November, whether it is a chief management 
officer, whether it is someone above that, less than that. If 
the Secretary does not want it to happen, it is not going to 
happen, whether the person is term or not, whether they are 
Level 2, Level 3, Level 4. So that is the key. There is nothing 
automatic about a termed position. A Secretary can make a 
termed person ineffective or highly effective if he or she so 
wants. So it is nothing magic about it.
    But it can work. The key is that there has to be somebody, 
as I mentioned at the beginning, somebody held accountable for 
implementing the very clear aggressive action plan that has 
been laid out to everybody's mutual satisfaction, that if 
implemented, will achieve the desired goal. If there is 
somebody with the Secretary's endorsement, who can be held 
accountable, one person who can be held accountable for 
implementing that plan, it does not make any difference what 
level it is, in my opinion.
    Mr. Walker. Mr. Chairman, could I come back real quick?
    Senator Voinovich. OK.
    Mr. Walker. We are doing work in this area to try to help 
this Subcommittee, as well as the Congress, understand the 
experiences of other countries in addressing these types of 
issues. I would agree with Deputy Director Johnson, that if the 
Secretary is not committed, one will not be successful. I would 
also, respectfully, suggest that that is not enough. There are 
a number of countries that have similar positions to what I am 
talking about, and they have made a real and lasting 
difference. Part of the problem is people are not in their jobs 
long enough to be able to make substantial and sustainable 
progress. I provided more information for the record before, 
and would be happy to respond to any other questions you might 
have.
    Senator Voinovich. It is an issue that I think we really 
need to continue to pay attention to. I have written down a 
note to talk to Gordon England about it again.
    Mr. Johnson. I think getting a more formal response at this 
point from Gordon would be a good idea.
    Senator Voinovich. That is exactly what I intend to do.
    General Walker, you have said there is a need for a 
comprehensive national threat and risk assessment in the 
planning for the 2010 census. Do you think the Administration 
is taking the necessary steps to address these broad-based 
challenges, to keep them from becoming high-risk areas?
    Mr. Walker. First, Mr. Chairman, with regard to the census, 
I would like to provide some more information for the record, 
but I will tell you that based upon information that I have 
been provided within the last couple of weeks, I am told that 
the census is ahead of schedule as compared to where they were 
for the last census at this point in time. So they are clearly 
ahead of where they were last time, and I would be happy to 
provide some more information for the record.
    With regard to the need for a comprehensive national threat 
and risk assessment, more needs to be done in that regard, and 
this is an issue that not just applies to the Department of 
Homeland Security, but quite frankly, it applies to the 
Department of Defense and other agencies. I will tell you that 
personally I was very disappointed with the Quadrennial Defense 
Review, tough choices not made. The bottom line with that 
review was, for the most part, everything we wanted before and 
more, and we still are not taking enough of a threat and risk-
based approach to determining our needs, and we are still not 
adequately considering the limitations on our resources that 
are very real, especially given our huge deficits.
    So it is not just DOD. It is not just DHS, but I think we 
have a way to go in both those regards.
    Senator Voinovich. I was at a meeting today with some of my 
colleagues, and we are talking about the borders, and the 
threat that is there. I kind of smiled because they were 
saying, ``Well, we put $2 billion in today by unanimous consent 
for the borders.'' And then somebody said, ``Well, if we are 
really going to do the job, we need to put in another $2 
billion.'' I just smiled and said, ``Where is the money going 
to come from?''
    And in terms of the Defense Department, has anybody really 
looked at what they want to do, and then looked at the threat 
that is out there, and the change in the threat in terms of the 
fact that we have a non-traditional enemy? There is no question 
that the technology we have is helping us, but, is it the right 
technology and the right resources?
    You have to step back and say, ``Is that really needed?'' 
So often the Defense Department comes back with recommendations 
in many areas, and does not recommend spending in these areas. 
Yet, Congress comes along and funds these programs anyway.
    That brings me back to the threat assessment issue. If we 
do everything everyone wants us to do to protect this country, 
we will bankrupt it. The real weapon in this war on terror is 
good intelligence so it does not happen here.
    Public diplomacy around the world, and perhaps spending 
money toward humanitarian efforts, goes a long way in creating 
a more peaceful world. That being said, has anybody really sat 
down and looked at all of these resources and said, ``We cannot 
do all this.'' The financial resources are just not there. The 
non-defense discretionary budget is being picked apart right 
now to the point where I think we are not going to be able to 
do the things that government should be doing.
    I think it gets back into this threat assessment. Secretary 
Chertoff should come back to Congress and say, here is an 
honest portrayal of where we are, what we need to protect 
Americans. When Congress comes along and says, ``We got to do 
this and we got to do that,'' somebody ought to say, ``No, we 
do not. First, we do not have the money to do it, and second, 
because if we have good intelligence we do not have to worry 
about spending money on certain programs.'' If we keep going 
the way we are, we are in big trouble.
    Enough preaching. Mr. Johnson.
    Mr. Johnson. You talk in terms of whether there is threat 
assessment, and are we spending our money where the threats are 
the greatest? From the management side of OMB, we think in 
terms of: Are we getting anything for our money? When we talk 
about port security, there was a meeting this morning--we have 
a morning meeting every day at OMB--and they were talking about 
why Congress wants to do so much for port security, and someone 
says, ``Well, a billion dollars is better than $700 million, or 
$4 billion is better than $2 billion,'' whatever. I am asking 
the question, ``What are they going to do with this money?'' 
``Well, they are going to secure the ports.'' Maybe you can 
really secure the ports for a billion dollars, or maybe the 
minimum is $10 billion. Has anybody figured out--are we just 
throwing a number out there and $4 billion is better than $2 
billion? What is the goal? What are we trying to do here? There 
is not enough of that.
    There is so much attention being paid to inputs, what we 
are spending, what kind of money, that there is a general 
mindset in Washington, Executive and Legislative Branch, that 
says, the more I am willing to commit to something, the more I 
care about it.
    General Walker talked about the level of oversight that you 
all are trying to bring to this process, in particular, to this 
Subcommittee. There is not enough of it. What are we getting 
for our money is the question, and needs to be the question 
much more frequently than it is now. That is you all's 
perspective here, and we think that when we put the budget 
together at OMB, with the help of the agencies, we are making 
those kinds of calls, because what are our priorities? We 
cannot spend money on everything. What are our really important 
priorities? Let's spend it on that. Maybe it is not expressed 
in terms of what our risks are--well, it would be on national 
security--but the Defense Department wants to do things, we 
think it is a low risk, it is not as important as some other 
things. The same thing with Homeland Security. And we do not 
fund those low-risk, low probability kinds of things.
    So there is attention being paid to debt, and I am almost 
certain that it is not as much as it could be or should be.
    Senator Voinovich. Thank you. Senator Akaka.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Thank you very much, Mr. Chairman. I wanted 
to thank you again for all the work you have done, Mr. 
Chairman. This is our sixth hearing in a year on high-risk 
government programs. The people of Ohio, Mr. Chairman, and the 
Nation, are fortunate to have you in the Senate, and your 
continued leadership, and that of our distinguished witnesses, 
is improving government operations.
    I want to commend our two witnesses, General Walker and 
Director Johnson, as you point out are trying to think this 
out. We need people in place who will stay and be accountable.
    Reducing the number of programs susceptible to waste, 
fraud, abuse, or management will, no question, save the 
American taxpayers billions of dollars, improve Federal 
services and help reestablish the trust they should have in 
government.
    Mr. Walker and Mr. Johnson, again, I want to thank you for 
working with us. I know this effort goes back several years. It 
is 16 years now that we have been working on high risks, and 
are still doing that. You folks have really been working on 
this with us, and I look forward to more of that.
    I have a question for both of you that probably cuts 
through some of the problems we continue to see, especially in 
the area of contract management. Federal agencies have contract 
employees working side by side with Federal employees. Federal 
managers, who manage only Federal workers are evaluated on the 
performance of all employees, Federal and contract workers. In 
addition, Federal employees are subject to conflict of interest 
and ethics rules, while most contract workers are not legally 
bound by the same ethics rules.
    As an example, the IRS will use private debt collectors to 
track down and collect unpaid Federal taxes, and yet, Federal 
IRS employees are subject to stringent rules, that if violated, 
could result in termination. My question to you is how would 
you reconcile the differences in laws and regulations for 
governing what is now being called the multi-sector workforce 
within the Federal Government, and how could this address some 
of the cost-cutting programs on the high-risk list? General 
Walker.
    Mr. Walker. First, Senator Akaka, as you know, there are a 
number of areas on GAO's high-risk list that deal with contract 
management, and there is a multiplicity of problems relating to 
contract management. In my view, if we are contracting for non-
government workers to do work that otherwise the government is 
responsible for doing, then there should not be a substantive 
difference in the standards that apply to those individuals who 
are serving as an agent of the government. In other words, they 
should not be able to do things that a government employee 
would not be able to do.
    Now, it is different with regard to financial disclosures 
and it is different with regard to certain other aspects that 
have to do with the fact that you are a government employee. My 
view is: one, we are contracting out, in some cases, too much, 
including oversight; two, we do not have enough people with the 
right kind of skills and knowledge to manage cost, quality and 
performance of contractors; three, our contracts are incredibly 
complex, they are not outcome and results oriented enough, and 
even in circumstances where we try to engage in performance-
based contracting arrangements, the culture in government is 
you end up paying out a vast majority of those award and 
incentive fees just for people showing up to do their work, and 
returning your telephone calls, rather than because they are 
meeting their commitments on cost, quality and performance.
    We issued a report within the last year, noting that the 
Defense Department has spent billions of dollars in incentive 
and award fees in circumstances where the contractors were 
behind schedule, over budget, and/or not making related 
performance requirements.
    This is an example of one of the fundamental transformation 
challenges that has to take place, just one of many in the 
Defense Department, but it is not solely confined to the 
Defense Department.
    Senator Akaka. Thank you. Director Johnson.
    Mr. Johnson. On the specific IRS case that you talked 
about, I am only vaguely familiar with the history of that. I 
know that there were prohibitions placed on what IRS tax 
collectors could be required to do, what they could be held 
accountable for doing. Basically, as I understand it, the law 
is now that they cannot be held accountable for anything. The 
feeling was that they were being held accountable for 
collecting so much money, they would be too rough on the 
taxpayers and there would be a customer service problem and so 
forth. So as a result, they cannot be held accountable for 
their production levels of the quality of their work, or the 
quantity of their work.
    Somehow or another, a bill was passed that allowed IRS to 
hire outside contractors to collect monies that IRS would never 
work on, no matter how much debt collection money they had in 
their budget, the hard to collect and so forth, and those 
people have been given, I think it is up to a 25-cent on a 
dollar commission. So it is a function of two things, the 
inability to hold IRS employees truly accountable, because of a 
law that was passed, and the legal opportunity to hire outside 
contractors because of a law that was passed, and the ability 
to hold those people accountable. It is nuts.
    Colleen Kelly, of the National Treasury Employees Union 
(NTEU), thinks it is nuts, and it is like the right hand and 
the left hand not knowing what they are doing, but that is the 
law. So it is allowed. It does not seem like it should be that 
way, but it is. And Congress, in both cases, elected not to be 
able to hold these people accountable, and elected to allow 
outside contractors on a commission basis to collect these very 
hard to collect monies.
    The way prospective spending is scored, as I understand it, 
if we are going to spend a quarter to get a dollar, like on 
debt collection or on working bad Social Security claims, or 
something, that scores money scores, expense scores this year 
and the revenue derived from that. We do not get an offset. It 
shows as an increase in the budget. That suggests that maybe 
some rethinking in how these kinds of spend-money-to-make-money 
kinds of efforts should be scored ought to be looked at. But it 
is a seemingly inconsistent, if not contradictory, approach to 
debt collection at the IRS.
    Senator Akaka. Thank you. Mr. Chairman, my time has 
expired.
    Senator Voinovich. Senator Carper.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. Thank you, Mr. Chairman.
    Gentlemen, it is great to see both of you here today. 
Thanks for coming before us again.
    As General Walker knows, Senator Coburn and I have been 
holding a series of hearings on another Subcommittee of this 
Committee. Among the things we focused on are improper 
payments, and we are grateful to you and to the team that you 
lead, General Walker, for working with us there, and putting a 
spotlight on the agencies that are doing a good job reducing 
their improper payments, and putting another kind of spotlight 
on the agencies that could do better.
    One department that I suspect probably makes a number of 
improper payments is the Department of Defense. I do not know 
if DOD actually has the financial systems in place that will 
actually talk to each other and will enable them to help us to 
identify some of the mistakes that are being made. I would ask, 
how far do you think we are from consolidating some of their 
systems, and maybe getting a better picture of the kind of 
shape they are really in?
    Mr. Walker. The last estimate that I heard, Senator Carper, 
was that the Defense Department had over 4,000 legacy and non-
integrated information systems that contain financial and other 
key management information. I believe that one of the things 
that has to be done there is we need to employ a toughlove 
concept at the Defense Department, not just in this area but 
elsewhere, such that we understand which one of these systems 
are critical stay-in-business systems and which ones are not. 
If they are not critical stay-in-business systems, we kill 
them, we de-fund them. We take that money and we use it to 
invest in creating a more positive future that not only would 
help with regard to financial management but would help with 
regard to a whole range of high-risk areas.
    If the Ministry of Defense in the U.K. can do it, if the 
Brazilian Government can do it on a consolidated basis, I don't 
see why the U.S. Defense Department can't do it.
    Now, they have a new approach to trying to address their 
BMMP, or business systems modernization efforts now. It is 
better than the old approach. It is going to take many, many 
years of attention to really make meaningful and lasting 
progress here, which brings me back to the issue we started 
with, Mr. Chairman.
    Senator Carper. Well, that is not very encouraging. In 
terms of what we ought to be doing, can be doing to be helpful 
or embracing this toughlove approach, what would be your advice 
for us?
    Mr. Walker. Well, candidly, let me mention a couple of 
things based on what all three of you have said. As all of you 
know, I have been spending a lot of time lately talking about 
our large and growing budget deficits and long-range fiscal 
imbalance. Clay Johnson is correct in noting that the 
Administration is focused on results. One of the problems we as 
a country have, is that we do not have a set of key national 
indicators--safety, security, economic, social, environmental, 
and other outcome-based indicators to be able to inform 
strategic planning, enhance performance accountability 
reporting, and frame legislative actions, whether it is 
authorization, reauthorization, appropriations, or oversight 
activities.
    As a result, what happens is when you have a problem the 
assumption is if you throw more money at it, you are going to 
get more results, or if you give more tax preferences, you are 
going to get more results. The fact is those assumptions may be 
totally false.
    So one of the things that we need to start doing is we need 
to move towards developing some indicators, national and then 
local, that would be used as a basis to engage in planning 
activities. For example, before you end up giving money, let's 
understand what we are going to get for the money. Before we 
pass a new bill that creates a new program or a new policy, why 
are we doing it and what do we expect to get for it on an 
outcome basis?
    We need to start thinking outside the box and do things 
fundamentally differently because the path that we are on right 
now is not only imprudent, it is unsustainable and it threatens 
our future.
    Senator Carper. Thank you. I agree.
    Another question for you, General Walker. One item that I 
do not believe is on your agency's, GAO's high-risk list and 
maybe it ought to be is FEMA contracting and spending 
procedures during major disasters. And maybe that is not 
something we focused on a whole lot before last August. Mr. 
Johnson, how are GAO and OMB helping FEMA and Homeland Security 
to better prepare for--I guess from a financial management 
perspective--the next hurricane season, which is, I think, less 
than 3 months to go.
    Mr. Walker. We do not have the Department of Homeland 
Security's contract management area on the list at the present 
time by itself. We do have the implementation and 
transformation of the Department of Homeland Security as an 
entity on the list. As you know, Senator Carper, we have done 
and are doing a tremendous amount of work in the aftermath of 
Hurricanes Katrina and Rita. I have already testified a couple 
of times--and will be doing some more--making specific 
recommendations about what we think needs to be done in order 
to do better next time and to be better prepared.
    There are major contracting problems with FEMA. We have a 
report that I just looked at this morning where we paid over 
$10 million more for an item than we should have. We paid $39 
million for a particular contract which was at least $10 more 
than we could have based on the GSA schedule.
    You will be seeing more coming out from GAO as well as the 
Inspector General of the Department of Homeland Security and 
others on this issue in the near future.
    Senator Carper. I have a follow-up question to that. Going 
beyond what you just said, what kind of steps might FEMA, or 
really the Congress, need to undertake to improve FEMA's 
financial controls? What do we need to be doing?
    Mr. Walker. I will give you some examples of areas where we 
are likely to have as recommendations. We have not issued the 
products yet, but these are things that we are working on.
    We need to recognize that natural disasters happen. They 
have happened, and they will continue to happen, all throughout 
the history of this country. Certain types of natural disasters 
happen with recurring frequencies in particular regions of the 
country. One of the things that we need to do with regard to 
contracting, is to understand what type of capabilities and 
resources we might need in the event of a disaster and to enter 
into contracting arrangements, well in advance of the disaster, 
that can be drawn upon if, and when, the disaster occurs, 
rather than being held hostage to the conditions and the 
urgency of the moment to be able to pay whatever price is 
necessary in situations, where the government has no leverage 
and is looking to get things as quickly as possible for 
whatever price is necessary.
    And so advanced contracting: Incorporating a number of 
internal controls, which I won't go into the details here, in 
order to maximize the chance that we are getting value for 
money, and that only people who should be paid are getting 
paid. I would be happy to provide some more information for the 
record if you would like.
    Senator Carper. Good. Thank you. Thank you, Mr. Chairman.
    Senator Voinovich. I was not going to raise this issue, but 
I am going to raise it because I think it is urgent. We have 
just been talking about FEMA and some of the things that need 
to be done in order to improve the agency. I guess the first 
question is: What do we have to do to make sure that FEMA is 
not put on the next high-risk list? That is the first issue. 
But, more importantly, the last time I looked, there were 12 
management positions in FEMA; eight of them have temporary 
people filling them. They have lost over 500 people. Half their 
workforce is over 50. And from what I understand, we have a 
pretty demoralized group of people because they have been 
beaten down as an agency.
    I would like to ask both of you if you think FEMA is 
hampered by being part of the Department of Homeland Security? 
As you know, we are approaching hurricane season. I am 
concerned that FEMA does not have the staff or resources 
necessary to be able to respond. We are running out of time. I 
want to ensure that DHS is giving FEMA the appropriate 
attention that it needs to be able to respond and to attract 
the individuals needed to get the job done. Is FEMA going to be 
ready for the upcoming hurricane season?
    Mr. Johnson. I believe that FEMA is not hampered by being a 
part of the Department of Homeland Security. Staffing is the 
biggest problem they have right now. OMB had Homeland Security 
and FEMA outline what their plan was for dealing with the extra 
risks presented by Hurricane Katrina. Hurricane Katrina is a 
big risk of making an improper payment--a huge risk. What are 
the different kinds of risks and what extra preventions or 
extra resources are we going to apply against that extra risk 
to lower that risk to acceptable levels? They identified all 
the things they needed to do, the extra checks and balances and 
so forth. Just with regard to Katrina, they identified the need 
to hire--it is either 120 or 200 people in a combination of 
procurement and then in the financial world with regard to 
internal control.
    Senator Voinovich. If I could just interrupt you a minute, 
the question I have is that if you have an agency that is 
beaten down, has a bad reputation, and you have people who, 
from what I understand, are going to leave if they get a 
chance, how in the world are you going to get the people that 
you need into the positions so that this thing will work the 
way we want it to?
    Mr. Johnson. Right. What I am saying is--let me put some 
numbers on it. They wanted to hire--it was either 120 or 200 
people. They have hired half those people. They have been 
working on it for 3 months, and they have had extra help from 
OPM, they have had extra expedites for this and that, and it is 
all the things you talked about. So it is a significant 
problem.
    I believe it actually helps FEMA to be a part of Homeland 
Security in that you have Deputy Secretary Michael Jackson. I 
saw him on Sunday. He said he spends probably 80 percent of his 
time on FEMA matters. If FEMA was separate, they would be hard 
pressed to have somebody of Secretary Chertoff's caliber and 
Michael Jackson's caliber trying to help them get more 
strategically aligned. It is a problem. Hurricane Katrina and 
all the repercussions of that were unprecedented in its 
magnitude. And whether it was a part of Homeland Security or 
not, the people at FEMA would be worn out, ready to retire, 
ready to move on, ready to go into the ministry--whatever the 
next steps might be. And it is a problem that needs to be dealt 
with, and I do not believe their being a part of Homeland 
Security has any bearing on the quality or the expedited nature 
of the solution.
    Mr. Walker. Mr. Chairman, I would say two things.
    First, the quality of the leadership. You need top-flight, 
capable, credible, and inspired leadership at FEMA, and if you 
do not have that, you have a big problem. One of the challenges 
that we are going to have now, I would respectfully suggest, is 
attracting somebody into that job under the current 
circumstances. I hope and pray that the Administration will be 
successful in attracting somebody that meets all these 
criteria.
    Second, they are going to have to have adequate resources, 
and that means human resources as well as financial and other 
types of capabilities. As you know, Mr. Chairman, we do not put 
agencies on our high-risk list. We put programs, functions, and 
activities, and the reason being is it really would not be fair 
to an agency. It is not the entire agency that is the problem. 
Rather it is certain aspects of an agency that might be a 
problem. Therefore, by putting an entire agency on the list, it 
really tends to indict the entire agency. Every agency does 
some things well, and some things, quite frankly, are beyond 
their control and they need the Congress' help to be able to 
deal with them.
    Senator Voinovich. You mentioned the National Flood 
Insurance Program (NFIP). That is a big part of it, right?
    Mr. Walker. Well, that is at DHS, and it does relate to 
FEMA, that is correct. We are putting the National Flood 
Insurance Program on our high-risk list as of today. As you 
will recall, Mr. Chairman, we put the Single Employer Insurance 
Program, which is the biggest part of the Pension Benefit 
Guaranty Corporation, on our high-risk list, off-cycle, several 
years ago when it had a similar financial condition.
    I believe that whether or not FEMA will be successful does 
not have as much to do with whether or not it is in DHS. It 
will depend on the quality of its leadership and the adequacy 
of its resources. After all, the Coast Guard did a great job, 
in my opinion, based on everything we have seen, relating to 
Katrina and Rita, and it is part of the Department of Homeland 
Security. And before that, it was part of the Department of 
Transportation.
    It is leadership and resources that count the most. One 
last thing on this. We have talked about the CMO concept. I 
would respectfully suggest that one of the things that Congress 
needs to consider is: Are there certain positions in certain 
agencies that you ought to think about having statutory 
qualification requirements, thinking about getting a pro with a 
term appointment? Is FEMA one of those agencies? I raise that 
question.
    For example, I look at the Internal Revenue Service. The 
Commissioner of Internal Revenue has a 5-year term appointment. 
The Commissioner of Social Security has a term appointment. 
There are certain positions that, given the nature of the 
position and the agency's mission, you want a pro and you want 
somebody who obviously is politically acceptable. A person with 
the right kind of qualifications but who hopefully knows they 
are going to be there for a certain amount of time, which I 
think can make all the difference. Frankly, if you ask some of 
the people who have been appointed to some of these term 
appointments, including Mark Everson at IRS, I think he would 
tell you it makes a difference having a term appointment.
    Mr. Johnson. Senator, can I make one additional comment?
    Senator Voinovich. Yes.
    Mr. Johnson. I think the issue here is not whether the head 
of FEMA is termed or not. I think the issue is Hurricane 
Katrina. Before Katrina, Michael Brown was going to go into the 
Emergency Management Hall of Fame for the work that he and FEMA 
did in Florida when those five hurricanes went through there in 
2004. FEMA's track record of response to natural disasters was 
more than satisfactory for many years leading up to Katrina. In 
FEMA, we have an agency that is demoralized. Lots of people are 
leaving. It did not perform well in Katrina. The main factor is 
Katrina. Think back--which nobody talks about--to how well 
regarded FEMA was in 2004 and 2003 and 2002 and 2001 and in 
1999. There were no discussions about if we could get good 
leadership. There were no discussions about it needed to be a 
term appointment. We had a once-in-a-100-year or a once-in-a-
200-year natural disaster that knocked the bejesus out of the 
United States of America, and we did not respond as well as we 
would have responded to a Category 3 or a Category 4 hurricane. 
And so we are going to learn from it and move on, but the issue 
is not looking back that Michael Brown was termed or not.
    Senator Voinovich. Senator Akaka.
    Senator Akaka. Thank you very much, Mr. Chairman.
    FEMA is an agency that we have been discussing throughout 
our 22 hearings on Katrina. At one of the hearings with the 
Inspector General sitting where you are sitting, Mr. Johnson--I 
asked him the question: Today, if there is a disaster, will 
FEMA be able to operate successfully? Without hesitating, his 
answer was no. And so that is scary. And for me, I wonder why 
we are continuing to pay all these salaries and having an 
organization that will not function.
    For the past 3 weeks, as you know, parts of Hawaii have 
been hit by exceptionally hard and heavy rains, causing 
flooding, landslides, and just yesterday, a dam failed and it 
killed--well, they found one person, six are missing. And at 
this point in time, I don't know whether FEMA is going to be 
involved, but I thought I would just mention that. And I want 
to thank the Chairman for mentioning FEMA because this is 
something that we need to work on to help our country in case 
there are future disasters.
    Mr. Walker, I would like to commend GAO for its evaluation 
of a fundamental element of DOD acquisition, contract award, 
and incentive fees. Given the DOD acquisition failures that I 
mentioned previously, I do not understand how DOD can continue 
to pay award fees, which amount to more than $8 billion, 
regardless of program outcomes. This precedent of awarding 
contractors for inadequate performance, no question, must 
change. The December 2005 GAO report you mentioned indicated 
that, in some cases, DOD evaluates contractors based on award 
fee criteria not directly linked to program success.
    So my question is: What changes would you recommend that 
DOD make regarding award and incentive fee structures?
    Mr. Johnson. Senator Akaka, we have made some, and I expect 
that we will make some additional ones as well. As you may 
know, the Senate Armed Services Committee--which you are a 
member of--has a hearing coming up on this, I believe, the 
first week in May.
    One of the things that I think has to happen is to make it 
clear, ideally without legislation but, if necessary, with 
legislation, that the only way that one should be paid an award 
fee is if there are positive outcome-based results based on 
cost, quality and/or performance. It is as fundamental as that.
    You would think just looking at Webster's Dictionary that 
you would be able to figure out that these types of criteria 
need to be met, but it is as fundamental as that.
    Now, I will tell you that the Under Secretary for 
Acquisition, Technology and Logistics at the Defense Department 
has agreed with our findings and recommendations to date, and 
we are looking to see what type of concrete actions are taken 
to deal with them. I will tell you that one of the problems at 
the Defense Department is things, in form, look great. They 
have beautiful manuals. They will end up adopting a lot of 
recommendations on paper. But as we all know, there is a 
difference between plan and actual, and the real key is what 
actually happens on implementation, and that is where I think 
we have to wait and see whether or not adequate steps are taken 
or, if not, we may want to come back to Congress and recommend 
that you do something.
    Senator Akaka. Thank you. General Walker, do you believe 
that the Federal acquisition regulations should be altered to 
provide Federal agencies with discretion on the structuring and 
payment of award fees?
    Mr. Walker. Senator, I would like to talk to my staff and 
provide a response for the record on that, if it is OK with 
you.
    Senator Akaka. That is fine with me.
    Mr. Walker. Thank you.
    Senator Akaka. Mr. Walker, you testified that DOD weapons 
systems acquisitions has been a high-risk area for more than a 
decade. Within the past 12 months, we have seen at least three 
multi-billion-dollar major defense acquisition programs exceed 
their baseline cost estimates by more than 25 percent, and yet 
DOD acquisition policies seem to include sound best practices.
    Are the major problems we are seeing with DOD weapon 
systems acquisition related to insufficient policy? Or is this 
a case of failing to follow the existing policies?
    Mr. Walker. There are several issues with regard to 
acquisition policy. One, if you look at the total wants--and I 
consciously pick that word, ``wants''--that all the services 
that they have at the Defense Department and the programs that 
they have in the pipeline at the present point in time, and if 
you compare those wants to realistic current and expected 
resource levels, there is a huge difference. That difference 
has not been reconciled. It needs to be reconciled. Unless, and 
until, it is, we are going to spend billions of dollars on 
wants that, when the budget crunch comes, we are not going to 
be able to have for the needs. So that is the first thing.
    The second thing is that after the decision is made to fund 
a particular weapons systems acquisition based upon credible 
current and future threats and based upon needs rather than 
based upon wants, then it is critically important that the 
Pentagon nail down its requirements and follow commercial best 
practices on the design, the development, and the production of 
these systems, and that they have adequate maturity of 
technology before they move through the various stages. On 
paper, their policies say they are supposed to. In practice, 
they don't, all too frequently. And history has shown that if 
you don't do that, you are just asking for cost overruns, 
scheduled delays, and compromised performance standards.
    There is a long-standing history, with a few exceptions--
but it tends to be more the rule than the exception--of over-
promising and under-delivering and that people are not held 
accountable. Contractors are not held accountable. DOD 
employees are not held accountable. I would respectfully 
suggest, that this is a problem not just for the Executive 
Branch but also for the Legislative Branch.
    As you mentioned, Mr. Chairman, sometimes the DOD is forced 
to buy things that they say they do not need. However, because 
of interest in the Congress--the branch of government that I 
work for--it is forced on them. We need to have better 
incentives, more transparency, and clearly enhanced 
accountability in order to make real and sustainable progress 
here.
    Senator Akaka. Thank you. Let me follow up here. General 
Walker, in GAO's review of DOD weapons systems acquisition 
processes, has any evidence been found showing a linkage 
between threat assessment and acquisition decisions?
    Mr. Walker. In our view, Senator Akaka, there is an 
inadequate job done at the departmentwide level in looking at 
current and future credible threats and in reconciling those 
with the different wants of the various services. It is more of 
a problem in certain services than others, but I would 
respectfully suggest that after this latest QDR, which, again, 
is a bid document--it is not a formal policy or law--the delta 
that I talked about, the difference between wants, needs, 
affordability, and sustainability, is worse, not better, after 
that document. And that is a real disappointment, because I 
know there are a lot of people at the Defense Department--
including Secretary Rumsfeld, that recognizes this problem and 
they want to make more progress on it than they have been able 
to.
    Senator Akaka. Thank you very much, Mr. Chairman.
    Senator Voinovich. Senator Carper.
    Senator Carper. I understand we have just a couple, maybe 5 
minutes left in this vote, and so I will just ask one question 
of Mr. Johnson and one quick question of Mr. Walker.
    Mr. Johnson, who is the Administration's point person that 
we should be working with as we go to conference on the postal 
reform bill? Do you know? Should we just work with you?
    Mr. Johnson. It would be somebody in the White House on the 
Policy Council. I think it is Tevi Troy that is the senior-most 
person.
    Senator Carper. What is the name again?
    Mr. Johnson. Tevi Troy.
    Senator Carper. OK. Who is the domestic policy adviser now?
    Mr. Johnson. It is an open position.
    Senator Carper. OK, thank you. All right.
    And a related question, if I could, Mr. Walker, for you. 
You mentioned transparency a couple times, actually, and we 
know that the Postal Service is going through a transformation 
process. I just alluded to it in my question of Mr. Johnson. I 
think the Postal Service has been on the high-risk list, at 
least its transformation process has been on the high-risk list 
for a while. And I think most observers would say there has 
been some improvement in the Postal Service in the last couple 
of years. I think they are doing a better job in terms of 
harnessing technology and being more productive. And I think 
any fair-minded person would say they have made some good 
progress.
    What I want to ask is your views on whether or not the 
Postal Service has in place--I guess I would call it a 
transparent strategy to rationalize its facilities and its 
workforce. Do you think they have a strategy in place to 
rationalize its facilities on the one hand and its workforce on 
the other? And sort of an adjunct to that, what do you think 
the Postal Service needs to be doing in this regard?
    Mr. Walker. Well, first, Senator, let me say thank you for 
your leadership on postal reform, and your colleagues. Stay the 
course. They need it.
    Senator Carper. Good. I will.
    Mr. Walker. Second, I would agree with you that they have 
made considerable progress administratively in dealing with a 
number of challenging issues over the last several years, 
although I do believe that they need help through legislative 
reforms in certain key areas.
    We have recommended for some time that the Postal Service 
have a comprehensive and more transparent rationalization and 
restructuring plan with regard to its infrastructure and its 
employees. I have not seen that plan to date, but I will talk 
to my staff as soon as I get back and find out if they may have 
seen something that I have not seen yet.
    Senator Carper. Well, would you just let me know on the 
record for the record, please?
    Mr. Walker. I will do that, Senator.
    Senator Carper. Thank you. Mr. Johnson.
    Mr. Johnson. My understanding is that it is impossible to 
close one post office, and it is not because it is not in the 
plan. It is because Congress refuses to let them do it. And so 
it is very difficult, as I understand it, to rationalize the 
Postal Service's physical plant and workforce for a variety of 
reasons and only some of them are business related. A lot of 
them are political.
    Mr. Walker. Senator, my understanding--but I will check it 
for the record--is that there are certain legal restrictions, 
but they are not necessarily legal restrictions down to the 
individual post office level. There is, however, a considerable 
amount of cultural resistance--all the more reason why I think 
you need a comprehensive plan. I think you and most of your 
colleagues would be surprised if the post office did something 
as simply as do a graphic presentation of where the population 
of the United States is, and then overlay that where all the 
post offices are. It would be dramatic. And then to be able to 
compare that to how many post offices do we have per square 
mile, how many do we have per citizen, because what ends up 
happening is like most things in government. Once it is in the 
base, it stays, and then we keep on layering and layering and 
layering, and what we need to do is we have to rationalize the 
base, because with the $760 billion all-time record accrual-
based deficit for fiscal year 2005, we have got to do some 
things differently.
    Senator Carper. Thank you both.
    Senator Voinovich. We have to wrap this hearing up because 
we are about to have a vote. I want to thank you very much for 
being here today. I thought this was very fruitful. I have 
additional questions that I will submit for the record.
    I look forward to continuing to work with you as we deal 
with the high-risk list.
    Thank you very much.
    [Whereupon, at 3:20 p.m., the Subcommittee was adjourned.]


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