[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
            ACCOUNTABILITY LAPSES IN MULTIPLE FUNDS FOR IRAQ 

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

                                HEARING

                               before the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 22, 2008

                               __________

                           Serial No. 110-131

                               __________

Printed for the use of the Committee on Oversight and Government Reform


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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 HENRY A. WAXMAN, California, Chairman
EDOLPHUS TOWNS, New York             TOM DAVIS, Virginia
PAUL E. KANJORSKI, Pennsylvania      DAN BURTON, Indiana
CAROLYN B. MALONEY, New York         CHRISTOPHER SHAYS, Connecticut
ELIJAH E. CUMMINGS, Maryland         JOHN M. McHUGH, New York
DENNIS J. KUCINICH, Ohio             JOHN L. MICA, Florida
DANNY K. DAVIS, Illinois             MARK E. SOUDER, Indiana
JOHN F. TIERNEY, Massachusetts       TODD RUSSELL PLATTS, Pennsylvania
WM. LACY CLAY, Missouri              CHRIS CANNON, Utah
DIANE E. WATSON, California          JOHN J. DUNCAN, Jr., Tennessee
STEPHEN F. LYNCH, Massachusetts      MICHAEL R. TURNER, Ohio
BRIAN HIGGINS, New York              DARRELL E. ISSA, California
JOHN A. YARMUTH, Kentucky            KENNY MARCHANT, Texas
BRUCE L. BRALEY, Iowa                LYNN A. WESTMORELAND, Georgia
ELEANOR HOLMES NORTON, District of   PATRICK T. McHENRY, North Carolina
    Columbia                         VIRGINIA FOXX, North Carolina
BETTY McCOLLUM, Minnesota            BRIAN P. BILBRAY, California
JIM COOPER, Tennessee                BILL SALI, Idaho
CHRIS VAN HOLLEN, Maryland           JIM JORDAN, Ohio
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
JOHN P. SARBANES, Maryland
PETER WELCH, Vermont
------ ------

                     Phil Schiliro, Chief of Staff
                      Phil Barnett, Staff Director
                       Earley Green, Chief Clerk
               Lawrence Halloran, Minority Staff Director

























                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 22, 2008.....................................     1
Statement of:
    Ugone, Mary L., Deputy Inspector General for Auditing, U.S. 
      Department of Defense, Office of the Inspector General, 
      accompanied by Patricia Marsh, Assistant Inspector General, 
      Defense Financial Auditing Service Directorate, U.S. 
      Department of Defense, Office of the Inspector General; and 
      Daniel Blair, Deputy Assistant Inspector General, Defense 
      Financial Auditing Service Directorate, U.S. Department of 
      Defense, Office of the Inspector General...................    17
Letters, statements, etc., submitted for the record by:
    Davis, Hon. Tom, a Representative in Congress from the State 
      of Virginia, prepared statement of.........................    12
    Issa, Hon. Darrell E., a Representative in Congress from the 
      State of California, excerpt from the House Armed Services 
      Committee..................................................    57
    Ugone, Mary L., Deputy Inspector General for Auditing, U.S. 
      Department of Defense, Office of the Inspector General, 
      prepared statement of......................................    19
    Waxman, Chairman Henry A., a Representative in Congress from 
      the State of California, prepared statement of.............     4


            ACCOUNTABILITY LAPSES IN MULTIPLE FUNDS FOR IRAQ

                              ----------                              


                         THURSDAY, MAY 22, 2008

                          House of Representatives,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 a.m., in room 
2154, Rayburn House Office Building, Hon. Henry A. Waxman 
(chairman of the committee) presiding.
    Present: Representatives Waxman, Davis of Virginia, 
Cummings, Kucinich, Tierney, Clay, Watson, Lynch, Higgins, 
Yarmuth, McCollum, Sarbanes, Platts, Duncan, and Issa.
    Staff present: Phil Barnett, staff director; Kristin 
Amerling, chief counsel; Karen Lightfoot, communications 
director and senior policy advisor; David Rapallo, chief 
investigative counsel; Theodore Chuang, deputy chief 
investigative counsel; Steve Glickman, counsel; Mark 
Stephenson, professional staff member; Jen Berenholz, deputy 
clerk; Caren Auchman and Ella Hoffman, press assistants; Leneal 
Scott, information systems manager; Larry Halloran, minority 
staff director; Jennifer Safavian, minority chief counsel for 
oversight and investigations; Keith Ausbrook, minority general 
counsel; Mason Alinger, minority legislative director; John 
Brosnan, minority senior procurement counsel; A. Brooke 
Bennett, minority counsel; Emile Monette and Benjamin Chance, 
minority professional staff members; Nick Palarino, minority 
senior investigator and policy advisor; Patrick Lyden, minority 
parliamentarian and member services coordinator; Brian 
McNicoll, minority communications director; and John Ohly, 
minority staff assistant.
    Chairman Waxman. The committee will please come to order.
    As many of us know, there are strong and fundamental 
disagreements in Congress and throughout the country about 
President Bush's Iraq policy, but despite these differences 
there is unanimous agreement in at least one area: Our 
Government should do all it can to eliminate any waste, fraud 
and abuse in the hundreds of billions of taxpayers' dollars 
that are being spent on the war.
    Normal accounting standards aren't always possible in war 
zones, and we have kept that in mind during our committee's 
work. But some actions, like our Government's decision to hand 
out $12 billion in cash at the beginning of the war, defy 
logic. As we learned in our hearings last year, nearly $9 
billion of that money was distributed with no accounting 
standards at all.
    Today's hearing will give us a new status report on how the 
Defense Department is safeguarding taxpayers' dollars. We are 
very fortunate to have the Department's Deputy Inspector 
General here to brief us on a new report.
    The Defense Department has made over 180,000 payments to 
contractors from offices in Iraq, Kuwait and Egypt. These 
payments are for everything from bottled water to vehicles to 
transportation services.
    The Inspector General reviewed approximately $8.2 billion 
in Defense spending and estimated that the Department failed to 
properly account for $7.8 billion. That means the Defense 
Department had a stunning 95 percent failure rate in following 
basic accounting standards.
    The Inspector General concluded that $1.4 billion of these 
payments didn't even meet the most minimal requirements 
necessary, leaving U.S. taxpayers vulnerable to waste and 
fraud. In fact, the Inspector General has already referred 28 
cases involving millions of dollars to criminal investigators.
    Few Americans may be aware of this, but the Defense 
Department has paid $135 million to Britain, South Korea, 
Poland and other countries to conduct their operations in Iraq. 
When the Inspector General tried to find out what this money 
was used for, they couldn't find any answers. Investigators 
reviewed 22 different voucher files, but not one single payment 
made to these foreign countries had documents explaining how 
the money was spent.
    The Inspector General also found that the Pentagon gave 
away $1.8 billion in Iraqi assets with absolutely no 
accountability. Investigators examined 53 payment vouchers and 
couldn't find even one that adequately explained where the 
money went.
    In one remarkable instance, a $320 million payment in cash 
was handed over with little more than a signature in exchange.
    These new findings are on top of the Inspector General's 
sobering November 2007 report which concluded that the Defense 
Department couldn't properly account for over $5 billion in 
taxpayer funds spent in support of the Iraqi security forces. 
That analysis reported that thousands of weapons are 
unaccounted for, including assault rifles, machine guns and 
rocket-propelled grenade launchers, and millions of dollars 
have been squandered on construction projects that don't exist.
    Taken together, the Inspector General found that the 
Defense Department did not properly account for almost $15 
billion. American taxpayers are picking up the tab for Iraqi 
ministries, Coalition governments, United States and foreign 
contractors, Iraqi security forces and Blackwater and other 
U.S. security companies. We are even giving hundreds of 
millions of dollars to local Iraqi tribal leaders in order to 
get them to stop fighting, and much of this is spent without 
the minimum safeguards needed to protect taxpayers.
    Our troops seems to be the only ones who are held to 
demanding standards. In fact, they often have to overcome 
mindless obstacles just to get what they are owed.
    Soldiers wounded in battle have received letters demanding 
that they return signing bonuses because they didn't complete 
their terms. In some cases, the Pentagon even wanted interest.
    Guard forces and Reservists have waited months, even years, 
to get reimbursed for travel and meal expenses.
    Sergeants have had to buy their own body armor. They have 
had to armor their own Humvees, buy their own medical supplies 
and even purchase their own global positioning devices.
    And, when the brigade of National Guard and Reserve troops 
that served the longest tour of duty in Iraq came home, they 
had to fight the Pentagon bureaucracy to get the education 
benefits they had earned.
    There is something very wrong when our wounded troops have 
to fill out forms in triplicate for meal money while billions 
of dollars in cash are handed out in Iraq with no 
accountability.
    The Inspector General has done important work, and this new 
report deserves an official response from the Defense 
Department. The Department has known about this audit for more 
than a year and has known about this hearing for several weeks, 
but the Department refused to testify voluntarily today. I 
think that is a regrettable decision, but it will not keep our 
committee from giving this matter the careful scrutiny it 
deserves.
    I want to thank the Inspector General and his staff, and I 
look forward to hearing today's testimony.
    Mr. Davis.
    [The prepared statement of Chairman Henry A. Waxman 
follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Mr. Davis of Virginia. Thank you, Mr. Chairman, for calling 
this hearing to examine the complex range of vulnerabilities 
and management challenges raised by our extensive security and 
reconstruction activities in Iraq. We are pleased the committee 
is continuing this line of oversight which began when I sat in 
your chair.
    During the 108th and 109th Congresses, the full committee 
and our subcommittees held a total of 19 hearings focused on 
complex logistical support and reconstruction contracts. In 
those sessions, we tried to transcend the charged rhetoric and 
easy generalities that can swirl around this topic and focus 
instead on the hard realities of using last century business 
systems in a war zone on the other side of the world. I hope 
today's hearing follows that constructive path.
    It is worth the committee's sustained attention because the 
bad news is inadequate DOD payment processes didn't start with 
the Iraq War and they are unlikely to disappear when the war is 
over.
    I would just note that the DOD IG has done similar audits 
and obtained similar results for vendor payment activities 
outside the Iraq War.
    In one report issued in 2002, the DOD IG stated serious 
internal control weaknesses have been reported over the years 
in the DOD payment process and system. Since the formation of 
DFAS in the early 1990's, its processes and procedures have 
been the subject of significant attention from the oversight 
community in general.
    For example, while investigation disbursements by DFAS 
Oakland, CA, the DOD IG found that the accounts payable data 
bases used to validate vendor systems and payments were 
incomplete, inaccurate and virtually unauditable. The auditors 
identified at least $2.4 million in duplicate payments in the 
limited sample that it reviewed. That was a 1995 report.
    While reviewing vendor payments at DFAS Denver, the DOD IG 
found that approximately 176,000 of the 306,000 vendor payments 
made over the course of the 3-month period in 1999 lacked the 
required supporting documentation and information.
    In 2001, the DOD IG reviewed vendor payments at DFAS Omaha 
for vendor payments on a $25.5 million multi-year maintenance 
contract. The auditors found $2.9 in erroneous obligations to 
the contract, $530,000 in duplicative payments of the contract 
and over $700,000 of unnecessary upward adjustments of 
obligations on the contract. That was in March 2001, and that 
was just a very small sample.
    The DOD IG, which will testify today, as I said, it has 
suffered from longstanding and serious internal control 
weaknesses, but spending in Iraq presents unique challenges and 
provides undeniable opportunities for worthwhile oversight.
    Few people operating in an active combat zone would refer 
to the documentation requirements of the financial management 
process as mission critical work. Similarly, no one would deny 
the imperative to tell American taxpayers how their money is 
being spent. So we have to balance these two truths and 
approach this issue with unclouded vision.
    We need to know what has gotten better, what is still being 
fixed and what is still broken, and we need to refine our 
understanding of the differences between audit report findings 
that take an unflattering snapshot of a complex process and the 
real meaning of those findings to the long-term integrity of 
systems handling huge disbursements of taxpayer dollars.
    Without question, many processed used with relative success 
in peacetime operations here fall far short of expectations 
when deployed in an active combat zone. In Iraq, a highly 
unstable environment and consequent security overhead greatly 
compound the scope of resulting cost, performance and oversight 
issues.
    The underlying causes: inadequate planning, a lack of 
sustained, high-level leadership, mismatches between 
requirements and resources and an insufficient number of 
trained financial management personnel.
    The last factor, not enough trained and experienced 
acquisition professionals, is by no means unique to Iraq, and 
we should not let a focus on the war blind us to the 
Government-wide need for veteran finance officials to watch 
over large and growing expenditures.
    Today, we are going to hear from the Department of Defense 
Deputy Inspector General for Audit, Ms. Mary Ugone. She brings 
an important perspective informed by a substantial body of 
audit and review work.
    The picture painted by that work is not pretty. A volatile 
environment, poor security and an arcane, ill-suited regulatory 
structure have produced a succession of transactions plagued by 
missing documentation and other lax fiscal controls.
    The IG findings remind us the truth of a war zone is gritty 
enough. There is no need to embellish, inflate or spin it. 
Thoughtful oversight will steer clear of hyperbolic discussions 
and oversimplification of complex processes in the search for 
meaningful reforms.
    I look forward to her testimony and to a frank and 
constructive discussion.
    Thank you.
    [The prepared statement of Hon. Tom Davis follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Waxman. Thank you very much, Mr. Davis.
    It is the practice of the committee to have opening 
statements from the chairman and the ranking member. We don't 
have a great number of Members here, so if Members want to make 
a brief opening statement, I will recognize them at this point.
    Mr. Kucinich.
    Mr. Kucinich. Thank you very much, Mr. Chairman. I want to 
thank you and Ranking Member Davis for your ongoing interest in 
providing accountability for the funds that are used in Iraq.
    One of the things that disturbs me about the approach that 
the administration has taken, Mr. Chairman, is that it has 
treated the money of the people of Iraq as free money, as 
though we don't have responsibility for the money that we take 
custody of that belongs to the people of Iraq.
    I think that those in the administration who have had 
custody of that money, who have, through their instance, 
created systems for distributing the money, need to be held 
accountable as though they were handling the money of the 
taxpayers of the United States of America. This hearing, I 
hope, proceeds in that spirit.
    Because it is Iraq money and since we have a higher 
responsibility, we can't act as though, well, that is just 
Iraqi money and somehow anything goes. Actually, when you look 
at it in terms of the work of particularly Coalition 
Provisional Authority, anything has gone. Billions have gone 
out the door, and we can't trace it. There are a lot of 
questions there.
    Mr. Chairman, thank you for holding this hearing. I will be 
rejoining the hearing shortly. I have people in my office I 
have to meet with, but thank you.
    Chairman Waxman. Thank you, Mr. Kucinich.
    Mr. Issa.
    Mr. Issa. Thank you, Mr. Chairman.
    I will be brief. I would like to put my entire statement in 
for the record.
    I appreciate your holding this hearing. I think it is 
incredibly important that we, on a bipartisan basis, continue 
to operate an oversight role.
    To that end, I would like to comment briefly that if in 
fact the majority doesn't begin the process of briefing us 
until the 20th, if we have at 9:39 this morning the majority 
opinion coming out, giving us 21 minutes before the start to 
begin to review an 11-page document, then in fact we, as a 
committee, are part of the problem. Although our guests are 
important as part of the solution today, I would hope that we 
could prevent this from happening so deliberately again in the 
future.
    Also, to that end, I hope today that we won't allow our 
anti-war versus pro-war images to taint the legitimate need for 
bipartisan oversight as to mistakes, fraud and lost money. I 
break them down into those three categories for a reason and 
hope that our witnesses will be able to give us statistical 
clarity on what, in fact, is the level of mistakes being made 
as a percentage now and in past conflicts, what level of fraud 
do we believe has occurred and what level of fraud have we 
taken steps to enforce criminal violations against and, last 
but not least, the total loss through all causes so that we can 
understand as a statistical percentage of the dollars and the 
number of transactions.
    I would hope that this committee would look to the 
statistical reality of a number of occurrences as we do in the 
business world and not simply to dollars which, in a multi-
trillion dollar economy, always manage to end up being large 
figures.
    So, Mr. Chairman, I will put my entire statement in for the 
record, and I hope that my comments will lead to our staffs 
being able to work for better notification sooner in the 
future.
    I yield back.
    Chairman Waxman. Ms. Watson, do you wish to make an opening 
statement?
    Ms. Watson. Thank you so much, Mr. Chairman, for holding 
today's hearing on the accountability of funds used to support 
this war in Iraq.
    I remember being told by the President that the cost of 
this war would be revenues from the oil that was produced and 
drilled out in Iraq. That appeared to be untrue. Today, we are 
talking about taxpayers' U.S. dollars, taxpayers' money.
    As you know, Mr. Chairman, we have been working diligently 
to provide oversight of funds that may have been 
inappropriately used while the occupation of Iraq has dragged 
on. Over the course of the last 15 months, we have had several 
hearings that were aimed at addressing the poor accountability 
methods of the Coalition Provisional Authority, contractors and 
subcontractors in Iraq.
    Right here, I have a staff person who was in Iraq, and we 
saw these contractors given millions and millions of American 
dollars, and the goods and the services that were supposed to 
be produced for our fighting forces never got to them. I have a 
witness here in this chamber today.
    The hearings opened our eyes to the potential waste of 
almost $50 billion in unauthorized security costs, overpriced 
workers, compensation insurance, inefficiencies and cost 
overruns associated with the construction of the U.S. Embassy 
in Baghdad, the largest in the world for a rather small, what 
is it, 58 million people population. The largest in the world, 
costing a billion dollars, and this example is only to name a 
few of the problems.
    Also, last October, this committee held a hearing on the 
state of corruption in the Iraqi government that showed there 
are severe problems with accountability in their government. 
The reason why I bring this up is because if the United States 
wants to be an example of democracy and accountability in Iraq, 
we must demonstrate the need to abide by the Rule of Law.
    So I look forward to hearing the testimony of today's panel 
on our current situation, describing as to why there are 
deficiencies in the reporting of the Multi-National Security 
Transition Command's ability to deliver weapons, supplies and 
equipment to support the war in Iraq.
    I thank you, Mr. Chairman, for the opportunity to address 
the committee, and I yield back the remainder of my time.
    Chairman Waxman. Thank you very much, Ms. Watson.
    Mr. Duncan.
    Mr. Duncan. Thank you very much, Mr. Chairman. I don't have 
a formal written statement, but I will briefly say this.
    This is my 20th year in the Congress, and I followed the 
Congress very closely for more than 20 years prior to that. In 
all that time, we have seen mind-boggling amounts of waste in 
almost every Federal department and agency.
    But in all those years, never has any department or agency 
ever come close to the gigantic waste, fraud and abuse that has 
gone on in Iraq, and fiscal conservatives should be the ones 
most horrified by what has happened there. There has been 
nothing fiscally conservative about the war in Iraq.
    It is really shameful, and it is extremely unfair to the 
taxpayers of this country.
    Thank you.
    Chairman Waxman. Thank you very much, Mr. Duncan.
    Mr. Higgins.
    Mr. Higgins. Yes, thank you, Mr. Chairman. I applaud your 
leadership on this issue today and historically.
    I think this issue of accountability and oversight is very, 
very important. We are talking about millions and billions of 
dollars in an effort that doesn't appear to be making much 
progress.
    The congressional role historically in oversight, 
particularly to support war efforts, has been critical as a 
fundamental component in changing the direction in terms of our 
policy. So I think this hearing is obviously very important. I 
look forward to the testimony of the Inspector General.
    I applaud you again, Mr. Chairman, for your leadership, and 
I yield back.
    Chairman Waxman. Thank you very much.
    Mr. Sarbanes.
    Mr. Sarbanes. Thank you, Mr. Chairman, for holding this 
hearing which is one in a series that you have held to shed 
light on the tremendous war profiteering--that is really the 
only word or phrase to use to describe it--that has gone on in 
Iraq with the various contractors that have been in that space 
over the last 5 to 6 years.
    I want to say that I still am captive to this image that I 
mentioned in a hearing we had last week of the days right after 
the occupation when U.S. forces stood by and watched as 
tremendous looting went on of ministries and other sites in 
Iraq. It appears that the U.S. Government, the Department of 
Defense and other agencies stood by and watched while the 
looting of our treasury went on, on the part of many of these 
contractors.
    What I can't understand is did they not see it, did they 
see it and not care or did they see and have some sort of 
interest in having it occur? Hopefully, these hearings will 
help us get to the bottom of that.
    Thank you.
    Chairman Waxman. Thank you very much, Mr. Sarbanes.
    We are pleased to welcome our witnesses today: Mary Ugone, 
Deputy Inspector General for Auditing, U.S. Department of 
Defense, Office of the Inspector General; Patricia Marsh, 
Assistant Inspector General, Defense Financial Auditing Service 
Directorate, U.S. Department of Defense, Office of the 
Inspector General; and Daniel Blair, Deputy Assistant Inspector 
General, Defense Financial Auditing Service Directorate, U.S. 
Department of Defense, Office of the Inspector General.
    We are pleased to welcome you to our hearing today.
    It is the practice of this committee that all witnesses 
testify under oath, so if you would please stand and raise your 
right hands.
    [Witnesses sworn.]
    Chairman Waxman. The record will indicate that each of the 
witnesses have answered in the affirmative.
    Ms. Ugone, I want to recognize you now. We have your 
prepared statements, and we are looking forward to your 
testimony.

   STATEMENT OF MARY L. UGONE, DEPUTY INSPECTOR GENERAL FOR 
 AUDITING, U.S. DEPARTMENT OF DEFENSE, OFFICE OF THE INSPECTOR 
  GENERAL, ACCOMPANIED BY PATRICIA MARSH, ASSISTANT INSPECTOR 
 GENERAL, DEFENSE FINANCIAL AUDITING SERVICE DIRECTORATE, U.S. 
  DEPARTMENT OF DEFENSE, OFFICE OF THE INSPECTOR GENERAL; AND 
   DANIEL BLAIR, DEPUTY ASSISTANT INSPECTOR GENERAL, DEFENSE 
  FINANCIAL AUDITING SERVICE DIRECTORATE, U.S. DEPARTMENT OF 
            DEFENSE, OFFICE OF THE INSPECTOR GENERAL

    Ms. Ugone. It is an honor to be here before you. Thank you.
    Chairman Waxman, Congressman Davis and distinguished 
members of the committee, we appreciate the opportunity to 
appear before you today to discuss controls over commercial 
payments made in Iraq, Kuwait and Egypt, accounting for the 
Commander's Emergency Response Program [CERP] funds, provided 
to Coalition partners and Iraqi seized and vested asset 
payments and also to discuss the management of the Iraq 
Security Forces Fund.
    Our audit of controls over payments was initiated in May 
2006, in response to a Defense Criminal Investigative Service 
[DCIS], assessment that there had been limited review of the 
completeness, accuracy and propriety of these payment vouchers.
    This concern centered on the potential existence of fraud, 
waste and abuse related to over $10.7 billion in payment 
vouchers related to U.S. Army disbursement of which we estimate 
that $8.2 billion pertain to commercial payments. The remaining 
$2.5 billion are noncommercial payments.
    We identified the need for improved processes and guidance 
used by the Army and Defense Finance and Accounting Service to 
review commercial payment information in a contingency 
operation. Based on our review of 702 vouchers, we estimated 
that the Army made $1.4 billion in commercial payments that did 
not have essential supporting information needed to determine 
whether the payment was proper. We identified information as 
essential because it was needed to ensure that entitlement to a 
commercial payment matched the goods or services provided.
    Another $6.3 billion in estimated commercial payments did 
meet essential criteria but did not comply with other 
requirements.
    Essential criteria include receiving reports, invoices, 
certifying official signature and payee signatures. For 
example, a voucher for payment for $11.1 million was missing 
both the receiving report and invoice. Without a receiving 
report and invoice, we don't know what we paid for.
    As a result of our audit, on May 16, 2008, the Office of 
the Under Secretary of Defense-Comptroller-Chief Financial 
Officer notified us that the financial management regulation 
was revised to incorporate guidance on commercial payment 
vouchers and supporting documents in contingency operations.
    CERP-funded projects are performed by both United States 
and Coalition forces. We reviewed a sample of 22 payment 
vouchers totaling $134.8 million for CERP payments to Coalition 
partners. None of them had sufficient supporting documentation 
to provide reasonable assurance that these funds were used for 
their intended purposes.
    The sample of 53 payment vouchers for seized and vested 
assets valued at $1.8 billion did not have supporting 
documentation that accounted for how the funds were to be used 
as prescribed by existing guidance. We suggested that a 
spending plan should be attached to serve as documentation that 
accounted for how the funds were to be used.
    During this audit, we referred 28 vouchers totaling $35.1 
million to DCIS for potential followup.
    With respect to the Iraq Security Forces Fund, the scope of 
review of $5.2 billion in funds used to provide equipment, 
services, construction and other support to the Iraq security 
forces, our November 2007 audit report concluded that the 
Multi-National Security Transition Command-Iraq could not 
always demonstrate proper accountability of purchases using 
these funds or that delivery of services, equipment and 
construction were properly made to the Iraq security forces.
    We judgmentally sampled 317 transactions valued at $2.7 
billion of which $2 billion did not have adequate supporting 
documentation needed to ensure that funds were properly 
managed. For example, about 91.5 of the $1.1 billion in sample 
transactions for equipment purchases did not have adequate 
supporting documentation of information such as receiving 
reports or recorded vehicle identification numbers or serial 
numbers.
    For construction projects, documentation was not adequate 
to support whether 93 percent of the $400 million in sampled 
projects were completed or that progress was accurately 
recorded.
    In April 2008, the Command released its Logistics 
Accountability Standard Operating Procedures as a result of our 
audit.
    In May 2005, DCIS launched a proactive project to analyze 
the payment vouchers at the Defense Finance and Accounting 
Service Rome, New York in an attempt to identify potentially 
fraudulent activity related to the war effort in Iraq and 
Afghanistan. Work is ongoing to expand the review of payment 
records for anomalies.
    This concludes my oral testimony. I will be happy to answer 
any questions that you may have. Thank you.
    [The prepared statement of Ms. Ugone follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Waxman. Thank you very much.
    I assume that Ms. Marsh and Mr. Blair are here to help 
answer questions.
    Ms. Ugone. Yes.
    Chairman Waxman. OK. I would like to recognize myself first 
for a 5-minute round.
    Ms. Ugone, I would like to start by asking your primary 
finding. You estimate that the Defense Department made $1.4 
billion in commercial payments that lacked minimum 
documentation for a valid payment such as properly prepared 
receiving reports, invoices and certified vouchers. Perhaps we 
could talk about this by looking at an example.
    On page 6 of your report, you mention a voucher for $11.1 
million, and you provided us with a copy. I would like to put 
it up on the screen.
    This says that there was a payment on May 24, 2005, to 
someone named David M. Dial of Irmo, South Carolina at a 
company called IAP. Is that right?
    Ms. Ugone. Right.
    Chairman Waxman. It is my understanding that IAP is the 
same company that had all the problems with delivering ice 
during Hurricane Katrina and the company that was in charge of 
maintenance at Walter Reed.
    Your report says that when you examined IAP's voucher, ``We 
could not identify the goods or services purchased.''
    What did you mean by that?
    Ms. Ugone. We meant that there was no invoice at all that 
supported the request for payment, and there was no receiving 
report that showed that actually the services or goods were 
delivered. So there was nothing.
    Actually, in essence, we were giving or providing a payment 
without any basis for the payment. That is what we mean. We 
don't know what we got.
    Chairman Waxman. Well, how could someone hand out more than 
$11 million without even writing down what they were paying 
for? Isn't there someone at the Defense Department who is 
supposed to verify that they got paid, that they got what they 
paid for?
    Ms. Ugone. Yes. I mean when you look at the entire set of 
regulatory requirements, there are 53 regulatory requirements 
which help ensure that the Department is paying what they 
should.
    Chairman Waxman. Did they meet any of the 53 requirements?
    Ms. Ugone. Well, that is where we get to the $7.7 billion. 
One of the things that we had thought in a contingency 
operation and what is a minimum essential requirement, 27 of 
the 53 we determined were minimum of which receiving reports 
and invoices are essential to determine what you paid for. That 
is where we were able to project an estimated $1.4 billion that 
didn't even meet the minimum essentials.
    Chairman Waxman. Well, in this specific instance, how did 
the Defense Department even know that $11.1 million was the 
right amount for what they were buying?
    Ms. Ugone. Well, they didn't.
    Chairman Waxman. And you said there is no evidence that the 
requesting organization receives the goods or services 
purchased. So are you saying that the Department couldn't 
provide any proof that they received anything for this $11 
million?
    Ms. Ugone. What I can say is we don't know what we paid 
for.
    Chairman Waxman. Well, the obvious problem is the potential 
for abuse. You noted on page 14 of your report that these kinds 
of ineffective controls create an environment conducive to 
fraudulent activity.
    In this case, how do we know that the taxpayer received $11 
million in goods and services? I suppose the answer is we don't 
know.
    Ms. Ugone. We don't know, not in this case.
    Chairman Waxman. Have you come across cases that you feel 
warrant potential criminal investigation and was this one of 
them?
    Ms. Ugone. I don't know if this is one of those that was 
referred, but I can tell you of the 28 we referred 2 resulted 
in cases being initiated, 8 were incorporated into ongoing 
investigations and the remaining are still being reviewed. I 
can get back with you as to whether or not this is one of 
those.
    Chairman Waxman. We have appropriated billions of 
taxpayers' dollars for this war, and the American people 
deserve to know that the administration isn't squandering their 
money. I think everybody understands that if you have no record 
of what you are buying and no record of what you received, 
there is going to be a major problem there.
    Let me ask you about some other examples of commercial 
payments.
    Ms. Watson. Mr. Chairman, would you yield for a second?
    Chairman Waxman. I want to complete my questions here. Then 
I will yield time.
    There are other examples of payments that don't describe 
what we bought or whether we even received anything for it. 
There is another voucher, this one for $5.7 million, and I want 
to put that one up on the screen. This one wasn't mentioned 
specifically in your report, but I wanted to ask you about it.
    The payment is to Al Kasid Specialized Vehicles Trading 
Co., and it was made on August 13, 2004. The voucher doesn't 
provide any information that explains what goods or services 
the U.S. Government was buying. Is that correct?
    Ms. Ugone. That is correct.
    Chairman Waxman. Was there any invoice that provided this 
kind of description?
    Ms. Ugone. I believe in this case also, and I would have to 
get back with you. I believe this instance also was where there 
was not an invoice as well.
    Chairman Waxman. OK. I have some more questions. It is a 
vehicle trading company, and maybe they sold cars, but we don't 
know what they sold. That is, I think, a real problem.
    Mr. Davis.
    Mr. Davis of Virginia. Thank you, Mr. Chairman.
    Thank you for your testimony and your work. We appreciate 
it.
    Ms. Ugone. Thank you.
    Mr. Davis of Virginia. One thing I found a little different 
in this report than others is you made an estimate that the 
Army made $1.4 billion in commercial payments that lacked the 
minimum documentations that would be needed for valid payment.
    Ms. Ugone. Right.
    Mr. Davis of Virginia. And the report further estimates the 
Army made another $6.3 billion in payments that did not comply 
with other criteria.
    But, in looking at the universe of commercial and 
miscellaneous payments, there are 183,486 vouchers and you 
really looked at 702.
    Ms. Ugone. That is correct.
    Mr. Davis of Virginia. How can you extrapolate a sound 
number from that? These are estimates, are they not?
    Ms. Ugone. These are based on statistical projections. We 
are at a 90 percent confidence level. What we ended up doing 
was using dollars stratum or dollars to be able to split out 
the vouchers.
    So that is true. It is using our statistical projections to 
estimate at a 90 percent confidence level.
    So, if you look at the actual $1.4 billion, there is a 
range. There is an upper range and a lower range. The $1.4 
billion is the median of that estimation.
    Mr. Davis of Virginia. Let me just say what I would have 
done, for what it is worth, which is to say something like we 
would expect that such errors were carried through the rest of 
the vouchers and put it in that vein because the number gets 
thrown around as an absolute and, of course, we are not dealing 
with absolutes. But there is one absolute here, and that is 
this stuff has been completely mismanaged, and this is ongoing 
and systemic.
    How much of this is because we are in a war zone and how 
much of this is just systematic? Is there any way to 
guesstimate that, or is it a little of both?
    Ms. Ugone. I think it is both. I think the financial 
management area has been a high risk every year. The Government 
Accountability Office has identified it as the high risk area. 
So I think that is recognized.
    The other thing in a contingency environment, and we 
understood this when we looked at the 53 regulatory 
requirements, is what were absolutely essential that needed to 
be applied when we determined entitlement to a commercial 
payment.
    Given the fact we were in a contingency operation, if we 
applied all 53 requirements, you would have $7.7 billion, in 
essence, where you had payments that had an error. But what we 
wanted to do was look at the minimum essentials which is why we 
focused on 27.
    In the environment, one of the key areas in a war, in a 
contingency operation is you want to make sure that gaps in 
internal controls are mitigated because that is critical, 
because you are pressed. There is expediency, and you need to 
make sure that those gaps are mitigated. We believe that our 
criteria that we used would mitigate those gaps.
    Mr. Davis of Virginia. It has been a high risk for some 
time, hasn't it?
    Ms. Ugone. Yes.
    Mr. Davis of Virginia. What has the Army done to mitigate 
those high risks? Have they gone out to outside experts and 
asked for help in terms of how they fix this?
    Ms. Ugone. Well, actually, during the audit, they did. 
There were some actions taken.
    One of the interesting things if you really look at a slice 
of the data, you would look. You would see that most of the 
commercial payments had occurred out of Kuwait, the disbursing 
stations.
    And, last year in the middle of the summer, what happened 
was they actually moved the disbursing function back here to 
the United States to DFAS so where the disbursements for those 
commercial payments are now being made back here.
    Mr. Davis of Virginia. Are they being done better here than 
in Kuwait?
    Ms. Ugone. We haven't done that assessment yet.
    Mr. Davis of Virginia. Because, in the past, DFAS has had 
some real problems as I alluded in my opening statement.
    Ms. Ugone. Right.
    Mr. Davis of Virginia. Having nothing to do with war, just 
how they function.
    Ms. Ugone. But I think one of the things, one of the 
actions they were trying to do was try and move that function, 
the certifying official function for commercial payments back 
into DFAS rather than keep it in Kuwait which was already 
having some issues with relation to other functions like 
contracting.
    Mr. Davis of Virginia. On the surface, that would seem to 
make some sense.
    Ms. Ugone. Right. I think that was a good initiative.
    Mr. Davis of Virginia. But we are still dealing with a 
long-term systematic problem, aren't we, here?
    Ms. Ugone. Yes, we are.
    Mr. Davis of Virginia. How did the results of this audit 
compare with similar work done at the DFAS Columbus, DFAS 
Denver or Omaha where the offices are not supporting Iraq war 
disbursements? I guess that is a better way to try and get it.
    Ms. Ugone. This was a year-long effort as previously 
described, and there was a lot of dialog between.
    We had two draft reports issued for discussion purposes. We 
had one formal draft. We had meetings and dialogs because one 
of the key differences is that we didn't apply all the 
regulatory and statutory requirements when we were making our 
assessment whereas when we did our typical audits in Columbus, 
we would look at every possible regulation and apply it. In 
this particular case, we wanted to take another approach.
    Mr. Davis of Virginia. Just very quickly, I asked this 
before, but let me just ask you. This is a systematic high-risk 
problem. What is the Army doing about this, long term?
    They might have, at least on this, moved it from Kuwait 
back to the United States. What are they doing long term to 
resolve this? Have they brought in some of the world's 
brightest consultants and controls people to do anything on 
this?
    Ms. Ugone. I don't know if they have done that or not.
    Mr. Davis of Virginia. You haven't seen it, though, in your 
work?
    Ms. Ugone. No. At a much more macro level, I don't know 
what their initiatives have been. I know what their initiatives 
have been in response to this report.
    Mr. Davis of Virginia. Thank you.
    Chairman Waxman. Thank you, Mr. Davis.
    Mr. Kucinich.
    Mr. Kucinich. Thank you very much.
    Ms. Ugone, I would like to ask about findings in your 
report.
    Ms. Ugone. OK.
    Mr. Kucinich. That the Pentagon made $135 million in 
payments to foreign governments from the Commander's Emergency 
Response Program [CERP], this whole idea is news to me.
    When the Pentagon comes up here and briefs Congress about 
the CERP program, they talk about how it gives our local 
military commanders the flexibility to hire Iraqis for 
relatively small construction projects. They didn't say that 
they are spending more than $100 million of this money on 
payments to foreign governments.
    I am certain the American people don't know that this is 
how their taxpayer dollars are being used, but your report says 
that the Defense Department has given $21 million to South 
Korea, $68 million to the United Kingdom and $45 million to 
Poland. My first question is why?
    If these are members of the Coalition of the Willing, why 
are they paying them anything and why aren't they covering 
these costs themselves?
    Ms. Ugone. We didn't look at that issue as to why the 
Department was doing this particular procedure.
    Mr. Kucinich. Why not?
    Ms. Ugone. We focused on whether or not. The scope of our 
audit was to focus on whether or not the funds were being used 
for their intended purposes. So we looked at whether or not, 
when these payments were made to Coalition partners, whether we 
could find a way to reconcile what we gave and then what we 
got.
    Mr. Kucinich. Well, let's put aside the issue of who should 
pay. Your report concludes that the Defense Department 
basically has provided no information on how this money was 
spent. According to your report, all--all--of the 22 payments 
that you examined failed ``to provide reasonable assurance'' 
that they were ``intended or used for their intended 
purposes.''
    Is that correct?
    Ms. Ugone. That is correct.
    Also in the report, I would just like to say that during 
the audit, one of the Coalition partners had initiated efforts 
to reconcile the funds that we provided to them.
    Mr. Kucinich. Well, wait a minute. Let's talk about an 
example. Your report cites a single $8 million payment to 
Poland on in September 2004.
    Ms. Ugone. Right. Right.
    Mr. Kucinich. You provided the committee with a copy of 
that voucher. I would like to put it on the screen. Staff would 
put that voucher on a screen.
    Now, in the middle of the page, under the description of 
articles or services, it says: Commander's Emergency Response 
Program, CERP, funds for the benefit of the Iraqi people. That 
is a pretty vague description of services, isn't it, to benefit 
the Iraqi people?
    Ms. Ugone. Yes, it is.
    Mr. Kucinich. Well, then on the right side of the page, the 
amount listed is $8 million. Is that right?
    Ms. Ugone. That is correct.
    Mr. Kucinich. Where did this money actually go? How do we 
know whether the Polish Army used these funds to benefit the 
Iraqi people?
    Ms. Ugone. We don't.
    Mr. Kucinich. Now, Ms. Ugone, the Defense Department 
refused to be here today, but they did submit comments to your 
report, and here's what they said about this issue. They said, 
``All funds advanced to our Coalition partners are reconciled 
when the Coalition partner completes the assigned mission.''
    Is that an accurate statement?
    Ms. Ugone. I am not aware of that comment. They didn't 
share that information.
    Mr. Kucinich. Is that statement accurate to your knowledge?
    Ms. Ugone. I think what is supposed to happen is there 
should be some sort of reconciliation. I mean that is assuming 
that none of the construction projects have been completed 
during this time period. So that means that if there is no 
construction project files provided, I imagine they can't 
reconcile.
    But the whole issue is these CERP funds are supposed to be 
for the same purpose as for U.S. forces, which is for 
construction projects as well as non-construction projects 
related to the Iraqi people. The only way to figure out whether 
or not those have been completed is to actually get project 
files or data from the Coalition partners. We don't have any 
data to show that.
    Mr. Kucinich. I understand that. That is why you said all 
the 22 payments you examine failed to provide reasonable 
assurance they were used for intended purposes.
    I also understand that as a result of your investigation 
the Defense Department tried to go back and ask these foreign 
governments, get this, for evidence of how they spent their 
funds.
    But, sitting here today, can you identify a single 
reconstruction project that was funded with this $135 million?
    Ms. Ugone. No, we cannot.
    Mr. Kucinich. Think about that. Think about what that 
means, Mr. Chairman, in terms of the credibility of this 
country and also how the people of Iraq are getting cheated as 
well as the people of the United States are being cheated.
    I yield back.
    Chairman Waxman. If the gentleman will yield to me the few 
seconds he has, it sounds like the Coalition of the Willing is 
the Coalition of the paid. They are willing to be paid.
    Thank you.
    Mr. Issa.
    Mr. Issa. Thank you, Mr. Chairman.
    I would like to establish a couple of things sort of for 
the record and for my own understanding. All three of you are 
career professionals. Is that correct?
    Ms. Ugone. Yes.
    Mr. Issa. The vast majority, if not all, of the people that 
were involved that you worked with on the ground in this audit 
were career professionals. Is that correct?
    Ms. Ugone. Yes.
    Mr. Issa. OK. I ask that in following up on Mr. Davis' 
questions.
    To the extent that we have not been able to make the system 
work, there is little or no hand of political appointees in 
this. This is, in fact, career people overseeing career people, 
trying to come up with problems that occur, in this case, 
related to a war zone where career people are trying to 
dispense money and account for it. Is that a fair statement?
    Ms. Ugone. I think the military, the forward, if you take a 
look at the documentation we have, were also involved in trying 
to.
    Mr. Issa. But we call our career military personnel, career 
professionals.
    Ms. Ugone. OK. OK.
    Mr. Issa. Somehow until you get to about four stars, you 
actually don't get to meet a politician most of the time.
    So I am saying that because I want to understand. This is 
not about the hand of the Bush administration. This would not 
be substantially different in any other administration. These 
are arms of government doing their job and seeing mistakes or 
flaws or lack of accountability. Is that correct?
    Does anyone disagree with that statement as best I phrased 
it?
    Ms. Ugone. I don't disagree. We independently did this 
audit work.
    Mr. Issa. I appreciate that.
    Now I want to concentrate, following up on Mr. Kucinich's 
questions because he and I do disagree on the conduct of the 
war in a sense.
    The use of CERP funds to help fund the Sons of Iraq. OK. 
That program appears to be working by independent news 
communications.
    Some of these funds, in fact, end up in the hands of what 
Mr. Waxman characterized as bought hearts and minds in some 
fashion, similar to that. Is that correct?
    Ms. Ugone. We didn't look at the Sons of Iraq.
    Mr. Issa. Well, you looked at the same funds.
    Ms. Ugone. We looked at the 22 payment vouchers that were 
made to Coalition partners. We don't know what it was used on, 
so we are not. I mean I can't address that particular question.
    Mr. Issa. OK. Mr. Chairman, I would like to have an excerpt 
from the House Armed Services Committee--this was staff 
questions and answers--inserted in the record at this time.
    Chairman Waxman. Without objection, that will be the order.
    [The information referred to follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Issa. I guess this may be beyond the level of your 
audit, but whether it is CIA around the world during the cold 
war or a war zone here where we are trying to fund sheiks and 
individuals in religious communities to get people to take 
another look at our role in Iraq as not an occupier but as 
somebody who wants to liberate and leave, if those funds are 
essentially walking around moneys, to use in American term, 
wouldn't it be rather hard to account for every dollar you give 
when you give a few hundred dollars to dozens or hundreds of 
people in order to essentially hold meetings and so on in the 
Iraqi economy?
    Ms. Ugone. Yes, there are challenges. I agree with that, 
but I think there should be some semblance of accountability. 
No documentation is not acceptable from our perspective.
    Mr. Issa. I appreciate that.
    In my opening statement, I talked in terms of statistics, 
and I see you have the statistics and you have extrapolated it, 
but if you extrapolated past wars, how do these compare?
    Ms. Ugone. We haven't looked at it and applied this level 
of effort on past work. I mean this has been, for us also, a 
new approach as well.
    Mr. Issa. OK. So this is a first time. Would it be possible 
for the committee for you to answer for the record, essentially 
extrapolating some previous similar studies so that we could 
understand whether or not this war is costing us more or less 
in the terms of unaccounted for or poorly accounted for funds?
    I don't think anyone on the dais wants to take an 
improvement and punish it because it isn't perfect. At the same 
time, if the trend line is in the wrong direction, then 
corrective action could be very appropriate. Would you agree?
    Ms. Ugone. Well, what I can do related to the current, what 
we did look at was to see if it was getting better during this 
particular audit. We looked at the vouchers and, frankly, it 
wasn't getting better if you looked at the years. We looked at 
2003 to 2006, and it wasn't getting better.
    Mr. Issa. I am running out of time.
    Unfortunately, I can't account for differences in the rise 
and fall of combat during that time, but isn't it true that the 
Iraq economy is a cash economy? Isn't that fundamentally one of 
the problems?
    Ms. Ugone. Well, it is true that there was a lot. It is 
cash. It is a cash economy, in fact.
    But our 702 vouchers that we estimated, $1.4 billion, that 
was not cash. That was a commercial payment. The cash that we 
are talking about is the CERP for Coalition partners and the 
seized and vested assets.
    Chairman Waxman. The gentleman's time is expired.
    Mr. Issa. Thank you, Mr. Chairman.
    Chairman Waxman. Ms. Watson.
    Ms. Watson. Thank you so much, Mr. Chairman.
    My questions will go to what is happening now under this 
administration and under this administration's war. I am not 
interested in past wars; now the wars that we are paying for 
here.
    Over a year ago, in February 2007, this committee held a 
hearing with the Special Inspector General from Iraq 
Reconstruction, Stuart Bowen. At that hearing, Mr. Bowen 
testified that the Bush administration disbursed over $8.8 
billion in cash without assuring that the moneys were properly 
used or accounted for. He was sworn in, and it is on the 
record--$8.8 billion.
    The administration for the Coalition Provisional Authority, 
Ambassador Paul Bremer also testified at that hearing, and he 
explained away this problem by making two arguments. First, he 
said these were not appropriated American funds. They were 
Iraqi funds, but we were told American dollars were used.
    Second, he said it was unrealistic to expect modern 
financial controls in less than a year on failed state in the 
middle of a war. That is a quote. It is on the record.
    So, Ms. Ugone, I think your report today demonstrates two 
things for me. First, it has now been more than 5 years since 
the war began, and we were told by the President that our 
mission was accomplished, and we are still having these 
problems. There is something wrong there.
    Second, your report finds critical deficiencies in how the 
Defense Department is disbursing billions of U.S. taxpayers' 
dollars. So, now we are talking about American money.
    Now I know you did examine some Iraqi assets, but let me 
ask about the U.S. funds. First, you examined a pool of roughly 
$3.2 billion in commercial payments, and I have your full 
statement. I have asked my staff, who is standing right here, 
to highlight those figures.
    Your report found that internal controls over these 
payments were inadequate. These commercial payments are from 
U.S. appropriated funds. Is that right?
    Ms. Ugone. Most, yes, the majority.
    Ms. Watson. OK. Is it explained and maybe separated in your 
full statement?
    Ms. Ugone. We can provide that information separately.
    Ms. Watson. OK. I would like to have that.
    Ms. Ugone. There are different appropriations like 
Operations and Maintenance-Army, and there will be different 
levels of appropriations. So we can get that detailed to you.
    Ms. Watson. Yes, and I will look through your full report.
    Ms. Ugone. OK.
    Ms. Watson. You also found that $135 million in funds from 
the Commander's Emergency Response Program were given to 
foreign governments without ``reasonable assurance that they 
were used for the intended purposes.''
    That was also U.S. dollars appropriated?
    Ms. Ugone. Yes, the majority of it.
    Ms. Watson. OK. What was not? I hope you would clarify.
    Ms. Ugone. I can clarify that and add the additional 
information on that to you separately.
    Ms. Watson. Very good. In your November report, you found 
that the Defense Department failed to exercise proper 
accountability over $5.2 billion in funds to support the Iraqi 
security forces. Those were also U.S. funds?
    Ms. Ugone. Yes, that was the Iraqi, actually, the scope of 
our work on that particular, those $5.2 billion that was 
provided to MNSTC-I, Multi-National Security Transition 
Command-Iraq. We judgmentally sampled. I believe it was 317 
transactions for $2.7 billion. So that is what we looked at as 
the scope of our review, $2.7 billion.
    Ms. Watson. OK. For these expenditures of U.S. tax dollars, 
you examined disbursements made through the year 2006. Is that 
right?
    Ms. Ugone. We didn't look at disbursements on that 
particular audit. That was a little bit of a different scope on 
that.
    We were looking at whether or not, that there was a proper, 
a way to tell that there was a proper transfer to the Iraq 
security forces, and we looked at documentation to support 
that. That is what we were looking at.
    Ms. Watson. So my time is up, but I will followup. I will 
look at your full report, and then we can address questions 
directly to you.
    Thank you, Mr. Chairman.
    Chairman Waxman. Thank you, Ms. Watson.
    Mr. Platts, you have no questions.
    Mr. Sarbanes.
    Mr. Sarbanes. Thank you, Mr. Chairman.
    Ms. Ugone, I am going to ask about the genesis of the 
report that you are issuing today. You said in the report that 
you started the investigation at the request of the Defense 
Criminal Investigative Service, and I wanted to pursue that a 
little bit.
    At the beginning of the report, you said that the service 
concluded there had only been a limited review of the payments 
that are the subject of this hearing and ``there existed the 
potential for fraud, waste and abuse.''
    Is that correct?
    Ms. Ugone. That is correct.
    Mr. Sarbanes. Then throughout the report, you make 
reference to this. On page 6, you say that an absence of 
supporting documentation makes the legitimacy of payments 
questionable. You say that missing voucher information could 
affect the legality of a vendor payment.
    On page 14, you say, ``ineffective internal controls could 
create an environment conducive to fraudulent activity or 
improper use of funds.''
    Is that right?
    Ms. Ugone. That is correct.
    Mr. Sarbanes. Basically perpetrating fraud on the U.S. 
Government is a crime, correct? That can be pursued as a 
criminal violation, right?
    Ms. Ugone. Well, identifying; I think the key here is 
potential fraudulent activity. Our referrals haven't been 
culminated in anything conclusive from the investigative side 
of the house, but we did have enough for 28 vouchers out of the 
702 that were reviewed that we referred because of missing 
information, unusual nature of transaction or DCIS was already 
interested in the payee.
    Mr. Sarbanes. These are the kinds of things that 
immediately get flagged on a radar screen as being the kind of 
conduct and transactions and other things that could suggest 
that there is criminal activity behind them, potentially, 
correct?
    Ms. Ugone. Right. Gaps in the controls create an 
environment that might be conducive for fraud, waste and abuse. 
That is really the key is your gaps, your critical gaps.
    Mr. Sarbanes. Can you give us a sense? You don't have to 
reveal any sensitive law enforcement information, but how do 
you expect these cases to proceed?
    Ms. Ugone. Well, we already have data from DCIS in a 
general sense; 2 have resulted in cases being initiated, 8 have 
been incorporated into ongoing investigations, and I believe 
the other 18 are still undergoing review.
    Mr. Sarbanes. You had a finding. I mean one of the most 
significant findings is that the Defense Department has 
``material internal control weakness'' over its payment system 
in Iraq.
    I know this is accounting terminology and so forth, but one 
of the findings you included is particularly relevant, I 
thought. It said, ``Our concern is more than an adequate audit 
trail.''
    It is not just about the audit trail.
    ``We are concerned there are significant gaps in internal 
controls over commercial payments made in a military 
contingency operation and that these gaps in internal controls 
can create,'' as you have been saying, situations where there 
is much higher vulnerability.
    These aren't your words, I am paraphrasing, but much higher 
vulnerability to fraud, waste and abuse.
    Ms. Ugone. Right. Correct.
    Mr. Sarbanes. So it is not just about the paperwork and 
collecting documentation in the audit.
    Ms. Ugone. No.
    Mr. Sarbanes. It is about making sure that the taxpayer 
dollars that are behind these funds are being used for intended 
purposes, correct?
    Ms. Ugone. Correct.
    Mr. Sarbanes. What is really inexplicable, and I think 
something that is hard for us to digest even though we have had 
so many hearings on this. Every time it is unbelievable, that 
the Defense Department is approving payments for $11 million, 
$5.7 million, $6.3 million without any information about what 
they are buying.
    As far as I can tell, not just from this hearing but 
listening to other ones, the accounting principles that the 
Defense Department seem to be using in its interaction and 
transactions with all sorts of different players in this drama 
was essentially we will keep giving you money as long as you 
keep telling us that you are spending it. That was essentially 
the way the system seemed to operate.
    What I would like for you to answer, and I am about to run 
out of time, is from your experience, what is the motivation 
for somebody to not want to know how money is being spent?
    In other words, it could be neglect. It could be a 
breakdown in systems. But what I see here is really not wanting 
to know what is happening on the other side of the curtain. Let 
me just ask, are there ever instances where that turns out to 
be what was driving the lack of documentation?
    Ms. Ugone. Well, we actually looked at it from a different 
perspective. One of the things that we have a recommendation in 
our report is when you are in a contingency environment, going 
to maybe five or six different regulations to figure out what 
you need to do, you may not have as much time to be able to do 
that.
    We recommended the Department to consolidate all the 
minimal essential information. So, if you had to actually look 
at the requirement, you could look on one sheet to figure out 
what you had to do to ensure a proper payment.
    That is one of the challenges is there is regulatory and 
statutory requirements embedded in different places, and that 
was a challenge too. When we looked for it, we actually didn't 
find the 53 requirements in one place. They are rooted in many 
different regulations, and I think that is really one of the 
primary challenges is trying to figure out what is absolutely 
minimally essential, which is why we identified the 27 
criteria.
    Mr. Sarbanes. Thank you.
    Chairman Waxman. Thank you, Mr. Sarbanes.
    Mr. Higgins.
    Mr. Higgins. Thank you, Mr. Chairman.
    Ms. Ugone, I would like to ask you about the $5.2 billion 
for Iraq security forces.
    Ms. Ugone. OK.
    Mr. Higgins. Providing assistance to help train and equip 
the Iraqi security forces has been one of the President's core 
strategies in Iraq. In a nationally televised address in June 
2005, the President said, ``Our strategy can be summed up this 
way: As Iraqis stand up, we will stand down.''
    To implement the President's goal, Congress appropriated 
$5.2 billion in 2005 to provide assistance to the Iraqi 
security forces including weapons, equipment, the construction 
of training and operating facilities.
    Ms. Ugone, in November, your office issued a report about 
these funds, and your conclusions was quite astounding. This is 
what you said: ``The Defense Department did not have sufficient 
controls and procedures in place, did not maintain adequate 
oversight and did not maintain accountable property records. As 
a result, the Defense Department was unable to provide 
reasonable assurance that funds appropriated for the Iraq 
security forces achieved the intended results, that resources 
were used in a manner consistent with the mission and that 
resources were protected from waste and mismanagement.''
    Ms. Ugone, this is supposed to be one of the President's 
core strategies in Iraq, training and equipping the Iraqi 
security forces so that young service members can come home. 
How can it be that something so critical, so fundamental to 
this effort can be so poorly administered?
    Ms. Ugone. The issue when we looked at this area, we had 
spent 90 days forward, and we had looked at three major 
locations. We sent, deployed a team forward, and we looked at 
the port of entry on Umm Qasr and I think Taegu National Depot 
and the Abu Ghraib warehouse.
    And, at that time, there have been changes since the time 
we reviewed the effort. As I mentioned in my testimony, in 
April 2008, MNSTC-I has recognized the need to put in standard 
operating procedures.
    One of the key issues that we found was the fact that we 
could not trace from what we provided to the Iraqi security 
forces all the way back to the contract. There might instances. 
For example, for equipment, you could have a receiving report 
with vehicle identification numbers, but when you actually 
transfer the equipment to the Iraqi security forces, there was 
no listing of the vehicle identification numbers on the hand 
receipt.
    So those are the examples we had, and it was primarily 
documentation that supported whether or not the transfers were 
properly made to the Iraqi security forces.
    Mr. Higgins. Yes. I think perhaps this is an unfair 
question of you, but the Defense Department refused to testify 
today. The report issued by your office found a lack of 
accountability over tens of thousands of weapons including 
pistols, assault rifles, rocket-propelled grenade launchers and 
even machine guns. Isn't that right?
    Ms. Ugone. See, one of the things is there is a separate 
review going on of the munitions assessment team effort, and I 
wanted to make sure that they were focused more on the 
accountability of weapons, munitions. But, yes, we looked at 
the documentation supporting not only equipment, construction 
and services. That is correct.
    Mr. Higgins. In addition to the weapons, your report offers 
a litany of deficiencies with control over 91 percent of 
equipment transfers, fuel tankers and tractor-trailers worth 
$1.5 million, generators worth $7 million and heavy tracked 
recovery vehicles worth $10.2 million.
    I don't know you lose a garbage truck in the middle of 
downtown Baghdad, but your report was not limited to equipment 
and supplies. You also report that 93 percent of construction 
projects you analyzed lacked adequate oversight and that 
millions of dollars were wasted as a result.
    I won't ask for an answer to this question, but it seems to 
me that mismanagement is crippling our mission in Iraq and, 
unfortunately, our troops and taxpayers will suffer as a 
result.
    I yield back, Mr. Chairman.
    Chairman Waxman. Thank you very much, Mr. Higgins.
    Mr. Clay is not here.
    Mr. Yarmuth.
    Mr. Yarmuth. Thank you, Mr. Chairman.
    Ms. Ugone, on page 15 of your written testimony, you 
describe how the Defense Department spent $1.8 billion in 
seized and vested Iraqi assets without adequate accountability. 
As I understand, seized and vested assets are Iraqi funds that 
were confiscated in Iraq or they were frozen in the United 
States, and the United States began spending them in the war in 
Iraq sometime after it began in 2003. Is that correct?
    Ms. Ugone. Well, actually, the majority I think was spent 
during the CPA time period, and I believe $7.5 million was 
expended in October 2004, after the CPA transitioned on.
    Mr. Yarmuth. OK. Thank you.
    Your report then says that you examined 53 different 
payment vouchers for a total of $1.8 billion, and they were all 
missing basic documentation to show how they were used. Here is 
what you said in your report: ``There was no audit trail to 
verify the basis for the amount, who actually received the 
funds or how the funds were used.''
    That is your testimony, correct?
    Ms. Ugone. That is correct.
    Mr. Yarmuth. Let me ask you about one example that was 
mentioned in your testimony. You provided with a copy of a 
receipt which I would like to have put on the screen.
    At the very top, in handwriting, you can see that this is a 
single payment to the Iraqi Ministry of Finance. In the middle 
of the page, you can also see that the purpose of the funds is 
for Iraqi salaries. If you look in the middle on the right, you 
can see that the total amount is $320 million, and that is 
really all we know about the transaction. Is that correct?
    Ms. Ugone. That is correct.
    Mr. Yarmuth. There is one more detail. Under the quantity 
section, it says 1,000 employees or 1,000. We are assuming that 
is employees. It talks about salaries. So, if you read the 
document literally, it would indicate that 1,000 different 
Iraqi employees are being paid $320,000 each.
    Now I know if you are talking about the chairman of Exxon, 
that is not a lot of money. It is probably about 1 percent of 
what he made last year, but it is more than a Member of 
Congress makes.
    Is there any explanation for this? Are those just kind of 
random numbers? They are just putting numbers in there because 
they didn't know what it was or could that literally be true?
    Ms. Ugone. We don't have any documentation to explain, to 
support this quantity, this amount.
    Mr. Yarmuth. So we really don't know. Really, we don't know 
if it was actually spent for salaries. It could have been spent 
for guns to fight insurgents or anything else.
    Ms. Ugone. We don't know what it was spent for.
    Mr. Yarmuth. Let me ask you. This has been mentioned many 
times today already.
    The Defense Department has refused to testify here, but in 
their written comments on your report, this is what they say: 
``We do not agree the audit trail documentation should include 
supporting budget details and spending plans that can be 
reconciled to payment vouchers. This is not a disbursing 
officer responsibility.''
    Do you agree that this is not the Defense Department's 
responsibility?
    Ms. Ugone. We believe that the Defense Department should 
add something like spending plans to account how the funds 
would be used and, in fact, we have been notified that the 
financial management regulation is undergoing revision to 
incorporate guidance on seized and vested assets.
    Mr. Yarmuth. Referring to that comment again, can you maybe 
give us a guess as to what the official Defense Department 
budget, whose responsibility they believe it is, if it is not a 
disbursing officer?
    If they say it is not the disbursing officer, who else's 
responsibility could it be?
    Ms. Ugone. I think part of it is the guidance. One of the 
issues that we took was when you look at the prescribed 
guidance, which was I believe in this regard an Executive 
order, it was specific about accounting for these funds. So we 
looked at the comptroller promulgation of that Executive order 
and believe that it omitted items such as spending plans.
    So what we had recommended and asked that the comptroller 
do was revise its guidance so that the disbursing officer would 
have that document available to be able to make those 
decisions.
    Mr. Yarmuth. A final question, your report points out that 
on March 20, 2003, the President signed Executive Order 13290 
directing that payments from seized and vested Iraqi assets be 
adequately accounted for and auditable, and you also point out 
that requirement was repeated in a Presidential memo issued on 
April 30, 2003.
    Is it your conclusion today that the Defense Department 
failed to comply with the President's Executive order as 
outlined in those two documents?
    Ms. Ugone. We do not believe that there is a way to account 
for how those Iraqi seized and vested funds were used. That is 
correct.
    Mr. Yarmuth. Thank you very much. I yield back.
    Chairman Waxman. Thank you, Mr. Yarmuth.
    Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman. I want to thank you for 
holding this hearing. I also want to thank the ranking member 
and the panelists, quite frankly, for your help.
    Ms. Ugone, I would like to talk to you about the $5.2 
billion in U.S. taxpayer dollars that were targeted for Iraqi 
security forces.
    I know there are several Members. My colleague, Mr. Platts, 
who was here earlier, and a number of us have spent a lot of 
time on the ground in Anbar Province, principally in the area 
of Fallujah and also in Ramadi.
    Some months ago, the chairman asked us to inspect the 
progress of construction of a couple of Iraqi Army bases, one 
in Fallujah and one in Ramadi. Now we, myself and Congressman 
Platts and a few others, were able to inspect the base in 
Fallujah. However, we were unable to inspect the base in Ar 
Ramadi, and I think you know why.
    On page 13 of your report, you state that the Defense 
Department was supposed to build, as we understood, a $34 
million base for the new Iraqi Army in Al Anbar Province near 
Ramadi. You also found that the Defense Department paid a 
contractor, Ellis World Alliance Corp., $31.9 million out of 
the $34 million, about 93 percent of the contract, the problem 
being that the facility was never built.
    Is that correct?
    Ms. Ugone. That is correct.
    Mr. Lynch. OK. This example is just so egregious that we 
wanted to investigate further. In meetings with committee staff 
and the military service responsible for this contract, the Air 
Force said that the problem with this contract was that they 
never obtained the land rights necessary to construct the base.
    Despite the critical deficiency, the Air Force issued a 
notice to proceed with mobilization to the contractor, and they 
let them continue for 9 months under this contract even though 
we didn't own the land and we couldn't build the base. Then 9 
months later, they finally called a halt to the program.
    The Air Force told us that ``not a spade of dirt was turned 
on this project.''
    They said it was an embarrassment and that they now have a 
new policy that says you can't proceed with a construction 
project until you have title for the land.
    Can you explain? I hate to put this onto you, but can you 
explain how a contract can go on for 9 months, incurring 
millions and millions of dollars in costs--this is American 
taxpayer dollars. This is not Iraqi money. This is our money--
before even the basic question of who owns the land is 
resolved?
    Ms. Ugone. I can't explain that.
    Mr. Lynch. OK. Now what bothers me worse here is we have 
been out to Ramadi a number of times, as I say, and apparently 
the meter is still running on this because they have the raw 
materials, the bricks.
    I have a long history in construction, and they have all 
that material in warehouses. Of course, in Ramadi, you have to 
have everything heavily guarded. So now, basically, we are 
spending all the money that was supposed to build this base on 
protecting the raw materials.
    If you understand what the security people are making over 
there, it is costing us more to guard the bricks and the steel 
and the building components in the warehouse than the stuff in 
the warehouse is worth, and that troubles me greatly. It is 
just bad management.
    Is there anything you can help us with in terms of 
reversing this practice or making sure that this doesn't 
happen?
    Ms. Ugone. I believe this was the one that we had referred 
to our Defense Criminal Investigative Service, and I can 
followup to see what has occurred since the referral.
    Mr. Lynch. This contractor is burning the moneys there. 
They are basically spending it down. We are getting nothing for 
the value. It is an embarrassment. I agree with that 
assessment. We would never tolerate that in our country, and 
this is something that is directly under our control.
    Also, this Ellis World Alliance Corp., I don't know what we 
are getting for our $34 million. I couldn't see anything.
    There has to be a cutoff. We have to be able to terminate 
this thing and stop the cost to the American taxpayer.
    Ms. Ugone. We will followup and get back with you.
    Mr. Lynch. That will be great. Thank you.
    I yield back, Mr. Chairman.
    Chairman Waxman. Thank you very much, Mr. Lynch.
    Ms. McCollum.
    Ms. McCollum. Thank you, Mr. Chair. Thank you for having 
this hearing.
    I want to followup on a line of questioning that I actually 
started with Ambassador Crocker in the Appropriations 
Committee.
    Deputy Inspector General, your report concludes that the 
Defense Department made $135 million in payments to foreign 
governments under the Commander's Emergency Response Fund. Your 
conclusion in the report is that there was no audit showing 
where the funds went.
    Last year, the Defense Department began using the CERP, the 
CERP funds for other purposes, bulk payments to local Iraqi 
tribal leaders so that their followers would stop fighting us. 
The Pentagon calls this the Sons of Iraq program.
    I ask this because the Pentagon now wants to ramp this 
program up to $370 million in fiscal year 2008. This is a huge 
ramp-up for a program that did not exist a year ago.
    These funds are payments to foreign governments. They have 
no audit trail. They have no supporting documentation. They 
have no way to determine where the money actually went.
    In fact, I asked Ambassador Crocker about this program. I 
asked him about my concerns of child soldiers with some of the 
media reports that I have read. I asked him about the Sons of 
Iraq providing a false sense of security because no one from 
the State Department of the Department of Defense could tell me 
what would happen if these payments stopped.
    So I would like to ask you, has the IG's office done any 
work on this issue?
    Ms. Ugone. No, we have not, not on the Sons of Iraq.
    Ms. McCollum. What documentation would you expect to see in 
support of these types of payments? What kind of detail would 
you expect to have about the services provided, the type of 
employees being paid?
    Ms. Ugone. Well, with respect to what we did look at, the 
22 payment vouchers that were provided to Coalition partners, 
that was intended for either non-construction or construction 
efforts, for humanitarian purposes and other support purposes.
    We would have expected to see, for construction, project 
files--project files that described what was, how the funds 
were being used, for what construction, what the status of the 
construction, what percentage of completion, some sort of 
mechanism to be able to reconcile how much.
    We provided bulk funding, what that bulk funding went into, 
whether it was non-construction and construction. If it was 
construction, we would expect a detailed project file for 
reconciliation purposes and, for non-construction, some sort of 
support that indicated what that money was being used for.
    Ms. McCollum. So, if it went for something like the Sons of 
Iraq program, where we are paying Sunni groups to not fight 
against U.S. soldiers, you would expect to see a detailed list 
of employees, what kind of equipment they were given, who is 
being paid what on what basis. You would expect to see those 
types of things in an audit?
    Ms. Ugone. Well, I would expect to see some level of detail 
supporting the Sons of Iraq program, but since I am not 
familiar with it, it is hard to talk about it. But I can get 
back to you.
    From the standpoint since I didn't look at it as part of 
the audit, I don't think it would be appropriate for me to say 
what it should include at this point, but I can take a look at 
that separately.
    Ms. McCollum. I appreciate that.
    Mr. Chair, I am so glad you are having this hearing. I 
would like to encourage this committee to do more examination 
about the issue of the Sons of Iraq. Many people think that 
this program has reduced the violence in Iraq. Others, 
including some in the national Shiite government, are concerned 
that U.S. funds are being used to buy weapons and fund Sunni 
groups that will engage in civil war when the United States 
leaves.
    I don't understand, Mr. Chair, why the United States has to 
spend $370 million on this program. If we think it helps reduce 
violence in Iraq, then the Iraqi government should be excited 
about the reduction and they should pay for it.
    After all, we now know that the Iraqi government has $70 
billion in reserves. They should be paying for their own 
security.
    So, Mr. Chairman, due to the lack of accountability in the 
funds that you have pointed out here today and the rest of the 
construction issues, I would really encourage you and this 
committee to work with Chairman Obey and Ms. Lowey and myself 
to find out more about the Sons of Iraq program and if there is 
any kind of audit paper trail on that.
    Thank you, Mr. Chair.
    Chairman Waxman. Thank you very much, Ms. McCollum. We will 
certainly want to look into that with you.
    Mr. Tierney.
    Mr. Tierney. Thank you, Mr. Chairman.
    I think we have covered this pretty extensively but, Ms. 
Ugone, I want to go in a different direction. I want to put on 
the record a little information about why we don't have any 
Defense Department witness before us here today.
    The committee apparently sent a letter on May 9th to 
Defense Secretary Gates, requesting that he designate a witness 
for today's hearing.
    After multiple conversations and meetings with Defense 
Department officials, we received a letter this week, refusing 
the committee's request. The letter cited as a reason for this 
decision the impending release of the IG's report and the 
desire to have a reasonable opportunity to digest the final 
version of the report.
    Ms. Ugone, how long has your office been working on this 
report?
    Ms. Ugone. A year, actually, the audit--no, it hasn't taken 
a year to get the report. We have been working on this audit 
for a year.
    Mr. Tierney. And when did your office first make the 
Defense Department aware that your office was working on this 
audit?
    Ms. Ugone. I believe we announced that in May 2006.
    Mr. Tierney. Am I correct in saying that in May 2007, over 
a year ago, you gave the Defense Department an opportunity to 
try to locate additional documentation?
    Ms. Ugone. Yes.
    Mr. Tierney. To substitute the payments for which you found 
deficiencies?
    Ms. Ugone. Yes. From May 2007, it has been about a year 
where we first identified some of these critical issues, and we 
have been working with the Department since then.
    We have had two drafts for discussion purposes which is we 
write up our issues and provide it for discussion purposes. We 
had one formal draft, and we have many meetings, the most 
recent meeting being May 13, 2008.
    Mr. Tierney. When was the first draft given to the Defense 
Department?
    Ms. Ugone. The first discussion draft, I will have to get 
back with you. November 2007.
    Mr. Tierney. Was there another one given on February 11, 
2008?
    Ms. Ugone. Yes.
    Mr. Tierney. In the appendix of your report today, you 
reproduced written comments from the Department of Defense. Is 
that right?
    Ms. Ugone. Yes. In fact, we not only incorporated their 
comments to the official draft version. We also incorporated 
comments they provided to us, I believe, on May 16, 2008.
    Mr. Tierney. So the Office of the Assistant Secretary of 
the Army, Financial Management and Comptroller provided 
comments on March 24, 2008.
    Ms. Ugone. That is correct.
    Mr. Tierney. The Defense Finance and Accounting Service 
provided comments on March 25, 2008.
    Ms. Ugone. That is correct.
    Mr. Tierney. The Office of the Undersecretary of Defense 
for Acquisition, Technology and Logistics provided comments on 
April 25, 2008.
    Ms. Ugone. That is correct.
    Mr. Tierney. So it is accurate to say the Defense 
Department, well, let me ask you. Do you think it is accurate 
for them to say that they haven't had ample notice of this and 
an opportunity to review?
    Ms. Ugone. What I can say is that they were fully aware of 
our issues and concerns, and we have been working with them for 
over a year.
    Mr. Tierney. It appears to me that they have had ample 
knowledge over time. They have worked with you. They have filed 
written responses.
    Mr. Chairman, if I might, this is not an uncommon problem, 
unfortunately, with the Defense Department being unwilling. It 
is clear to me why they are not here today. It has nothing to 
do with not getting notice, nothing with not being able to have 
an opportunity to respond. It has all to do with not wanting to 
be in front of the American public, trying to make answers as 
to what is going on.
    I think we have subpoena power, and I would ask you and the 
ranking member at some point in time to consider using it where 
appropriate, so the Department of Defense wouldn't think that 
they can avoid the kind of public scrutiny that we are 
specifically set up to do here.
    Mr. Davis of Virginia. Will the gentleman yield?
    Mr. Tierney. Yes.
    Mr. Davis of Virginia. I would be happy to work with our 
chairman on that.
    The one thing that is most frustrating is that you can go 
back 15 years and you see this same kind of problem. We are 
talking about a war zone today, but these are systematic 
problems that the GAO has put on their high-risk list every 
year, and they keep coming back and coming back and coming 
back.
    Mr. Tierney. Reclaiming my time, that is why I think at 
some time, under some administration, somewhere we have to 
call.
    I think some of the people at the Department of Defense are 
probably not the ones most responsible for what is going on. So 
it is not a personality thing. It is a case of getting a system 
in place where we get the answers that we need to correct these 
deficiencies so that they don't continue to repeat themselves.
    I thank the chairman, and I yield back the balance of my 
time.
    Chairman Waxman. If I can just respond to the gentleman, I 
think you are making an excellent point. We need to hear from 
the Defense Department, and I hope this hearing today will be a 
call to them that they have some explaining to do.
    The gentleman's time is expired.
    Mr. Cummings.
    Mr. Cummings. Thank you very much.
    Ms. Ugone and all the witnesses, it is good to see you this 
morning.
    As I sat here, I could not help but think. I have just left 
my district, and I used to be a criminal lawyer in my before 
life. I actually saw people go to prison for stealing a $100 
bike.
    Here, we have a situation where something has gone awfully 
wrong. It is very interesting that as I listen to the ranking 
member say that this goes back 15 years, that concerns me.
    You know the author Stephen Covey has a book, and it is my 
favorite book. It is entitled the Speed of Trust, and it talks 
about how when you trust someone, things go along. The 
relationship moves along at a greater speed than when you don't 
trust them.
    There are two types of trust. Competency, that is that you 
trust that somebody is competent to do the job that they have 
been assigned to do. For example, I would not have my mechanic 
cut my hair if I had some. And, there is another kind of trust 
that goes to honesty and integrity.
    As I have listened to your testimony and read through the 
documents, it seems to me that we may have both types of trust 
lacking here. Trust in competency, there is a lack of. It seems 
like somebody or a whole lot of people are incompetent. But 
there is also some dishonesty going on here too.
    I am glad to know that cases are being referred to the 
criminal division. I am just hoping that they will be.
    See, I don't buy this argument that something has been 
systematic because the guys in my neighborhood who I used to 
represent, they don't say that to them. They send them to 
prison for $100.
    Here, we are talking about millions and billions of 
taxpayers' dollars, and we don't know where they have gone. 
Abracadabra--they disappear.
    But, at the same time, there are three principles that 
concern me here. One, the United States of America and our 
citizens are hardworking taxpayers who are complaining every 2 
weeks or every month when they get their checks that taxes are 
being taken out.
    They deserve three basic things. One, they deserve to get 
what we bargained for. That is a basic principle.
    Two, they deserve, in this instance, to have funds spent so 
that we can do those things that the Defense Department is 
supposed to do: to make sure that their lives are the best that 
they can be, to make sure that they defend this country and do 
all those things that are supposed to be done.
    And then there is a third one, and it is one that Ms. 
McCollum alluded to. That is we must be in a situation where we 
know that our funds are not doing harm to us. If our own funds 
in some way are being turned around as if someone took a gun 
and turned it around and pointed it right back at you, it makes 
absolutely no sense.
    That is why I am taking my few minutes to say to you and 
ask that whatever the standard is that requires that folks or 
factual patterns be sent to the criminal division, I hope that 
they are because the American people support our troops. There 
may be differing views about the war, but they support our 
troops, and every Member of Congress supports our troops a 
million percent.
    But I have to tell you, when somebody looks at C-SPAN and 
hears this kind of stuff, it has to make them very, very angry.
    The guys in my neighborhood, in the inner city of 
Baltimore, when they hear about this, they will say, Cummings, 
I mean, when I get home tonight, I can hear them now, you mean 
to tell me them people got away with millions, man? What is up 
with that? What is that about?
    I am hoping that somebody is brought to justice. Somebody 
needs to be brought to justice.
    You can comment on what I have said if you like, but I 
thank you for what you are doing, and I see my time is up.
    Chairman Waxman. Do you want to respond in any way?
    Ms. Ugone. No comment.
    Chairman Waxman. Mr. Cummings, you are the last questioner, 
and I think you have done an excellent job in summing up the 
situation.
    To be told that this has been going on for a long time is 
no excuse for allowing it to continue, and to say we ought to 
look at past wars to see if there was money squandered is not 
going to make people feel any better if they see money being 
squandered in this war.
    I want to thank you for the work you have done. This is a 
very important report that you have given us today, and it is a 
wake-up call that we have to see changes because the taxpayers' 
money cannot be squandered the way it has been.
    We need accountability. That is the essence of government, 
so the people know that government belongs to them and not to 
the people running.
    I want to see if Mr. Davis wants to make any further 
questions or comments.
    Mr. Davis of Virginia. I guess the frustration every one of 
us has up here--you have it too--is what is the Army doing to 
fix this?
    I know they moved. We talked about temporarily, on the Iraq 
side, moving some of the work from Kuwait back stateside, but 
the systematic problems in these areas.
    Ms. Ugone. I think one of the areas that we really think 
and it is a work force issue which I believe that this 
committee as well as the Department has identified as a work 
force issue is training.
    One of the areas that we have recommended the Army do is 
train the Army finance personnel in these matters as well 
because we understand in a contingency operation that we need 
to have essential information ready at hand, and people who 
perform those functions should be trained in how to apply the 
criteria quickly.
    Mr. Davis of Virginia. This goes back to the comment, you 
go to war with the Army you have, I guess if you remember.
    But, look, why was the Army financial system overburdened 
with additional tasks and influx of billions and billions of 
dollars that were being distributed to the Coalition?
    What is the fix in this case and if you are just saying it 
is manpower or is getting competent people, system people in 
there with appropriate controls? Are the computer systems not 
working and interactive?
    Ms. Ugone. Well, we are actually looking at that in some 
follow-on audits. One of the areas that we are going to look at 
is the Defense Finance and Accounting work force, and we are 
also going to be reviewing the Defense Contract Management 
Agency work force because that was also a challenge area in 
this environment. We plan to look at the deployable disbursing 
system which is supposed to be used and cited by the 
comptroller as a valuable additional to accounting for these 
funds in that environment.
    So we are doing follow-on work to take a look at many of 
those issues.
    Mr. Davis of Virginia. Every year, on the GAO watch list, 
this is there. It stays there.
    This committee got some things off the list. We got the 
whole postal thing off the watch list. We passed a massive bill 
working with it, very difficult to do, and we took it off the 
watch list. Things come off the watch list.
    If there is anything legislatively we need to do or if this 
is just a bureaucratic problem where the people can't seem to 
figure it out or get the resources, and I guess that is the 
ultimate question I would give you if you have any solutions.
    You are going to go back here. I guarantee you will be back 
here next year and the year with example after example, and 
nothing seems to change except incrementally.
    It is a huge frustration. If this were a few thousand 
dollars or a million dollars, but we are talking billions of 
dollars over time that they are taking out of hardworking 
people's paychecks or borrowing in the future. That is the 
frustration.
    Ms. Ugone. If I could just comment, there is a lessons 
learned work group that is being sponsored by, I believe, the 
Principal Under Secretary of Defense Comptroller. It is the 
lessons learned with respect to not only disbursement but also 
to vendors. You know the contracting side of the house.
    The lessons learned group is made up of members from my 
organization as well as acquisition technology, the logistics 
comptroller, DFAS and Army. That working group met in April, I 
believe twice. So that effort is underway to resolve some of 
the issues and lessons learned identified during this 
particular audit.
    Mr. Davis of Virginia. Look, all of you are great people. 
You are working hard at this. You are doing your jobs well, and 
you are identifying this.
    I think the problem goes up in division at the top in terms 
of do we really fix this. We have good people. We just need to 
deploy them right and give them the resources, but it doesn't 
seem to get done.
    Thank you very much. It is very helpful to us, I think, in 
trying to focus our energies in the right way.
    Mr. Chairman, I appreciate your holding this hearing.
    Chairman Waxman. Thank you very much.
    Ms. Ugone. Thank you very much.
    Chairman Waxman. Thank you very much, Mr. Davis.
    We appreciate the work you are doing.
    Ms. Ugone. Thank you.
    Chairman Waxman. That concludes our hearing, and we stand 
adjourned.
    [Whereupon, at 11:45 a.m., the committee was adjourned.]

                                 
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