[Senate Hearing 110-355]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 110-355
 
   MEETING THE CHALLENGE: ARE MISSED OPPORTUNITIES COSTING US MONEY?

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

                                HEARING

                               before the

                FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT
                   INFORMATION, FEDERAL SERVICES, AND
                  INTERNATIONAL SECURITY SUBCOMMITTEE

                                 of the

                              COMMITTEE ON
                         HOMELAND SECURITY AND
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 28, 2007

                               __________

        Available via http://www.access.gpo.gov/congress/senate

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


                        U.S. GOVERNMENT PRINTING OFFICE

37-354                         WASHINGTON : 2008
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Washington, DC 20402-0001



        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TED STEVENS, Alaska
THOMAS R. CARPER, Delaware           GEORGE V. VOINOVICH, Ohio
MARK L. PRYOR, Arkansas              NORM COLEMAN, Minnesota
MARY L. LANDRIEU, Louisiana          TOM COBURN, Oklahoma
BARACK OBAMA, Illinois               PETE V. DOMENICI, New Mexico
CLAIRE McCASKILL, Missouri           JOHN WARNER, Virginia
JON TESTER, Montana                  JOHN E. SUNUNU, New Hampshire

                  Michael L. Alexander, Staff Director
     Brandon L. Milhorn, Minority Staff Director and Chief Counsel
                  Trina Driessnack Tyrer, Chief Clerk


FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, FEDERAL SERVICES, 
                AND INTERNATIONAL SECURITY SUBCOMMITTEE

                  THOMAS R. CARPER, Delaware, Chairman
CARL LEVIN, Michigan                 TOM COBURN, Oklahoma
DANIEL K. AKAKA, Hawaii              TED STEVENS, Alaska
BARACK OBAMA, Illinois               GEORGE V. VOINOVICH, Ohio
CLAIRE McCASKILL, Missouri           PETE V. DOMENICI, New Mexico
JON TESTER, Montana                  JOHN E. SUNUNU, New Hampshire

                    John Kilvington, Staff Director
                  Katy French, Minority Staff Director
                       Liz Scranton, Chief Clerk


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Carper...............................................     1
    Senator Coburn...............................................     4
    Senator McCaskill............................................    10

                               WITNESSES
                        Thursday, June 28, 2007

McCoy Williams, Director, Financial Management and Assurance, 
  U.S. Government Accountability Office, accompanied by Keith 
  Rhodes, Chief Technologist, Applied Research and Methods, 
  Center for Engineering and Technology, U.S. Government 
  Accountability Office..........................................     6
David Norquist, Chief Financial Officer, U.S. Department of 
  Homeland Security, accompanied by Scott Charbo, Chief 
  Information Officer, U.S. Department of Homeland Security......     8

                     Alphabetical List of Witnesses

Charbo, Scott:
    Testimony....................................................     8
    Joint prepared statement with Mr. Norquist...................    40
Norquist, David:
    Testimony....................................................     8
    Joint prepared statement with Mr. Charbo.....................    40
Rhodes, Keith:
    Testimony....................................................     6
    Joint prepared statement with Mr. Williams...................    27
Williams, McCoy:
    Testimony....................................................     6
    Joint prepared statement with Mr. Rhodes.....................    27

                                APPENDIX

Questions and responses for the Record from Mr. Norquist.........    47
Charts submitted for the Record by Senator Coburn................    75


   MEETING THE CHALLENGE: ARE MISSED OPPORTUNITIES COSTING US MONEY?

                              ----------                              


                        THURSDAY, JUNE 28, 2007

                                   U.S. Senate,    
          Subcommittee on Federal Financial Management,    
                Government Information, Federal Services,  
                                and International Security,
                            of the Committee on Homeland Security  
                                          and Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 3:03 p.m., in 
Room 342, Dirksen Senate Office Building, Hon. Thomas R. 
Carper, Chairman of the Subcommittee, presiding.
    Present: Senators Carper, McCaskill, and Coburn.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. The Subcommittee will come to order. First, 
let me just welcome back my colleague, Dr. Coburn, who was out 
for a week or two, bounced back from an operation, and he is 
back. He said to me yesterday he is about 80 percent back to 
where he was. Dr. Coburn at 80 percent is better than most of 
us at 180 percent, so we are happy you are back and feeling 
well.
    Senator Coburn. Thank you. Glad to be with you.
    Senator Carper. I want to say a special welcome to our 
witnesses today. This is a conversation we have been having for 
a while and this is really the continuation of a conversation 
that we have had and need to have. I think it was last June, 
Senator Coburn and I asked GAO to determine three things.
    The first thing we asked them to do was to look at the 
Department of Homeland Security and to tell us whether or not 
they had fully developed plans for implementing or migrating to 
an integrated Department-wide financial management system. That 
was the first thing we asked them to do. The second thing we 
asked them to do was to tell us whether or not the work produce 
received for the funds spent on the eMerge 2 modernization 
effort could be used. And finally, the third thing we asked 
them was how the Department could incorporate best practices 
into its plan for migrating to an integrated Department-wide 
financial management system moving forward.
    Today, we are going to hear what GAO found, and 
unfortunately, the news is not as good as we had hoped it might 
be. GAO is certainly here to speak for themselves, but GAO 
found that the Department continues to lack a clearly defined 
financial management strategy and a plan to move forward with 
financial management modernization efforts.
    We will also hear today from two knowledgeable take-charge 
Department officials about the ongoing efforts to transform, to 
consolidate, to integrate their financial management systems, 
and we look forward to hearing what progress the Department is 
beginning to make, as well.
    As we all know, the Department has faced a number of 
overwhelming challenges since its creation in 2003, and while 
the Department has made some progress, a whole lot of work 
remains to be done. I sort of liken that your job at Homeland 
Security is a little bit like what we used to do in Navy 
Aviation. Every now and then, you have to change an engine on 
your airplane, and it is a job that took maybe 24 hours. It 
took a while. It is not easy to do. But the job that they are 
trying to do in terms of developing a financial management 
system that is good, that is effective, and to run the 
Department well, it is a little like changing an aircraft 
engine with the aircraft airborne, and not an easy thing to do, 
and we realize that. But aircraft engines need to be changed 
and we are looking for better progress here in the months to 
come.
    I think it is unfortunate that this iteration of the eMerge 
2 project has been officially pronounced, maybe denounced, as 
dead, particularly after some $50, $52 million or so was spent 
trying to make it operational. But in declaring it dead, the 
Department did something that Federal agencies rarely do, and 
what you did is you stopped a flawed and failing program before 
even more money was wasted, and for that, I think the 
Department should be commended.
    I look forward to hearing from GAO and the Department as to 
what, if anything, can be salvaged from the work products 
developed for eMerge 2 and for all the money that was spent in 
paying for these efforts. Most importantly, I am interested in 
learning how the situation can be avoided in the future.
    Given the enormity and the complexity of the problems 
facing the Department over 4 years following its creation, I am 
personally not surprised that eMerge 2 failed. Bringing 
together 22 different organizations with different missions and 
different cultures is not an easy thing to do. It is sort of 
like trying to merge, if you will, 22 large corporations, not 
just two large corporations into one, but 22 large corporations 
with different missions, different personnel systems, different 
cultures and putting them in together and make it work. That is 
not easy and this hasn't been easy and we realize that.
    But we have to make sure that the Department has learned 
from its failures so we don't repeat the same mistake as the 
Department moves forward. We all share, I believe, the same 
objective, and that is how can the Department of Homeland 
Security successfully transform and modernize its financial 
management systems so that you can do your jobs better, and 
when we have a Hurricane Katrina or we have threats to our 
homeland, that you are there to protect us and do the job.
    I have a couple of questions I am going to be asking later 
on, but I will just telegraph them now. Here are several of my 
questions. Where do we go from here? What tools does the 
Department need to accomplish that objective or those 
objectives? What assurances do we have that the Department will 
not fail as you undertake the transformation and systems 
consolidation program? In other words, have the lessons learned 
from the eMerge 2 failure been incorporated into your plan for 
moving forward, and how can Congress play a constructive role 
in that path forward?
    The Department of Homeland Security has needed a Chief 
Financial Officer who puts taxpayers first and who is committed 
to sound financial management and transparency, and Mr. 
Norquist, by all accounts, you are making a diligent and, I am 
told, impressive effort to do just that. As I am sure you know, 
your partnership with Mr. Charbo is central to the success of 
that effort. Additionally, your ability to incorporate GAO's 
recommendations with which the Department concurs is also 
critically important.
    Sound financial management is critical to the success of 
the Department and to all of our departments. It is the 
foundation of any organization, any program, or any activity.
    Last year, there were reports by the GAO and Inspector 
General of the Department revealing delays, revealing cost 
overruns, revealing design inadequacies and operating 
deficiencies in the Deepwater contract, the largest contract 
ever awarded, I believe, by the Coast Guard. A separate GAO 
report released this past January estimated that the total 
wasted funds related to Hurricane Katrina relief may top $2 
billion, largely as a result of the continuing prevalence of 
no-bid reconstruction contracts. The $52 million that went into 
eMerge 2 is yet another example of that.
    As elected Members of Congress, our greatest stakeholders 
are the American people and we have an obligation to ensure the 
dollars are being used as effectively and efficiently as 
possible. The war in Iraq has cost us roughly a half-trillion 
dollars. The deficit this year is forecast at roughly $180 
billion, and although that is better than last year, it is 
nothing to brag about. Such sectors as housing are experiencing 
challenging times. Consumer spending is down. This is a time 
not to be frivolous with our hard-earned money.
    In closing, let me just add, Congressional oversight, I 
believe, and Senator Coburn knows, and Senator McCaskill, who 
is a Member of this Subcommittee and will probably join us, we 
were in Kuwait and Iraq about 10 days ago doing oversight there 
on a lot of the contracting work that had been done, no-bid 
contracts, cost-plus contracts, sole-source contracts, not the 
kind of thing that would make most of us proud. But I think we 
are doing a better job of oversight there and I think they are 
starting to clean up their act over there, at least in that 
regard.
    But Congressional oversight is imperative to make sure that 
Federal agencies like this Department are stepping up to the 
plate, confronting the waste of precious taxpayer dollars, and 
taking immediate corrective actions so our dollars are 
supporting the real mission of the Department, and that is 
protecting our country and nearly 300 million Americans who 
live here.
    We look forward to hearing from each of you and we look 
forward to continuing to work closely with GAO and with the 
Department in achieving a successful implementation of modern 
financial management systems.
    With that, Dr. Coburn.

              OPENING STATEMENT OF SENATOR COBURN

    Senator Coburn. Thank you, Mr. Chairman. I have a statement 
that I would like to have submitted for the record.
    Senator Carper. Without objection.
    Senator Coburn. I want to welcome you. I want to say again 
how much I appreciate GAO and the work that they do. I continue 
to be impressed by all aspects of GAO and their dedication to 
helping us solve the problems that we find in front of us.
    I also want to thank you, Mr. Norquist. We spent some time 
in my office and I am not sure I can make any judgment about 
what you have done yet. I think it is way too early, and so I 
am not critical at this juncture.
    I think the most important thing, and we saw on the vote--
this whole week has been a great week for America because what 
you saw is America tuned in to what is happening in Washington, 
and I don't think there is anybody sitting at that table that 
can be proud of the financial mess that we have, and not just 
at Homeland Security, but in many other areas. And with that 
comes about $200 billion a year in waste, fraud, abuse, and 
duplication. I think there is a rumble in America. I think they 
are awake. I think they are listening, and what they are 
wanting is transparency and accountability.
    The real problem is you can't manage what you can't 
measure, and you all can't measure it. Now, that is not 
necessarily your fault sitting at this table because you 
haven't been in the position of responsibility. But I think we 
are very blessed to have GAO help us and to be a positive 
critique in the areas where you may not have the insight or you 
may not be looking at all the areas when you thank you are.
    So we look forward to your testimony. I do have to excuse 
myself early and I apologize for that. Again, I am not going 
quite at the speed that I would like to go, and so I can't 
accomplish everything that I want to accomplish in a day, but I 
am encouraged by the attitudinal change. I am encouraged by the 
prospects of change. Don't let the American people down. Change 
it. Fix it. Make it to where it is auditable. Make sure that 
the $40 billion that comes your way, you can account for, they 
can see it in a transparent way, and they can make a judgment 
about whether or not you are good stewards with their hard-
earned money. Thank you.
    [The prepared statement of Senator Coburn follows:]
                  PREPARED STATEMENT OF SENATOR COBURN
    I am under no illusion that the theme of this hearing is glamorous 
or will catch many headlines. Frankly, the arcane and technical nature 
of financial management will probably never grab the attention of the 
American people as well. But what the American people do care about is 
results. When the job can't get done and security is compromised, 
people are not likely to have sympathy simply because financial 
management systems were not working properly--they will only ask why we 
didn't get it right. When Katrina victims were trying to get assistance 
to rebuild homes, or find temporary housing, nobody wanted to hear 
about problems with DHS financial systems.
    The Department of Homeland Security gets tens of billions of 
dollars every year. We will soon be debating an almost $40 billion 
approps bill for the Department. Without proper financial controls, we 
have no way of ensuring that this money is buying us the security 
Americans expect. DHS does not have an operational management plan 
currently in place to effectively manage it finances.
    For example, this past month the DHS Inspector General published an 
audit report on grant management for American Samoa. In it, the 
Inspector General examined homeland security grant awards from fiscal 
years 2002 to 2004, totaling more than $12 million. Of that total, the 
IG found over $1.7 million in questionable spending. Money was spent 
sending staff on questionable trips to Las Vegas and Hawaii, fancy 
furniture, and an illegal interagency transfer with the National 
Weather Service.
    I do not need to remind people of the travesty that befell New 
Orleans and the Nation in August 2005. Hurricane Katrina displaced 
hundreds of thousands of residents from their homes, leaving vulnerable 
families and individuals to depend on the government for assistance in 
the wake of the unspeakable tragedy. Regrettably and inexcusably, DHS 
and FEMA subsequently made over $800 million in improper payments in 
assistance efforts following Katrina. Let's put that figure in more 
tangible terms: For $800 million, FEMA could have provided over 13,000 
trailers for families to live in for 18 months. The Gulf Coast and the 
Nation deserve better.
    These examples are no surprise, given how dysfunctional financial 
management is at DHS. The Departments independent auditor, KPMG, noted 
that The Department of Homeland Security is out of compliance with 
eight separate laws and regulations--and these include our most basic 
financial management statutes. DHS also has never received an 
Unqualified Audit Opinion (UAO)--This means that the financial 
information they have is not timely, reliable, or DHS has never gotten 
an auditor to say that DHS's financial statements, on the whole, are 
presented fairly in all material respects in conformity with Generally 
Accepted Accounting Principles. In other words, they can't undergo an 
audit, much less pass one. If Congress applied the same standards to 
DHS that we have forced on the private sector, Secretary Chertoff and 
most of his senior management would be in jail.
    That's not to say that DHS is staffed by bad actors, or incompetent 
managers. Congress created this behemoth bureaucracy as a knee-jerk 
reaction to 9/11. The Department faced the nearly insurmountable task 
of integrating and streamlining 22 disparate agencies upon the 
Department's inception in 2003. The first attempt at comprehensive 
integration ended miserably, with the failure and abandonment in 2005 
of the Electronically Managing Enterprise Resources for Government 
Effectiveness and Efficiency project, otherwise known as Emerge 2. 
Clearly, The Department of Homeland Security is now at an important 
crossroads regarding financial management. DHS must implement a plan 
that will successfully carry the Department to a reliable, consistent, 
and functional financial management operating system.
    First we need political will at the highest levels of leadership. 
This will force the interagency coordination and the prioritization 
required to get results. Next, we need transparency. I'm expecting to 
get clear commitments for deliverables in this project today, and a 
public reporting on a regular basis of progress against those 
commitments. Specifically, I would like a commitment for a timeframe on 
producing an auditable financial statement and also a detailed strategy 
to clean up the financial management disaster at the Coast Guard.
    I would like to commend the efforts at DHS, and David Norquist in 
particular who has an unenviable task, to say the least. I also want to 
thank GAO, who is truly fulfilling its mission as our investigator and 
auditing arm, investing the time and resources into a level of detailed 
oversight that we are not able to invest directly. I look forward to 
hearing your testimonies, thank you.

    Senator Carper. Thank you, Dr. Coburn.
    I am not going to provide in the introductions the 
background. Biographies of all of our witnesses--although I 
would ask that, I call them the PG versions of your 
biographies, that I could disclose those, but they were not 
provided, so we are just going to provide for the record what 
we received.
    Some of you have been before us a couple times before. We 
are delighted that you are here again. McCoy Williams from GAO, 
we are delighted that you are here again and we would ask you 
to go ahead and present your testimony. If you have full 
testimony you would like to present for the record, we will 
certainly, for every one of our witnesses, that will be 
presented and included in the record, and if you want to 
summarize, fine. I would say, just try to keep your testimonies 
fairly close to 5 minutes, but if you go 6 or 7 minutes, we are 
not going to shut you down. Welcome.

TESTIMONY OF McCOY WILLIAMS,\1\ DIRECTOR, FINANCIAL MANAGEMENT 
AND ASSURANCE, ACCOMPANIED BY KEITH RHODES, CHIEF TECHNOLOGIST, 
   APPLIED RESEARCH AND METHODS, CENTER FOR ENGINEERING AND 
       TECHNOLOGY, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Williams. Thank you, Mr. Chairman. Mr. Rhodes and I 
thank you for the opportunity to discuss our recent work 
related to DHS's efforts to transform its financial management 
systems.
---------------------------------------------------------------------------
    \1\ The prepared joint statement of Mr. Williams with Mr. Rhodes 
appears in the Appendix on page 27.
---------------------------------------------------------------------------
    As you know, the Department of Homeland Ssecurity has faced 
a difficult challenge of bringing together 22 diverse agencies. 
Since 2003, when DHS began operations, GAO has designated 
implementing and transforming DHS as a high risk. Our related 
report released today discusses the significant problems we 
identified with DHS's financial management system modernization 
efforts. Today, we would like to provide our perspectives on 
the importance of DHS following best practices in developing 
and implementing its financial management systems.
    First, since we last testified in March 2006, DHS officials 
ended its eMerge 2 program. eMerge 2 was expected to establish 
the strategic direction for modernization and integration of 
DHS financial management systems, processes, and policies. DHS 
officials have stated that approximately $52 million in total 
was spent on this project before it was halted, although DHS 
did not provide us documentation to support these reported 
costs. DHS's decision to end the project before spending an 
estimated $229 million on a financial management system that 
would not provide the expected system functionality and desired 
performance was prudent and we support the decision to cut its 
losses.
    According to DHS officials, several of the work products 
developed for eMerge 2 will be useful as they move forward with 
their financial management modernization efforts. However, we 
found that the usefulness of these work products is 
questionable due to the lack of disciplined processes in their 
development.
    Second, we would like to point out key financial management 
system transformation challenges at DHS. While DHS officials 
have recognized the need for an integrated financial management 
system, the Department has not developed a transformation 
effort that includes key elements, such as standard business 
processes, a human capital strategy, and effective internal 
controls.
    In March 2007, DHS issued its Internal Controls Over 
Financial Reporting Playbook, a high-level plan intended to 
address existing internal control weaknesses. DHS officials 
have acknowledged that the Playbook has a policy and process 
focus and does not comprise a strategy for financial management 
system modernization. DHS's high-level financial management 
system strategy, called Transformation and Systems 
Consolidation, focuses on leveraging existing systems 
investments across DHS components and is still in the early 
stages of development. More detailed implementation strategies 
will be necessary to fully address financial management system 
integration efforts.
    The Transformation and Systems Consolidation strategy calls 
for DHS to consolidate its financial management systems into 
one of two models, the Transportation Security Administration 
systems model, or the U.S. Customs and Border Protection 
Systems model, which the Department refers to as shared 
baselines. DHS and OMB officials told us that OMB approved 
DHS's decision to rely on its in-house core financial 
management operations. Our concern is that these components 
have numerous financial management weaknesses and consequently 
do not appear to be good models for an entity with an annual 
budget in excess of $40 billion.
    For example, the financial statement auditors for TSA 
reported that TSA was unable to support key fiscal year 2005 
and 2006 transactions and account balances. It is imperative 
that DHS fully understands the weaknesses at TSA in order to 
prevent these issues from affecting subsequent users.
    Finally, we would like to highlight the building blocks 
that form the foundation for successful financial management 
transformation. Our previous testimony and our current report 
pointed out that careful consideration of these four concepts, 
each one building upon the next, will be key to the success of 
DHS's strategy. The four concepts are developing a concept of 
operations, defining standard business processes, developing a 
migration and/or implementation strategy for DHS components, 
and defining and effectively implementing disciplined processes 
necessary to properly manage the specific projects.
    Fully embracing human capital best practices will be 
another critical success factor. For example, DHS will need to 
have people with the right skills in the right place and at the 
right time.
    In conclusion, Mr. Chairman, given that DHS is one of the 
largest and most complex Executive Branch agencies in the 
Federal Government, modernizing its financial management 
systems represent a monumental challenge. This challenge is 
compounded by the poor condition of the legacy financial and 
related business systems it inherited. If properly implemented, 
the recommendations included in our related report, which are 
based on best practices, will help reduce the risk associated 
with a project of this magnitude and important to an acceptable 
level. Ultimately, DHS will be able to provide reliable, 
useful, and timely financial management information so that DHS 
leadership and the Congress are well positioned to make fully-
informed decisions to secure America's homeland.
    We look forward to continuing to work with you to monitor 
DHS's progress in this area. Mr. Chairman, this concludes our 
statement. We will be pleased to respond to any questions that 
you may have.
    Senator Carper. Mr. Williams, thank you very much. Are you 
still the Director of Financial Management and Assurance at 
GAO?
    Mr. Williams. That is correct.
    Senator Carper. And how long have you been in that post?
    Mr. Williams. I have been a Director in that team for 
approximately 7 years, 2 of those years in an acting position.
    Senator Carper. This may not be a fair question, but at 
GAO, who is your Chief Technologist for Applied Research and 
Methods at your Center for Engineering and Technology? Who does 
that work?
    Mr. Williams. That would be Keith Rhodes.
    Senator Carper. The fellow sitting right next to you.
    Mr. Williams. That is correct.
    Senator Carper. I understand he is taking a pass on 
testifying, but he is here to respond to any questions that 
Senator McCaskill and I might have?
    Mr. Williams. That is correct.
    Senator Carper. All right. Good. We will save the really 
tough ones for him.
    Mr. Williams. OK. [Laughter.]
    Senator Carper. I was fortunate to travel with Senator 
McCaskill back about a week and a half ago. I talked about that 
a little bit earlier and the work that you and your staff have 
done. Wendy Anderson and I were just privileged to go with you 
to see the efforts that are underway there to try to fix our 
contracting problems and we appreciate your work to help this 
Department get its act together. We know that they are trying 
to, and we know that your efforts are helpful there.
    Mr. Rhodes, we welcome you here today and we look forward 
to asking you some questions a little later, too.
    The Chief Financial Officer at the Department of Homeland 
Security is David Norquist and he is joined today by Scott 
Charbo, who is the Chief Information Officer (CIO). We are 
happy you are both here. You have been in your job for about a 
year, is that right, Mr. Norquist?
    Mr. Norquist. That is correct, sir.
    Senator Carper. And Mr. Charbo, how long have you been at 
it, a couple of years?
    Mr. Charbo. It will be 2 years in July.
    Senator Carper. Alright. Does it seem longer?
    Mr. Charbo. There is normal time and there is DHS time, 
yes, sir. [Laughter.]
    Senator Carper. Well, we are glad you are here today, and 
Mr. Norquist, you are recognized. Again, your entire statement 
will be made a part of the record. Proceed as you wish.

   TESTIMONY OF DAVID NORQUIST,\1\ CHIEF FINANCIAL OFFICER, 
 ACCOMPANIED BY SCOTT CHARBO, CHIEF INFORMATION OFFICER, U.S. 
                DEPARTMENT OF HOMELAND SECURITY

    Mr. Norquist. Thank you, Senator. Mr. Charbo and I have a 
joint statement. Thank you, Chairman Carper, Members of the 
Subcommittee, for allowing us this opportunity to testify 
before you regarding financial management system modernization 
at the Department of Homeland Security. Scott Charbo and I are 
pleased to discuss with you the Department's strategy and 
progress in transforming and consolidating financial management 
systems throughout the Department. We also appreciate the work 
done by the Government Accountability Office and concur with 
all six of their recommendations.
---------------------------------------------------------------------------
    \1\ The prepared joint statement of Mr. Norquist and Mr. Charbo 
appears in the Appendix on page 40.
---------------------------------------------------------------------------
    The Department of Homeland Security was formed from the 
merger of 22 distinct agencies. Given our origin, it is not 
surprising that we would have multiple financial systems. In 
the long run, however, this is not cost effective. Too many 
systems complicate financial reporting, internal controls, 
systems security, and software maintenance.
    In 2003, to address this problem, the Department began an 
initiative called eMerge and contracted out for the development 
of a financial solution that integrated finance, accounting, 
procurement, and asset management systems. That integration 
effort ran into technical challenges and, as GAO describes it, 
the Department made a prudent decision to cut its losses.
    This, however, is not the end of the story. With Department 
approval, Customs and Border Protection successfully 
implemented the SAP Financial Package that includes finance, 
accounting, procurement, and asset management. This strengthens 
CBP's financial reporting and internal control processes, and 
last year, CBP received an unqualified opinion on its financial 
statement.
    About the same time, the Transportation Security 
Administration needed to migrate off the system it used at the 
Department of Transportation. In response, the U.S. Coast Guard 
provided TSA an Oracle package that also included procurement 
and asset management. Other offices expressed an interest in 
this solution, and over the last 2 years, the Department has 
migrated the Federal Air Marshals Service and the Domestic 
Nuclear Detection Office to the same solution. While TSA is 
still addressing some material weaknesses, it is now the system 
that stands between them and a clean audit opinion.
    When you review the different systems the Department has, 
these two agencies' solutions stand out. They use core 
accounting applications that are also used by other large 
Federal agencies with unqualified audit opinions. They were 
successfully and broadly implemented inside DHS, so we have 
people who are experienced with these applications. The 
products are also commercially available and supported by 
multiple vendors, which promotes competition.
    So rather than pursue the acquisition, configuration, and 
implementation of a new system within DHS, we will leverage our 
existing investments by continuing the migration of components 
to these two proven financial management systems. We have 
briefed the system, called Transformation and System 
Consolidation, to the Office of Management and Budget and we 
meet with OMB routinely to discuss progress.
    The next stage of the consolidation plan will begin with 
the migration of small components, such as the Office of Health 
Affairs and Science and Technology. The goal is to repeat, 
refine, and build upon each successful migration. The plan will 
continue with the migration of larger components, such as FEMA 
and Immigration and Customs Enforcement. By fiscal year 2009, 
we expect 50 percent of DHS components to be on the 
Consolidated Financial Management System. By fiscal year 2011, 
we expect 97 percent of the Department will be on these 
systems.
    After the completion of this consolidation plan, a single 
baseline will be chosen. Migration onto a single baseline will 
then be planned and implemented. The Department is committed to 
a single baseline as the end state for its financial management 
needs.
    There are a number of financial and performance benefits 
associated with this initiative. This includes a reduction in 
maintenance cost, a significant cost avoidance for future 
integration expenses, and it promotes competition for systems 
operation and maintenance services by making sure that you can 
have multiple vendors to support your system. It also provides 
more accurate, timely, and reliable financial data, provides a 
foundation for effective internal controls and segregation of 
duty, and reduces the errors by the removal of manual 
processes.
    Modernizing financial management systems is an inherently 
complex and challenging endeavor. It requires careful planning, 
patient implementation, and strong collaboration among senior 
leaders. The strategy I have described today provides for 
improving financial systems by migrating components to existing 
DHS systems that are proven and for which we have a record of 
successful implementation. I am confident that, working 
together, we will be successful.
    Sir, I thank you for your leadership and your continued 
support of the Department of Homeland Security, and if I may 
add, I also appreciate the close working relationship I have 
been able to develop with your staff. I have been up here 
before to give them updates. They are a very good group to work 
with and I appreciate the ongoing dialogue that we have.
    Senator Carper. We appreciate your saying that and thank 
you for being so accessible and your willingness to come here. 
That is much appreciated.
    We have been joined by Senator Claire McCaskill of 
Missouri. Senator McCaskill, if you have a comment or two you 
would like to offer, and why don't you lead off with the 
questions.

             OPENING STATEMENT OF SENATOR MCCASKILL

    Senator McCaskill. Thank you, Mr. Chairman. I am a little 
discombobulated about leading off.
    Senator Carper. You don't have to.
    Senator McCaskill. That is not the way it works around 
here.
    I am very concerned about financial management systems at 
Homeland Security. Frankly, you are in a little better shape 
than the Department of Defense. I think they have been on the 
high-risk since, if my memory serves me correctly, since 1991, 
would that be right, Mr. Rhodes?
    Mr. Rhodes. [Nodding head.]
    Senator McCaskill. And since you have not been around long 
enough, we hope that you beat them off the list and that would 
be a great thing.
    I am going to spend my time talking about accountability 
issues, and I know it is slightly off topic in terms of 
financial management systems, but let us start with this. The 
$52 million that you have indicated was spent on eMerge, is it 
possible for you to document in any way how that $52 million 
was spent?
    Mr. Norquist. We have provided from my office a spreadsheet 
to GAO on the range of things. Of that amount, $18 million, for 
example, went specifically to the contractor. The $52 million 
is a broader range of initiatives that occurred during this 
time period. It is my understanding that the documentation that 
couldn't be achieved was out of our procurement office, and I 
am happy to go back and find out why that wasn't available and 
to follow up on that for you.
    Senator McCaskill. Yes. I am really worried about that 
procurement office. I couldn't help notice that the Washington 
Post did not do your Department a favor by the article that 
appeared this morning in light of this hearing coming. The 
procurement office is problematic. What percentage of the money 
that you have spent in trying to get off the high-risk list 
would you say has been spent on private contractors?
    Mr. Norquist. I wouldn't know the number for that.
    Senator McCaskill. Would you hazard a guess? More than 50 
percent?
    Mr. Norquist. I can only use my own office as an example. I 
have in my office about $12 million that we spend on salaries 
of government officials and $8 million that we do on other 
contract support, which is heavily contracted individuals, 
internal controls, improper payments, that sort of area. So it 
is not a 50-50 split. It is less than that.
    In fact, in my office, when we submitted our budget 
request, I notified the Appropriations Committee of my intent 
to increase the number of government employees that we have. As 
we were created at DHS, there was an initial shortage of career 
civil servants that wwould be used to build with, so people 
relied on contractors. Over time, we have tried to move away 
from that. I am doing that within my own organization to 
increase our reliance on career civil servants. I myself 
started as a GS-9 back in 1989, and so I have got a lot of 
initiatives focused on training them, getting the skill sets. I 
believe that in the long run, they are more important to our 
stable success.
    Clearly, there are places where we need contractors for 
independent verification, validation, other functions, but I 
think that in the near-term, at least in my organization, there 
is a need to shift and I have indicated so in our budget 
submissions.
    Senator McCaskill. Do you have a sense that the leadership 
at the Department of Homeland Security has your bias as it 
relates to the apparent inefficiencies of contracting that we 
are witnessing at the Department of Homeland Security?
    Mr. Norquist. There are trade-offs between the two, and in 
meetings, I have been with the Deputy Secretary as we build the 
budget. He has gone and raised the issue with components of 
what do you have in your organization that is only contractor 
because that is the way you started and tell me when you can do 
that and what your hiring skills are. So I know he shares that 
interest. I know he recognizes that as an opportunity for 
improvement.
    We can't leave the function undone, but in my office, for 
example, we had staffing shortages a year ago. We weren't able 
to fill our own positions. We went and created a number of 
efforts to improve recruiting and retention. Working with our 
Chief Human Capital Officer, there have been job fairs and 
advertisements. We have tried to make life easier for people to 
find us. I have a little business card that simply says, 
[email protected]. Send me an e-mail. So when we reach people and 
we go to areas where there are skill sets that I am looking 
for, financial management communities, we have promoted that in 
order to get the folks inside and get them in the government 
service.
    We have been successful. We have filled the positions that 
Congress has provided us, and we have, and again, as I 
mentioned before, told them that we are looking to go beyond 
that and in exchange drive down the amount of money that I 
spend on contractor support for these types of functions.
    Senator McCaskill. Well, as the CFO, do you feel like that 
you have information Department-wide in terms of the way money 
is being spent within the Department?
    Mr. Norquist. You can do it by various categories. It is 
hard to break it out the way people normally ask the question. 
For example, if you buy something, you are usually buying a 
service or a deliverable, not a number of people, and so you 
cannot easily get a contractor number. That is why in my office 
I use the dollar amount. I don't know if I tried to ask that 
question department-wide how the numbers would come up or how 
we would present it.
    Senator McCaskill. Well, did you read the article in the 
Washington Post this morning?
    Mr. Norquist. Yes, I did.
    Senator McCaskill. OK. And do you think taxpayers should be 
worried?
    Mr. Norquist. My understanding of the article was the need 
to stand up the staffing and the requirement to use contractor 
support in the first place. I can't speak to the contracting 
procedures that were used to do that, but I know that there is 
an essential mission that they are trying to perform. And this 
is one of the challenges I run into in financial management, is 
I put a great emphasis on internal controls, on strengthening 
procedures, and I need to be cognizant of the component's 
requirement to perform its mission, and so we work very closely 
with others to ensure that we accomplish both at the same time.
    Senator McCaskill. Are you aware of any contracts currently 
within the Department of Homeland Security that are not 
competed?
    Mr. Norquist. I actually wouldn't know. I am generally only 
aware of the ones in my office and I believe those are all 
competed, but I will check that for the record.
    Senator McCaskill. Well, for the record, Mr. Chairman, I 
would basically summarize as follows. We have a project in 
Homeland Security that began in 2003 with a $2 million 
contract. It was no-bid. It soared by millions of dollars per 
month, and in December 2004, the payments had exceeded $30 
million and 15 times the contract's original values. When the 
Department lawyers looked at it, they said it was grossly 
beyond the scope of the original contract and that it violated 
government procurement rules. The lawyers then advised the 
Department to immediately stop making payments through the 
contract.
    That did not happen. Payments continued under the contract. 
In fact, the payments to the consultant more than doubled again 
under the second no-bid arrangement, this time to $73 million. 
And it goes on to set out in some detail that this was a 
situation where the rules were waived, routinely waived, to, in 
fact, continue to support this contract.
    I think that this is one of those situations that if we do 
not get to the bottom of what has actually happened at the 
Department of Homeland Security, we have no lessons learned, 
and I think Congress, when they created the Department of 
Homeland Security, had an old-fashioned notion that they were 
consolidating and making something more efficient. I don't 
think that people anticipated that the skill sets were not 
going to be present within this newly-created Department to do 
basic functions that were being given to it, and I don't think 
anybody--I can't imagine they envisioned that we would embark 
upon a protracted period of time with vague contract 
requirements, with no-bid contracts blowing the lid off the 
original scope of the contracts, and I know that this is not 
your Department. However, when you have the title CFO and you 
are part of an organization that has this kind of systemic 
problems, whether it is bringing together financial systems or 
whether it is appropriate oversight of procurement, I think it 
is fair to make this part of the record.
    I am going to ask the Secretary specific questions about 
the Boos Allen consultant contract that was delineated in the 
newspaper this morning and I am particularly interested how 
many other contracts like this are out there. I mean, the cost 
of these contract employees is an average of $250,000. That is 
an expensive government employee. I don't have anybody in my 
office making $250,000 a year, and I am willing to bet there is 
nobody in your office making $250,000 a year.
    I am trying to figure out why we have gotten into this 
privatization, this wave of privatization where we are blowing 
the top off average costs of work being done. I have never been 
opposed to privatization as a principle, but the way it is 
being done right now, whether we are in Iraq and we are talking 
about what is happening in Iraq or we are talking about within 
the Department of Homeland Security, something is terribly 
wrong and I think it is really incumbent upon Congress and this 
Subcommittee to get a handle on it, and I appreciate, Mr. 
Chairman, the opportunity to put that in the record and 
certainly appreciate the opportunity to participate in this 
hearing today. I thank you all for being here.
    Senator Carper. You are quite welcome, and we are just 
delighted that you are here.
    Does anybody want to respond to some of what Senator 
McCaskill has stated or asked?
    Mr. Norquist. Just one follow-up, because among the things 
that do fall under the CFO is the budget. In the President's 
budget submitted to the Hill, there are a number of initiatives 
that we have supported, particularly to strengthen----
    Senator Carper. Is this the budget for 2008?
    Mr. Norquist. This is the budget for 2008, the one that is 
on the Hill--to strengthen the Office of the Chief Procurement 
Officer precisely to ensure that she has the training programs, 
the hiring programs, and the initiatives to strengthen her 
oversight of the program in the same way the Congress has been 
supportive in strengthening the Chief Financial Officer's 
program. So I hope you would give consideration to those and 
recognize how directly related they are to helping her 
organization get a similar handle on the challenges that they 
face.
    Senator McCaskill. You will never have to worry about me 
supporting more money for GAO, more money for IGs, or more 
money for procurement officials. I am there.
    Mr. Norquist. Thank you, ma'am.
    Senator Carper. I think you can take that to the bank. 
[Laughter.]
    I want to back up just a little bit, if we could, back to 
the time that this Department was created some 4 years ago, and 
it was created, some of the early work was done by the 
Committee on which Senator McCaskill and I serve, and we 
acknowledged at the time that what we were putting together was 
a little bit of a dog's breakfast in terms of all these 
different 22 agencies coming together with a wide variety of 
responsibilities. I know there was some discussion about how 
well their financial systems would blend together and it has 
been every bit as challenging to get the Department formed up, 
staffed, getting people to sort of understand who is doing what 
and developing relationships and trying to be effective.
    At the time when we created the agency, we never talked 
about, at least in my recollection, about eMerge 2, and what I 
want really for my first question is I would like for somebody 
to back up and just give us the history, if you will, for this 
initiative and explain it in terms that regular lay people can 
understand. Sometimes we get talking about this stuff and you 
hear it and you say, what did they really say? So just kind of 
put it in layman's terms. Could somebody give us the history, 
what we were trying to accomplish within the Department when 
eMerge 2 was launched?
    When I heard about it, my question to my staff was, 
whatever happened to eMerge 1, and it turns out there was no 
eMerge 1. They went right to eMerge 2. I was going to say, 
three strikes and you are out. If you don't get eMerge 3 right, 
you are really in trouble. But there was no eMerge 1, so 
whatever comes next, and I think you have mentioned what comes 
next, will be the second time out. But it is important to get 
that one right.
    But would somebody give us a little bit of history on 
eMerge 2, please, someone who feels comfortable with it? 
Everybody looks the other way. [Laughter.]
    Mr. Norquist. Well, I was just expecting that they had 
probably been on this topic----
    Senator Carper. Yes, you are probably right----
    Mr. Norquist [continuing]. Since I wasn't here.
    Senator Carper. You all can just give me a team effort in 
giving us the history, if you will.
    Mr. Norquist. Well, let me start with just a general 
overview, recognizing that I wasn't here at the time, so I 
don't want to put words in their mouth, but they came together 
and they realized that they had a large number of different 
financial systems and that creates a lot of challenges.
    The first challenge it has is every time you want to build 
something to go with it, a travel system, something else, you 
have to build a link between your new application and every 
different system that you have, and in some cases, it is not 
just different systems, there are multiple variations on the 
same system. We have a number of different types of Oracle that 
are being run inside the Department. So you end up spending a 
lot of money building more bridges than you need to make a link 
to each of these. So there is an opportunity for cost avoidance 
if you can get down to fewer systems.
    In addition, the shared data across the system is a 
challenge if you are operating differently.
    Another essential one is if you want your--if you don't 
have an integrated system, when your procurement office enters 
a PO into their system, they then take a hard copy and walk it 
down the hallway and give it to their finance office, who logs 
it into their accounting system. You have two opportunities 
here for a problem. One is the time delay. Timely and accurate 
data runs into trouble every time you are depending on somebody 
walking a stack of documents down the hall, and accuracy 
suffers every time you require somebody to re-enter it. So to 
have a system of when it is entered on the contracting side it 
automatically appears correctly on the accounting statement 
gives you much better timely and accuracy in your data.
    And so those types of accomplishments, those are the things 
you are looking for. In addition, if you have the right system, 
it is a big benefit for internal controls. So, for example, if 
you have a policy that says in order to commitment the 
government to so much money, you have to have a warrant of 
greater than that amount, now, you can have manual processes to 
enforce that, but if your financial system looks at the warrant 
of the person entering the data and says, I am sorry, you don't 
have a high enough warrant to do this, I am rejecting the 
transaction, the system is reinforcing that control.
    Or if it is looking at a place where you have multiple--you 
want to have segregation of duties. You don't want the same 
person ordering the item as the one who has accepted it as the 
one who is paying for it. You break those up, you greatly 
complicate fraud. If the system doesn't let that data get 
entered by those three as the same individual, it is 
reinforcing your internal processes.
    So when somebody looks at that, having a modern, integrated 
financial system is a huge step forward. Now, the challenge is 
how you get there, and there are a number of different ways to 
do it. The one they chose probably had the biggest potential 
payoff, but I would also suggest had the biggest risk. You have 
somebody, you make a list of the thousands of requirements, 
which they did. I think GAO counted and said 8,000 and 
climbing.
    Senator Carper. Now say that again. When they are trying to 
create the system, or envision it, they had 8,000 requirements 
that were laid out?
    Mr. Norquist. Well, if I ask you, what do you need your 
accounting system to do, the list is endless if you approach it 
that way, and then you turn to someone and say, please deliver 
me a system that does this, and then they have to do software 
development, and software development is also very challenging. 
All of those steps add risk.
    The reverse of that is, for example, what our approach 
would be. We have an accounting system and an integrated system 
at CBP and over at TSA. You go to somebody who is moving and 
saying, why can't that meet your needs? Give us an example of 
what it does that you need to. So rather than do thousands of 
requirements, you are doing what is called gap analysis. All of 
those make it easier.
    But their approach to the solution, I think, had a high 
opportunity for payoff, but it is a very challenging task and I 
think the way they went about it probably increased the risk. 
But having not been there at the time, I think I will of defer 
to GAO now in terms of having looked at the records, anything 
they found about the challenges in that approach and what went 
wrong.
    Senator Carper. Good. That is very helpful for background.
    Can you just take it up from there and fill in the gaps?
    Mr. Williams. Yes, I can, and I think just to summarize it 
real short, I was asked by the full Committee to take a look at 
what the agency was doing to consolidate its operations from a 
financial management standpoint when the agency was formed, and 
we basically concluded that eMerge at the time, that it was 
really too soon to tell whether it would succeed or not, that 
it appeared to be a good idea, that if you wanted to 
consolidate all your systems, because you had these 22 
agencies.
    The bottom line was Homeland Security was basically looking 
at a situation in which there were all these agencies coming 
together, components coming together, and everybody was 
basically carrying out their operations based on what they had 
been accustomed to doing from wherever they came from, and the 
concept was, we will have one system that will be able to 
gather data and produce data that will be consistent across the 
entire Department.
    A case in point was at the time, I was asked to do a job at 
FEMA and there were some issues that had been raised about some 
capitalization thresholds and just how they were accounting for 
their property. And we had some suggestions and were basically 
told that we cannot make these changes for FEMA because the 
Department is looking at everything that is going on in the 
financial management arena, from systems to policies to 
procedures, and we are going to try to standardize everything 
so that everything can be done across the agency the same way 
so we will have the consistency.
    So that was the objective when this whole process started, 
we wanted one system that can gather data for all of these 
agencies or components that we are bringing together and we 
will have this one system. We will have the consistency. We 
will also be able to reduce our costs because we will cut down 
on a lot of the redundancy that is going on. So that was the 
basic overall agenda when this process first started.
    Senator Carper. Where do you think it started to come 
apart?
    Mr. Williams. I will let you take that one.
    Mr. Rhodes. In the requirements, the requirements failure 
regarding eMerge. So you have 22 pieces of broken pottery, and 
I don't know what the pot looks like. Now I am supposed to glue 
them all together and make something of it. I am not an 
accountant. I am an engineer. But my accounting colleagues have 
sat me down and showed me a 32-column piece of paper and said 
the number in the lower left-hand corner is supposed to add up 
to something. Fine. Now what do I feed into that eMerge 2 
system?
    Well, none of the systems that the Department of Homeland 
Security inherited--and that is the key term, they inherited 
them--none of them had actually been designed. They had all 
evolved. Like all the departments they came from, they had 
evolved. They were unique. They were one of a kind. They were, 
oh, we do things differently here designs. They were, gee, we 
can't actually get a clean opinion system, but now DHS has to 
take that system and bring it in.
    So it begins with a requirement set. One of the reasons it 
was 8,000 and climbing is that if you don't apply the 
discipline to say, you are done, you are done, you are done, I 
don't want to hear from you anymore, we are going to do it this 
way, if either you don't do that or you can't do it, then you 
are in the position of having zero discipline in your process. 
You are just trying to draw all of the requirements together 
into the dog's breakfast, as you are talking about, and say, 
oh, well, whatever comes up will come up, which, of course, is 
a vendor's dream and the oversight's nightmare.
    Senator Carper. Mr. Charbo, do you want to add anything?
    Mr. Charbo. No, I think that was well said. At the end of 
the day, if we were successful in that new system, you still 
had the challenge of the internal control processes and 
migrating things that didn't add up into a new system. Those 
were a lot of the points that we were pointing out to the 
Department as I came in in July and trying to point out some of 
the flaws, as well, which led to some of the cancellation of 
the contracts and deciding to move on with another strategy. I 
think all those points were well said.
    Senator Carper. Alright. Fair enough. Senator McCaskill.
    Senator McCaskill. So 8,000 requirements is ludicrous on 
its face. Was there no one there to say that is too many? Are 
you saying there were 8,000 requirements because they were 
trying to accommodate 22 different evolved systems and 
everything that they had traditionally gotten out of their 
product, they wanted all of that to come out of this new 
product?
    Mr. Rhodes. In effect, the lack of discipline that they 
were applying was doing that by default. You are correct. I 
don't know that anyone was getting up in the morning and 
saying, gee, let us just have it be all things to all people. 
But what we saw in the initial reviews was that no one knew how 
to put the brake on, and therefore the requirements list goes 
up and the money goes out and the oversight on the part of DHS 
was not in place.
    Contracting out, fine. That is not supposed to be 
abdication of responsibility. It is contracting out. It is not 
abdication. It is not, because then the contractor--I have been 
a contractor. I came out of the contracting world. All it takes 
is money and I will make you happy. Well, fine. So you keep 
giving me enough rope in terms of dollars and I will keep 
weaving a basket out of it. That is what was happening. There 
wasn't anything in place to stop throwing coal into it to keep 
the engine burning.
    Senator McCaskill. And I have to assume, in the private 
sector, you have mergers and acquisitions as commonly as you 
have anything else. I have to assume there are products even 
off the shelf that could be adjusted to accommodate different 
functions coming together for the first time.
    Mr. Rhodes. You are correct. There are products out there, 
but often, commercial off-the-shelf does not mean one-size-
fits-all. Likewise, just because you have bought commercial 
software does not mean that you now give up being ultimately 
the system engineer.
    Senator McCaskill. Right.
    Mr. Rhodes. You have to understand your requirements. You 
have to come in with a discipline. You have to lay them out. 
You have to say, what is my concept of operations? What is my 
target? What am I trying to do? Well, if I am trying to be all 
things to all people, there is nothing on the shelf that is 
going to----
    Senator McCaskill. Right. It is not going to be there and 
it is going to cost----
    Mr. Rhodes. Forever.
    Senator McCaskill [continuing]. $52 million and then you 
are going to cancel the contract.
    Mr. Rhodes. It is going to cost forever.
    Senator McCaskill. Do you believe that the problem of 
discipline when it comes to financial management has, in fact, 
been addressed at the Department of Homeland Security?
    Mr. Rhodes. I cannot say that I have hard evidence that it 
has. The movement to kill eMerge is a sign. The movement--as 
the CFO stated, they concur with everything we have said.
    Senator McCaskill. Sometimes that feels like kissing your 
sister. We don't get it fixed.
    Mr. Rhodes. Right. Exactly.
    Senator Carper. To which my sister would say, even sisters 
need to be kissed. [Laughter.]
    Senator McCaskill. Well, do you sense that they now have 
that discipline, though? I know you are saying you have no hard 
evidence that the discipline is now in place to not abdicate?
    Mr. Rhodes. Right.
    Senator McCaskill. Alright.
    Mr. Rhodes. I do not have the hard evidence. I will have to 
see what goes on from now. I have good words. I have good 
intentions. I do not believe I am being lied to. Fine. Now let 
us see, because our joint testimony this year is no different 
than our joint testimony last year.
    Senator McCaskill. Right. And do you all have a sense that 
there is any hope of discipline at the Department of Homeland 
Security as it comes to the abdication that was documented in 
the Washington Post concerning contract oversight?
    Mr. Rhodes. Do you want to take that?
    Mr. Williams. It is a process, a discipline that must be 
put in place in the financial management arena, and I would say 
in looking at the overall process, you are talking about 
internal controls within the entire Department. And I have done 
a lot of work over the years in the area of internal controls 
and working with what we call our Green Book, which basically 
lays out the framework of what you need to have in place, and I 
think that it is important that the agency as a whole take a 
look at those five pillars, as I call them.
    I think the key one is that we talk about the tone at the 
top, and that is that you have to start at the top of any 
organization and make sure that the right tone is set as far as 
we will have the good controls in place. We will have 
accountability in place. And that has to filter down throughout 
the organization.
    Once you start with that and you take those other four 
concepts that are laid out in that document, then you have the 
framework in place to make sure that you have good controls.
    Mr. Rhodes. Let me make one additional point about that 
tone at the top. The tone at the top has to last longer than 
the life expectancy of the appointee. It has to be 
institutional. It can't be, fine, all well and good, Mr. 
Norquist, and he has the good intentions and then he leaves 
after his half-life of 18 months or----
    Senator McCaskill. Maybe gets hired by one of those 
contractors.
    Mr. Rhodes. Perhaps.
    Senator McCaskill. Because he could make $250,000 a year. 
Why would he hang out with us poor saps on the public payroll? 
[Laughter.]
    Mr. Rhodes. Yes, ma'am. The point is that whoever comes in 
has to be able to keep that target in mind, and that is why we 
talk about concept of operations, discipline in the process, 
and Mr. Williams' discussion about internal controls. If those 
are there and they are taken seriously, then it doesn't really 
matter who is in the seat. They are still acting according to 
this road map.
    Senator McCaskill. Well, and this reminds me that there are 
so many similarities between the Department of Defense and the 
Department of Homeland Security because the context of the 
mission overshadows the need for fiscal accountability. In 
other words, the piece this morning in the Washington Post, it 
was about the intelligence operation. So it was like what we 
are trying to do is so important, we don't need to worry about 
cost value. We don't need to worry about whether or not we are 
following Contracting 101. We don't need to worry about whether 
or not we are actually overseeing the contract in a cost-
effective way, because this is way more important than how much 
it costs, which is what you hear from sometimes commanders in 
the Department of Defense and the military. What we are doing 
is so important, who cares if the contract is not specific and 
is cost-plus and it costs billions of dollars more than it 
should? I shouldn't say, who cares. That is not fair.
    But the point is, do you believe that we need to do 
something in the process of confirming the secretaries of these 
departments as it relates to commitment to financial 
accountability?
    Mr. Williams. Just a quick history on this. I have heard 
that statement before. I also have responsibility for the 
financial management issues at the Department of Defense and I 
can recall when we were trying to get----
    Senator McCaskill. You poor thing. [Laughter.]
    Mr. Williams [continuing]. Financial data related to Desert 
Shield. This was back in 1991, I believe, and I think the 
response that I got was that I do not have time to stop and 
keep these records. I am fighting a war. So I have heard that 
story for many years going back.
    But my response then and my response now is that if you put 
good policies, good procedures in place and you have that 
structure there, when you go to war, there will be policies and 
procedures, that information will be rolled up. It is not 
something that you want to have to just stop while you are in 
the middle of a war to put in place. You want to have that in 
place well in advance. You want to have the internal controls. 
You want to have the policies and procedures. You want to have 
the systems.
    And as I always like to point out, you need to have all of 
those things because that old saying about you are only as 
strong as your weakest link, you can have the good systems, 
poor internal controls, you are still going to have problems. 
You can have the best system in the world, but if you lack the 
quality staff to either run and to manage your operations, you 
are still going to have some problems.
    So you have all those components that you need to have in 
place and you need to put that structure in place. Whether you 
require that from management or leadership of the organization, 
anything that we can do to make sure that there is good 
accountability within an organization when it comes to 
financial systems, financial reporting, it has got to be a good 
idea. You have to look at it from a cost-benefit standpoint, of 
course. But improving it through holding people accountable, 
GAO has always supported that.
    Senator McCaskill. Thank you, and I hope, Mr. Chairman, 
that the testimony next year is different. I can only hope.
    Senator Carper. Well, I hope so, too. I know we will be 
here asking for your testimony, and I think that is an 
important thing for us in exercising our oversight 
responsibilities, is to make sure that GAO, in the exercise of 
your responsibilities, that we are there backing you up and we 
appreciate your support and working with the IGs and the CFOs.
    A member of my staff handed me a note. It said, maybe the 
CFOs shouldn't be Presidentially appointed, and I am sure we 
have some Presidentially appointed that are quite good, but I 
worry about the turnover, and someone said 18-month half-lives 
in some of these positions.
    Mr. Norquist, any thoughts along those lines?
    Mr. Norquist. Yes, a couple. First is, originally, the CFO 
at DHS was not. It was the DHS Financial Accountability Act 
that required Senate confirmation and hence I am here.
    The thing I would say to also reassure the Subcommittee 
about continuity is in the entire financial management 
community at DHS, I am the only political appointee. I am there 
because of the Senate confirmation rules, but everyone below 
me, the CFO and the Deputy CFO of FEMA, CBP, ICE, and so forth, 
my own deputy, all career civil servants. I am happy either 
here or later to talk about the initiatives we have to mentor 
and develop the next generation of CFOs. That is one of the 
initiatives that I have been pushing, because we have no 
natural career pipeline. We are only 4 years old. And I want to 
make sure that we keep that path of career civil servants 
strong.
    The other side is I have great support from my leadership. 
I have strong backing from the Secretary and the Deputy and the 
Under Secretary for Management. I meet with them regularly, not 
just about this, but also the entire audit, the financial 
statements, how we are doing on the corrective action plans. 
But GAO, and you are right in that at a certain point in time, 
all of us will be asked to move on. Others will come in, and 
making sure that the leadership down the pipeline shares the 
same commitment that our current Secretary has is very 
important. I convey it to my staff.
    The thing that is interesting about what they call sort of 
the tone at the top and what your staff says is, does anyone 
care about me, is it shows up. They know when the Deputy 
Secretary shows up to the new hire training program for the 
Financial Management staff and tells them about how important 
it is, what they are doing. They know when the Secretary is 
asked at the hearing, every appropriation budget hearing, about 
the status of the audit. They understand when the leadership 
provides us an additional SES position to strengthen our 
Finance and Accounting Office. All of those things that are the 
tone at the top are conveyed to the career civil servants and 
they understand and appreciate that commitment.
    But they are right. If I didn't have that, I am not even 
sure I would undertake an endeavor because I wouldn't be 
confident in its success.
    Senator Carper. Thank you for that statement.
    I want to move on to a couple different questions, if I 
could. Mr. Charbo or Mr. Norquist, your Department has already 
embarked on a new project you have alluded to. I just want to 
thank you for not using the acronym, but I think it is called 
the Transformation and Systems Consolidation. And I think you 
have embarked on a new project without fully implementing GAO's 
recommendations that were released in their report today. Did 
you agree with that assessment, and if you do or don't, within 
the Department, how will you avoid repeating the problems and 
failures, if you will, that we realized in eMerge 2?
    Mr. Norquist. There are some of them we have done. There 
are some of them that still remain to be done, and I certainly 
appreciate their feedback on any one that we can make stronger. 
We have the software development life cycle documentation. We 
have done our analysis of alternatives. Certain ones, like the 
concept of operation, which as GAO points out is so essential, 
we developed one for DNDO and we moved them in the fall of last 
year and we will update each component that we move. The CONOPS 
will be specific to that move. Likewise, the reengineering 
which they talked about which is so important is part of our A-
123 process, and we go through each item over a 3-year period.
    So I think the answer at the beginning is, I believe we had 
made significant progress in each of these areas, but it is 
important that we see them through because I think their 
recommendations are sound. I have relied on them in other areas 
and I think that those things are very important.
    In terms of how do you avoid repeating the mistakes, I 
think it gets back to understanding what they did and trying to 
do it differently. For example, we are not asking people to 
develop thousands of requirements and then hoping a vendor can 
fire into a wave meeting them. We have two components that use 
applications that are widely used by the government and they 
are the private sector, and we are saying to folks, we are 
ready to move you to one. Tell me why it can't meet all your 
needs. And I suspect that if it can't, the problem may be with 
the organization I am trying to move, not with the system. If 
you don't like the process, I think you may need to fix the 
process before we change the system.
    There will be some exceptions. ICE has to handle bonds. Our 
system that CBP and others have don't necessarily do that. We 
are happy to build that specific item that the system was not 
designed to accommodate. But this will be by exception, and my 
general inclination will be if it works for other large Federal 
agencies and major corporations, what makes you special? I 
think this is the place where the discipline comes in. But it 
is not trying to gather the 8,000, it is trying to operate with 
something you have and you use today.
    Senator Carper. Good. Alright. Thank you.
    Mr. Rhodes, I believe the GAO has reported that many 
longstanding problems that plague financial management system 
improvement efforts, do you think the Department was just not 
getting the message before?
    Mr. Rhodes. In our experience, public pain is what gets the 
message across.
    Senator Carper. Is this sufficient, do you think? Are we 
inflicting enough today, or did we last year?
    Mr. Rhodes. I think that they have gotten part of the 
message, and they did kill eMerge. They didn't continue eMerge. 
We have certainly other examples where far more than the money 
claimed there that was lost was lost, upwards of hundreds of 
millions of dollars. So when it becomes so unavoidable that it 
is public and people are being chastised publicly through 
oversight, they tend to get the message.
    I go back to my earlier point. Everything that has been 
said relative to our report, the complete concurrence, what Mr. 
Norquist just said, that is the right thing to say. But it is a 
function of, now let us see the integration plan and the 
critical path for tying all these systems together.
    Yes, you are moving to a shared baseline. You are also 
running multiple instances of one part of that baseline right 
now and it has unique applications running on it. How will you 
migrate away from that and not lose functionality? I mean, yes, 
I am putting on my propeller hat and being the engineer here at 
the moment, but that is ultimately where it starts to break 
down, and coming to someone and saying, tell me why you are not 
unique, and you say, well, I am unique because of this and this 
and this. A lot of times, it is not somebody necessarily coming 
up and saying, well, I am unique because my requirements are 
special. It is coming up and saying, I am unique because I am 
running software that I can't get anywhere else, or I have 
software and I am not really certain what it does, but it 
serves this function and we have used it forever. Now you are 
in a decomposition and a reengineering and an understanding of 
the requirement as established in the piece of software that is 
already there. Those are the complicating factors.
    Senator Carper. OK. How should this Department especially 
incorporate some of the lessons learned to avoid unwise 
spending, unneeded, unnecessary spending on projects that are 
doomed to fail?
    Mr. Williams. Well, I think, as we stated earlier, that the 
bottom line is that if they follow those recommendations that 
we have in the report and if they follow the discipline 
processes as they go forward, if they utilize the results from 
their A-123 assessments, because I think in those assessments, 
if properly done, in the internal control area, there should be 
some efficiencies that should come out of that from the 
standpoint of looking at the internal controls, they will 
probably find that in some places, that they have too many in 
place. In other places, they might find that they have gaps to 
fill. So I think if they utilize all of the tools and all of 
the things that we have talked about here, in going forward, 
you have got the framework for making some progress.
    The thing that I guess I reflect back on in this overall 
process is something that I also mentioned earlier, and that 
was a report that I did about 4 years ago, and I believe it was 
done for Senator Lieberman, in which I basically concluded that 
at this particular point in time, eMerge is a project that is 
just too soon to tell, but if things are done as laid out, then 
you have laid the groundwork for success. Four years later, I 
am basically saying the same thing, that we have a process here 
that is laid out. If successfully carried out, then we have an 
opportunity for success. It sounds like, in my mind, that I am 
repeating myself 4 years later.
    The other component of that is that I reflect back again to 
the early 1990s when I was detailed to Congress and involved in 
drafting of the Chief Financial Officer Act. The big debate 
then was why do you put these laws in place, and the bottom 
line conclusion on that was you put these laws in place so that 
you will have them there because Administrations will come and 
Administrations will go, so you want to have a framework in 
place for what you are trying to accomplish, it doesn't matter 
who is there.
    So I think it is another area that is good for debate, is 
what type of structure do you need to have in place to make 
sure that regardless of who is in place, that there are 
continuous efforts to achieve progress in these areas and you 
have that continuity and that consistency.
    Along that line, as GAO has testified in the past, we have 
kicked around the concept and supported the concept of maybe a 
Chief Management Officer for agencies in which you have 
situations in which you have these major management challenges. 
So it is something I think we need to continue to debate and 
have more discussions about.
    Senator Carper. Alright. Thank you.
    Let me yield to Senator McCaskill. We have a vote underway, 
the first of four votes, and I would ask Senator McCaskill to 
ask questions for a bit if she will and then I will ask one 
more and we will call it a day.
    Senator McCaskill. I only have one more question. There was 
previous testimony earlier in the year where I had read that 
Homeland Security was putting lawyers in the room with GAO 
auditors when GAO auditors were coming in to do audit work and 
that they were--the Department lawyers were sitting in on 
interviews between the auditors and the employees there. I had 
questioned Secretary Chertoff about that, was not thrilled with 
the answer I got because it appeared to me he didn't understand 
that there is review up-chain of an audit. You don't put a 
lawyer in the room with the government official that you are 
getting information from during the process of the audit.
    Is there any indication that practice is still being done 
at the Department of Homeland Security? Are they still putting 
lawyers in the room during interviews with GAO auditors, to 
your knowledge?
    Mr. Williams. To my knowledge, I can speak about this 
particular job. There were no attorneys present with the work 
that my staff was performing on this particular assignment. I 
will admit that we did have some delays at one point in time, 
and to the credit of this Subcommittee, we placed a couple of 
phone calls and we were able to get some assistance and 
information that we needed was provided in a timely manner. But 
to my knowledge, I do not recall any attorneys during our 
assignment.
    Senator McCaskill. Mr. Norquist.
    Senator Carper. Mr. Norquist, is it true that those two 
rows of people behind you are lawyers?
    Mr. Norquist. No, sir. Actually, they are the good career 
civil servants, and I asked them if there were any lawyers--I 
asked the same question he just answered, which was I have had 
many meetings with GAO without lawyers present. Did you have 
lawyers during our meetings? And they said the same thing, 
which was they didn't. I actually once a month meet with a 
representative from GAO and have opted to go through the status 
of things that GAO has asked for and whether or not they are 
getting it in a timely manner in order to ensure that we 
respond to items for GAO. That is just one of the additional 
things I do. Frankly, I am used to having my auditors in the 
room. I am used to having the IG in the room. So I get kind of 
familiar with having those folks around.
    Senator McCaskill. Thank you. Thank you, Mr. Chairman.
    Senator Carper. Thanks so much for being here and for your 
comments and your excellent questions.
    Mr. Rhodes and Mr. Williams, I believe the Department of 
Homeland Security is required by law to prepare expenditure 
plans for some of its information technology projects. I 
believe these expenditure plans must then be approved by the 
Office of Management and Budget, and I think reviewed by GAO 
before Department management can obligate any project funds.
    First, is that a correct assumption, and second, if it is, 
what level of oversight is needed and by whom?
    Mr. Williams. The first answer is yes. That is our 
understanding, also, is that is the process.
    I would say in general that I would consider this process 
to be an internal control, because you are basically putting a 
process in place in which, first of all, you are putting some 
visibility over what is being spent and you are putting some 
discipline in that process in which the information is 
basically out there for review.
    Now, the concern, what could be a problem with that is that 
when you put those numbers out there and nothing is done about 
them or there are no controls, that is where you basically have 
form over substance in which you are going through an exercise. 
The key is not so much the exercise but what is done as a 
result of the exercise, and I think that is where the focus 
needs to be, is to make sure that there is some action behind 
putting those numbers out there.
    Senator Carper. Alright. Do you want to add anything or 
take anything away, Mr. Rhodes?
    Mr. Rhodes. I wouldn't dare take anything away----
    [Laughter.]
    But the point I would emphasize is that an expenditure plan 
has to have what went on before and what goes on after, so 
there is an audit--there has to be a continual audit function 
around it so that the expenditure plan is not just some 
document sitting in isolation. They can be extremely valuable. 
They can be very helpful. And they can also be a paper 
exercise, as Mr. Williams said. It is a function of the 
oversight that goes on around it.
    Senator Carper. Mr. Charbo, you have not had a chance to 
say a whole lot here today. Do you want to give the benediction 
for us or add anything before we leave?
    Mr. Charbo. I would just add on the last question that 
Secretary Chertoff did pass or create a management directive 
around IT investments in the Department which does provide 
oversight on the budget side on the capital planning for IT 
investments. That is coordinated very closely between the CFO 
and myself, as well as IT investment acquisition reviews, which 
also was a requirement in the appropriations act. So if it is 
over $2.5 million, it requires the CIO to review that 
expenditure, and we do look to assure that it is meeting 
certain expenditure requests. I don't believe all expenditures 
go through to GAO. We do submit our CPIC, our investment 
guidelines, after the budget is released. Those are submitted 
over to GAO. Appropriations do require certain expenditures to 
be submitted for approval to the Congress and then back over to 
GAO. We appreciate the opportunity.
    Senator Carper. Fair enough. Let me just say in closing, 
again, our thanks to each of you for being here today. Thank 
you for your testimony and for responding to our questions. 
Thank you for your stewardship to our taxpayers and for helping 
us in our exercise of our constitutional responsibility to 
conduct oversight in instances like this.
    I would like to think that all of our Federal agencies and 
our departments perform major and important responsibilities 
for our taxpayers, for the citizens of this country. A few 
departments really exist that are more important in providing 
our security. I know when we created the Department of Homeland 
Security, we knew it would be a bumpy start and we knew it 
would not be easy. We look back at the creation of the 
Department of Defense all those years ago and we recall how 
difficult it was for them to get their act together. In fact, 
some would argue they are still trying to get their act 
together in certain respects.
    But we need for Homeland Security to get this right, and 
you had an opportunity to try to get it right the first time, 
which eMerge 2 didn't. You wisely pulled the plug. And now you 
have an opportunity to get it right this second time.
    I would just urge you to do all that you can to restore, 
particularly in this regard, a measure of our faith and 
confidence in the ability of this Department to stand up and 
begin to handle, in this case it is financial affairs, in a way 
that we can all be proud of and you can be proud of.
    I think with that having been said, we are going to stay on 
this and we will be here to be helpful, not just to be 
critical. We will be here to be helpful, as well, and to 
partnering with GAO and your IGs and the other folks that work 
with and for both of you, Mr. Norquist and you, Mr. Charbo.
    With that having been said, this hearing is adjourned. 
Thank you.
    [Whereupon, at 4:22 p.m., the Subcommittee was adjourned.]
                            A P P E N D I X

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