[Senate Hearing 111-575]
[From the U.S. Government Publishing Office]
S. Hrg. 111-575
NOMINATION OF DANIEL I. WERFEL
=======================================================================
HEARING
before the
COMMITTEE ON
HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
of the
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
NOMINATION OF DANIEL I. WERFEL TO BE CONTROLLER, OFFICE OF FEDERAL
FINANCIAL MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET
SEPTEMBER 16, 2009
__________
Available via http://www.gpoaccess.gov/congress/index.html
Printed for the use of the
Committee on Homeland Security and Governmental Affairs
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware JOHN McCAIN, Arizona
MARK L. PRYOR, Arkansas GEORGE V. VOINOVICH, Ohio
MARY L. LANDRIEU, Louisiana JOHN ENSIGN, Nevada
CLAIRE McCASKILL, Missouri LINDSEY GRAHAM, South Carolina
JON TESTER, Montana ROBERT F. BENNETT, Utah
ROLAND W. BURRIS, Illinois
MICHAEL F. BENNET, Colorado
Michael L. Alexander, Staff Director
Kristine V. Lam, Professional Staff Member
Troy H. Cribb, Counsel
John P. Kilvington, Staff Director, Subcommittee on Federal Financial
Management, Government Information, Federal Services, and International
Security
Brandon L. Milhorn, Minority Staff Director and Chief Counsel
Jennifer L. Tarr, Minority Counsel
Lisa M. Nieman, Minority Counsel
Trina Driessnack Tyrer, Chief Clerk
Patricia R. Hogan, Publications Clerk and GPO Detailee
Laura W. Kilbride, Hearing Clerk
C O N T E N T S
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Opening statement:
Page
Senator Carper............................................... 1
Prepared statement:
Senator Carper............................................... 21
WITNESS
Wednesday, September 16, 2009
Daniel I. Werfel to be Controller, Office of Federal Financial
Management, Office of Management and Budget:
Testimony.................................................... 4
Prepared statement........................................... 26
Biographical and financial information....................... 29
Responses to pre-hearing questions........................... 39
Letter from the Office of Government Ethics.................. 70
Responses to post-hearing questions for the Record........... 71
NOMINATION OF DANIEL I. WERFEL
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WEDNESDAY, SEPTEMBER 16, 2009
U.S. Senate,
Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 10:04 a.m., in
room SD-342, Dirksen Senate Office Building, Hon. Thomas R.
Carper, presiding.
Present: Senator Carper.
OPENING STATEMENT OF SENATOR CARPER
Senator Carper. Good morning. The Committee will come to
order.
Today, we will be considering the nomination of Daniel
Werfel to be Controller of the Office of Federal Financial
Management at the Office of Management and Budget (OMB).
Mr. Werfel is no stranger to this Committee or to the
Subcommittee that I am privileged to Chair, the Subcommittee on
Federal Financial Management. During his time as Deputy
Controller and Acting Controller, my staff and I have worked
closely with him and his team on a number of the most pressing
financial management challenges facing our Federal Government.
I am pleased that the President has sent us such a
qualified candidate for this position. As I am sure Mr. Werfel
will point out in his opening statement, he has extensive
experience within the Office of Federal Financial Management.
He has also taken the lead on a number of key issues, including
some of the tough work related to the implementation of the
American Recovery and Reinvestment Act, so he knows very well
the challenges that lie ahead should he be confirmed. And I
will touch on just a few of those challenges.
First, there is the issue of improper payments.
An improper payment occurs when Federal funds go to the
wrong recipient, when a recipient receives the incorrect amount
of funds, when funds are used in an inappropriate manner, or
when documentation is not available to explain why a payment
was made in the first place.
In fiscal year 2008--the most recent year for which data
are available--agencies made an estimated $72 billion--that is
billion with a ``b''--in improper payments, most of them
overpayments. The actual amount of improper payments made by
Federal agencies is actually probably much higher. The $72
billion total reported does not even include estimates from the
Medicare Prescription Drug Program or several other high-risk
programs at the Department of Homeland Security and elsewhere.
This is unacceptable. The kind of waste and mismanagement
represented by these improper payments estimates we see each
year undermines taxpayers' faith in government. Unfortunately,
despite the progress that has been made over the years--and
progress has been made--in highlighting improper payments and
reducing error rates in some instances, too many agencies
continue to make avoidable mistakes and, as a result, waste
billions of dollars that could have been put to better use.
I am told that the Social Security Administration--an
agency that actually makes relatively few improper payments--
sent thousands of $250 checks to ineligible recipients after
the enactment of the Recovery Act. I am certain that very
little of that money will help us create jobs or get our
economy going again.
We need to get our arms around this problem. We need to
help agencies improve transparency in this area, to prevent
mistakes before they happen, and also to more aggressively
recover improper payments that are made. The Improper Payments
Elimination and Recovery Act, S. 1508--legislation that I
introduced this summer with a number of my colleagues and that
was reported out of Committee in July--would help in all three
of these areas. And I know that you are familiar with this
legislation, Mr. Werfel, and I am pleased to hear from my staff
that you plan to make improper payments a priority of yours, if
you are confirmed. That is great news.
The second area I want to touch on is property management.
Not too long ago, it would have been hard for us to even know
how many buildings or other structures Federal agencies owned.
Tremendous progress has been made in recent years, however, in
identifying Federal assets and learning more about their
condition. What we have learned is that there are a great
number of assets--some 20,000, I am told--that are actually
classified as ``excess.'' This means that we no longer need
them but are still paying year in and year out to maintain and
secure them. In addition, tens of thousands more assets are
underutilized, meaning we are not getting all that we could out
of them.
Now, this seems like a relatively easy problem to address,.
but unfortunately, the property disposal process laid out in
current law is costly, and it takes a significant amount of
time. In addition, agencies looking to sell a piece of property
are not even permitted to retain sale proceeds, even when
preparing an asset for sale might be fairly costly.
There is probably much that agencies can do now under the
current rules to improve property management and offload assets
they no longer need. But I look forward to working with you if
you are confirmed to make the common-sense changes necessary to
build on the progress that has been made to date in this area.
Finally, I would like to touch on Federal financial
reporting.
Each year, the major Federal agencies issue audited
financial statements. These documents do not usually receive
much attention from the press or the public at large, but those
of us with responsibility for paying attention to them have
noticed that they have improved in quality and timeliness over
time, particularly in recent years. You and your team at OMB
deserve credit for that, Mr. Werfel. But one major challenge
ahead of you, if confirmed, is getting an opinion on the
Federal Government's consolidated financial statements.
Over the years, the Government Accountability Office (GAO)
has never been able to render an opinion on this statement.
This essentially means that our books are still such a mess
that the GAO audit team just cannot make sense of them. That is
troubling from a transparency perspective, and other
perspectives as well. And it also shows that we have plenty of
work to do in our efforts to professionalize financial
management in the Federal Government. Any private sector
company with annual financial statement audit results like the
Federal Government's would probably not be in business for very
long.
Let me just convey my thanks to you, Mr. Werfel, for the
work that you have done in all of these areas over the years
and for your willingness to continue that work. And when we
finish swearing you in, you will have an opportunity to
introduce your family. It was a special treat to have a chance
to meet your parents and to see that they raised at least two
sons--I don't know if there are more than you and your brother
here. But we want to thank them for instilling in you the kinds
of values that are demonstrated in the work that you do for the
people of this country. Thank you both. And you sort of turned
him over to Beth, his wife, and she has continued the training
ever since, and we are just delighted that you are here today
and that you are willing to share your husband with the people
of our country.
And to Sean and Molly, thank you for coming, and it is nice
to see you both and to meet you, and we are very glad that you
could join your Dad on this special day.
To others, to Jeff Zients, who is our Chief Performance
Officer and just a valuable new member of our team, an
important member of this team, we are happy that you are here,
along with other members of our extended OMB family.
The fact that there are not a lot of other members here is
actually a good sign because if they were here, that would
probably mean that this is a nomination that is in trouble. And
the fact that these seats are very empty is probably a positive
sign.
Mr. Werfel has filed responses to a biographical and
financial questionnaire. He has also answered pre-hearing
questions submitted by the Committee. In addition, his
financial statements have been reviewed by the Office of
Government Ethics. Without objection, this information will be
made part of the record. The financial data, however, will
remain on file and available for public inspection in the
Committee's offices.
Committee rules require that all witnesses at nomination
hearings give their testimony under oath, and, Mr. Werfel, I am
going to ask you to please stand and raise your right hand at
this time.
Do you swear that the testimony you will give before this
Committee will be the truth, the whole truth, and nothing but
the truth, so help you, God?
Mr. Werfel. I do.
Senator Carper. Please be seated.
When we start with the questions in a few minutes, I am
going to ask you initially three standard questions, and I
think you are aware of that. But before we get into any
questions, I would like you to go ahead and make your
statement, and if you would like to introduce your family
further, feel free to do so. We are delighted that you are here
and grateful for your willingness to serve. Proceed.
TESTIMONY OF DANIEL I. WERFEL,\1\ TO BE CONTROLLER, OFFICE OF
FEDERAL FINANCIAL MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET
Mr. Werfel. Thank you. Chairman Carper, I am honored and
humbled by the opportunity to come before you as President
Obama's nominee for Controller of the Office of Federal
Financial Management within OMB. I would like to thank OMB's
Deputy Director for Management Jeff Zients for being here
today. I also appreciate the support of OMB Director Peter
Orszag and Deputy Director Robert Nabors. I have had the
distinct privilege of working with these three great leaders
over the past several months. Through their hard work,
unyielding demand for results, and belief in the importance of
strong analytics to support the right public policies, they
have inspired me and others at OMB to reach deeper within
ourselves to help deliver a higher performing government. I am
grateful to each of them for supporting my nomination and thus
demonstrating their faith in me as a leader and as a public
servant.
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\1\ The prepared statement of Mr. Werfel appears in the Appendix on
page 26.
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I am very grateful to have my family with me this morning,
supporting me today as they have through every step of my life.
I would like to introduce my wife of 12 years, Beth; my two
children, Sean and Molly; my parents, Fred and Barbara; and my
brother, Steven. I would also like to recognize members of my
family not here today: My sister, Lori, and her family, as well
as my brother Steven's wife and children, who I know are all in
New York right now cheering me on; also, my mother-in-law,
Elaine, and my father-in-law, Dave, doing the same in Ohio.
Throughout the years, I have relied on my family for strength,
and I thank them for their continued support during this
process.
For more than 12 years, I have had the honor of working as
a public servant for the U.S. Government. Over this time, I
developed both a penchant and a sustained passion for improving
financial management practices across government. Fueling this
passion is my firm belief that one of the government's most
critical responsibilities is to serve as an effective steward
of taxpayer dollars and that this responsibility can only be
met if the Federal financial management community is doing its
part: Tracking and accounting for taxpayer dollars; initiating
internal controls that mitigate the risk of fraud and error;
publicly reporting reliable information about the government's
finances; and strategically integrating financial information
into decisionmaking.
For the past 5 years, I have played a leadership role
within OMB and in the broader financial management community
advancing these efforts and have gained important perspectives
on the strengths, weaknesses, challenges, and opportunities
associated with these efforts.
This experience has led me to the conclusion that although
important progress is being made, as you noted, a significant
amount of work remains to be done. At too many Federal
agencies, persistent weaknesses in basic financial management
practices lead to unreliable reporting, payment errors, and
other forms of government waste. Of note, the amount of
remaining improper payments on the government's books is
staggering and must be corrected.
Moreover, the sweeping challenges we face in the government
today require our financial managers to move beyond the basics
of accounting and reporting. Fortunately, the tools to overcome
these challenges are either at our disposal or are otherwise
obtainable. We have detailed inventories of improper payments
and unneeded real estate. We have a growing number of agencies
and professional staff who have successfully overcome financial
management challenges and who can provide others that road map.
We have technologies and processes emerging out of the private
sector that can enable lower risk and cost solutions. And from
Congress and the public, we have a growing demand for financial
information and a growing frustration with spending
improprieties that are serving as a catalyst for action and
improvement in financial management shops across government.
If confirmed, I will work with Congress, OMB leaders, and
the larger financial management community to leverage these
tools to forge new and unprecedented results in financial
management. Success will be measured along the following key
areas and priorities: Eliminate inefficient government
spending, such as improper payments and unneeded real estate;
right-size the cost of financial management operations across
government; drive improvements in grants management;
effectively implement the transparency requirements of both the
Federal Funding Accountability and Transparency Act and the
American Recovery and Reinvestment Act; and remediate
persistent weaknesses in basic financial management practices.
I am both humbled and energized by the opportunity to play
a leadership role in these efforts. For as long as I can
remember, I have felt the call for public service. Since
arriving in the Federal Government, I have been blessed with
supervisors, colleagues, staff, and other peers and mentors who
have helped me grow as a professional and as a leader. In
particular, the team of civil servant professionals at the
Office of Federal Financial Management at OMB has been a family
to me for more than 5 years, and together we have formed a team
that I believe to be as productive and hard-working as any in
government. I am thrilled for the opportunity to lead the
Office of Federal Financial Management as we take on these new
and growing challenges. Working closely with Peter Orszag,
Robert Nabors, Jeff Zients, and the leadership team they are
assembling, I am confident that we can advance financial
management to a new and sustainable level of excellence that
helps enable the government to meet that most critical of
responsibilities: Serving as an effective steward of taxpayer
dollars.
Mr. Chairman, I would be pleased to answer any questions
you may have.
Senator Carper. Great. Thank you very much for that
statement.
As I said earlier, I am going to start by asking you three
standard questions that Committee rules require that I ask.
First, is there anything you are aware of in your
background that might present a conflict of interest with the
duties of the office to which you have been nominated?
Mr. Werfel. No, I do not.
Senator Carper. All right. I am tempted to look at your
brother over there to see if he has anything he could add to
that response. [Laughter.]
But I will not. I think that is outside of the rules.
Do you know of anything, personal or otherwise, that would
in any way prevent you from fully and honorably discharging the
responsibilities of the office to which you have been
nominated?
Mr. Werfel. No, I do not.
Senator Carper. Do you agree without reservation to respond
to any reasonable summons to appear and testify before any duly
constituted Committee of Congress if you are confirmed?
Mr. Werfel. Yes.
Senator Carper. So far, so good. I want to come back to
improper payments for a little bit, if I could. I have spoken,
I believe, with you before and with Mr. Zients about some work
that is going on within the Department of Health and Human
Services to try to go out and recover monies that have been
improperly spent, I think with respect to Medicare. And as you
know, we are going through a lot of debate on health care
reform, trying to figure out how to provide better health care
for less money. And we have learned that we have misspent,
inappropriately spent a lot of money--some of it for medical
equipment, but a lot of people have set up bogus companies and
have billed Medicare for services never provided.
What we started doing is going out to recover some of that
money. I think we started about 3 years ago, and we just were
focusing on three States. And I think we used private sector
firms to go out and try to do the recoveries. The first year, I
am told, they did not recover much at all. The second year they
recovered a little more. Then last year they recovered about
$700 million in just three States. And I believe the intent is
to go out and to try to replicate that in the remaining 47
States.
Are you aware of this initiative? And could you talk about
it at all?
Mr. Werfel. Yes, Senator. I am very aware of this program.
The Medicare recovery audit program is about hiring contractors
on a contingency basis to go out and find the errors that are
occurring in the program, and these errors typically occur when
we reimburse hospitals and doctors for procedures that did not
occur or for the wrong procedure or too much money. A good
example of that would be our reimbursing a hospital for
magnetic resonance imaging (MRI) when only an X-ray occurred.
The MRI is much more expensive, so we are reimbursing them for
the wrong amount.
The strength of this program is the incentive that is set
up. I think you mentioned earlier that agencies made $72
billion in improper payments across government, and one of the
lessons learned, as we have studied those improper payments and
tried to figure out what the root causes are and how we can do
better, is that a promising strategy that can be employed is to
make sure that all the stakeholders involved, from the Federal
agency down to the recipients and the States and everyone
involved, have an incentive to both root out and find these
improper payments and then go recover them on behalf of the
taxpayer. And in this case, that incentive is very strong
because the private contractors being hired are paid based on
their ability to find those errors and recover those funds.
And so with that incentive structure in place, we have seen
significant results, as you mentioned, close to $1 billion in
just three States, and now we are in the process of expanding
that to all 50 States with a target completion of January 2010
to have it up and running throughout the United States.
We are very excited about this program. In particular, how
can we use this example and this model of finding the right
incentives and getting the right players involved to remediate
improper payments in other programs as well?
Senator Carper. Would you just think out loud for us and
think about how we might extend these lessons learned from this
demonstration in these three States to Medicaid, where both the
State and the Federal Government share in the cost of
expenditures?
Mr. Werfel. Yes. The two programs obviously are both
Federal programs supporting health care, and they operate
somewhat differently. As you mentioned, Medicaid dollars flow
through the States, and the implementers of the Medicare
program are hired contractors that are processing these
Medicare claims.
With Medicaid, I think the question then becomes, because
of the role the States play in implementing the program,
finding the right incentives for the States to understand where
their risks of errors are and to be taking the steps that are
necessary. Thinking out loud as you mentioned, to draw the
analogy, if the private contractor is getting a financial
benefit from going out and finding the error, some of it is
coming back to the Medicare trust fund, but some of it is going
to the contractor. We might want to think about similar
incentives for States where they are rewarded financially for
uncovering errors, so that all the money is not necessarily
returned to the government, but a portion of the money is
returned to the State to invest in other activities and
priorities.
So often--and I think we will see this when we talk about
real property as well--the financial incentive of going out and
finding the problem and correcting it is a powerful tool, and I
would think that is one example where the States might end up
with a more aggressive approach and more resources being spent
on these efforts than we would otherwise have seen.
Senator Carper. And I would just hope, as we extend the
three-state demonstration for Medicare cost recovery to the
other 47 States, that we will begin preparing to extend the
same kind of cost-recovery approach to Medicaid.
One of the approaches we use in health care reform to
extend coverage to people who do not have it is to require
States to provide coverage to a higher level of poverty. I
think we are going to ask them to begin covering childless
adults whose income is up to maybe 130 percent of poverty. And
so that will be more money that the Federal taxpayers will be
paying, also eventually probably some additional contribution
from the States. The States are hard pressed, as you know.
Medicaid is a big cost driver for them. And we need to find
ways to relieve that burden from them and also relieve the
burden on the Federal taxpayers. If we can come up with $700
million in Medicare in 1 year from three States, there has to
be money out there to recover from Medicaid.
When I think of improper payments, I think of it in three
steps. The first is to identify the improper payments and have
reporting occur, identify and report. The second is to take
steps to reduce the incidence of improper payments. And the
third is to recover to the extent that we can. So it is
actually four: Identify, report, reduce, and recover.
We appreciate the work that has been done. It was not that
many years ago we were, frankly, doing a lousy job identifying
and reporting. I think we are doing a much better job of
identifying improper payments, although not all agencies are.
But we have plenty of work to do. We are delighted that this is
a priority for you, and we hope that the legislation that we
are working on will assist not just OMB, not just the Federal
agencies, but really assist the taxpayers.
Let us talk a little bit about what I call the stimulus
package, but some other people call it the American Recovery
and Reinvestment Act. I know you have been spending a fair
amount of your time in recent months helping the Administration
to implement the American Recovery and Reinvestment Act. As I
mentioned in my opening statement, at least some of the
improper payment problems we see in everyday Federal programs
have popped up again as we try to get recovery funds out the
door, and that is not a complete surprise.
How effective do you think we have been in avoiding
improper payments in the Recovery Act programs? And if
confirmed, what do you plan to do to make certain that the
remaining Recovery Act funds, which would be over half of them,
are used for job creation and activities that will grow the
economy rather than adding to agencies' improper payment
estimates?
Mr. Werfel. Senator, the Recovery Act, I would like to say,
has many tensions in it, and one of the more critical tensions
is the need to get money out to State and local economies so it
can start having its stimulative effect and to get that money
out quickly. But at the same time, we all have an important
interest and duty to make sure that money is spent wisely and
appropriately. And often we need to take important steps before
the money goes out to make sure that the funds that we are
sending are the right amount, going to the right people, and
for the right purpose, and that can take time.
So from the beginning of this process, going back to the
day after the law was enacted on February 18, 2009, OMB issued
guidance to the agencies that tried to find the right
equilibrium between this tension of getting the money out
quickly and being diligent in making sure the money was paid
out correctly.
One of the things we did to try to achieve that balance was
have every agency initiate a risk management process where they
were looking for what are the potential sources of error and
mistakes that could be made. And we worked with them to
identify certain symptoms or issues that could be at play.
So, for example, if a program was being funded at 500 or
600 percent more than it had previously as a result of the
Recovery Act, more money going out into a standard channel
could create risks of mispayments because the capacity at the
organization might not have been built up yet to do all those
thorough reviews. So we asked them, since there is a risk, can
you put in a risk mitigation plan to make sure that you are
moving and realigning resources? Do not assume that if you had
five people working to review prepayments of a $100 million
program, those same five people can do the job of a $600
million program.
That was a very critical step that we took, and you asked
me what progress has been made. Right now the best we
understand is evaluating the steps agencies have taken to do
all those prepayment controls and those activities in an
accelerated way. And what we are seeing from the agencies is
those agencies have taken their risk management
responsibilities very seriously. The agencies have risk
management plans in place. They are not collecting dust on a
shelf. They are being implemented and initiated.
We recently went out to the agencies to ask them about
their risk management plans, and we got a very enthusiastic
response in terms of that process itself and how it is working.
The question of how we are doing I think is something about
which, if confirmed, I will come back and talk to you when we
start auditing these payments out in the field and figuring out
what our error rates are. I know there are some early audits
already going on. I am not aware of the full results of those
audits, but they probably will be coming in the near future.
I think it is a very good sign that we are aggressively out
there already auditing and looking for improper payments within
months after the Recovery Act was passed. So that is a sign of
progress. But once we figure out what the level of error is,
what is going on in the field, and why these errors are being
made, the most critical thing we can do is start changing our
approaches around why these errors are occurring, modifying our
risk management plans, and doing something that was in my
written responses that I think is really critically important
to manage that tension that I described, and that is,
communicating early and often with the auditors about what is
going on.
I think a big shame would be if an auditor goes out to the
field and audits a payment and says, ``Wow, I found a mistake,
and this seems to be one that could be systemic, but I will
wait 6 weeks before my final audit report is due before letting
the agency know''--which is something that typically happens in
government--we have to end that practice. We have to be in a
place where, as soon as the auditor sees a problem, they are
communicating earlier and collaboratively with the financial
managers to make those changes. And that is one of the things
that we are doing in our guidance, which is facilitating and
encouraging these types of early interventions. And I am
thankful that Earl Devaney at the Recovery Board, who is
leading the Inspectors General on this effort, has really
emphasized that in all of his interactions with the audit
community as well.
It is time to roll up our sleeves and make sure we are
getting the information as soon as possible.
Senator Carper. Good. There is actually a corollary with
identifying the mistakes in the area of health care. Mistakes
are made every day. Even while we are having this hearing,
mistakes are being made in hospitals. Sometimes they cause
serious injuries. Sometimes they take someone's life. And,
historically, there has not been a really good admission that
someone has made a mistake because of maybe concerns about
malpractice suits or there is just a reluctance, maybe it is an
embarrassment. But health care providers--doctors, hospitals,
nurses--are beginning to come forward and say, ``Look, when we
make a mistake, let us talk about it. Let us not keep it to
ourselves. Let us learn from that mistake.'' Was it Richard
Nixon who used to say that the only people who do not make
mistakes are people who do not do anything? And so we all make
mistakes, but the important thing is for us to, as you suggest,
act on those mistakes, make sure that we do not continue to
make the same mistake.
Before I turn to property management for a few minutes, let
me just say again I am encouraged that most agencies are doing
a much better job now identifying and reporting improper
payments. And some agencies are doing a good job reducing those
improper payments. We have plenty of work to do in all three of
those areas, but I especially am anxious to see us really hit
the road running on recovering money as much as we can.
During the last 8 years in this country, we literally
incurred as much new debt as we did in, I think, the first 208
years of our Nation's history. That is pretty staggering. In 8
years we ran up as much new debt as we did in the first 208
years of our Nation's history. This year, we are on track to
run up the biggest single-year deficit ever. It will be over $1
trillion. And we are told, probably by OMB or CBO, or both,
that if we leave spending and taxing revenues on autopilot, we
will rack up about maybe $9 trillion worth of debt over the
next decade, none of which is acceptable. It would not leave
much of a future for your kids or for mine or for any of our
children. So that is not acceptable.
The work that we are doing here, this is real money. This
is real money that we are talking about, not spending or not
wasting. And it is just important that we get it right. I am
pleased to hear about the enthusiasm that the folks in the
field have as they are looking for improper payments that flow
out of the stimulus package. That is great news.
Another issue that we spent some time together on is
property management, and as I have noted, we have made strides
in recent years with respect to, I think, identifying and
categorizing the assets that we, as a Nation, own. As a result
of that work, we now know that there are literally tens of
thousands of buildings and other structures across our country
that are owned by Federal agencies and that are either no
longer needed or, in some cases, are just underutilized.
Let me just ask you to dwell on this with us for a few
minutes. What do you think is the root of the problem? What
steps do you hope that OMB and the Federal agencies and those
of us here in Congress can take to address it? And I would say
included in that list are the Inspectors General (IGs). What
can they do? What can this team do together to address this
concern?
Mr. Werfel. I want to start with mentioning that where we
are today with real property is a place where we have a very
strong foundation of tools and inventory and information to
understand what is going on and to understand what those root
causes of the problems are. We have, as you mentioned in your
opening statement, a comprehensive inventory of the 1.2 million
separate constructed assets that the Federal Government owns.
Senator Carper. Would you just give us a broad array of
examples of the constructed assets?
Mr. Werfel. The general categories that we place these
assets in are administrative buildings, warehouses, labs, and
hospitals. There are also unique assets that we have, like
launch pads, and the Department of Energy owns many sites that
are environmental cleanup-related and other types of research
that is being done.
And then we own a lot of land and property as well--roads
and, the Federal Aviation Administration (FAA) owns a lot of
antennas and different types of assets that are out there. So
it is not 1.2 million different buildings, but I think the
important thing is just start focusing on where there are
communities of assets for opportunity, like administrative
buildings and warehouses, labs, hospitals, housing, etc.
When we collected this information--we did it since 2004--
we did, I think, a very smart thing in collecting not just
where the buildings are and what they are used for, but we also
asked the Federal agencies to describe whether those buildings
are mission critical or not, what their utilization rate is,
what their condition is, and what their cost is. And by doing
that, we have been able to tier our assets between those that
are not mission critical, underutilized, operating at an
unacceptably high cost, and are in poor condition. And we also
know on the other side of that spectrum where the assets are
mission critical, fully utilized, etc.
And so for the first time, we were able to do data culls
and figure out where are the assets that need our attention.
And as you mentioned, we have 20,000 assets through this
process that have been currently excessed, but 65,000
additional assets that are underutilized but not excess. And
that allows us to bring the agencies before us and ask: Why are
your underutilized assets not yet excessed? So we can push them
on that.
Why are we in this condition? Why do we have 20,000 excess
assets that have been sitting on our books? And why do we have
65,000 underutilized assets that have not yet been excessed?
I think there are two key reasons for it. The first goes
back to our earlier discussion on improper payments with
respect to incentives and making sure that the Federal agencies
involved and the facility managers around government have an
incentive to report something as excess and then try to get rid
of it, that we break a culture of, well, if I have it, why
would I give it up, and that we break a culture of not thinking
progressively and proactively about, I have an asset, it is
functioning, but if I think about it differently, maybe it
really is excess because maybe I do not need two buildings 10
miles from each other, both half-filled; maybe there could be
consolidation efforts.
We have an army of Federal facility managers out there, and
we need to incentivize them and their leaders to derive benefit
from going through this process of identifying their excess and
getting rid of it.
The other root cause of why we are where we are is that we
are operating under a framework from a law that was enacted in
1949 for how we get rid of our assets, and it is a very
bureaucratic process. A lot of steps need to be taken. It takes
a long time, and that does two things. First of all, it keeps
things in the pipeline longer than necessary, but it also
serves as a disincentive to those very same facility managers
because not only do they have to now give up square footage
that they currently have within their domain, but now they have
to go through a very long and winding process to get rid of it.
And the incentive structures just are not aligned.
I think what is appropriate remediation of those two
situations is to structure the real property environment such
that managers are getting some financial incentive for
disposing of their assets and also seeing if we can streamline
the disposition process so that we can move these properties
more quickly.
Senator Carper. When you say managers should receive some
kind of financial incentive, would they be managers, agencies,
or both?
Mr. Werfel. Yes, it is really the agency as a whole. When I
have historically worked with the senior real property officers
at agencies, they present this frustration that they do not
have the funds or the resources that they need to invest in
their mission-critical assets and get them into a place where
they are functioning better so that they are serving the
employees so they can do their mission, but also functioning
better so their carbon footprint, for example, is smaller.
There is an obvious connection that can be made there, and
that is why we call it right-sizing the Federal inventory. If
you can get rid of the assets that you do not need and get
proceeds or derive economic benefit from that disposition, it
enables you to make capital investments in those assets that
you do retain. Overall, it has a good impact on budgetary
pressure because you do not need as much money to invest in our
Federal infrastructure, and you are getting a better Federal
infrastructure.
One of the sayings we have in the real property community
is, ``You can spend $7,000 today to repair the roof or $7
million 3 years from now to replace it.'' And what we need to
do is make sure that we are getting those funds at the right
time and at the right place so we are avoiding these types of
bad decisions where we are allowing the roofs to get to that
level of disrepair.
Senator Carper. Can you give us an example of an agency or
two within the Federal Government where they actually have
aligned the incentives in an appropriate way and they are able
to serve as a model maybe for other agencies? Any come to mind?
Mr. Werfel. Yes, there are several agencies that have their
own authority to retain proceeds and reinvest them. The U.S.
Forest Service comes to mind, as well as the U.S. Department of
Veterans Affairs (VA) is another.
I will emphasize the VA's program in particular, and I do
not mean to indicate that it is perfect, but the benefit, I
think, of the VA's program--I know the acronym is CARES, the
Capital Asset Realignment for Enhanced Services. It is a
dedicated initiative around thinking about hospital
construction. In a very general sense, I have heard it argued
that the veterans population is tending to move from the
Northeast United States to the Southwest United States, which
leaves us in a situation where you have overcapacity of
hospitals in the Northeast and undercapacity in the Southwest.
And so they have built a program around thinking about how
you right-size and invest smartly, and with some of the tools
that they have through the CARES program to do it, there have
been some successes.
Now, there have also been issues, and that is where OMB can
come in and say, are you sure you need new hospital square
footage in this area? That is one of the processes of working
effectively when you are thinking about it strategically and
when you have a second set of eyes coming in and making sure
and saying you have these new authorities, but let us not
overbuild, let us make sure that we acquire new square footage
strategically and smartly.
Senator Carper. Have you all given some thought and
attention to another related concern, and that is with respect
to agencies making decisions to lease property as opposed to
purchasing it? In the short term, that appears to be the
financially smart thing to do, but over the life of the
property, it turns out not to be so wise.
Mr. Werfel. And that is something that needs to be a part
of a real property improvement initiative going forward. We
have to do a better job of isolating where poor lease decisions
arise, as I think I said, before the parameters or the
ingredients of a bad leasing decision, and make sure that we
are again managing risks such that we are not entering into
those.
Some leasing decisions are smart. It depends on the
circumstances. But, for sure, if you are about to enter a very
large facility for many years and it is uniquely suited to your
needs, then those are the kinds of situations where a lease
makes little sense because you know you are going in and you
know it is a unique building, and we should be owning those
buildings if we are going to be there for the long term and not
entering into non-economical lease situations.
But if we need flex space, and we are over capacity, let us
say, at ``Main Justice'' downtown and need more space to put
more people, and it is thought to be a temporary fix, that is
where a lease makes sense. So it is figuring that out and doing
a better job as a Federal Government.
Senator Carper. All right. A different question, a
different area. As you know, progress has been made in recent
years in improving the quality and, I think, the timeliness of
agencies' financial statements. Plenty of work remains to be
done in this area, however, including getting an opinion on the
Federal Government's consolidated financial statements.
Can you take just a few minutes to talk about the progress
that has been made in agency financial reporting over the years
and the benefits those improvements have brought, first of all,
to individual agencies? And after that, could you give us some
insight into your plans in this particular area, if confirmed?
Mr. Werfel. Absolutely, and this is clearly in the sweet
spot of the Office of Federal Financial Management and our core
responsibilities under the Chief Financial Officers Act of
1990.
Most recently, we had, I think, a very important strategic
push in financial management to do a better job on our
financial statements. I think there were a lot of issues at
play that brought that on, but, in particular, the Enron
situation and the passage of the Sarbanes-Oxley Act really
energized the Federal community around thinking more
aggressively about getting our financial statements in order.
And since that time, since Sarbanes-Oxley was passed and OMB
issued OMB Circular A-123, which is the government's version of
Sarbanes-Oxley, I have not done a statistical study of it, but
there has been a significant improvement across government. We
went from something like 62 auditor-identified material
weaknesses down to 32 in a span of 3 or 4 years, and that was
in large measure because there was more accountability at the
agencies for achieving these efforts and more integration has
started to occur, and that is something that A-123 pushes; that
it is not just a Chief Financial Officer (CFO) responsibility
to fix your fundamental financial management challenges; it is
the responsibility of program managers and procurement
officers. And so what A-123 does is it establishes these senior
teams from different domain areas to go out and be accountable
for and tackle financial management challenges together.
We have 21 clean opinions now out of 24 CFO Act agencies,
and as I mentioned, we have seen steep declines in material
weaknesses.
Another important point--and this is more to just say we
have a foundation and we have proven we can do it--is we have
accelerated financial statement publication from 5 months after
the end of the fiscal year to 45 days. And that had so many
benefits to it, but in particular, it forced agencies to be
planning much earlier in the year, rather than waiting until
September or October, the end of the fiscal year, to do
everything and close down the books. If you are going to do it
in 45 days, you need to be working throughout the year. And
what happened is agencies started buildings disciplines around
that, and that started to improve the standardization of
approaches.
With financial statement audits, it is always variance that
gets you in trouble. When things look different every time you
do it, that is a bad thing. It should always look the same
every time you do it. These are basic financial transactions,
and there needs to be consistency and coherence.
What is interesting is even though we have 21 agencies who
all have various complex challenges--they all face the same
issues, they all have human capital issues of trying to make
sure they get the right people with strong accounting skills,
strong analytical skills into their shops to help tackle these
problems--we still have three agencies--the Department of
Homeland Security (DHS), the National Aeronautics and Space
Administration (NASA), and the Department of Defense (DOD)--
that have yet to cross the finish line here. They are each
making progress, but not the type of progress that I think is
acceptable at this point, and we should be----
Senator Carper. How do we better ensure that they make the
kind of progress that would be acceptable?
Mr. Werfel. I think one of the things we have to do with
each of those agencies is relook at their corrective action
plans, and we have to try to find, I think, a moment of truth
for these agencies. November 15, which is the day the financial
statements are due, is a nerve-racking day for every agency in
government. This is the day they find out whether they passed
or they did not pass, and it is a rallying cry for those
organizations. And what I have noticed with NASA, Homeland
Security, and the Defense Department is sometimes they do not
have that same urgency. I do not get the frantic phone calls in
October about what is going on from the CFO in those agencies
the way I do from the others. And that frantic phone call is
important. It tells me that they are looking at the problems
and doing everything they can to fix it.
And so I have talked to each of those agencies in my role
as Deputy Controller about building these moments of truth.
Even though they are not ready yet to produce that financial
statement on November 15, can they have those financial
managers feel like something has to happen that is positive,
that the Secretary cares about, that the Administration cares
about, and that Congress cares about to make sure that they are
giving me those frantic phone calls that let me know things are
happening.
Senator Carper. Well, one of the agencies you just
mentioned--and I would like to drill down on this one just a
little bit--is the Department of Defense, which has a lot going
on these days. I think we will all readily acknowledge that.
But I think we are going to have a tough time getting the
government's overall books in order as long as the Department
of Defense is an outlier in this.
What do you think has been holding DOD back? What can,
first of all, the Department's leadership do to make
improvements? And what could you do in your new position, if
confirmed, to help them?
Mr. Werfel. The Defense Department is the longest pole in
the tent here for us to get a clean opinion on the consolidated
financial statements, so we really do need to tackle this
problem if we are going to be successful on the consolidated
financial statements.
What do I think needs to happen at the Defense Department?
I have worked very closely with DOD over the past several years
trying to analyze and understand the challenge, which is
getting the Defense Department a clean opinion. And it is a
massive challenge. It is the largest organization in the world.
It is the most complex organization in the world by many
different parameters.
I think if I can boil it down, I would boil it down this
way: The Defense Department will get a clean audit opinion when
the key program managers throughout the Defense Department
believe that it is going to help them achieve their mission to
get a clean audit opinion. And so what I have noticed is a
practice that we need to get away from at the Defense
Department: If you have your clean audit action plan and you
say, step one, let us do better on our depreciation schedules
on historical assets, let us really clean those up, and if the
people sitting across from you who are the people implementing
the programs of the Defense Department think, you do that but
that does not help me, it helps you get a clean opinion, but it
does not help me do my job--then if that is your starting-off
point, you are already behind in the race.
But if you say, we have 20 different things we need to fix,
and I am going to start by fixing the five things that are most
critical to you as a manager, and if we do not fix these things
together, then you cannot do your job effectively, that is
where I think the Defense Department needs to be starting. It
needs to be working with their program managers to say, out of
the suite of things that we need to do, where are the things
that are going to be most critically helpful to you?
Just to give you an example of where I think they should be
starting, it is with their cash and their money on hand. The
fancy term for it is ``fund balance with Treasury.'' They have
a material weakness with fund balance with Treasury, which
means that they do not know how much money they have on hand,
or cannot reconcile that, to meet emerging priorities. And I
have talked extensively with the Office of the Chief Financial
Officer over there in recent months, and I have said you can
talk to those program managers and say without knowing what
cash you have on hand, you are compromising your ability to
serve your mission most effectively. That can inspire change
and improvement, and that is the guiding principle, if
confirmed, that I would have with the Defense Department, which
is working very closely with them to be prioritizing
differently around their initiatives to make sure that the
things that they are doing are resonating with the larger
Defense Department.
That is going to take some communication with other folks
in the Defense Department and real understanding of the nature
of how these financial management improvements integrate into
the business of the Defense Department.
That is the type of momentum kick-start that I think is
needed to start pushing this process forward because right now
progress has been made, but it has been incremental. It has not
been substantive, from my vantage point, and we need to start
making substantive progress if we are going to tackle this
issue.
Senator Carper. Good. Well, I want you to tackle it, and I
thank you. Obviously, you have given it a good deal of thought,
and let us turn that thought into action.
I have two more questions I want to ask, and then we will
wrap it up. As I understand it, the main part of the job of
controller is to ensure that the agencies follow existing
financial management policies in implementing the President's
financial management improvement priorities across government.
Considering the small size of the staff at the Office of
Federal Financial Management and the various longstanding
financial management problems that agencies face, this is, I
would guess, a daunting challenge. What challenges has the
office faced in the past? And how would you address them in the
future? Is there any particular philosophy that you plan to
follow in dealing with agencies?
Mr. Werfel. Absolutely. I think we have evolved as an
organization--the Office of Federal Financial Management (OFFM)
was created by the CFO Act in 1990--in a way that recognized
early on in the process that it was a relatively small size
staff given the enormity of the job, all the financial
statements in government and all the fraud and the error and
the waste, to try to implement policies to improve. And because
of this reality of the size of the staff, practices have
emerged in terms of collaborating with the larger community, in
particular through the CFO Council.
I would like to say that when OFFM writes a policy that is
going to impact the government as a whole, we do not write it
with the door closed and the windows shut. We write it by
bringing the agencies in through task groups or committees of
the CFO Council. So often I feel like sometimes I am not just
managing the 17 people who work in OFFM; I am managing, at any
given time, 20 or 25 working groups that have spawned up around
government to deal with these different issues.
You can look at it through different lenses and say, if you
had more resources at the Office of Federal Financial
Management, what else could you do? The lens through which I
look at it is this practice of collaboration and creating
working groups has really worked effectively. When I think back
to the way we accelerated financial statements to 45 days and
the way we did Sarbanes-Oxley for government, that was
completely collaborative across Federal agencies. And in many
ways, those folks out in the agencies doing the work were
almost like OMB employees because they were shifting between
their government-wide hat and their agency hat very frequently
and saying this is what we need to do as a government versus
here is what I need to do back at my own agency.
My philosophy going forward will be to improve on that even
more. It is a partnership. If confirmed, I plan to lead the CFO
Council by committee with other key CFO leaders throughout
government so that we are a united front toward the things we
want to get done.
I think one of the more critical philosophies that I want
to embrace to build on the collaboration that we have is best
practice sharing. I think that one of the areas that I want to
be a focal point of the CFO Council is the premise that there
are a lot of amazing things going on in government, that we
have CFOs, as I mentioned in my statement, who have tackled
these problems and fixed them; and we have CFOs working with
others who have gone beyond just financial statements and have
taken an approach to say what is the business of my agency and
how do I improve that business, how do I cut costs, how do I
prevent fraud and error before it occurs. They are utilizing
techniques brought over from the private sector, whether it is
Lean Six Sigma or others, and they are showing great results.
And I think, as Controller, my job would be to close the
education gap and make sure that everybody is aware of the
critical successes that are going around government so that
they know about the tools that they may need to do similar
things. And that is going to be an important philosophy going
forward.
Senator Carper. Good. Well, I like that philosophy.
DOD and a handful of other major agencies have, as we
discussed, serious financial management problems that they need
to address. Others are doing a better job.
Is there anything you want to add about how you would take
what works and translate it to helping those agencies--DOD is
certainly one of those--to apply the lessons learned to their
specific problem? I know you have spoken to this already. Is
there anything else you want to add?
Mr. Werfel. I would just amplify my further response by
saying that I think one of the things that we have to overcome
in particular in financial management is the perspective that
agencies sometimes share with us, which is that my problems are
unique, what worked at that agency will not work at my agency.
And from my experience and my perspective, that is less often
the reality, in particular with financial management. Accounts
payable should be accounts payable wherever you do it. Accounts
receivable, the same. And although agency programs are complex
and different, the challenges often come back to common themes
of not having good standard practices, not documenting your
procedures appropriately, and not aligning your CFO
organization appropriately.
I will just finish by saying that I think benchmarking is
such a critical element of these activities. One of the things
that I would want to do as Controller is make sure that each
CFO who is confirmed and comes in has an understanding of how
the other organizations of government are aligned and where
those alignments are having success. I want them to be able to
say: We have 17 people doing this type of work at the
Department of Energy, and the Department of Commerce has 12
people. Why can they do it with less? And that would allow some
realignment of resources to other priorities.
Those types of benchmarking and communication has not
happened to the degree that I think it can, and that is an area
that I think we can emphasize and where we can start breeding
more success.
Senator Carper. Well, those are my questions. Is there
anything else that you would just like to offer before we wrap
it up?
Mr. Werfel. Only that it has been a very distinct honor to
have worked with you and your team through the years, and the
opportunity, as I said in my opening statement, that the new
leadership at OMB has provided me is just extremely humbling. I
am extremely energized and excited about the challenges that we
have and the tools that we have to take on these challenges.
And I feel a sense of optimism. In particular, the Recovery Act
is providing lessons learned and new partnerships. I would like
to say that I have worked more with State and local governments
in the last 5 months than I did in the previous 5 years
combined. And similarly with GAO, we are sitting in meetings
with GAO right now and hammering out what the solutions are
rather than us doing the solution and then 3 months later GAO
telling us how they would have done it differently.
These types of developments and financial management are
extremely exciting, a lot of them brought on by the urgency of
the Recovery Act and the challenge. And I think these lessons
learned will serve us very well and take us to new levels.
Senator Carper. Good. I think you mentioned you have 17
people within your own office. But there are a lot of working
groups that are out there that you are spawning and sort of
overseeing.
We are relatively small. We share a lot of the same
interests in making sure that the taxpayer dollars that we are
spending we are spending prudently, wisely, and in a cost-
effective way. Given the kind of budgetary challenges that we
face, it is imperative that we do that.
Jeff Zients just had to leave, but one of the things that
he and I discussed when he was going through the confirmation
process a month or two ago was the need for us to collaborate,
not just within the Federal Government, not just within OMB and
with other Federal agencies--that is important--but also with
GAO and, as you suggest, also, I think, with the IGs and
certainly with this Committee and our sister committees in the
House and in the Senate who really focus on trying to spend
taxpayers' money cost effectively.
I very much appreciate the enthusiasm that you bring to
this job. I also appreciate the experience you bring to this
job. Occasionally, we have folks nominated by any
administration, by any President, who may be very bright
people; they may ultimately turn out to do a good job in the
position for which they are nominated. But they have to go
through a period of training and get their sea legs before they
can actually make much of a contribution. I think we are
fortunate with you in that given your experience, enthusiasm,
and intellect, we will get great results in a hurry. In fact,
we already are getting those results.
Again, we thank you for what you have done today in serving
this country. We thank you for your willingness to continue
that service in a new, expanded way. We look forward to working
with you, and again, it was a real pleasure meeting your
parents, your big brother, your wife and children, and a number
of your colleagues.
I just want to say, as a father of two children of my own,
I remember when our boys were the age of Sean and Molly, and I
think they were pretty well-behaved kids, but your children win
the prize today. They have just been extraordinary and should
make you and Beth, I think, very proud.
With that having been said, the hearing record will be open
until 12 noon tomorrow for the submission of additional
questions, and the hearing is now adjourned. Thank you.
[Whereupon, at 11:06 a.m., the Committee was adjourned.]
A P P E N D I X
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