[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]





   INSPECTOR GENERAL AUDIT OF THE HOUSE'S FISCAL YEAR 2009 FINANCIAL 
                               STATEMENTS

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

                                HEARING

                               before the

                       SUBCOMMITTEE ON OVERSIGHT

                                 of the

                           COMMITTEE ON HOUSE
                             ADMINISTRATION
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                  Held in Washington, DC, May 26, 2011

                               __________

      Printed for the use of the Committee on House Administration







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                   COMMITTEE ON HOUSE ADMINISTRATION

                DANIEL E. LUNGREN, California, Chairman
GREGG HARPER, Mississippi            ROBERT A. BRADY, Pennsylvania,
PHIL GINGREY, M.D., Georgia            Ranking Minority Member
AARON SCHOCK, Illinois               ZOE LOFGREN, California
TODD ROKITA, Indiana                 CHARLES A. GONZALEZ, Texas
RICHARD B. NUGENT, Florida

                           Professional Staff

             Philip Kiko, Staff Director & General Counsel
                  Jamie Fleet, Minority Staff Director
                                 ------                                

                       Subcommittee on Oversight

                 PHIL GINGREY, M.D., Georgia, Chairman
AARON SCHOCK, Illinois               ZOE LOFGREN, California
RICHARD B. NUGENT, Florida           CHARLES A. GONZALEZ, Texas
TODD ROKITA, Indiana

 
   INSPECTOR GENERAL AUDIT OF THE HOUSE'S FISCAL YEAR 2009 FINANCIAL 
                               STATEMENTS

                              ----------                              


                         THURSDAY, MAY 26, 2011

                          House of Representatives,
                               Subcommittee on Oversight,  
                         Committee on House Administration,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 9:37 a.m., in 
room 1310, Longworth House Office Building, Hon. Phil Gingrey 
(chairman of the subcommittee) presiding.
    Present: Representatives Gingrey, Schock, Nugent, and 
Lofgren.
    Staff Present: Kimani Little, Parliamentarian; Joe Wallace, 
Legislative Clerk; Yael Barash, Assistant Legislative Clerk; 
Salley Wood, Communications Director; Linda Ulrich, Director of 
Oversight; Reynold Schweickhardt, Oversight Staff; Katie Ryan, 
Oversight Staff; Jamie Fleet, Minority Staff Director; Kyle 
Andersen, Minority Press Secretary; Mike Harrison, Minority 
Professional Staff; and Matt Pincus, Minority Professional 
Staff.
    Mr. Gingrey. I now call to order the Committee on House 
Administration's Subcommittee on Oversight for today's 
oversight hearing on the Inspector General's audit of the 
House's 2009 financial statements. The hearing record will 
remain open for 5 legislative days so that members may submit 
any materials that they wish to be included therein.
    A quorum is present, so we may proceed.
    The Subcommittee on Oversight has the important task of 
conducting vigorous and effective oversight of our legislative 
agencies and their operations. As stewards of tax dollars, we 
have no more important task than to make sure this House's 
administrative conduct and business is performed with the 
greatest efficiency, transparency, and ethical standards, which 
is why I was extremely disappointed when I received the results 
of the audit of fiscal year 2009.
    As we will hear, the 2009 audit reports the demonstrable 
problems at the CAO, created by its former leadership. Several 
``material weaknesses''--that is a phrase--were reported due to 
the lack of a management control program and ineffective 
controls over information security. It also highlights 
significant deficiencies in internal controls over financial 
reporting and controls over the payroll process.
    When this country is in financial dire straits, reports of 
financial misfeasance are outrageous and simply unacceptable.
    Fortunately, the management of the CAO has been 
substantially improved, and we commend Mr. Strodel for his 
dedication for improving the efficiency and management of the 
CAO, Chief Administrative Office, and Officer; but we still 
have a way to go. And I also want to commend the IG, the 
Inspector General Theresa Grafenstine, for her commitment to 
ensuring financial accountability within this institution.
    I want to thank each of my colleagues for being here today. 
And I would now like to recognize our ranking member of the 
subcommittee, Congresswoman Zoe Lofgren, for the purpose of 
providing an opening statement. Ranking Member Lofgren.
    Ms. Lofgren. Thank you very much, Mr. Chairman. As you have 
indicated, the House of Representatives, like other government 
agencies, gets its funding from the American people; and as 
stewards of tax dollars, it is our responsibility to use the 
funds responsibly and in a transparent manner. The public needs 
to have faith in the accounting and record keeping done by 
their government, and this is why the annual financial audits 
that we do here in the House are important.
    The 2009 financial statement audit report gave the House an 
unqualified or clean opinion for its financial statements. An 
unqualified or clean opinion means that the auditors found the 
financial statements fairly represented the House's assets and 
liabilities. It also means the financial practices used by the 
House conform with generally accepted accounting principles. 
This is the 12th year in a row that the House has received an 
unqualified opinion on its financial audits. We should commend 
the CAO and the IG's office for this positive track record.
    What is not commendable are the four significant internal 
control deficiencies that were highlighted in the 2009 audit 
report. I will come back to these internal control issues 
during the questioning period with the witnesses.
    Perhaps the most troublesome information to come out of the 
2009 financial audit was the apparent lack of cooperation and 
misleading information coming from the former Chief 
Administrative Officer and other senior CAO staff towards the 
auditors, the IG's office, and even with this committee.
    Let me try and outline some of the events that took place 
just for the record.
    The auditors first raised concerns about the 2009 financial 
internal controls issues to the IG's office on January 15, 
2010. The IG's office called a meeting with the auditors and 
the CAO to request additional cooperation from the CAO's staff. 
The Chief Administrative Officer was invited, but he did not 
come to this meeting. He sent his staff in his place. In March 
of 2010 an adverse opinion on the 2009 audit appeared likely 
because of the continued lack of cooperation from the former 
CAO, which had made it difficult for the auditor to review 
necessary documents in a timely manner.
    On the morning of March 22, 2010, the IG's office and the 
auditor jointly briefed House Administration Democratic and 
Republican staff on the problems they were encountering with 
the CAO. In the afternoon of March 22, the House Administrative 
Committee Staff Director had a meeting with the Chief 
Administrative Officer. The Chief Administrative Officer's 
statements at this meeting led the Staff Director to believe 
that the CAO understood the serious nature of the situation and 
would fully cooperate with the auditors.
    On June 30, 2010, the IG and the auditor informed House 
Administration Democratic and Republican staff that the House 
would receive an adverse opinion on the internal control 
portion of the financial statement for 2009. At that point, 
then Chairman Brady called Mr. Lungren to let him know that we 
would be meeting with the CAO. The following morning on July 1, 
Chairman Brady, Representative Capuano and myself had a meeting 
with the Chief Administrative Officer, Mr. Beard. Following the 
meeting Mr. Beard announced his resignation.
    On July 10, Dan Strodel was appointed as the new Chief 
Administrative Officer. I look forward to hearing the testimony 
of CAO Strodel and IG Grafenstine on the current working 
relationship between the CAO and the IG's office. I also look 
forward to hearing from them on what progress is being made in 
the development of new internal controls for the House.
    I yield back.
    Mr. Gingrey. I thank the ranking member. Does any other 
member wish to be recognized for the purpose of making an 
opening statement?
    I would now like to introduce our two witnesses. The 
Honorable Theresa Grafenstine was appointed Inspector General 
of the House on July 30, 2010. Ms. Grafenstine has been with 
the House Office of the Inspector General since 1998, starting 
as a staff level auditor and has served in each of the House 
OIG, Office of Inspector General, organizational units. She led 
the first-ever review of the House complex fire and emergency 
response program as well as numerous security and internal 
control assessments. Prior to joining the House OIG, Ms. 
Grafenstine served in the Department of Defense's Office of 
Inspector General. She has numerous certifications and is 
active on numerous boards and committees related to auditing 
governance and accounting.
    Our second witness, the Honorable Dan Strodel, was sworn in 
as Chief Administrative Officer, CAO, of the United States 
House of Representatives on January 5, 2011. He also served as 
the Chief Administrative Officer during the last 6 months of 
2010. Mr. Strodel leads an organization created during the 
104th Congress which has now more than 700 employees charged 
with carrying out the administrative functions of the House, 
including things such as operating budgets, financial 
management, procurement, and payroll. Mr. Strodel has a wealth 
of experience in this institution--over 26 years, I might say, 
to be exact. He began in the Office of Finance under the Office 
of the Clerk and has since then held positions with the United 
States Capitol Police, the House and Senate Sergeant at Arms 
and in other capacities within CAO. We thank both of you for 
being here today.
    As I mentioned in my opening statement, I was shocked to 
read this report, and I am anxious to hear about the corrective 
measures necessary to make sure that these systemic problems do 
not reappear.
    The committee has received your written testimonies. At the 
appropriate time, I will recognize each of you for 5 minutes to 
present a summary of that submission. And to help you keep 
time, we have a timing device near the witness table--I think 
right in front of you. The device will emit a green light for 4 
minutes and then turn yellow, letting you know that just 1 
minute remains. When the light turns red, it means your time 
has expired. I probably won't hit the gavel quite as hard as I 
did to convene us, but we will try to stay on time.
    Inspector General, we will start with you, and you may 
proceed.

STATEMENTS OF THE HON. THERESA GRAFENSTINE, INSPECTOR GENERAL, 
   UNITED STATES HOUSE OF REPRESENTATIVES; AND THE HON. DAN 
 STRODEL, CHIEF ADMINISTRATIVE OFFICER, UNITED STATES HOUSE OF 
                        REPRESENTATIVES

           STATEMENT OF THE HON. THERESA GRAFENSTINE

    Ms. Grafenstine. Terrific. Thank you. Good morning, 
Chairman Gingrey, Ranking Member Lofgren, and members of the 
subcommittee. I am both pleased and honored to appear before 
you today in my capacity as the Inspector General of the U.S. 
House of Representatives. Thank you for this opportunity to 
brief you on the results of the fiscal year 2009 financial 
statement audit of the House. Since I have submitted my written 
comments for the record, I will try to keep this brief.
    The process of preparing financial statements instills 
discipline in the financial recording and reporting processes. 
Financial statements also provide transparency and 
accountability and tell the public that the House can and does 
accurately account for its financial activity.
    The 2009 financial statement audit tells two stories. The 
first is one of staff heroics, where a dedicated few put in an 
amazing amount of effort and long hours to assure that the 
House maintained its clean audit opinion. And for that reason I 
can say, for the 12th year in a row, the House received an 
unqualified or clean opinion on its financial statement.
    Getting a clean opinion is a significant accomplishment, 
given that this was the first year that the CAO prepared its 
House financial statements in accordance with generally 
accepted accounting principles for Federal agencies, otherwise 
known as FedGAAP. Understand that changing the basis in 
accounting is a really big deal and requires a lot of effort. 
FedGAAP also puts the House in alignment with government best 
practices.
    The second story is one of mismanagement, disengagement, 
and at times obstruction. In contrast to the clean opinion that 
the House received on its financial statement, the external 
auditor expressed an adverse opinion on the CAO's internal 
controls. So what does that mean in nonaccounting language? An 
adverse opinion means that the CAO did not have effective 
controls over financial reporting. Consequently, the CAO and, 
therefore, the House is at greater risk of not detecting an 
error in the financial statements or in the processing of 
payroll, finding inaccuracies in payroll, and not catching 
overpayments to vendors or not realizing that it is missing 
assets.
    So what did the external auditor find that led them to this 
conclusion? Among a variety of control weaknesses they 
identified two material weaknesses, the most severe. The 
material weaknesses were the lack of an internal controls 
program and ineffective controls over information technology, 
or IT. While the absence of the formal internal control program 
and the ineffective controls over IT are significant and 
require management action and attention, I believe the 
deteriorating control environment in the CAO and the lack of 
action by management played a greater role in the House 
receiving an adverse opinion on its internal controls in 2009.
    Let me explain. For several years, the external auditor had 
advised the CAO with increasing urgency and formality of the 
need for an internal controls program. Despite their 
concurrence with this recommendation, as of 2009 the CAO still 
had not made any notable progress. Even more troubling was that 
the CAO environment at the senior management level had become 
one which was generally unsupportive of the financial statement 
process, exhibiting disinterest, lack of cooperation, and even 
obstruction to auditors' requests for information.
    It is important to note that between these two stories that 
are being told by the 2009 financial statement audit, the first 
story on the clean opinion on the House financial statements is 
more significant and fundamental. This should give the public 
confidence that the House can and does accurately account for 
its financial activities.
    The second story, while dire, is one that can be corrected 
through decisive actions and commitment. So what has the House 
and the CAO done to correct these issues?
    As Ms. Lofgren pointed out, in January of 2010, within days 
of my being appointed by the then-acting Inspector General, the 
external auditor informed me of their growing concerns about 
the 2009 financial statements. I called an emergency meeting 
with the external auditor, the former CAO, and all managers 
associated with the financial statement process. I wanted to 
make sure that we were all on the same page as to the 
importance of the financial statements and to stress the need 
for cooperation and participation. Although the former CAO did 
not participate in this initial emergency meeting or any of the 
weekly sessions held thereafter, all other senior CAO managers 
did.
    While this intervention helped to reemphasize the 
importance of the financial statements and being responsive to 
the external auditors' request, a lack of commitment and 
participation was still pervasive. By the spring of 2010, it 
appeared more likely that the House would receive either an 
adverse opinion or a disclaimer because of scope limitations 
and the inability for the auditor to get required information.
    In the OIG's efforts to support the Committee on House 
Administration's governance and oversight duties, the external 
auditor and I jointly briefed the committee of this possibility 
in March of 2010. After it became clear that the House would 
receive an adverse opinion on its internal controls, the 
external auditor and I again jointly briefed the Committee on 
House Administration on June 30 of that same year.
    On a bipartisan basis, the Committee on House 
Administration took decisive and immediate actions to address 
the control environment or tone at the top deficiencies. The 
Committee on House Administration understood the seriousness of 
these internal control issues.
    The former CAO announced his resignation the following day 
and a new CAO, Mr. Strodel, was appointed immediately 
thereafter. As soon as Mr. Strodel was appointed, he made 
sweeping changes, including the appointment of a director of 
internal controls, creating a senior assessment team to oversee 
the implementation of an internal control program, appointing a 
new senior management team, one with a commitment to 
transparency and accountability of House financial activity 
through the issuance of reliable financial statements.
    The Committee on House Administration's decisive actions, 
combined with Mr. Strodel's leadership, have resulted in a 
complete reversal in tone within the CAO and have contributed 
to a much more effective and timely audit process during the 
2010 audit cycle.
    Before closing, I would like to give you a brief status on 
where we are at in the 2010 and 2011 audits. In contrast to the 
2009 cycle in which it took the CAO nearly 14 months to issue 
finalized financial statements, they were able to do so in 2010 
within 2 months after the fiscal year end. It is important to 
note, however, despite all these significant changes that have 
occurred since Mr. Strodel's appointment, the House will 
receive an adverse opinion again in 2010. During an audit, the 
controls that were in place during the period of review are 
what are considered. Since many of these corrective actions did 
not occur until July 2010, when Mr. Strodel was appointed, 
there was not enough time to make those types of corrective 
actions before the end of the fiscal year.
    A robust control program will help to ensure processes are 
repeatable and will enable the CAO to be proactive in 
addressing issues rather than reactive. We also believe that 
many of the IT control weaknesses will be addressed with the 
internal controls program.
    With that, I concede back. Sorry for running over.
    Mr. Gingrey. I should have let you finish that last 
sentence at least. But thank you. And of course, as you know, 
your entire report is submitted for the record, and we 
appreciate that.
    We will now go ahead to our second witness Mr. Dan Strodel, 
the Chief Administrative Officer.

               STATEMENT OF THE HON. DAN STRODEL

    Mr. Strodel. Good morning, Chairman Gingrey, Ranking Member 
Lofgren, Congressman Nugent. I am Dan Strodel, the Chief 
Administrative Officer. And I will go as quickly as I can 
through the summary. I know you will want to get quickly to 
questions and you have other business for today.
    The most important thing I want to start with is to 
recognize the contributions that the Inspector General has 
made, Terry Grafenstine, and the management advisories that she 
has provided has helped me personally as well as the entire 
House officer corps. As so we continue to work together, and it 
is my hope to always remain on her good side.
    With that said, when I reviewed the audit findings, the 
independent report from Cotton & Company and the materials 
provided by the Inspector General, there were some 21 
recommendations. Whether they were determined to be material or 
significant deficiencies, there was still a fairly large number 
of findings. The lead finding was one material weakness, the 
primary finding of a lack of an internal controls program. That 
struck me because the following 20 were very specific and 
ultimately provided a road map for us. I spent some time trying 
to figure out, why is this the number one recommendation, and 
why is the number one material weakness the lack of internal 
controls program? That told me the primary driver to the 
situation that evolved was the tone at the top of the 
organization. There is a group of extremely professional 
dedicated staff and, as the Inspector General referenced, who 
have been on staff for a while, that have been through these 
processes before, and were trying to continue to do good work. 
However there seemed to be a disengagement. This struck me as 
the long-term focus I have to make to begin to put in place the 
structures that are going to help the organization evolve and 
transform into a high-performing organization again. We can get 
into more details about the particular internal controls, but 
that is my primary point.
    [The statement of Mr. Strodel follows:]



    Mr. Gingrey. Have you completed your testimony?
    Mr. Strodel. Yes, sir.
    Mr. Gingrey. You surprised me. It is not very often that we 
get someone that only takes half of his or her time. Certainly 
we appreciate very much both witnesses' testimony.
    Let me yield to myself for the first set of questions. We 
will each take 5 minutes, and if we have more questions and 
sufficient time, we will have a second round.
    I will direct my first line of questioning to Ms. 
Grafenstine. It took the previous CAO 14 months to prepare the 
financial statements. How did his delay and deliberate 
withholding of information, if it was deliberate withholding of 
information, impact the overall cost of the audit? The outside 
auditor cost.
    Ms. Grafenstine. Yes. As you know, we do use external 
auditors to manage the financial statement audit, and we 
oversee their activity. It increased our efforts. We had a lot 
of coordination done on the inside from the IG perspective. But 
it did result in real additional modifications to contracts 
where we would have to pay the external auditor additional 
funds because it was consuming more of their time than 
traditionally it would have consumed.
    Mr. Gingrey. So the costs involved were more to not only 
the Cotton firm, the outside auditor, but also led to more work 
internally.
    Ms. Grafenstine. Internally. So what that would do is, it 
would detract from our internal resources, from being able to 
focus on other areas of concerns in the House.
    Mr. Gingrey. For that particular fiscal year, though, you 
don't have a number, a dollar amount?
    Ms. Grafenstine. I could definitely get you the extra 
contract costs. But from an internal perspective, from the 
opportunity cost aspect, I could probably impute that and get 
that back to you for the record.
    Mr. Gingrey. Well, if you would do that and submit it for 
the record because I think it is important to know what we are 
talking about in regard to an efficient operation versus an 
inefficient operation. It leads to increase costs, obviously. 
And thank you.
    [The information follows:]



    
    Mr. Gingrey. For the internal controls you have suggested, 
how do you compare other industries and other government 
entities to the internal control, or lack of, that exists 
within CAO?
    Ms. Grafenstine. If we compare ourselves to other 
governmental entities, 2006 was when OMB's A-123 internal 
controls program was put into place and became a requirement. 
So the rest of the government would be significantly ahead of 
us because they have been working on this for 5 years. So while 
they may not necessarily all have perfect unqualified opinions 
on their internal controls, they are still going to have more 
solidified programs in place, just because they have been 
working on it for about 5 years.
    Mr. Gingrey. Thank you, Ms. Grafenstine. I will ask Mr. 
Strodel in my next couple of minutes, it is referenced in the 
Inspector General's report that minimal resources, staff, were 
assigned to assist the financial reporting process. To correct 
this problem, you are utilizing both consultants and staff. Do 
you envision needing consultants indefinitely to maintain the 
program? How do you plan to allocate resources in this area in 
the future?
    Mr. Strodel. The consultants, Chairman Gingrey, were 
brought on to assist us in responding to that number one 
recommendation and the material weakness, which was to 
establish a robust internal controls program. The House went 
from commercial GAAP, generally accepted accounting principles, 
to what is referred to as FedGAAP during this time. FedGAAP 
brings along with it additional requirements related to 
internal controls, whether that is financial reporting or 
information technology. There is a very clear path and a 
guideline. There is actually a large document that provides 
guidance on how to implement an internal controls program and 
conduct a risk assessment under that program.
    We decided to bring that function, that responsibility, to 
the top of the organization, which includes all aspects of the 
organization, including our counsel, HIR, the technical team, 
assets, furnishings, and logistics, finance, and every part of 
the organization that is applicable.
    Mr. Gingrey. Let me interrupt you just for a second.
    Mr. Strodel. Yes, sir.
    Mr. Gingrey. Clear this up for me. Are you suggesting that 
the government way of looking at things--the internal controls 
I think you referred to as FedGAAP--is a better system than the 
commercial way of doing things, commercial GAAP? The general 
public would probably think that that sounds like an oxymoron.
    Mr. Strodel. I was not suggesting that since the decision 
was made beyond my involvement. It is this committee that sets 
the rules, responsibilities and functions of the officers; and 
how we are going to do our business. My point is that, whether 
it is commercial GAAP or FedGAAP, you still have to do internal 
controls. It should be a part of how you do your business. 
There is a unique requirement on the government side, as you 
have instructed us, with regard to transparency and providing 
reliable financial reporting for the citizens, for the Members 
of Congress, and for this committee. This is not as much a 
recommendation of mine, but I think a collective decision.
    Mr. Gingrey. Well, I have gone over my time. And I will 
yield to the ranking member for her 5 minutes, plus. And 
hopefully other members might want to further address this 
particular issue. I wasn't suggesting that I thought that the 
Federal Government was less efficient in that regard than the 
commercial sector. It certainly shouldn't be, but it was a 
general impression of the public, I think, that I was referring 
to.
    Ms. Lofgren.
    Ms. Lofgren. First, before I ask any questions, let me 
thank both of you for your service to the House. You are both 
career professionals. You have worked here for many, many years 
and are now leading your organizations. And I appreciate what 
you do, the leadership that you have provided your team, and 
the confidence that you will instill in the taxpayers by making 
sure that identified problems get resolved and that we can move 
forward with our heads held high.
    Let me ask you, Mr. Strodel, in Ms. Grafenstine's 
testimony, she stated that during the 2009 auditing process, 
the CAO environment at the senior management level had become--
I think she said generally unsupportive of the financial 
statement process and there had seemed to be disinterest and a 
lack of cooperation.
    Have you made any personnel changes at the senior 
management level since becoming the CAO to make sure that we 
have a responsive team and we are all over anything that has 
been identified?
    Mr. Strodel. Ranking Member Lofgren, my observations and 
experience in not just reading the report but from my time 
working for your committee, was that the direction of the 
organization seemed to wander away from its core mission. As I 
may have mentioned earlier, we are kind of the blue collar 
officer corps. We are the people who move the furniture. We are 
the people who pay the bills. We are the people who make sure 
your computer is working. That is our core mission. That is 
what we are focused on. It occurred to me that some of the 
staff didn't understand that message and there was a 
communication gap between our core mission and the direction we 
were going.
    Some individuals did move on; and throughout the fall, we 
made some personnel changes. We have a new Chief Financial 
Officer, Traci Beaubian, who has been with the House for a very 
long time. We have a new Director of Audit, Bill Leibach, a new 
HIR deputy, and other personnel changes. It is an evolution, 
but we have begun.
    Ms. Lofgren. Let me ask you, in the 2009 audit report, they 
have identified these deficiencies, four of them which have 
already been referenced. You outlined in your testimony some of 
the progress that has been made in these areas. Do you think 
all of these deficiencies will be rectified by the time of the 
2011 audit?
    Mr. Strodel. Ms. Lofgren, it is my hope and I think my 
reputation is on the line at this point. I have been in the 
position for 10 months. We have developed a senior assessment 
team which includes a representative from Ms. Grafenstine's 
office. Additionally all of our senior staff are engaged in the 
process, meet on a monthly basis and hit our milestones. It is 
not a stand-alone process. Once a year we don't bring out the 
audit woman or man and then talk about it. It is a part of how 
we are managing the organization. It is a part of, as Chairman 
Gingrey mentioned, a disciplined management tool, and that is 
how we intend to use it.
    Ms. Lofgren. Very good. Are there any other issues related 
to the House financial statements or internal control 
procedures or the auditing process that you feel the committee 
should be made known of at this time?
    Mr. Strodel. It has always been my understanding and my 
experience that the responsibilities, particularly of the CAO, 
are delegations from this committee. In the past, you may 
recall in the finance area, vouchers, which are reimbursements 
for official expenses, were ultimately approved at the 
committee level. House Information Resources used to be a 
subcommittee of this committee. We feel a unique connection and 
an added responsibility that we ensure the committee is aware 
of what we are doing, that transparency is external, internal, 
and also with the committee.
    We need to continue internally coalescing as a management 
and leadership group, and that will bring itself to bear with 
our interaction with our stakeholders at your level and others 
in the institution.
    Ms. Lofgren. I guess we will have a second round. So I will 
get to ask Ms. Grafenstine her questions at that time. But I 
would also like to thank the staff of the House Administration 
Committee. We work together on a bipartisan basis to try to 
deal with issues about the House. It is like being mayor of the 
city. And I know that the Members of the House may have 
different philosophical views on policy issues, but our staff 
works very closely together to deal with these issues. And I 
would like to publicly thank them for their hard work and good 
efforts as well.
    I yield back, Mr. Chairman.
    Mr. Gingrey. Thank you, Ms. Lofgren. We will now turn to 
the gentleman from Illinois for his 5 minutes of questions, Mr. 
Aaron Schock.
    Mr. Schock. Thank you, Mr. Chairman. And thank you both for 
your testimony and your work on behalf of the committee and the 
Congress. I just have a couple of follow-up questions for Mr. 
Strodel.
    In your testimony, you referenced September 30 of this year 
as a deadline for implementation of the internal control 
recommendations. My question is whether or not you are on track 
to meet that deadline and what conversations, if any, you have 
had with the auditors to ensure that you are doing everything 
necessary to obtain a clean opinion from them.
    Mr. Strodel. Thank you, Mr. Schock. The short answer is, we 
are on track, but I would like to provide additional 
information. Our senior assessment team, which has been driving 
this change and the effort to set milestones for hitting our 
goals, has been working with a staff member from the Office of 
Inspector General. Also, we have met from time to time, as 
recently as this week, with the independent auditors at Cotton 
and they are ready to start looking at our data. We are 
focusing on providing a preliminary round of information to 
them after June 30 so we can hit that September 30 target.
    I would defer to Ms. Grafenstine, but I feel we are on 
track.
    Mr. Schock. Ms. Grafenstine, would you care to address 
that?
    Ms. Grafenstine. I can say that Mr. Strodel's group has put 
a significant amount of time and attention on this, and I do 
believe that they are on track.
    Mr. Schock. Also, Mr. Strodel, in your testimony, you did 
not address the significant deficiencies in the processing and 
reporting of the payroll data. And I am just wondering, in the 
report, it noted that payroll certifications were not 
performed, which led to over- and underpayments. What are you 
currently doing to fix that area of concern?
    Mr. Strodel. Mr. Schock, the question related to one of the 
significant deficiencies. There was a hierarchy of levels of 
importance or emphasis on, whether it is material or a 
significant deficiency. One was related to payroll. The House 
is a unique environment. Where a typical Federal agency may 
have one payroll office for the entire organization, we have 
441 offices and 20-some committees that are essentially their 
own business unit. We are centrally processing payroll on their 
behalf. Each month, there is a certification process that the 
Member, the committee chair, and so on, has to sign and submit 
to us, certifying that those individuals are due pay. There is 
a little bit of a difference in understanding the requirement 
between the auditors and us regarding that unique environment. 
It is hard to find a similar organization as it relates to 
payroll processing. We have internal controls that aren't 
necessarily typical in a Federal agency environment. Therefore, 
we work with the auditors to show how our unique operating 
environment works and the various types of internal controls in 
our organization. The segregation of duties where a person 
can't pay themselves through another Member's account is an 
example of internal controls.
    We do have internal controls that mitigate risk but the 
concern was, they don't meet OMB's A-123 Internal Control 
Program as it is laid out. This was a dialogue between us and 
the auditors showing what we do have, which we hope will go 
from a significant deficiency to a deficiency or go away 
altogether.
    Mr. Schock. Are there recommendations in how we do payroll 
processing that you suggest different from the process now that 
would lead to better controls?
    Mr. Strodel. Slightly, yes. The verification and 
certification processes, at the end of the period, need to have 
tighter deadlines. During each monthly payroll cycle, 
certifications should not go beyond the following month without 
closing the process out. On our side, we must interact more 
effectively with the Member offices and the other employing 
authorities to make sure they understand the requirements and 
that we are here to assist them in meeting these deadlines.
    Mr. Schock. Okay. I understand that it may not be a similar 
organization as most companies would be run, but I can't 
imagine that it is that much different. I actually personally 
sign my payroll certifications. I think it is requested that 
Members do each month. And while we may all be individual 
offices, there is one central payment processing point, and it 
would seem to me that it is up to the Member on whether I make 
a mistake on paying someone too much or too little. But based 
on what I submit to you is how it should be paid. I guess I 
question why the processing center would make a mistake based 
on what I sign or don't sign.
    Mr. Strodel. Sometimes errors are due to a delay in 
receiving the certifications, either between us or the 
employing entity. There are reconciliation processes that 
happen during the pay period and those that follow the pay 
period. The close-out and the reconciliation is done, in the 
auditor's opinion, too far away from the actual event. 
Sometimes it is an error on our side as well. It is that 
reconciliation process where we can do a better job reaching 
out to the Member office and making sure that certification 
comes in on time.
    Mr. Schock. Thank you.
    Mr. Gingrey. Thank you, Mr. Schock. And now we will refer 
to the gentleman from Florida for 5 minutes, Mr. Nugent.
    Mr. Nugent. I would like to expand a little more to the 
issue of the payroll issue. The process that we use today in 
regards to payroll, have we looked at any other processes that 
could speed that up for you in regards to automation?
    Mr. Strodel. Mr. Nugent, the Lawson payroll system is what 
we use. It is very effective. There are so many different 
employing offices, and there is an education process on our 
end--that means on the payroll end--for how payroll is 
processed. This includes the forms required, and the cutoff 
dates to have things in so they can be processed in that 
particular pay period, in effect. Yes, is the short answer. 
Prior to PeopleSoft, we had a mainframe-based system. The 
House's monthly pay cycle is an exception based process. This 
means once you put individuals on the payroll, they keep 
getting paid until you tell us otherwise, whether it is an 
increase, decrease, or removing those individuals from the 
payroll. The control of these payroll actions and related to 
Mr. Schock's question, rests entirely with the employing 
entity, the 441 Members, committee chairs, and so on.
    On a monthly basis, we are processing changes and all of 
them come in ultimately manually. There are certainly 
efficiencies we can make and it is something that we should 
move slowly on. We implemented a new financial system for the 
House called PeopleSoft Financials which interacts with Lawson. 
We are moving forward with some efficiencies on the voucher, 
the official expense reimbursement. Payroll is also an area we 
want to work on with this committee to make sure that any 
changes we make are good, in your opinion, for the House.
    Mr. Nugent. With reference to internal controls, and 
particularly on the general ledger aspect, where do we stand 
today?
    Mr. Strodel. Well, I am extremely glad our Chief Finance 
Officer is here today, sir, Traci Beaubian.
    Mr. Nugent. And that is a good answer.
    Mr. Strodel. Traci, could you address that briefly?
    Ms. Beaubian. We have made significant progress on the 
general ledger accounts. To date we have identified a number of 
transactions where we have changed the posting models and 
associated general ledger accounts for proper financial 
reporting. Additionally we have posted a number of entries 
required for the upcoming financial statements for fiscal year 
2011. We are on target for closing out many of the general 
ledger-type issues.
    Mr. Nugent. Well, as a past CEO of a government agency, 
obviously the last thing you want to see is an adverse report 
come back. And I would think that your Chief Financial Officer 
is a key driver behind making sure that you get the information 
that is necessary but also make sure of the internal controls. 
And so that is one of the areas that is always of concern in 
regards to the internal controls and the separation of duties 
to make sure that you are not having people authorizing 
payments that are also making a request for payment. And have 
we addressed all that from the IG's perspective?
    Ms. Grafenstine. Yes, sir. I do agree that that is very 
important. And that is one of the basic things we look at. 
Whether it is within Lawson or PeopleSoft, we would look at the 
roles and responsibilities to make sure that there is adequate 
segregation of duties. We didn't find any significant 
deficiencies in either of those areas. The payroll deficiencies 
that we did find pertained to the lack of offices submitting 
those certifications in a timely manner.
    Mr. Nugent. Do you have any recommendations on how you can 
get offices to comply?
    Ms. Grafenstine. There are rules that explicitly say that 
Members and committees need to submit those payroll 
certifications in a timely manner. I do see that as a big deal. 
And I think with Mr. Strodel proactively reaching out through 
the payroll counselors and giving folks a reminder--because 
they do get distracted because they are working on legislation. 
But if they reach out proactively and remind them, I think that 
that may help to improve your overall situation because when 
you look at the House financials, personnel costs are our 
biggest expense. So those payroll certifications are our 
biggest control over that.
    Mr. Nugent. I just want to take this opportunity again to 
thank both of you for trying to right the ship. I understand 
that we are going to wind up with a possible adverse. But that 
is okay as long as we show that we are making progress to 
reverse that so our next audit will be crystal clean. That is 
our hope.
    Mr. Gingrey. I thank the gentleman from Florida for his 
questions. And that essentially completes the first round. It 
went quickly. And we actually have a few more questions. So we 
will start a second round and, again, allow each of the Members 
up to 5 minutes of questioning. And I will yield to myself the 
first 5 minutes.
    Ms. Grafenstine, as a result of the fiscal year 2009 audit, 
we know that the House did not have effective internal controls 
in place for financial reporting. That is a compelling factor 
behind why it took 14 months to do something that should have 
taken no longer than--you said I think 3 months. Without an 
internal control program, there is no reasonable assurance that 
the House's financial statements can be complete or accurate. 
That is why an adverse rating was assigned on the internal 
controls related to financial reporting.
    Here is my question, and this seems a little 
counterintuitive: How can the financial statements themselves 
receive what I now know about a ``clean opinion'' while the 
internal controls receive an adverse opinion? Can you elaborate 
on that and help explain that to the members?
    Ms. Grafenstine. Yes, I can. And I do agree that it would 
seem counterintuitive, sir, that you could have a clean opinion 
on the financials while receiving an adverse on the internal 
controls. How they differ is that with the financial 
statements, you can tick and tie all the numbers. You can trace 
them back and realize that they are, through substantive 
testing, making sure that the numbers are supported. It just 
takes a whole lot longer because you can't rely on the internal 
controls. If adequate internal controls were in place, 
typically they would find the mistakes and there would be some 
type of monitoring process in place where they would detect the 
mistakes and then fix them. But because they didn't have those 
processes in place, you have to do a lot more testing to 
validate the numbers that they are, in fact, correct.
    So that was one of the other reasons why it extended the 
amount of time and effort, from an audit perspective, added 
testing and increasing contract costs and those sorts of 
things, to make sure that we could validate the numbers from 
the financial statements.
    Mr. Gingrey. Let me shift to the Chief Administrative 
Officer, Mr. Strodel. I wanted to just ask you some factual 
questions. How many employees are actually under your 
supervision within the office?
    Mr. Strodel. In the entire Office of the Chief 
Administrative Officer, currently there are 684 people onboard.
    Mr. Gingrey. And how does that compare to how that trended 
over the past several years?
    Mr. Strodel. In the last 5 years, that is an increase of I 
would say approximately 10 percent.
    Mr. Gingrey. Would you say today that you are right sized 
with regard to the number of folks that you have?
    Mr. Strodel. I would say that I think we are soon to be 
right sized by the budget cut that is coming. I wouldn't 
necessarily agree with it, but we are going to have to live 
with it, sir. In returning to our core mission, we are looking 
at what it is that we do and how we do it.
    Mr. Gingrey. Yeah. Well, you have said, of course, that 
your reputation is on the line. All of our reputations are on 
the line every day when we come to work. But I certainly 
understand what you are referring to based on the past 
performance in the office that you hold, the position that you 
hold. Clearly the budget cuts are tough on everybody. But with 
$1.6 trillion and 40 percent borrowed money every year, you can 
understand--I think everybody can understand it is time to do a 
little belt-tightening.
    The other thing I wanted to ask you, although you have 600-
plus folks that work for you, that work directly for you at the 
management level, operational level. But you have many, many 
more folks that work for the House of Representatives.
    Do you have an idea of what that total number is that you 
have jurisdiction over?
    Mr. Strodel. Well, the entire House population is a little 
over 10,000. This includes members of your staff, for example, 
here and in the district, the committee staffs, the entire 
House population and payroll community, if that is responsive.
    Mr. Gingrey. That is exactly what I was talking about. And 
the reason I ask that question is because I think that it is 
really important for us to understand the scope of your 
operation. This is my ninth year, my fifth term. And you know, 
the choosing of a Chief Administrative Officer or Clerk of the 
House or Sergeant at Arms or Parliamentarian, you know, these 
things, you just don't pay a lot of attention to. At least I 
didn't. But all of a sudden, in this position as chairman of 
the Subcommittee on Oversight of the House Administration 
Committee, it comes home to you, and you realize this is one 
heck of an operation to control and to do it right.
    So I share with my colleagues in commending both of you for 
the great job that you are doing in this short period of time. 
But you have a huge challenge going forward to get everything--
well, to get the House in order. Well, thank you.
    My time has expired, and I will yield to the ranking 
member, Ms. Lofgren.
    Ms. Lofgren. Thank you, Mr. Chairman. I just wanted to ask 
a couple of quick questions for the IG. In your written 
testimony, you reference that during the 2009 auditing process, 
the CAO environment at the senior management level had been 
kind of unsupportive and disinterested and not very 
cooperative, and you made the changes. Do you feel these 
attitudes of a lack of cooperation exist today in the CAO's 
office?
    Ms. Grafenstine. Absolutely not. It was night and day, the 
complete sweeping changes that occurred since last summer with 
the amount of cooperation and the commitment and the focus on 
not only with the financial statement process but overall, the 
internal control program which impacts--that is a broader 
program. That is going to hit IT. It is going to hit 
procurement. It is going to hit all facets of CAO operations. 
It is completely reversed.
    Ms. Lofgren. You pointed out also in your testimony that 
despite the changes that had been made by Mr. Strodel, the 
adverse opinion on internal controls was made part of the audit 
because he came in late into the process. I know you probably 
can't say for sure, but with the changes you have seen so far 
that have been made in the CAO's office, do you have any 
confidence that the internal control deficiencies will be 
resolved for the 2011 audit?
    Ms. Grafenstine. I believe that they are on track. However, 
since it is the external auditor's opinion, I wouldn't be able 
to make assurances on their behalf. But I do believe that the 
CAO is doing everything that is possible to make sure that they 
do meet that deadline.
    Ms. Lofgren. We are kind of a unique environment here. The 
Members of the House have our own staffs, and we can all think 
of some of our colleagues who aren't the most cooperative, 
might not get things in on time, might think that they don't 
need to, and certainly Mr. Strodel has to deal with that. We 
answer to our constituents, not to the CAO. So it is a 
difficult environment, and some of the Members sometimes make 
it more difficult. Certainly no one sitting here in this room 
today. But I do commend you. And I guess the only thing is that 
the chairman and ranking member sometimes are called upon to 
assist with difficult Members. So I know that Mr. Lungren and 
Mr. Brady stand ready to assist you in those circumstances as 
well so that we can have a smoothly operated system here.
    And with that, I don't have additional questions, Mr. 
Chairman. I yield back.
    Mr. Gingrey. Thank you, Ms. Lofgren. I yield now to the 
gentleman from Illinois, Mr. Schock.
    Mr. Schock. Thank you, Mr. Chairman. A couple of follow-up 
questions. First, just going back to my original question about 
the payroll reporting, one suggestion I might have is that we 
move towards an electronic system where you would have a secure 
entrance point for either myself or an assigned staff person 
that you can update payrolls as necessary. But the idea of me 
physically signing a piece of paper that then has to travel to 
an office in the 21st century seems a bit outdated. And I would 
think electronically, it would make your lives a lot easier 
from a payroll standpoint for mistakes not to happen. So for 
what it is worth.
    Second, you had mentioned--and Ms. Lofgren's comments had 
made reference to the fact that there had been several months 
between the time at which we recognized there was a problem 
with the previous CAO and the point at which there was a 
resignation. I am just wondering if the two of you could speak 
to that and if there are certain things that this committee 
could be doing it ensure that something like that doesn't 
happen down the road.
    Ms. Grafenstine. I was not privy to the behind-the-scenes 
communications with the former CAO and the committee. However, 
from my perspective, it would seem that they were providing him 
constructive feedback in trying to get his team on board. It 
just didn't seem to have a lasting effect. So we were keeping 
the committee up to date on what was going on with the audit. 
But again, as soon as it became clear that we had reached the 
point of no return, it was swift and immediate. And with the 
former CAO resigning, that is not going to be the first path, 
the first option that a committee would take. They obviously 
wanted to make sure that he had as much time to readjust the 
course.
    Mr. Strodel. If I could just add a few points. There were 
other areas of CAO that I think at the time were also suffering 
from that sense of disengagement. In particular in the finance 
area, where I used to work, there were problems. There were 
delays in processing vouchers. Some vouchers were even lost and 
the IG provided some information about this issue. The 
financial audit wasn't a stand-alone issue. I think there were 
others that were percolating that came to a head around that 
time. That is where I saw this issue, again, the core mission 
seemed to be not the priority.
    Ms. Grafenstine. I would agree with that. It was not the 
priority.
    Mr. Schock. Thank you. That is all.
    Mr. Gingrey. I thank you, Mr. Schock. The chairman now will 
yield to the gentleman from Florida for an additional 5 
minutes, Mr. Nugent.
    Mr. Nugent. I appreciate Mr. Schock's comments and 
reference to the automated payroll system. That is what I was 
leading up to in that questioning that I had. I think it would 
be an improvement across the board, particularly in timeliness.
    What is the overall amount of money that moves through the 
CAO?
    Mr. Strodel. Congressman Nugent, the House appropriation is 
approximately $1.3 billion annually. In addition to that, there 
are also revolving funds that receive moneys. So it is close to 
1.5 billion, 1.4, 1.5 that moves through the system. If that 
gives you a sense of the scope of it.
    I also wanted to follow up on your point and Mr. Schock's 
as well. In moving towards electronic and other efficiencies, 
the PeopleSoft System, the financial system that was 
implemented this past October, replaced a legacy system that 
was about 15 years old. That was a massive undertaking, and 
several years in the process. What it has brought us and what 
we hope to continue to do is more electronic processing. We are 
moving forward in the area of vouchers, those official 
reimbursements, where the financial points of contact in 
offices in the future and the not so distant future, can access 
the financial system and see where a voucher is in the 
disbursement process on a particular date. Whereas before 
offices did not see it come through the system during the give 
or take 7 day process until disbursement. There is a pilot 
currently being conducted.
    That is an example of where we have made that leap. We have 
efficiencies and we think there will be more capabilities down 
the road, even where member offices can be the ones to submit 
that voucher on line electronically. There is a movement in 
working with the committee--again, perhaps too slow for some--
to make sure that this is the right way to go and that it is 
ready to be rolled out.
    On the payroll side, the Lawson System can be linked to 
PeopleSoft, the financial engine, but it is something that I 
would want to work with the committee and go very slow. I would 
rather it be pushed than kicked. I think we can get there, but 
I would rather go methodically.
    Mr. Nugent. I would appreciate that you keep us informed on 
all those avenues with regards to upgrading and the ability to 
do it electronically across the board. So any help that we can 
give you in regards to working with other Members, that is I 
believe part of our responsibility, not just to lay it back on 
you, but also as this committee we can do things to help 
educate Members to make sure we are working as a team because 
the amount of dollars that are going through your office are--
it is a staggering amount of money and it certainly is one that 
requires excellent controls. So anything that we can do to 
assist in that, particularly I am sure your Finance Director 
would appreciate that, to help in that regard.
    One last thing. The reference to controls as it relates to 
IT, where do we stand?
    Mr. Strodel. The two material weaknesses--one was having an 
overall program for internal controls and then, second, and 
very detailed, I think there were 12 to 15 specific 
recommendations as it related to IT and finance security. 
Working with the senior assessment team, Mr. Leibach and our 
outside consultants, we developed milestones along the way that 
our group, including 5 or 6 senior leaders in HIR, the House 
Information Resources Division, are engaged in their specific 
areas of particularly developing system security plans, for 
example, in the IT area. Again, we are on target. This 
information is going to be presented to the outside auditors 
soon after June 30th. We are to the point where we are ready to 
provide this preliminary documentation and information to them.
    Mr. Nugent. One last question, and this one is probably 
going to be difficult. The sense of the prior CAO, what 
priorities did he lay out for your office or was that muddled?
    Mr. Strodel. I am not really sure.
    Mr. Nugent. That is a good answer. So obviously it was 
somewhat muddled.
    Mr. Strodel. I must say being a little further away from it 
and not working directly at the time, I am not sure.
    Mr. Nugent. Okay. That was probably an unfair question to 
ask, but it is one that needed to be asked. Thank you very much 
for both of your testimonies.
    Mr. Gingrey. I thank the gentleman. And I don't think it 
was necessarily an unfair question, but definitely a tough 
question, and obviously our two witnesses have given us good 
testimony today regarding their concerns and our concerns. I 
wasn't on the committee in the 111th and I wasn't on the 
committee when the previous Chief Administrative Officer was 
hired and would like to commend the former majority for having 
the insight and the good judgment to make obviously a needed 
change, whether it was because of misfeasance or malfeasance. I 
don't guess that is digging up bones and we don't really need 
to do that.
    But this has been a good opportunity for we members, we new 
members in particular, to get a real in depth understanding of 
both the breadth and the depth of the job that you have and we 
appreciate very much you being here.
    I might ask one real quick last of Mr. Strodel. I think you 
said in the aggregate, your budget was about $1.5 billion. How 
much of that or what percentage of that is personnel expense, 
and does it include the Office of the Inspector General?
    Mr. Strodel. The figure I was referring to about the 1.4 to 
the $1.5 billion was the entire House. As it relates to the 
Chief Administrative Officer's office, our entire budget was 
$130 million until the CR brought it down to 127, and I imagine 
it is going further down.
    Mr. Gingrey. Okay. Thank you very much. I want to ask the 
committee unanimous consent to enter the following document 
into the hearing record. The document is the United States 
House of Representatives audit report which you have been 
talking about, audit of the financial statements for the fiscal 
year ending September 30, 2009. Without objection to the 
request, it is so ordered.
    [The information follows:]



    
    Mr. Gingrey. I want to thank the witnesses for their 
testimony and all of the members for their participation and 
now I adjourn the subcommittee.
    [Whereupon, at 10:40 a.m., the subcommittee was adjourned.]
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