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




                         [H.A.S.C. No. 112-96]
 
                         DEPARTMENT OF DEFENSE

                       PERSPECTIVES ON FINANCIAL

                    IMPROVEMENT AND AUDIT READINESS

                                EFFORTS

                               __________

                      COMMITTEE ON ARMED SERVICES

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD

                            JANUARY 24, 2012


                                     
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                   HOUSE COMMITTEE ON ARMED SERVICES

                      One Hundred Twelfth Congress

            HOWARD P. ``BUCK'' McKEON, California, Chairman
ROSCOE G. BARTLETT, Maryland         ADAM SMITH, Washington
MAC THORNBERRY, Texas                SILVESTRE REYES, Texas
WALTER B. JONES, North Carolina      LORETTA SANCHEZ, California
W. TODD AKIN, Missouri               MIKE McINTYRE, North Carolina
J. RANDY FORBES, Virginia            ROBERT A. BRADY, Pennsylvania
JEFF MILLER, Florida                 ROBERT ANDREWS, New Jersey
JOE WILSON, South Carolina           SUSAN A. DAVIS, California
FRANK A. LoBIONDO, New Jersey        JAMES R. LANGEVIN, Rhode Island
MICHAEL TURNER, Ohio                 RICK LARSEN, Washington
JOHN KLINE, Minnesota                JIM COOPER, Tennessee
MIKE ROGERS, Alabama                 MADELEINE Z. BORDALLO, Guam
TRENT FRANKS, Arizona                JOE COURTNEY, Connecticut
BILL SHUSTER, Pennsylvania           DAVE LOEBSACK, Iowa
K. MICHAEL CONAWAY, Texas            GABRIELLE GIFFORDS, Arizona
DOUG LAMBORN, Colorado               NIKI TSONGAS, Massachusetts
ROB WITTMAN, Virginia                CHELLIE PINGREE, Maine
DUNCAN HUNTER, California            LARRY KISSELL, North Carolina
JOHN C. FLEMING, M.D., Louisiana     MARTIN HEINRICH, New Mexico
MIKE COFFMAN, Colorado               BILL OWENS, New York
TOM ROONEY, Florida                  JOHN R. GARAMENDI, California
TODD RUSSELL PLATTS, Pennsylvania    MARK S. CRITZ, Pennsylvania
SCOTT RIGELL, Virginia               TIM RYAN, Ohio
CHRIS GIBSON, New York               C.A. DUTCH RUPPERSBERGER, Maryland
VICKY HARTZLER, Missouri             HANK JOHNSON, Georgia
JOE HECK, Nevada                     BETTY SUTTON, Ohio
BOBBY SCHILLING, Illinois            COLLEEN HANABUSA, Hawaii
JON RUNYAN, New Jersey               KATHLEEN C. HOCHUL, New York
AUSTIN SCOTT, Georgia
TIM GRIFFIN, Arkansas
STEVEN PALAZZO, Mississippi
ALLEN B. WEST, Florida
MARTHA ROBY, Alabama
MO BROOKS, Alabama
TODD YOUNG, Indiana
                  Robert L. Simmons II, Staff Director
                Paul Foderaro, Professional Staff Member
               William Johnson, Professional Staff Member
                    Lauren Hauhn, Research Assistant



                            C O N T E N T S

                              ----------                              

                     CHRONOLOGICAL LIST OF HEARINGS

                                  2012

                                                                   Page

Hearing:

Tuesday, January 24, 2012, Department of Defense Perspectives on 
  Financial Improvement and Audit Readiness Efforts..............     1

Appendix:

Tuesday, January 24, 2012........................................    23
                              ----------                              

                       TUESDAY, JANUARY 24, 2012
 DEPARTMENT OF DEFENSE PERSPECTIVES ON FINANCIAL IMPROVEMENT AND AUDIT 
                           READINESS EFFORTS
              STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

McKeon, Hon. Howard P. ``Buck,'' a Representative from 
  California, Chairman, Committee on Armed Services..............     1
Smith, Hon. Adam, a Representative from Washington, Ranking 
  Member, Committee on Armed Services............................     2

                               WITNESSES

Hale, Hon. Robert F., Under Secretary of Defense (Comptroller), 
  U.S. Department of Defense.....................................     3
McGrath, Hon. Elizabeth A., Deputy Chief Management Officer, U.S. 
  Department of Defense..........................................     4

                                APPENDIX

Prepared Statements:

    Hale, Hon. Robert F., joint with Hon. Elizabeth A. McGrath...    29
    McKeon, Hon. Howard P. ``Buck''..............................    27

Documents Submitted for the Record:

    [There were no Documents submitted.]

Witness Responses to Questions Asked During the Hearing:

    Mr. Bartlett.................................................    43

Questions Submitted by Members Post Hearing:

    Mr. Langevin.................................................    47
    Mr. Schilling................................................    48
 DEPARTMENT OF DEFENSE PERSPECTIVES ON FINANCIAL IMPROVEMENT AND AUDIT 
                           READINESS EFFORTS

                              ----------                              

                          House of Representatives,
                               Committee on Armed Services,
                         Washington, DC, Tuesday, January 24, 2012.
    The committee met, pursuant to call, at 10:34 a.m. in room 
2118, Rayburn House Office Building, Hon. Howard P. ``Buck'' 
McKeon (chairman of the committee) presiding.

    OPENING STATEMENT OF HON. HOWARD P. ``BUCK'' MCKEON, A 
 REPRESENTATIVE FROM CALIFORNIA, CHAIRMAN, COMMITTEE ON ARMED 
                            SERVICES

    The Chairman. I would like to welcome everyone to today's 
hearing on the ``Department of Defense Perspectives on 
Financial Improvement and Audit Readiness Efforts.'' We just 
heard from Representative Mike Conaway, the chairman of our 
Defense Financial Management and Auditability Reform Panel, who 
briefed the committee on the panel's findings and 
recommendations contained in the panel's final report.
    He is our subject matter expert so I will not restate what 
he just said. Unfortunately our other subject matter expert, 
Rob Andrews, could not join us here today, but we are pleased 
to have our briefing be followed by today's hearing so that the 
committee might also receive the Department's perspectives on 
the report and its ongoing financial management reform efforts.
    I would like to thank the Department's witnesses that are 
here today as well as those who have testified in previous 
panel hearings.
    The Department's willingness to make time to testify in the 
many early morning hearings conducted by the panel is a 
testament to its commitment to achieving financial management 
reform. With that said, as pointed out in the panel's report 
there is much work to be done for DOD [Department of Defense] 
to reach its financial improvement and audit readiness goals. 
But with the billions of dollars in budget cuts facing the 
Department and the need to have reliable information in order 
to make the tough decisions, DOD must take the necessary 
actions to overcome the challenges it faces.
    The committee stands ready to support DOD in this effort 
and is interested in receiving feedback on the panel's work to 
assist us in our oversight on this very important effort. We 
have with us here today the Honorable Robert F. Hale, Under 
Secretary of Defense (Comptroller) of the Department and the 
Honorable Elizabeth A. McGrath, Deputy Chief Management Officer 
of the Department of Defense. Let me conclude by saying two 
more things. Given the change in defense strategy recently 
announced by the President and the significant budget cuts the 
Department has to implement, starting this year, all of us are 
anxious to learn more about the specific changes contained in 
the fiscal year 2013 budget request.
    We will have that opportunity next month, but although we 
are joined today by Secretary Hale, I recognize that he is not 
at liberty to discuss these issues in advance of the 
President's release of the budget. Thank you again for joining 
us, nevertheless.
    Lastly, following what must have been a difficult decision 
to resign from office, I want to wish our colleague, 
Representative Gabrielle Giffords, our very best in her 
recovery and make sure she knows that she will be missed.
    She was a leader on this committee and a tireless advocate 
for our men and women in uniform. I know our last conversation 
in December during the--what do we call that when we all--the 
lame duck session at the end of the last Congress--a nightmare, 
yes--she came up to me on the floor and requested that as early 
as possible, as a committee, we visit Fort Huachuca in her 
district, which was very important to her. I am sorry that we 
haven't made that trip yet, but I think it is something that we 
should schedule as a trip to one of the bases that we have been 
trying to do.
    And when we do, we should invite her if she is able, to 
accompany us on that visit. I know leaving public service and 
the constituents she has worked so hard for cannot have been an 
easy decision. She will continue to be in our thoughts and 
prayers as we move forward on our work in this committee.
    Mr. Smith.
    [The prepared statement of Mr. McKeon can be found in the 
Appendix on page 27.]

STATEMENT OF HON. ADAM SMITH, A REPRESENTATIVE FROM WASHINGTON, 
          RANKING MEMBER, COMMITTEE ON ARMED SERVICES

    Mr. Smith. Thank you, Mr. Chairman. I appreciate those 
comments, and I certainly want to echo them. Gabby will be very 
much missed from this Congress and particularly from this 
committee. She worked tirelessly, as we all know on, gosh just 
about every conceivable issue that was before us; and worked 
with many different members--Democrat and Republican alike--on 
the issues that were important to her district and the issues 
that were important to the country. I have had the opportunity 
to visit Fort Huachuca on a couple of occasions and Davis-
Monthan Air Force Base as well and they absolutely love her out 
there.
    They know that she is working hard on their behalf and has 
done a fabulous job representing that district in Arizona. I 
think the encouraging thing is how much her physical condition 
has improved over the course of the last year. I think what she 
was mindful of, is that this is a, you know, a 2- to 3-year 
recovery period from this type of injury. She is going to 
continue to get better. But she needs to focus on that and 
focus on her health. And I think also the understanding was, 
you know, that there is a way to represent a district. It is 
the way she has represented it for her entire career, 100 
percent and with just full on energy.
    And if she couldn't do that, she didn't think it was fair 
to the people of her district to continue in that capacity. And 
I greatly admire that decision, even as I am very personally 
disappointed by it because we would love to have her back on 
this committee. But I think it is also important for everyone 
to remember what she said and in that announcement and has said 
since, this is an interruption, not an end. She wants to be 
back into public service in some capacity or another. Focused 
on her health right now, but as she said more than once, she 
will be back.
    And we all look forward to her continuing in public service 
in any of a number of different possible capacities; great 
serving with her. Who knows, hopefully we may have that 
opportunity again at some point, and I thank the chairman for 
his kind words and appreciate Gabby's service on this committee 
during her time in Congress.
    I had made opening remarks earlier about the auditing 
process--don't have anything further to say on that. I look 
forward to our witnesses' testimony, and I thank the chairman 
for holding this hearing and for his work on this important 
issue. I yield back.
    The Chairman. Thank you.
    Mr. Hale.

 STATEMENT OF HON. ROBERT F. HALE, UNDER SECRETARY OF DEFENSE 
           (COMPTROLLER), U.S. DEPARTMENT OF DEFENSE

    Secretary Hale. Well, thank you, Mr. Chairman and members 
of the committee. Thank you for your interest in financial 
management at the Department of Defense. And we especially want 
to thank Chairman Conaway and his ranking associate, 
Congressman Andrews, and the members of the Defense Financial 
Management and Auditability Reform Panel for their support.
    And let me say, everybody in the Department of Defense will 
miss Congresswoman Giffords. She was an able supporter of the 
Department, and we certainly wish her the best.
    Ms. McGrath and I submitted a statement for the record that 
contains our reaction to the panel's recent report.
    [The joint prepared statement of Secretary Hale and Ms. 
McGrath can be found in the Appendix on page 29.]
    Secretary Hale. It also describes our overall approach to 
auditability. We will now deliver a joint oral statement that 
summarizes the key points. Let me start with the panel report. 
Most importantly, we find the panel's report balanced and 
constructive. It recognizes the progress we have made in 
overcoming historic impediments to audit readiness, and we are 
pleased that the report endorses our financial improvement and 
audit readiness, or FIAR [Financial Improvement and Audit 
Readiness] strategy, which is to focus first on the information 
DOD most uses to manage the Department, especially budgetary 
information and the accounts and locations of our assets.
    The panel did identify five areas where action is still 
needed, and we would like to comment briefly on each of those. 
First, the panel concluded that we need sustained leadership. 
We fully agree with that. Today, we have the support from the 
Secretary himself, from the Deputy Secretary, and from many 
other key leaders in the Department. But while we have strong 
senior leader support now, we know this support must be 
sustained as leaders change.
    Our goal is to build up momentum so that this current FIAR 
effort will continue, and we are building that momentum by 
establishing a clear governance structure. We have that in 
place. Setting aside dedicated resources. We have in our future 
years defense plan money in each of the years in each of the 
departments, and money to help each of the defense agencies, 
and identifying short term and long term goals, which we have 
done. We also expect and welcome congressional oversight, which 
should help to sustain momentum.
    A second factor identified by the panel involves the DOD 
Financial Management workforce. Our professionals are capably 
supporting key missions around the world. I am very proud of 
them. They are in Afghanistan. They are in all the hot spots as 
well as so many other places. But the business environment is 
changing and we need to change our training to match.
    In the short term we are achieving practical training in 
audit readiness by using independent public accountants who 
have great expertise in this area. For the longer term, we are 
implementing a course-based certification program to ensure 
that financial managers have the skill and experience in key 
areas, including financial statement audits.
    We appreciate congressional support for this program in the 
fiscal year 2012 Authorization Act. You provide us legal 
authority to put it in place. And we are working aggressively 
to get the certification program started. I had a briefing on 
it yesterday. We expect to have pilots in place by the end of 
the calendar year.
    The third factor identified by the panel involves 
enterprise resource planning systems. This is a key area, and 
let me ask my colleague, Ms. McGrath, to address this important 
topic.

STATEMENT OF HON. ELIZABETH A. MCGRATH, DEPUTY CHIEF MANAGEMENT 
              OFFICER, U.S. DEPARTMENT OF DEFENSE

    Ms. McGrath. Mr. Chairman, other members of the committee, 
I too appreciate the opportunity to discuss the panel's report 
with you today and echo Mr. Hale's heartfelt thanks to 
Congressman Conaway and Mr. Andrews, for their focused 
attention to this important topic.
    As the panel in the report notes, effective implementation 
of enterprise resource planning, or ERP systems, will not 
enable auditability by itself, but it will help to achieve the 
modern business environment needed to meet and sustain our goal 
of audit readiness. Both the panel and GAO [Government 
Accountability Office] recognize that the Department has 
improved the way we acquire and implement ERPs over the past 2 
years. That said, they also believe that we can and need to do 
even better. The Department agrees.
    We also agree with the panel that it is important to 
closely link our ERP efforts to audit readiness. To this end, 
we are employing a number of tools to establish and maintain 
the linkage. For example, we are tying business outcomes, 
including auditability to acquisition milestones, and requiring 
individual programs to define what specific role they play in 
achieving those business outcomes. We have done this recently 
with both the Army and Navy's financial systems, the General 
Fund Enterprise Business System and the Navy Enterprise 
Resource Planning system, and the Army's logistic system, the 
Global Combat Support System.
    We also share the same view as the panel with regard to the 
importance of overcoming challenges in acquiring ERPs, 
specifically in requirements definition and testing. To this 
end, we issued streamlined policy for the acquisition of 
business I.T. [Information Technology] systems that emphasize 
rigorous analyses of capability gaps, summarizing them as a 
problem statement, focusing also on incremental delivery of 
capability in 18 to 24 months, and using a business case and a 
program charter to streamline documentation.
    Additionally, to help better define and stabilize 
requirements for our acquisition programs, we are driving 
better application of business process re-engineering, 
especially as a precursor to the acquisition of a business 
system or a capability. We are grateful that the panel's report 
emphasizes one of our toughest challenges, dealings with the 
problems inherent in implementing ERPs in a legacy environment.
    The report rightly cites the difficulties associated with 
data conversion. Complications arise when the quality of the 
legacy data is not equal to what is required by a modern ERP 
system, and the need in some cases is to institute multiple 
interfaces to legacy systems. Our goal is to significantly 
reduce and/or eliminate as many interfaces as possible.
    We are working aggressively to sunset our legacy systems 
wherever and whenever appropriate. The Navy ERP is a great 
example of how the implementation of a ERP can lead to the 
retirement of legacy systems. The system provides an integrated 
business management capability that modernizes, streamlines and 
standardizes how the Navy manages people, programs, money, 
equipment and supplies.
    It has enabled inventory reduction, real-time visibility of 
assets, resources and inventory, and improved financial 
controls. It has approximately 66,000 users worldwide managing 
approximately $62 billion. And it also has enabled the 
retirement of 27 legacy systems to date, with 69 more schedule 
to be retired by 2016.
    Furthermore, we appreciate Congress' recent change to our 
Business Systems Investment Review Board process, specifically 
Section 901 of the Fiscal Year 2012 National Defense 
Authorization Act, which enables visibility of the entire 
business portfolio, not just the modernization efforts. This 
will greatly assist our efforts to rationalize the legacy 
environment.
    In closing, I thank the panel for its work and carefully 
considered recommendations. I would also like to thank the 
committee for its continued attention for both auditability and 
the DOD's broader business operations.
    This concludes my statement. I look forward to your 
questions.
    [The joint prepared statement of Ms. McGrath and Secretary 
Hale can be found in the Appendix on page 29.]
    Secretary Hale. Let me pick up with a couple other points, 
and then we will get to all of your questions.
    And thank you, Beth.
    Important as they are, improved financial systems by 
themselves aren't going to get us to auditable financial 
statements. We also need improved financial reporting controls. 
And that is a fourth concern expressed by the panel. Controls 
are a key to audit success, but sometimes we find that ours are 
inadequate, sometimes they are too variable across commands, or 
they are not adequately documented.
    To address this problem, the services are enlisting help 
from their service audit agencies, their internal auditors. The 
audit agencies have people who are qualified to assess 
management controls and make sound recommendations. We also 
need the support of field commanders who can ensure that 
management control improvements actually occur. And we are 
seeking that support.
    Better internal controls should help with improper 
payments. Our improper payment rates are actually lower than 
most civilian agencies, as measured as a share of our budget, 
even though those agencies have clean opinions. But we need to 
do more and we are taking the steps to lower improper payments 
even further. The same is true for unmatched disbursements and 
Anti-Deficiency Act Violations.
    And fifth on the panel's list, we are taking actions to 
institutionalize these various improvements, and to raise 
awareness of the audit efforts in nonfinancial areas. We have a 
strategic management plan that clearly incorporates this 
initiative. The Secretary's directive on auditability issued 
last October certainly helped raise awareness. It has also 
created new goals for us.
    The Secretary wants us to cut in half the time that we will 
spend getting our budget statement ready, the statement of 
budgetary resources for general funds. Specifically, he wants 
that statement be audit-ready by 2014, and he wants us to take 
other steps to increase audit readiness. We are carrying out 
Secretary Panetta's direction. An overview of our accelerated 
plan was submitted to the Secretary in December, and he 
approved it.
    We are now developing the details where needed to ensure 
that we can execute the new plan and that we have a way to hold 
people accountable. We will be prepared to brief your staffs in 
March on the details and will provide more comprehensive 
information in the May version of the FIAR report.
    Let me conclude by addressing our overall audit efforts. 
Our goal is to have all DOD financial statements audit-ready by 
2017.
    The key to achieving our 2017 goal is building a 
foundation. To do that, we need to carry out things we are 
doing right now, our current priorities, achieve auditable 
budget statements, and counts, and locations of assets. That 
foundation will greatly help us as we work toward asset 
valuation, which is the other major step that we have to carry 
out by 2017.
    We also need to sustain effort in this area, and in that 
regard, there is one area where we could use your help. In the 
past year, we have had no fewer than four threats of a 
Government shutdown. It required enormous planning efforts. We 
were on a 6-month continuing resolution, also required a great 
deal of management attention.
    Now the prospect of sequester is hanging over us. This 
uncertainty has drained valuable time and leadership attention 
for many initiatives, including our commitment to audit 
readiness. Congress could help us a great deal by returning to 
a more orderly budget process.
    Especially with regard to business processes, the 
Department of Defense is, if you will, more like an aircraft 
carrier than a speedboat. It doesn't change quickly. But we are 
building a foundation for auditability and we have created 
considerable momentum.
    And, aircraft carriers, once again, started, also don't 
stop quickly. And because we are building a foundation and 
creating momentum, I am reasonably confident that we can meet 
our goal to have all DOD financial statements audit-ready by 
2017.
    Mr. Chairman, on the end, as I started--by expressing 
appreciation for the committee's interest in this topic and 
appreciation for the panel's suggestion and its recognition of 
our progress. That concludes our statement. We welcome your 
questions.
    The Chairman. Thank you very much for your report and for 
your testimony.
    I know you can't go into specifics of the upcoming budget 
request, but one of the critical factors for success in meeting 
your financial management and audit reform goals will be the 
availability of resources.
    Do you have confidence that the fiscal year 2013 budget 
request will continue to provide resources required to meet 
your accelerated audit readiness goals? I know you just 
mentioned things that we could do to help, like returning to 
regular order.
    Some of our Members may be wearing buttons today, listing 
1,000 days since the Senate has passed a budget. It makes it 
very difficult to return to regular order when we pass the 
budget on our side, but are not able to get the Senate to 
function properly under regular order. So maybe it would be 
good if you get the opportunity to testify over there, you can 
make the same request of them.
    I know we will be striving to get our budget passed and do 
it through regular order on our side here, and hopefully we 
will be able to get that done. I know we were told that the 
Secretary--they were going to give us the budget, and they have 
had to move it back for a week. But we have been able to adjust 
our schedule to keep on schedule, to get our work done. We will 
try to do your request.
    I know a lot of people think that this will be a pretty 
much political year and will probably end up the year in 
another continuing resolution that is unfortunate. I hope that 
is not the case. And I hope we are able to return to regular 
order and we will be trying--if we could get all Congress to 
function the way our committee does, that would be a big step 
forward.
    Anyway, if you can think of anything that we could do that 
we are not doing in regard to specific amounts that you need to 
make sure that you have the resources you need, be happy to 
hear them if you have any specifics other than what you already 
mentioned to us.
    Secretary Hale. Mr. Chairman, I think we are going to be 
okay on resources. I will not go into specifics. It helps to 
have Secretary Panetta's support. It probably doesn't hurt to 
have the Comptroller's support. So I think we are going to be 
okay in terms of the budget resources. It is not on my worry 
list. Sustained leadership is, but that is not. So I think we 
are okay.
    The Chairman. Very good. Thank you.
    Mr. Smith.
    Mr. Smith. Thank you, Mr. Chairman. First of all, I want to 
point up something you said near the end of your testimony and 
that is the, you know, four times when you were uncertain 
exactly how the money was going to be coming to you this year, 
the four threats of a Government shutdown.
    I don't think there is a proper understanding in this body, 
or even nationally, the devastating impact that has on the 
ability of the Government, certainly DOD, having such a large 
budget. And that is the one that I am most intimately familiar 
with.
    I remember meeting with folks over at the Pentagon as they 
were trying to figure out what they were going to do, which 
programs they could continue, where they could find the money 
to continue them, which ones were going to have to be 
suspended.
    And I know out there in the private contractor world, they 
didn't hire people. They had a program. They knew it was 
supposed to be funded, but then maybe it wasn't going to be 
funded. So they had to ramp up. They were planning on hiring 
people to get ready to do this, but they didn't know if it was 
going to happen, so they couldn't hire them.
    It is devastating when this body is unable to pass the 
normal appropriations and authorizing bills in some sort of 
regular order. We tend to think, here in the last couple of 
years, that that is just what happens. We can't get an 
agreement, so we do a C.R. [Continuing Resolution] and then 
maybe the C.R., you know, leads to a threatened shutdown and, 
well, that is just the way things go.
    It is horrific in terms of its impact upon the ability of 
the Government to do its job; and again, not just DOD.
    And while we are out there wrestling with constituents who 
are deeply dissatisfied with Government, its ability to do its 
job by whatever definition they have, understand that we are 
just crippling that by not being able to give all the 
departments some predictability about when they are going to 
get their money, whatever that amount of money is.
    So I just wanted to place an extra little exclamation point 
on that. And, you know, I know this committee, you know, we 
passed our bill in May, waited for 6 months for the Senate to 
pass it. So I will say I think this committee did its job. But 
collectively as Congress, we need to do our job to enable you 
to do this.
    And then I just have two questions. One, to just sort of 
frame this, I mean, it has been said in the press that, you 
know, the Pentagon doesn't know where it is spending its money 
because it can't audit properly. I think a lot of people don't 
know what that means in sort of concrete terms.
    What is it that the Pentagon is unable to do, and how does 
that translate into the notion of knowing where you spend your 
money? Could you explain that a little bit in terms of just 
where the problem is at, the sort of what it is and what it 
isn't?
    Secretary Hale. Well, I will try. First off, in----
    Mr. Smith. I am sorry. The microphone is sort of off to 
your side there, if you could get that over, that is great.
    Secretary Hale. Better?
    Mr. Smith. Yes.
    Secretary Hale. I will try. First off, I am fully committed 
to auditable statements for a variety of reasons, but the most 
important reason is we need to reassure the public and the 
Congress that we are good stewards of their funds and will 
never do it unless we can pass an audit. So I have committed a 
lot of effort to that.
    That said, I believe that when it comes to knowing where we 
spend our money by appropriation, the way you appropriate it to 
us, we do have accurate information. Our systems are designed 
to do that. They do it pretty well.
    And I would offer, as corroboration, the absence of 
problems. We do about 140 million accounting transactions a 
year in DOD. If we were off even by 1 percent, that would be 
more than a million incorrect transactions. You would see 
regular mispayments to contractors. And we have a few, but not 
many.
    You would see regular mispayments to people or improper 
payments to personnel are a couple tenths of a percent, and 
they usually go away quickly. You would see unmatched 
disbursements in a wholesale basis. We are not seeing any of 
that. So I am confident that the data is reasonably accurate, 
but so we need to demonstrate that through an audit, and I am 
fully committed to doing it.
    Mr. Smith. In layman's terms, then--and I am not an 
accountant--what does it mean that you can't do an audit?
    Secretary Hale. Well, let me try that. I do that with some 
humility, with Mr. Conaway here as a CPA [certified public 
accountant], because I am not. But basically an auditor wants 
to see for every entry in your budget statement--let me focus 
on that--they want to see an invoice. They want to see a 
receiving report that said you got the goods. They want to see 
a contract that matches the price and the invoice.
    And we do with 140 million transactions a year. We can't 
quickly generate all that documentation in a manner that 
satisfies auditors. One of the big things the Enterprise 
Resource Planning systems will do for us is keep that 
information, particularly the receiving reports and the 
invoices in a manner that is electronically accessible.
    Right now, you have to go out to the bases in some case. 
They prowl through your files, find that invoice, and there are 
thousands of them when they sample. We can't do it quickly 
enough. We can't balance--at a transaction level, with our 
Treasury account--the so-called funds balance with Treasury, 
which is required. And we should be able to do it.
    So we can't reassure you, and we need to do that. But the 
absence of fundamental problems, it leaves me convinced that 
the basic data we are presenting to you when we show you the 
budget in a couple of weeks are accurate.
    Mr. Smith. Okay. I had another question, but I will hold 
off on that, and yield back. Thank you.
    The Chairman. Thank you.
    Mr. Bartlett.
    Mr. Bartlett. That is testimony to our inability to 
adequately communicate with our constituents the average 
constituent believes that if we just didn't have any earmarks--
and now we don't--that if we cut out foreign aid and if we cut 
out waste, fraud and abuse, we probably could have balanced the 
budget.
    I am not sure we are going to cut out foreign aid, but they 
would certainly like us to cut out waste, fraud and abuse. And 
they have the perception that unless we can audit what we are 
doing, there is little chance that we are going to be able to 
cut out waste, fraud and abuse.
    Can you, in a couple of minutes here, so we have a 
statement for the record, tell our constituents why it is so 
difficult for DOD to keep records that can be auditable? And 
then could you provide us a little one-pager that we can send 
to our constituents who wonder why half of the money in our 
discretionary spending cannot be audited?
    Secretary Hale. Well, Mr. Bartlett, I will offer you an 
answer but not an excuse. We need to do this. And we need to 
move to do it quickly.
    The reason is, at least partly, goes to the answer I just 
gave Mr. Smith, we don't have systems in place right now that 
allow us to quickly get the information that an auditor 
requires. As I said, they want an invoice, they want a 
receiving report, they want a contract. With 140 million 
transactions a year--and maybe 10,000-20,000 sampled 
transactions by an auditor, you have to have that in an 
automated form because they want it in a couple of weeks. And 
we don't have that right now. We also don't have internal 
controls that are adequate. I will give you a couple examples 
to try to make that a little more clear.
    We went to some of our bases when the Marine Corps had its 
budgetary statement under audit, and the auditors found that we 
had not taken off people who had left the base. We had not 
taken them off access to our financial systems. They say, 
``Wait a minute. I mean, that is a fraud potential.'' That is 
pretty easy blocking and tackling, but we have got to get it 
done across the Department.
    We also do something called bulk obligations of military 
personnel dollars. We obligate them broadly for, say, a whole 
command. This is efficient for us, saves us time. The auditors 
don't find that acceptable. They want to be able to track it 
back to the individual and be sure, you know, Sergeant Bob Hale 
really is a sergeant and is getting paid properly. So we have 
to change our businesses practices to avoid bulk obligations, 
or at least have the detail that they want.
    Translating that for the American people, we will take a 
shot. But it is pretty technical stuff. It is just we got to 
get it done and we need to reassure you and the public that we 
are good stewards. And as I said before, I don't think we will 
ever do that unless we can pass what every viable company in 
America has to do and pass an audit.
    If I have time, I will tell you a brief story. It was in 
1994. I had taken over as the Air Force financial manager and I 
was trying to do audit then and I didn't get too far. I was 
talking to my wife about why our statements weren't auditable.
    And first off, she is not an accountant, so I had to try to 
explain what audit meant. And I did that. And then she stopped 
me and she said, ``Well Bob, if your statements aren't 
auditable, how do you know people aren't stealing from you?'' 
Financial statement audits aren't really designed to detect 
fraud. That is not what they are designed to do.
    But I started to explain that and I just stopped and 
realized we aren't ever going to convince the American public 
we are good stewards until we do this. So we are trying. And I 
would like to be getting there faster, but I think we have made 
a fair amount of progress. And I will try for the one-pager.
    Mr. Bartlett. Can you give us a little one-pager in 
layman's language that they will understand of why it is so 
difficult?
    [The information referred to can be found in the Appendix 
on page 43.]
    Secretary Hale. I will try.
    Mr. Bartlett. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Mrs. Davis.
    Mrs. Davis. Thank you, Mr. Chairman.
    I would just ask you to follow up really on the question 
that I asked Mr. Conaway about how you move this in a way that 
the need for auditability becomes part of the culture in a way 
that the--and he mentioned the evaluations, and that is part of 
the report that they put forward and how important that is to 
senior leadership and what goes down the line.
    But how do you tell people that this is really going to 
change? And I guess the other question that I have to ask 
myself is was this not in place before? What is changing?
    Secretary Hale. Well, let me go to your first question. How 
do you do it? Tone at the top really helps. Secretary Panetta's 
endorsement of this has been of enormous advantage. I view it 
as a golden opportunity. I am looking how I can leverage that. 
And I think he is convinced that this is important, and that is 
beginning to circulate through the system.
    We need to get this from being a comptroller issue to a 
commander's issue. It is the commanders that can make these 
changes that have to happen. I think that is starting to 
happen, but we haven't gotten there yet. We are doing a meeting 
I hope this afternoon with the Deputy's Management Action 
Group. We will have all the vice chiefs there. And one of the 
questions we are going to ask them is how do we do better at 
getting this to be a commander's issue.
    As you heard Mr. Conaway say, we have asked that the 
performance plans for every member of the senior executive 
service who has any significant involvement with audit, their 
performance plans specify that this is one of the things that 
they have to do. That ties to bonuses. And so it is a step in 
the right direction.
    We have to do all of that and more. Why haven't we done it 
before? I would just have to say that management attention has 
been variable. We haven't sustained it. And we are big and we 
are fighting wars and all the reasons or excuses that you hear, 
but we just have to sustain the attention and make this happen.
    Mrs. Davis. Do you see a role for the personnel committee, 
as Mr. Conaway stated, to make certain that there is an 
acknowledgment, and participation by all those involved, all 
the stakeholders involved in this?
    Secretary Hale. So as I have said to Mr. Conaway, political 
appointees don't usually ask for hearings. However, I think it 
is appropriate that there be ongoing hearings. I will let you 
decide where that will be. I won't specify the organization.
    But I think it is appropriate to have some ongoing 
oversight, perhaps particularly during the change of 
administration. And no matter what happens in the election, 
there will be change in senior leaders. That is just 
inevitable.
    So I think it would be appropriate perhaps particularly 
during that period to have oversight hearings. And if you 
wanted to ask in your personnel role whether the members of the 
senior executive service at each department have this in there, 
I would welcome that. I think you will hear yes because we work 
carefully with the departments, but I think it would be a good 
question to ask.
    Mrs. Davis. Ms. McGrath, did you have anything you would 
like to add?
    Ms. McGrath. I would echo Mr. Hale's comments about the--
you know, this has to come outside of just the comptroller 
community. And so we have embedded every functional area into 
the governance process of the Financial Improvement Audit 
Readiness. It is more than just he and I at the table and the 
accountants. It is everybody. We are cascading those into the 
performance plans, holding those members accountable.
    And we are also tying, as I mentioned in my statement, the 
implementation of the various systems. These are logisticians 
now paying attention to audit as part of an acquisition 
decision. What business outcomes are we trying to achieve? Not 
only the logistics aspects, but also the audit piece so they 
are not separate. So I think we are taking a much more 
integrated approach to achieving collective business outcomes, 
as opposed to specific functional outcomes. And I think all of 
that has been very helpful.
    Mrs. Davis. Okay.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Mr. Conaway.
    Mr. Conaway. Thank you, Mr. Chairman. Mr. Hale and Ms. 
McGrath, on the Panetta 60-day review of the 2014 statement of 
budgetary resources acceleration, can you give us kind of where 
we are right now? We are a little more than 90 days past that 
deal. Can you give us a sense of where that is going?
    Secretary Hale. I can. First off, procedurally, we gave the 
Secretary 2 days before it was due a summary of the plan. He 
has approved it. We are now moving and well along with getting 
details, dates and who is responsible.
    Some of that will get reviewed at what I hope will be this 
meeting this afternoon with our Chief Management Officer, Dr. 
Carter. And Ms. McGrath and I will be there for that. But let 
me try to be helpful. And at some point we need to share more 
details with you. I understand that. Let me try to be helpful 
and try to tell you where we are kind of by department.
    The Marine Corps is in the best shape. There is a statement 
of budgetary resources actually under audit. I have got my 
fingers crossed for a positive opinion. We will know by March, 
but we have learned a lot and they are clearly a lot better 
off. Your 8,000--400 analogy you used in terms of hours I think 
is characteristic. So they are furthest ahead. I am not too 
worried about them.
    The Naval Service is in pretty good shape. They had 
intended to assert audit readiness on the statement of 
budgetary resources by 2014. They just have to do it. I don't 
want to understate the important of that.
    The Army will have to speed up by about a year compared to 
their previous plan. They will need to be sure their GFEBS 
[General Fund Enterprise Business System] system, it is their 
ERP, is in place. And they are going to have to accelerate some 
of their data-cleaning efforts. Some of the older data that 
they had hoped would just sort of go away with time by 2017 
won't by 2014.
    The Air Force faces the biggest challenge of the military 
departments because it was depending on the DEAMS [Defense 
Enterprise Accounting and Management System] system, which they 
had hoped to have there by 2017--is not going to be there in 
large part by 2014. They are going to have to look at 
workarounds and maybe higher sample sizes or other approaches 
for some of their existing systems for a year or two. I don't 
mind that, so long as we have got a long-term plan to get off 
that. I don't want to do that on a permanent basis.
    The defense agencies, only 3 of I think 26 defense agencies 
have clean audit opinions. We have got a big job there. They 
are smaller, so each one is not a problem. It is their number 
that is an issue. And I think they are challenging because of 
their number.
    We have set up a small group in my office to try to help 
them, and we have set aside some money in this forthcoming 
budget to act as seed money to help them move ahead. Ask them 
to assert readiness for what is called appropriations received, 
their funds distribution by next March and audit readiness by 
2014.
    We need our service providers like DFAS [Defense Finance 
and Accounting Service] to be ready and our principal staff 
assistants, like me, to work with their defense agencies to 
make sure that they are moving ahead. So that is probably more 
detail than you want, but we are getting there in terms of this 
plan.
    Mr. Conaway. Part of Secretary Panetta's charge was for the 
Deputy Secretary of Defense to set up a periodic review process 
on this issue so that we keep that sustained leadership 
emphasis on it. Has the Deputy had a chance to put something in 
place yet?
    Secretary Hale. He has. He will use this Deputy's 
Management Action Group, which is all the under secretaries, 
the vice chiefs, the principal staff. The under secretaries 
from OSD [Office of the Secretary of Defense] are all 
represented on this group. And basically what Ash Carter has 
said to me is, you know, ``Bob, tell me when you have something 
ready for me.''
    And so we have a meeting this afternoon that will go over 
the plan for acceleration. And also we are going to use that 
opportunity when we have all the vice chiefs there to say, 
``How do we get this out in the field? How do I get commanders 
involved?'' I think they are starting to do that, but I would 
like their advice.
    And, basically, Dr. Carter has said, ``Come back to me when 
you are ready for another meeting when you have something 
meaningful.'' He didn't want to schedule it every 2 months, and 
I think that is right. It is my job to tell him when we are 
ready to go. So yes, I think there is a process in place.
    Mr. Conaway. Beth, do you want to add to that?
    Ms. McGrath. I would just echo Mr. Hale. As was mentioned 
in our written statement, financial auditability remains a 
priority for the Department. We have cascading governance 
throughout the organization so that there is an appropriate 
level of accountability. And I think Mrs. Davis asked earlier 
what was missing or what is different. I think that that is a 
big factor.
    Mr. Conaway. Thank you both again for testifying. Let me 
make one comment. We probably ought to modify the 
``unauditable'' phrase by saying it is unauditable at rational 
costs. You could unleash enough auditors to redo every 
transaction, all 140 million transactions, and you could get an 
audit. That is not rational to do that.
    So we may want to make sure people understand that 
unauditable means you can't audit it at a cost to the system 
that makes sense. With those comments, I yield back.
    The Chairman. Mr. Kissell.
    Mr. Kissell. Thank you, Mr. Chairman.
    Secretary Hale, good to see you again. I remember when we 
traveled together before you made a statement. I think it was 
something like ``you are not happy until everybody else is 
unhappy.'' Is that correct?
    Secretary Hale. Yes, that is one of the mottoes of the 
Comptroller. ``We are not happy until you are not happy.''
    Mr. Kissell. Are we making progress towards making you 
happy?
    Secretary Hale. Yes, I think so. I am not quite sure where 
you are going, but I think we have got the Department headed in 
the right direction on this and so I am pleased, but I 
recognize we have got a long way to go. And so I am also humble 
and I'd really like to underpromise and overdeliver for a 
change. We have been doing the opposite for 17 years, 
overpromising and underdelivering and we need to deliver.
    Mr. Kissell. I do want to follow up more specifically 
with--you talked about sustained leadership as being important 
to all of this. And this may have been discussed earlier and I 
missed it, but what area are you talking about that we need 
that sustained leadership? And how do you see that is working?
    Secretary Hale. Well, it would be very helpful if--I am not 
predicting when Secretary Panetta will leave, but whenever he 
does if the next Secretary of Defense shared his commitment to 
this. It is critical that it also be shared by the service 
secretaries and chiefs. They have got a lot of the effort to do 
by the Comptroller and my job, by the DCMO [Deputy Chief 
Management Officer]. I mean frankly most comptrollers are 
budget junkies. I am too. We focus a lot on budgets. We have 
to, that is part of our job. And it can push out everything 
else because it can be so all consuming.
    You know we need for the person who follows me, whenever 
that happens, to make sure they are still committed to pushing 
this process along toward auditability. So, it is sustained 
leadership at the top, as well as getting our career people 
involved. But we need that sustained leadership has got to come 
from the top.
    Mr. Kissell. Thank you, sir.
    Thank you, Mr. Chairman.
    The Chairman. Mr. Coffman.
    Mr. Coffman. Thank you, Mr. Chairman.
    Now, refresh me, what year again is the goal to be able to 
have auditable books for the Department of Defense?
    Secretary Hale. It is audit-ready, which means we are ready 
to actually hire an auditor, going in there by 2017 for 
everything; 2014, for what I would say is the highest 
priority--the statement of budgetary resources for general 
funds.
    Mr. Coffman. Now you said this is pretty complicated in 
that, you know, all these different echelons of command were 
not able to match our invoices up with our expenditures. Is 
that a correct statement?
    Secretary Hale. Yes, I mean each one isn't complicated, 
pretty straightforward. It is. The problem is the numbers and 
the nature of the processes that we have, that don't make it 
easy.
    Mr. Coffman. You know, let me tell you what isn't 
complicated and what I think--that unless the culture of the 
Department of Defense changes, then I think it is going to be 
very difficult to get auditable records. Here is, I think, the 
fundamental problem, and that is that commanders don't feel the 
responsibility. That in different echelons of command, there 
are always inspections that come down and the commanders are 
held accountable.
    Even though there is the staff person may have a military 
occupational specialty, whether a logistician or some other 
field, where--let us say it is an infantry commander, in that 
instance they are held accountable. But in financial 
management, there is not that kind of inspection where the 
military commanders at the respective commands are held 
accountable. And so I think what we need to do is to change the 
culture of the Department of Defense to make military 
commanders at every echelon of command, vested in financial 
management.
    So, somewhere in professional military education there is 
going to have to be some aspect to where they have knowledge of 
this; to where they are accountable. To where if they have 
folks that aren't keeping track, that aren't able to pass an 
inspection, that they don't think are going to be able to pass 
inspection, prior to that, relieving them and getting competent 
people in there. Until we change the culture in the Department 
of Defense and have military commanders at every echelon vested 
in financial management, I believe this problem is going to 
continue.
    And I would love your--both of you--I would like your 
response to that?
    Secretary Hale. I agree with you fully. We recognize, I 
said earlier we have got to get this out of the comptroller 
community and into the commander's community. The Comptroller 
should still be the source of information. What I would like to 
see is every commander say, ``All right, I have got a senior 
staff meeting--''
    Mr. Coffman. Absolutely.
    Secretary Hale. You know, ``What is the problem here?'' 
And, ``Comptroller, what have I got to do?''
    Mr. Coffman. Right.
    Secretary Hale. And then it is their job to say, ``Okay, 
you know, we have got to fix the internal controls,'' which is 
the main thing they have got to do. We need to support the 
installation of these systems. And other steps that they will 
need to take. We are moving in the right direction. The fact 
that we have had several meetings now--it is not the first time 
that we have had a meeting with the vice chiefs, so I think we 
are moving in the right direction. I also don't think we are 
there yet. I think if you randomly pick commanders at bases and 
installations, they might have heard of it because of Secretary 
Panetta's statement, but I don't yet feel that widely they 
would feel responsible.
    We have got to get there and that is one of the things I am 
going to ask this afternoon of our vice chiefs, how do I help 
do that? Or, how do you help me do that? I know they are out 
there talking about it because we are getting some feedback. 
Mr. Conaway had to leave but he has had some personal contacts 
at a base where the commander mentioned this. So, we are moving 
in the right direction, but we are not there yet. And I 
recognize that is a key thing that has to happen.
    Ms. McGrath. I would just echo Mr. Hale. On the civilian 
side, we have taken steps to put the auditability goal on the 
civilian side. We don't have the same mechanism on the military 
side, although we are, I will say educating and teaching of 
professional military comptrollers. Again within the military 
comptroller community, the goal is to get it outside and more 
broadly aware and share the accountability across the military 
departments. That is why I said we are approaching this at 
every angle we possibly can through the systems implementation, 
IT rationalization. If we take away the legacy environment, 
that will enable stronger controls, because we will create a 
more integrated environment.
    I think through all of these means and mechanisms, we can 
help change the culture. But I think it will take all of them 
along with the sustained leadership that Mr. Hale and others 
here have mentioned.
    Mr. Coffman. And I can tell you, having served in both the 
Army and the Marine Corps, if the Secretary of Defense said 
today that military commanders at every level will be 
accountable to the financial management of their organizations, 
I think that this situation would change almost overnight where 
you would have military commanders all of the sudden studying 
to understand the financials of their organization in terms of, 
as was mentioned here today--tracking the money spent with the 
invoices paid.
    Ms. McGrath. And that is in the intent with the more 
detailed FIAR report. It starts at high level auditability 
goals and cascades down to the military departments and then 
has to get down to the command level. For the department to 
achieve its auditability goals, it has to get down to the 
command level.
    Mr. Coffman. Okay. Well, let me just say we have not taken 
that step and I will encourage the Secretary of Defense to do 
so. Mr. Chairman, I yield back.
    Mr. Bartlett. [Presiding.] Thank you.
    Mr. Critz.
    Mr. Critz. Thank you Mr. Chairman. Just so I understand 
because I have been one of those folks who have been pushing as 
well for auditable reports and in an earlier statement you said 
that your financial statements at this point are really 
accurate, that you felt very strongly about the information 
that is there, it is just not to the level to auditable. And of 
course my concern was that to get to auditable, helps you know 
what you have and in cases like when Congress doesn't pass a 
budget and you have to go to a continuing resolution, helps in 
your planning.
    But from the statement you made earlier, maybe my thought 
was not as accurate as I thought it was and so I am asking, 
getting to the level of an auditable report accomplishes what?
    Secretary Hale. Well I will reiterate what I said, I think 
the information we are going to supply you in a couple of weeks 
in the budget is accurate and I won't go through that answer 
again. But it is because of the absence of major problems. But 
you get several advantages from auditable state. First, it is 
the law. And I take that seriously and I know you do. Second, 
we will improve our business practices in ways that may make us 
better able to use resources.
    Right now out of those 140 million transactions, as some 
get lost to us; and the money does not get obligated and 
expires and we can't make use of it. So, it will help us make 
better use of resources. But I would come back and we need 
better business practices to make sure that what I said is 
true, that things are accurate. But I will come back to the 
fundamental point. The reason we need to do this, is to 
reassure the American public, we are good stewards of the funds 
and Congress that we are good stewards of their funds.
    And that is valuable in and of itself. And I think the 
single biggest thing that we will get out of auditable 
statements in my view.
    Mr. Critz. Okay. And I look at it as a business model. And 
that is what I was trying to discern. Are we going to spend 
$100 million to save $50 million--is sort of, you know--that is 
where I am trying to get to--is that, you know, what are the 
personnel costs going to be to get to an auditable report? What 
is the time consumption and the--really you talk about from the 
Secretary on down--the dedication that has to be to this 
effort.
    So, you know I believe wholeheartedly that we need these 
auditable reports because you should be able to come to 
Congress and the American people and say where you are spending 
the money and what you spent on it. But also from a planning 
standpoint, I thought it would be helpful, but especially when 
you have a C.R., where now you are starting to juggle things. 
And maybe I misinterpreted that. And I am happy to hear that 
you are very accurate.
    Secretary Hale. I think we could manage if we had to, 
without it. We are managing and we did do it for 6 months. It 
had problems quite apart from our lack of knowledge of where 
the dollars were. But that doesn't take away, in my view, from 
the importance of getting this done----
    Mr. Critz. Right.
    Secretary Hale [continuing]. In order again, to reassure 
the public.
    Ms. McGrath. But if I could add, I think it affords you the 
opportunity in a more real-time manner to have the information. 
You have heard a lot about the processes and the internal 
controls. Those are things that we work through to get to the 
accuracy of the data. With a more sound controlled business 
environment, you actually then have an integrated capability 
to, in a more real-time fashion, get at the information that 
you are seeking. And so I do think that there is the real-time 
aspect that may or may not have a dollar value but affords the 
opportunity for that planning that you are talking about.
    Mr. Critz. Good. Good.
    From a personnel standpoint, what is the plan to either 
ramp up, redefine, or re-educate people so that we are getting 
to this point? And I heard you tell the chairman that you have 
the finances you need to implement this plan. So, could you 
just go through what is going to be happening at the civilian 
side? What might be happening on the uniform side to make this 
happen?
    Secretary Hale. Well, in the financial community, I think 
we need a course-based certification program analogous to the 
Defense Acquisition Workforce Improvement Act. What it allows 
us to do--we have got a lot of training, but what we don't have 
is a framework that allows senior leaders to say, ``Okay; on a 
certain job you need to have three or four courses and one of 
them on audit readiness.'' And that is not the only area where 
we need a better framework, but that framework will allow us to 
require that training.
    You gave us the legal authority to impose that framework 
and we are moving to do that. In that process, audit readiness 
is a high priority for us. We are going to develop a short-
course base--or an online course--that indicates the importance 
of audit readiness. And at more senior levels, will require 
more accounting knowledge so that people understand better the 
accounting system and what has to be done to be audit-ready.
    So I think we are moving in the right direction in the 
financial community, both the military and civilian. This will 
apply equally to military and civilian. In the nonfinancial 
communities, they generally probably have the expertise. We 
need their attention and we are trying to get that. And it may 
be that we want to provide maybe one of these online courses 
for an hour on why audit is important. I think I need to think 
about whether that would be a good idea. And perhaps provide 
that to people who would be most involved.
    So, training is an important part of this, and I think we 
are moving in the right direction.
    Mr. Bartlett. Thank you.
    Mr. West.
    Mr. West. Thank you, Mr. Chairman and Mr. Ranking Member, 
and thanks for the panel members being here. I want to dovetail 
off what Mr. Coffman kind of asked because it does cause me 
some concern. I spent a couple of days in the military myself 
and I understand at the lowest level if you have, you know, 
fiscal responsibility it should translate up to the highest 
levels. You know, at the age of 27, I had an artillery battery 
that was multimillion dollars. I am not a CPA, I am not an 
accountant. But we had systems in place--monthly 10 percent 
inventories; weekly, monthly and quarterly budget 
reconciliations.
    So at the end of 20 months, the command--I will never 
forget this, it was $9.35 budget--hose for a hemi truck. And 
that was the only thing that was missing. And you know, I 
thought I would have to write a check for that. But the 
commander kind of laughed that off. But even as a battalion 
X.O. [executive officer], you know, I continued on to, you 
know, supervise commanders and make sure we had that 
reconciliation process as a battalion commander as well. 
Listening to what Mr. Coffman was talking about, you know, that 
was part of your evaluation as a commander on the green-suiter 
side.
    And that went all the way up to division commanders, as 
well as corps commanders. Are we not enforcing a system of 
property management, fiscal responsibility, for our commanders? 
Because in my day as a young captain, you could get relieved if 
you are, you know, not fiscally responsible. So, is that still 
in place in the military, or has something changed where they 
are not doing regular inventories, reconciliations? That was 
part of the monthly USR [Unit Status Report] report that went 
up to division commanders.
    Secretary Hale. I believe those are still in place, Mr. 
West, and I don't want to leave you with the impression that 
there is widespread fiscal irresponsibility in the Department 
of Defense. But financial statements audits require certain 
kinds of information be quickly available. As I mentioned, we 
have got 140 million transactions a year. For each one of 
those, I need an invoice; I need a contract; I need a receiving 
report. We can't produce that information that quickly.
    And I agree with your suggestion and Mr. Coffman that 
changing that has to be part of the commander responsibility. 
We are going to have to add that to the list of things. But I 
think we are still out there checking for the stuff that we 
own.
    I will say on property accountability, one of the problems 
we have seen, because that is one of the high priority areas, 
counts and locations of our assets, I think we know what we 
have got generally. We don't always get it into the system of 
record. And so the auditor goes out there and they look at our 
system, I mean they have got an excel spreadsheet over there 
and they know what they've got. But they look at the system of 
record and it is not there. And so we have got to get 
commanders to say, hey, you know, cuff records are okay, but 
you have got to get it into the system of record.
    Mr. West. Could we institute, like I talked about, the 
weekly reconciliations or the 10-percent inventories? Is there 
some kind of means that we can come up with a 5- to 10-percent 
monthly reconciliation process so at least we can look and say, 
you know, ``I am going to look at this percent of your 
invoices. Not everything within a month, but this percent,'' so 
at least we get this sense of urgency and a sense of 
recordkeeping and accountability? Because for me, I knew that 
if the boss above me asked that question and I did not have 
that signed off 10-percent inventory reconciliation, that is my 
job and I am gone.
    Can we input something like that or in place something like 
that?
    Secretary Hale. Yes. You don't wait until the end of the 
year. When you are doing this successfully, you are checking as 
you go along.
    Mr. West. Yes.
    Secretary Hale. A quarterly basis, perhaps. And if you are 
actually under audit, then the auditors are pulling a 
statistical sample and they are going out to the bases and 
saying, ``Okay; show me that information on a, perhaps, 
quarterly basis.'' So as we get to the audit, yes, we will do 
just that.
    Ms. McGrath. Sir, if I could add to echo Mr. Hale, though, 
those things are still certainly required within the 
Department. From an auditability perspective, we are looking at 
ensuring that we have established this referential integrity so 
you know what the, if you will, the paper trail is with strong 
internal controls and documented processes. Those are the areas 
that I think do need the commander's attention so that we 
document those processes--not that it is not being done. It 
perhaps could be documented more deliberately so that an 
auditor could see exactly what processes and internal controls 
we had in place.
    Mr. West. Okay, well I tell you if you get a chance to go 
over to talk to General Gordon Sullivan, who used to be the 
Chief of Staff of the Army, that was my division commander, 
First Infantry Division, and he would embarrass you at the 
monthly USR if he looked at the numbers of your expenditures 
and you could not tell the story of what you were doing, as far 
as within your brigade, with the money you are spending. So, he 
can probably give you some good lessons learned.
    Thank you very much, I yield back, Mr. Chair.
    Mr. Bartlett. Thank you.
    Ms. Hanabusa.
    Ms. Hanabusa. Thank you, Mr. Chair.
    And thank you both for being here.
    In reading the panel's report, and I believe Ms. McGrath 
has mentioned this term about three times in listening to her 
testimony, I would like an explanation of the concept of legacy 
systems?
    Ms. McGrath. Concept of legacy systems?
    Ms. Hanabusa. And it is throughout the report, as you 
know----
    Ms. McGrath. Yes.
    Ms. Hanabusa [continuing]. Justification for the ERPs 
because we replace so many legacy systems. So what are these 
legacy systems that we are replacing?
    Ms. McGrath. There are thousands of legacy systems within 
the Department of Defense that perform numerous functions. They 
were not designed to be an integrated suite of capabilities. 
Many times there were local decisions made that enable local 
capability. And a commander had a need-to continue the example, 
if the commander had a need to perform a business function, he 
or she had the ability to, you know, procure a solution, an 
I.T. solution, to help solve a local problem.
    The enterprise resource planning capabilities are 
integrated in an off-the-shelf integrated suite of 
capabilities, so it has financial and logistics and personnel 
modules within the box, if you will so that you can take a more 
integrated, holistic approach to your business environment. 
Most of the military departments in some way, shape or form are 
procuring or pursuing an ERP for their future state business 
environment. In order to successfully do that, you must also 
retire and eliminate the legacy environment.
    And there are many challenges associated with that. One is 
the change of management that we have talked about, taking 
people off the old and onto the new. Another big factor is the 
data. How are you going to move the data from the past to the 
present? And what is the best strategy to do that? Because also 
with the legacy environment, it allows you great flexibility to 
define the data as you needed to define it very locally. It did 
not take a corporate perspective.
    And so there is a lot of, say, opportunities and 
implementation of the ERPs. But really to successfully 
implement those, you must also rationalize the legacy I.T. 
environment.
    Ms. Hanabusa. And am I correct in saying that the legacy 
systems are probably one of your greatest barriers in terms of 
doing the audits?
    Ms. McGrath. Yes.
    Ms. Hanabusa. Now, like for example, Mr. Hale talked about 
the DEAMS system within the Air Force and there is a statement 
in here, and I don't know if you agree with it or not, but this 
is from the panel's report that they believe that the DEAMS 
system will support $335 million in annual savings after it has 
been fully deployed by providing real-time visibility into 
costs and allowing timely reallocation of dollars. And it is 
like for fiscal year 2017 through fiscal year 2021, they are 
able to reduce unliquidated obligation and accounts receivable 
by $1.67 billion.
    So you can imagine as we are looking at the cutting, then 
when we see or I read something like this, I am very curious as 
to, one, whether you agree with these figures and how would, 
for example, the Air Force-- because you mentioned DEAMS, Mr. 
Hale--expect to support $335 million in annual savings?
    Secretary Hale. Well it would be realized in their 
operation and maintenance budgets when it occurs. I think we 
will see some savings. We have got some; the Navy ERP has been 
around for a while now. I wouldn't say the savings are massive. 
When you talk to people, they are more excited about the better 
information and more timely information that they can get then 
they are about the number of people that they have been able to 
eliminate, which is one of the ways you save money. But I am 
willing to believe we will see some savings, but it is not the 
only reason we need these systems.
    Ms. Hanabusa. And in looking at the chart that was an 
appendix to the report, the ERP system is actually identified 
as a different system in almost each of the divisions, like 
Army has the General Fund Enterprise Business System, Air Force 
has the DEAMS system, Navy has a Navy Enterprise Resource 
Planning system. So I am just curious, do you believe that in 
the future we are going to have a problem we may reduce the 
legacy to these different ERPs? But then are the ERPs then 
going to become a problem for us?
    Ms. McGrath. So if----
    Secretary Hale. Go ahead.
    Ms. McGrath [continuing]. Mr. Hale doesn't mind?
    Excuse me. The military departments having three--and those 
are predominantly the financial systems that you identified--
the importance of the Department's ability, or an enabler for 
the Department to aggregate the information from those ERPs is 
the utilization of a standard. The standard financial 
information structure is a standard that has been defined and 
is being implemented within each of those ERPs.
    So at the end of the day, we can aggregate the data from 
those different systems, using the standards that have been 
defined. If we did not have those same standards embedded in 
each of those solutions, then we would not be able to aggregate 
the data.
    Ms. Hanabusa. So they would be speaking the same language 
for a layman?
    Ms. McGrath. Exactly.
    Ms. Hanabusa. Thank you very much.
    Thank you, Mr. Chair.
    Mr. Bartlett. Thank you.
    Our inauditability is interpreted by many of our 
constituents as opportunities for wholesale theft. If you can't 
audit the books how do you know that millions and maybe 
billions of money is not just being stolen? How can you assure 
our constituents that that is not now happening?
    Secretary Hale. You sound like my wife, Mr. Chairman--same 
question she asked me.
    First off, financial statement audits aren't really 
designed to find fraud. They take a very small sample. They are 
designed to determine whether the statements are materially 
correct. We have a lot of other procedures to try to eliminate 
fraud. The main one is two-person control over money. That is 
fundamental to everything we do.
    You are not supposed to be disbursing or otherwise handling 
finances on your own. A second person needs to be involved so 
that the only way fraud can occur is collusion. I won't say it 
is perfect, but I don't think we have wholesale fraud. That is 
the main reason.
    Then there are various checks. We have thousands of 
auditors who are looking over our shoulders. And one of their 
jobs certainly is to look for fraud and to try to see if there 
are any systematic problems. Maybe we aren't doing two-person 
control at some areas where we should be, so that we can 
correct that and minimize it.
    So there is a number of ways we try to prevent fraud. I 
wouldn't say that financial statement audits are primarily 
designed to detect fraud.
    Mr. Bartlett. Thank you for your testimony. Thank you for 
your work in a very difficult area.
    Our committee stands in adjournment.
    [Whereupon, at 11:38 a.m., the committee was adjourned.]



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




                            A P P E N D I X

                            January 24, 2012

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





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


              PREPARED STATEMENTS SUBMITTED FOR THE RECORD

                            January 24, 2012

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


              Statement of Hon. Howard P. ``Buck'' McKeon

              Chairman, House Committee on Armed Services

                               Hearing on

 Department of Defense Perspectives on Financial Improvement and Audit 

                           Readiness Efforts

                            January 24, 2012

    I'd like to welcome everyone to today's hearing on 
``Department of Defense Perspectives on Financial Improvement 
and Audit Readiness Efforts.'' We just heard from 
Representative Mike Conaway and Representative Rob Andrews, the 
Chairman and Ranking Member of our Defense Financial Management 
and Auditability Reform Panel, who briefed the Committee on the 
panel's findings and recommendations, contained in the panel's 
final report. They are our subject matter experts, so I will 
not restate what they just said.
    We are very fortunate to have our briefing be followed by 
today's hearing, so that the committee might also receive the 
Department's perspectives on the report and its ongoing 
financial management reform efforts. I would like to thank the 
Department's witnesses that are here today, as well as those 
who have testified in previous panel hearings. The Department's 
willingness to make time to testify in the many early morning 
hearings conducted by the panel is a testament to its 
commitment to achieving financial management reform.
    With that said, as pointed out in the panel's report, there 
is much work to be done for DOD to reach its financial 
improvement and audit readiness goals. But, with the billions 
of dollars in budget cuts facing the Department and the need to 
have reliable information in order to make the tough decisions, 
DOD must take the necessary actions to overcome the challenges 
it faces. The committee stands ready to support DOD in this 
effort, and is interested in receiving feedback on the panel's 
work to assist us in our oversight of this very important 
effort. We have with us today:

         LThe Honorable Robert F. Hale, Under Secretary 
        of Defense (Comptroller)

         LThe Honorable Elizabeth A. McGrath, Deputy 
        Chief Management Officer, U.S. Department of Defense

    Let me conclude by saying two more things. Given the change 
in defense strategy recently announced by the President and the 
significant budget cuts the Department has to implement, 
starting this year, all of us are anxious to learn more about 
the specific changes contained in the fiscal year 2013 budget 
request. We will have that opportunity next month, but although 
we are joined today by Secretary Hale, I recognize that he is 
not at liberty to discuss these issues in advance of the 
President's release of the budget. Thank you again for joining 
us, nevertheless.
    Lastly, following what must have been a difficult decision 
to resign from office, I want to wish our colleague, 
Representative Gabrielle Giffords, our very best in her 
recovery and make sure she knows that she will be missed. Gabby 
was a leader on the Armed Services Committee and a tireless 
advocate for our men and women in uniform. I know leaving 
public service and the constituents she worked so hard for 
cannot have been an easy decision. She will continue to be in 
our thoughts and prayers as we begin our work this year.
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              WITNESS RESPONSES TO QUESTIONS ASKED DURING

                              THE HEARING

                            January 24, 2012

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

      
             RESPONSE TO QUESTION SUBMITTED BY MR. BARTLETT

    Secretary Hale. Please see the attached document below. [See page 
11.]

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


              QUESTIONS SUBMITTED BY MEMBERS POST HEARING

                            January 24, 2012

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

      
                  QUESTIONS SUBMITTED BY MR. LANGEVIN

    Mr. Langevin. Secretary Hale, thank you for appearing before us 
today. I want to ask you about a personal concern of mine that I have 
been following since I was a new member on the House Intelligence 
Committee. Anyone who has worked with programs that are classified as 
Special Access, or SAPs as they are known, soon learns that due to 
their highly classified nature, there is little opportunity for the 
normal budgetary oversight process to be applied with serious rigor. 
How does the Department conduct budgetary oversight of highly 
classified programs and what will you do to ensure that they do not 
become black holes on the balance sheets as you move the Department 
towards auditability?
    Secretary Hale. The intelligence committees have been big advocates 
for financial auditability for the very reason that you have 
highlighted. All of the military departments have included special 
access programs, that will have to be addressed using financial 
auditors with the appropriate access and clearance, in their plans for 
full auditability. The same thing applies to our Defense Agencies in 
this community. In this regard, we work very closely with the Office of 
the Director of National Intelligence (ODNI) to make sure these 
programs meet the same financial reporting and audit readiness 
requirements as unclassified programs. In fact, ODNI is helping to 
support timelines that will allow each of these agencies to assert 
financial audit readiness for all of their statements by FY 2014.
    Mr. Langevin. Secretary Hale, according to the May 2010 Financial 
Improvement and Audit Readiness Plan Status Report, the Air Force noted 
that its Statement of Budgetary Resources audit readiness will be 
dependent on the deployment of several enterprise resource planning 
systems. The Defense Enterprise Accounting and Management System 
(DEAMS) ERP is not scheduled to be fully deployed until the 4th Quarter 
of FY2016, and no deployment date was provided for the Expeditionary 
Combat Support System (ECSS). Can you explain how the Air Force plans 
to achieve the Secretary of Defense's October 31st directive to advance 
the SBR audit readiness date to 2014?
    Secretary Hale. The earlier plan reflected a built-in dependency on 
the future system that is no longer relevant to the new timeline. These 
system modernization initiatives are still important to our long-term 
business process improvements as well as cost-effective sustainability 
of audit readiness. The Air Force has adjusted their plan to address 
processes and controls as well as improving interfaces between its 
current systems. Improving controls and interfaces around the systems 
will be an investment that aids the implementation of the future 
systems and improves the likelihood of successful system 
implementation.
    They will also consider cost-effective upgrades to existing systems 
to meet the new timeline. An example of this would be improving the 
ledger posting logic.

    Mr. Langevin. Secretary McGrath, I also thank you for appearing 
before us today. As the Department's Deputy Chief Management Officer, 
what actions have you taken or do you plan to take in order to avoid 
ERP schedule delays and cost increases of the past? Given the current 
fiscal constraints, these are liabilities that can no longer be 
accepted. Additionally, what mechanisms do you have in place or actions 
have you taken to ensure these ERP systems will be implemented with the 
capabilities needed to ultimately enable the DOD to achieve audit 
readiness by 2014?
    Ms. McGrath. As DCMO, I have personally taken a number of actions 
to improve the acquisition of our ERP systems. For example, I have been 
a champion within the Department for the development and use of the 
Business Capability Lifecycle (BCL), which is an alternative and 
improved acquisition process for defense business systems. BCL is 
tailored to the unique characteristics of IT acquisitions--especially 
Commercial-Off-the-Shelf systems such as ERPs--and provides a more 
flexible and streamlined process to rapidly deliver capability to the 
users and reduce unnecessary documentation requirements. BCL is showing 
positive results on a number of programs and a number of other major 
programs are in the process of transitioning to the use of BCL as they 
enter the acquisition process or begin work on their next increment of 
capability. Additionally, as Milestone Decision Authority for a number 
of these ERP programs, I am conducting rigorous acquisition oversight 
to ensure that these programs are positioned for success, including 
ensuring that they have appropriate metrics in place to better hold 
them accountable for performance. Through this oversight, I am closely 
watching their cost and schedule parameters and more closely tying 
business and financial management outcomes with acquisition milestone 
decisions to ensure that they deliver the results that we need from a 
business perspective.
    With regard to the mechanisms in place to ensure that each of the 
ERP systems are implemented with sufficient audit capabilities, in 
addition to the linkage of financial management outcomes with 
acquisition decisions discussed above, each of the system acquisition 
programs has included the requirements of the Federal Financial 
Management Improvement Act in the system requirements. The testing of 
these requirements is part of the system acceptance process. 
Additionally, my office has begun an independent assessment of every 
ERP and business system that needs to be compliant with Standard 
Financial Information Structure (SFIS) and United States Standard 
General Ledger (USSGL) requirements. These reviews look at the 
underlying system's SFIS configuration, its USSGL posting logic, its 
ability to interface using SFIS, and its financial reporting 
capability. These tests give us confidence that the software is largely 
audit-ready.
    However, the new systems cannot achieve audit readiness on their 
own. They must be well integrated with many other systems to create a 
well controlled end-to-end business process. Many elements of the 
larger business environment, including processes and controls, must 
also be changed to allow us to meet financial audit standards.
                  QUESTIONS SUBMITTED BY MR. SCHILLING
    Mr. Schilling. In your testimony, you both indicated that you 
received input from multiple sources on DOD's audit issues. You also 
noted the work you are doing on workforce competency, and you mentioned 
the need to change training to match the new business environment.
          How extensively have you worked with the business 
        community to bring in a different perspective towards 
        addressing DOD's auditability and the overall DOD professional 
        financial management workforce?
          How have you worked with the private sector on the 
        long-term goal of establishing a course-based certification 
        program?
          Is the private sector working with you on the pilot 
        programs you mentioned in your testimony?
    Secretary Hale. We rely heavily on the expertise of public 
accounting firms, who are experienced in financial audits, to 
incorporate best practices from public and private sectors. In 
addition, we are using examination engagements, which are an integral 
part of our audit readiness methodology, to get DOD personnel 
experience with the requirements for audit. These examinations are 
essentially small-scale audits of single business processes. The public 
accounting firms performing these engagements employ the same 
procedures used in audit, but on a smaller scope and scale. These 
``mock-audits'' provide our employees with experience that cannot be 
taught.
    In support of the DOD Financial Management (FM) Certification 
Program and professional development of the financial management 
workforce, we sought out advice and assistance from members of the DOD 
Audit Advisory Committee (DAAC), who are distinguished representatives 
of the private sector audit, accounting, and financial communities. 
When briefed on the initial design of the DOD FM Certification Program, 
the committee members applauded the Department's efforts with the 
Certification Program and noted that this is exactly what is needed.
    We also sought out lessons learned and best practices from various 
Big 4 accounting firms and a small Certified Public Accountant (CPA) 
firm, all with experience in accounting and auditing practices, and 
several financial management professional associations, to obtain 
information on competencies, knowledge, skills, and abilities aligned 
with audit readiness and financial management practices. Additionally, 
we researched and reviewed knowledge level and education requirements 
as well as learning objectives associated with accredited test-based 
certification programs.
    We will continue to involve the representatives from the private 
sector as resources for the pilot and implementation of the DOD FM 
Certification Program. Their support is critical to ensuring the 
certification program benefits and long-term goals are achieved and the 
Department of Defense benefits by the increased capability of the 
workforce.
    Mr. Schilling. You mentioned that the DOD has taken into account 
recent audits and examinations, specifically by the Marine Corps' audit 
of its Statement of Budgetary Resources. Further, you point to some of 
the lessons learned from these
reviews.
          Can you elaborate on some of the most substantial and 
        important lessons learned?
          How should the other components and branches 
        implement these lessons?
    Secretary Hale. We are continuing to learn not only from the U.S. 
Marine Corps (USMC) audit, but also from recent assertions and the 
clean opinion on the Defense Information Systems Agency Working Capital 
Fund financial statement audit. Some of the key lessons learned include 
the importance of being able to provide a full universe of transactions 
to support balances, periodically reviewing and revising estimates, and 
performing reconciliations on a regular basis and not only during an 
audit. Recent efforts continue to demonstrate improvement in both 
understanding and application in these areas. In addition, the Defense 
Finance and Accounting Service has enhanced electronic document 
retention, management, and retrieval capability. This capability has 
proven effective in the current USMC Statement of Budgetary Resources 
audit and is available to support future audits across DOD.
    We are sharing the lessons learned from these experiences and 
transferring this knowledge to both support the current plan and 
provide a better sense of remedial actions required. To implement the 
lessons, Components must change current business processes where they 
have the same weakness. We continue to work closely with all 
Components, including Service Providers, in applying these lessons 
learned as we continue to make progress.

    Mr. Schilling. In your testimony, you both indicated that you 
received input from multiple sources on DOD's audit issues. You also 
noted the work you are doing on workforce competency, and you mentioned 
the need to change training to match the new business environment.
          How extensively have you worked with the business 
        community to bring in a different perspective towards 
        addressing DOD's auditability and the overall DOD professional 
        financial management workforce?
          How have you worked with the private sector on the 
        long-term goal of establishing a course-based certification 
        program?
          Is the private sector working with you on the pilot 
        programs you mentioned in your testimony?
    Ms. McGrath. We leverage the expertise of public accounting firms, 
experienced in financial audits, to incorporate best practices from the 
public and private sectors. In addition, we have incorporated 
examination engagements as an integral part of our audit readiness 
methodology, to provide DOD personnel applied experience with the 
requirements for audit. These examinations employ the same procedures 
used in audit, but on a smaller scope and scale.
    Additionally, the DOD Financial Management (FM) Certification 
Program and professional development initiatives take advantage of the 
extensive audit experience of the members of the DOD Audit Advisory 
Committee (DAAC), who are distinguished representatives of the private 
sector audit, accounting, and financial
communities.
    The Department also sought out lessons learned and best practices 
from various Big 4 accounting firms and a small Certified Public 
Accountant (CPA) firm, all with experience in accounting and auditing 
practices, and several financial management professional associations, 
to obtain information on competencies, knowledge, skills, and abilities 
aligned with audit readiness and financial management practices. 
Additionally, the Comptroller's staff researched and reviewed knowledge 
level and education requirements, as well as learning objectives 
associated with accredited test-based certification programs.
    The Department will continue to involve the representatives from 
the private sector as resources for the pilot and implementation of the 
DOD FM Certification Program. Their support is critical to ensuring the 
certification program benefits and long-term goals are achieved and the 
Department of Defense benefits by the increased capability of the 
workforce.
    Mr. Schilling. You mentioned that the DOD has taken into account 
recent audits and examinations, specifically by the Marine Corps' audit 
of its Statement of Budgetary Resources. Further, you point to some of 
the lessons learned from these
reviews.
          Can you elaborate on some of the most substantial and 
        important lessons learned?
          How should the other components and branches 
        implement these lessons?
    Ms. McGrath. We are continuing to learn not only from the USMC 
audit, but also from recent assertions and the clean opinion on the 
DISA Working Capital Fund financial statement audit. Some of the key 
lessons learned include the importance of being able to provide a full 
universe of transactions to support balances, periodically reviewing 
and revising estimates, and performing reconciliations on a regular 
basis and not only during an audit. Recent efforts continue to 
demonstrate improvement in both understanding and application in these 
areas. In addition, DFAS has enhanced electronic document retention, 
management and retrieval capability. This capability has proven 
effective in the current USMC SBR audit and is available to support 
future audits across DOD.
    We leverage our governance structures and communications mechanisms 
to share the lessons learned from these experiences and transfer this 
knowledge to both support the current plan and provide a better sense 
of remedial actions required. To implement the lessons, Components must 
change current business processes where they have the same weakness. We 
continue to work closely with all Components, including Service 
Providers, in applying these lessons learned as we continue to make 
progress.

                                  
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