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



 
     THE DEPARTMENT OF DEFENSE: CHALLENGES IN FINANCIAL MANAGEMENT

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


                                HEARING

                               before the

                SUBCOMMITTEE ON GOVERNMENT ORGANIZATION,

                  EFFICIENCY AND FINANCIAL MANAGEMENT

                                 of the

                         COMMITTEE ON OVERSIGHT

                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 23, 2011

                               __________

                           Serial No. 112-110

                               __________

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


         Available via the World Wide Web: http://www.fdsys.gov
                      http://www.house.gov/reform



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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana                  ELIJAH E. CUMMINGS, Maryland, 
JOHN L. MICA, Florida                    Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania    EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio              CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York          GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona               MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho              DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania         BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee          PETER WELCH, Vermont
JOE WALSH, Illinois                  JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina           CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida              JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                     Robert Borden, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director

   Subcommittee on Government Organization, Efficiency and Financial 
                               Management

              TODD RUSSELL PLATTS, Pennsylvania, Chairman
CONNIE MACK, Florida, Vice Chairman  EDOLPHUS TOWNS, New York, Ranking 
JAMES LANKFORD, Oklahoma                 Minority Member
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona               GERALD E. CONNOLLY, Virginia
FRANK C. GUINTA, New Hampshire       ELEANOR HOLMES NORTON, District of 
BLAKE FARENTHOLD, Texas                  Columbia


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on September 23, 2011...............................     1
Statement of:
    Easton, Mark, Deputy Chief Financial Officer, U.S. Department 
      of Defense; Daniel Blair, Deputy Inspector General for 
      Auditing, U.S. Department of Defense Office of Inspector 
      General; and Asif Khan, Director of Financial Management 
      and Assurance, Government Accountability Office............     5
        Blair, Daniel............................................    19
        Easton, Mark.............................................     5
        Khan, Asif...............................................    40
Letters, statements, etc., submitted for the record by:
    Blair, Daniel, Deputy Inspector General for Auditing, U.S. 
      Department of Defense Office of Inspector General, prepared 
      statement of...............................................    21
    Connolly, Hon. Gerald E., a Representative in Congress from 
      the State of Virginia, followup questions and responses....    87
    Easton, Mark, Deputy Chief Financial Officer, U.S. Department 
      of Defense, prepared statement of..........................     8
    Khan, Asif, Director of Financial Management and Assurance, 
      Government Accountability Office, prepared statement of....    42


     THE DEPARTMENT OF DEFENSE: CHALLENGES IN FINANCIAL MANAGEMENT

                              ----------                              


                       FRIDAY, SEPTEMBER 23, 2011

                  House of Representatives,
Subcommittee on Government Organization, Efficiency 
                          and Financial Management,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:05 a.m., in 
room 2154, Rayburn House Office Building, Hon. Todd Platts 
(chairman of the subcommittee) presiding.
    Present: Representatives Platts, Lankford, Towns, and 
Connolly.
    Staff present: Molly Boyl, parliamentarian; Sharon Casey, 
senior assistant clerk; Justin LoFranco, deputy director of 
digital strategy; Mark D. Marin, director of oversight; Tegan 
Millspaw, research analyst; Jeff Wease, deputy CIO; Nadia A. 
Zahran, staff assistant; Jaron Bourke, minority director of 
administration; Beverly Britton Fraser, minority counsel; 
Jennifer Hoffman, minority press secretary; Carla Hultberg, 
minority chief clerk; and Adam Koshkin, minority staff 
assistant.
    Mr. Platts. The committee will come to order.
    Today's hearing will continue the focus on improving 
financial management throughout the Federal Government. I 
certainly want to welcome our witnesses and guests; and up 
front I want to say I appreciate the rearranging of everyone's 
schedule, as we were originally planning to be with you last 
week. I am glad it worked out to be with you today.
    The Department of Defense is the largest department of the 
Federal Government and spent $691 billion in 2010. Due to the 
size of its budget and the importance of its mission, it is 
imperative that DOD have proper financial management in place.
    DOD, unfortunately, has never been able to produce 
auditable financial statements and has been on GAO's high-risk 
list since 1995 due to pervasive and systemic deficiencies 
regarding its financial management. In 2010, the Inspector 
General identified 13 areas of significant weaknesses in DOD's 
internal controls and financial management.
    Despite numerous financial reforms, DOD continues to be 
susceptible to waste, fraud, and abuse. It is particularly 
susceptible to improper payments. The amount of improper 
payments issued by DOD is not specifically known, but both GAO 
and the Inspector General have raised concerns and identified 
areas where improper payments are known to occur. In 
particular, the Inspector General's office found that DOD was 
making significant overpayments in high-dollar programs and 
that, unless the Department improves its oversight, it will 
continue to make significant improper payments.
    In an attempt to improve financial management at DOD, 
Congress established a deadline to make all components of the 
Department ready to undergo a financial audit by 2017. This is 
a deadline that DOD is taking very seriously, and its efforts 
to improve financial management are admirable and certainly 
very much appreciated. However, there are numerous issues that 
the Department must address in order to be successful in 
meeting this deadline.
    To meet the deadline, DOD developed the Financial 
Improvement and Audit Readiness plan. The plan is designed to 
improve and strengthen DOD's financial management through a 
series of gradual phases in benchmark goals. If the Department 
follows this plan successfully, it will be able to meet the 
deadline for audit readiness and significantly improve key 
weaknesses in its financial management.
    Successful implementation of the plan remains in doubt, 
however. Already the Air Force has said it may have trouble 
meeting the 2017 deadline due to the fact that its financial 
management systems were created in the 1970's and need to be 
updated significantly.
    GAO and OIG have found that system modernization is a 
challenge to DOD. There are also concerns that, while the 
Department may be able to devote enough resources to 
successfully produce a one-time auditable financial statement 
in 2017, it will not be able to develop systems sufficient to 
achieve auditable statements on a continuing basis; and that is 
something I definitely will be looking to touch on and the 
sustainability of the improvements in auditable financial 
statements, not just a heroic effort to meet a one-time 
obligation.
    Strong financial management is crucial in order for a 
government to operate effectively, prevent waste, fraud, and 
abuse. DOD's increased focus on improving its financial 
management is, again, commendable and appreciated.
    Today, we will hear from our witnesses about the challenges 
the Department faces in improving its financial management and 
producing auditable financial statements. I certainly look 
forward to your testimony, and this committee looks forward to 
continuing to work with you to increase efficiency, 
accountability, and good financial management at the Department 
of Defense.
    Ultimately, improvements to DOD's financial management 
systems are critically important to protecting taxpayer dollars 
and, most importantly, to ensuring that we maximize our 
Nation's financial resources for many of the needs of our 
warfighters in harm's way who defend our freedoms with great 
courage and dedication.
    And I, before yielding to the ranking member, would 
emphasize that, while we will be discussing some of the 
challenges within the Department on financial management and 
how we can partner with you, I also want to recognize the 
heroic efforts of all the men and women in uniform and all of 
our DOD civilian personnel who throughout the history of this 
Nation and as we speak have been heroic on the frontlines of 
democracy in defense of all of our freedoms and the great 
blessings we as Americans enjoy. And, you know, if we are more 
successful in financial management, we can even better support 
those men and women in uniform in their heroic work.
    With that, I am honored to yield to our ranking member, Mr. 
Towns from New York, for the purpose of an opening statement.
    Mr. Towns. Thank you very much, Mr. Chairman, and also let 
me thank our witnesses for being here.
    These are tough times in America. People are losing their 
jobs, and many others can't find work. Programs that support 
those most in need are being cut in order to save money. Every 
family in America is tightening its belt and keeping a tight 
rein on the checkbook because it gets more difficult every day 
to stay solvent. These families have a right to expect that our 
government will do the same.
    For more than any other single government agency, it is the 
Department of Defense that justifies public skepticism about 
how they are government stewards of public funds, and it is the 
Department of Defense that this Congress should be holding 
accountable.
    The Department has been required to produce auditable 
financial statements since 1997. We are now 14 years past this 
deadline, and the Department has still not met the requirement. 
This committee routinely examines the financial statements of 
other Federal agencies. In fact, 22 out of 24 agencies subject 
to the Chief Financial Officer [CFO] Act have produced clean 
audits of their financial statements, but not DOD.
    I find it unacceptable that year after year a Federal 
agency that spends between $2 and $3 billion every day cannot 
keep track of the money that the American taxpayers has 
entrusted to it. What is worse is that the problems exist even 
though the Department has over 2,200 separate business systems 
in place to help account for finances.
    Financial statements and unqualified audit opinions are 
excellent indications that an organization is performing 
efficiently as Congress intends. Unfortunately, due to 
pervasive deficiencies in internal controls and financial 
management that would not be tolerated in any other Federal 
agency or the private sector as well, we cannot be assured that 
funds entrusted to the Department are spent prudently or even 
correctly.
    I hope that our witnesses today can shed some light on the 
current drive to generate financial statements at the 
Department of Defense that are auditable. I am especially 
interested in hearing how the Department plans to keep the 
leadership engaged in the financial management overhaul until 
you achieve success. I also want to know how you are going to 
keep people on task, day in and day out, until the Department 
has auditable financial statements.
    And, most importantly, I would like to hear what the 
Department is doing to integrate its 2,200 separate business 
systems so that we don't have duplication and confusion that is 
currently present in your financial management structure today.
    The deadline for accomplishing this is exactly 6 years 
away, on September 30, 2017. In the past, we have seen 
deadlines come and deadlines go with little change.
    Today, we are joined by witnesses who are key players in 
helping the Department of Defense improve its financial 
management processes. I would like to thank you for your 
testimony in advance, and I am looking forward to hearing how 
the current initiatives will bring permanent and successful 
change to the financial management process by the 2017 
deadline.
    And, Mr. Chairman, I want to thank you for staying with it 
to try and make certain that we are able to get the information 
that we need so people have confidence in what they are doing 
as well.
    Thank you very much, and I yield back.
    Mr. Platts. I thank the gentleman.
    The ranking member and I have been partners on this effort 
for almost a decade now. Because when I chaired from 2002--or 
2003 to the end of 2006, Mr. Towns was my ranking member; and 
then he chaired the subcommittee, and I was his ranking member. 
Now we have switched places again, but we share the focus on 
good government and especially financial management and, in 
this case, with the Department.
    We will keep the record open for 7 days for any of the 
committee members who want to submit their own opening 
statements and for any extraneous material that we will receive 
here today or thereafter.
    We certainly welcome our witnesses: Mr. Mark Easton, who 
serves as Deputy Chief Financial Officer for the Department of 
Defense; Mr. Daniel Blair, who is the Department of Defense 
Deputy Inspector General for Auditing; and Mr. Asif Khan, 
Director of Financial Management and Assurance at GAO.
    Pursuant to our committee rules, if I could ask all three 
of you to stand and we will swear you in.
    Would you please raise your right hands?
    [Witnesses sworn.]
    Mr. Platts. Thank you. You may be seated. Let the record 
reflect that the witnesses answered in the affirmative.
    Our understanding is our floor schedule is we may have 
votes around 11 o'clock; and, once we go over, we will be over 
there for a long time. So what our goal is is to hear your 
statements and then get to an exchange of Q and A so we can 
have as productive an exchange here this morning and conclude 
when we have to go over for votes so that you are not kept 
waiting.
    And certainly with you and your staffs as well as with 
Members and our staffs, this is kind of, I would say, the 
public front of an ongoing effort to work with you previously 
and going forward, staff to staff or Members and staff, on this 
important issue.
    And while we are grateful for all three of you being here, 
Mr. Blair and Mr. Easton, I want to especially thank you for 
your prior service in uniform. I love what I do, proud of what 
I do, but what I do pales in comparison to what you who and all 
who have and are wearing the uniform of our Nation's Armed 
Services. So, again, thanks for your service.
    So, with that, Mr. Easton, if you would like to begin.

STATEMENTS OF MARK EASTON, DEPUTY CHIEF FINANCIAL OFFICER, U.S. 
 DEPARTMENT OF DEFENSE; DANIEL BLAIR, DEPUTY INSPECTOR GENERAL 
 FOR AUDITING, U.S. DEPARTMENT OF DEFENSE OFFICE OF INSPECTOR 
 GENERAL; AND ASIF KHAN, DIRECTOR OF FINANCIAL MANAGEMENT AND 
          ASSURANCE, GOVERNMENT ACCOUNTABILITY OFFICE

                    STATEMENT OF MARK EASTON

    Mr. Easton. Chairman Platts, Ranking Member Towns, Mr. 
Lankford, members of the committee, thank you for the 
opportunity to speak with you today on the subject of financial 
management within the Department of Defense. I have submitted a 
statement for the record which I will summarize briefly this 
morning.
    As Deputy Chief Financial Officer, I am responsible to our 
Chief Financial Officer for financial policy, systems 
compliance, and internal controls governing financial and 
accounting aspects of our business operations across the 
defense enterprise. I have dealt with these matters in various 
capacities for more than 38 years, both in uniform and as a 
civil servant. I am proud to be part of a financial management 
work force that is operating around the world providing mission 
support to our warfighters. This team is also solving today's 
problems while being called upon to learn new skills and lead 
change.
    I also recognize that DOD financial management has remained 
on the GAO high-risk list since 1995. In my experience, a 
reasonable level of control exists across our enterprise, 
particularly at the local level, but in my current position I 
also see enterprise-wide weaknesses that demand an enterprise-
wide response. The lack of auditable financial statements at 
DOD as a whole is a symptom of those weaknesses.
    To provide some amount of context for my comments, I want 
to cover DOD's financial management goals.
    First, we have to, obviously, acquire the resources that we 
need to meet national security requirements; and that is our 
budget role.
    Second, we have to ensure that we are using those resources 
legally, effectively, and efficiently. The execution side of 
our business--and that is an immense challenge--that is where I 
spend my time and energy and where many of the challenges lie.
    And the third is to ensure that we have a world-class 
financial management work force.
    To meet current challenges and to improve financial 
information and achieve audit readiness, we have adopted a new 
approach with the team that we have in 2009. We feel that that 
approach unites the enterprise around financial and asset 
information that we use every day to manage, specifically, 
budgetary information and the physical existence and 
completeness of property.
    Previous DOD teams have tried but with limited success. So 
it is fair to ask, why will this time be different? Simply put, 
we feel we have the right strategy, we have dedicated 
resources, we have absolute and solid leadership support and a 
governance process that will assign accountability for actions. 
2017 is a long time from now, so we recognize that we have to 
show specific interim progress; and that is what we are, in 
fact, doing.
    One test already under way is our audit of the Marine Corps 
statement of budgetary resources which we believe will result 
in a positive audit opinion. When successful, this will be the 
first military service ever to achieve an audit of a single 
financial statement.
    But there are other events across the Department to include 
independent validation on specific things. For example, last 
month we completed an examination and validation by an 
independent public accountant of our funds distribution and 
control process, what we call appropriations received. That 
resulted--that segment resulted in a clean opinion.
    The Defense Information Systems Agency is in the process of 
auditing its fiscal year 2011 books. We expect a clean opinion 
in that audit.
    This year, our Defense Finance and Accounting Service, our 
primary service provider in that regard, conducted an audit of 
its civilian pay entitlement system and received a clean 
opinion. That system is used not only for defense but for 
several non-defense agencies.
    And, finally, in July, we began--have not completed but 
began an audit of the Air Force's funds voucher Treasury 
reconciliation process, an indication that we can reconcile at 
least at the transaction level our checking account statement.
    These are just a few examples. They build on past 
achievements, including auditable financial statements for the 
Army Corps of Engineers civil works projects and several 
defense agencies.
    We also have a number of large trust funds that are 
currently auditable, and we will improve as we apply lessons 
learned from those recent experiences, as well as getting 
feedback from the Government Accountability Office and DOD IG. 
And I can assure you this is not the first time that this panel 
has met to work on this particular issue.
    However, there is an enormous amount of work still to do to 
achieve and sustain auditable financial statements. It will 
require fundamental changes. The Government Accountability 
Office has identified significant specific challenges, and I 
wanted to talk to each of those.
    The first is leadership or tone from the top. We've 
implemented a government structure early in the current 
administration, and it has kept the attention of senior 
leaders, and it will continue to do so.
    Second is work force competency. As I said, we have a 
dedicated and professional work force who is on the job, doing 
the job, but financial audit competency is one that we need to 
continue to emphasize.
    Third is information technology. Many of our IT systems are 
old, stove-piped, designed to conduct basic budgetary 
accounting but not to do the things that we need to do for full 
auditability.
    Improved systems alone, however, will not eliminate our 
weaknesses or guarantee auditable statements. Achieving 
auditability requires a consistent--a fourth element--a 
consistent level of internal controls, and that may be the key 
foundational thing that we put as a priority.
    Looking ahead, we are determined to meet the 
congressionally mandated deadline of 2017. It is an ambitious 
but an achievable goal. However, we think that this time will 
be different. We have a Chief Financial Officer in Secretary 
Hale who has thoughtfully assessed and applied the lessons 
learned of many of those false starts that you alluded to, 
while also seeking the advice and counsel of external 
stakeholders and oversight activities.
    We also have the strong support and commitment of Secretary 
Panetta and anticipate an equivalent level of energy and 
interest throughout the Department.
    Finally, from my perspective, there is clear value and 
critical importance in the public confidence that auditability 
would demonstrate.
    Beyond that, the benefits to the Department, its mission, 
and to the taxpayers is very clear to me. This effort is 
consistent with the administration's overall campaign to reduce 
waste across the government. The American people have always 
supported our men and women in uniform, but that does not 
relieve us from the obligation to ensure that we are managing 
scarce resources carefully and effectively. We are committed to 
doing so. This commitment will be especially helpful in 
reinforcing our current efforts to combat improper payments. We 
have a solid program, but our quarterly results are questioned 
because of the many weaknesses that have been discussed.
    In summary, we recognize the challenges associated with 
improving financial management in the Department. To meet those 
challenges we've developed promising partnerships across the 
enterprise to include our new chief management officers as 
well. We have implemented a new, focused approach that includes 
near-term goals in addition to the long-term goal of achieving 
auditable financial statements by 2017.
    Mr. Chairman, this concludes my statement. I appreciate 
your comments and support for our men and women in uniform, and 
I look forward to your questions.

    [The prepared statement of Mr. Easton follows:]

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    Mr. Platts. Thank you, Mr. Easton.
    Mr. Blair.

                   STATEMENT OF DANIEL BLAIR

    Mr. Blair. Chairman Platts, Ranking Member Towns, and Mr. 
Lankford, good morning and thank you for the opportunity to 
appear today before you on behalf of the DOD IG to discuss 
financial management challenges facing the Department.
    These challenges prevent DOD from collecting and reporting 
financial information that is accurate, reliable, and readily 
available for decisionmakers. Over the past few years, the 
Department has worked diligently to address its financial 
management challenges. However, more progress is required to be 
good stewards of the taxpayers' money.
    Today, I will discuss three key challenges that must be 
addressed before DOD will be able to demonstrate sound 
financial management through a financial statement audit: 
first, improving data reliability; second, improving internal 
controls; and, third, effectively implementing new systems 
called Enterprise Resource Planning systems [ERPs.]
    Reliable data are essential to making sound business 
decisions. However, we frequently identify financial data that 
are inaccurate and unreliable. Since fiscal year 2007 we have 
issued 89 reports that highlight data quality problems. Our 
audit of the controls over the Army's deployable disbursement 
system, which contains key information for $13 billion of 
commercial payments, found that the system did not have 
reliable data for over 73 percent of the transactions that we 
reviewed.
    Significant improvements must also be made in DOD's 
internal controls. As you know, these controls are the first 
line of defense to safeguard assets against fraud, waste, and 
abuse. Currently, longstanding internal control weaknesses are 
affecting the Department's ability to obtain a clean audit 
opinion. In addition, without strong internal controls, the 
Department is at high risk of making improper payments.
    In fiscal year 2010, the Department reported nearly $1 
billion in estimated improper payments. However, DOD's 
estimation process did not review more than half of the first 
quarter of fiscal year 2010 gross outlays; and, therefore, we 
question the reliability of this estimate. Simply stated, the 
Department does not consistently know that it is paying the 
right person the right amount at the right time.
    Our audit of the contracts supporting the Broad Area 
Maritime Surveillance Program found that the DOD personnel did 
not validate that the contractor was entitled to receive over 
$329 million because none of the invoices were reviewed. My 
written statement for the record includes copies of two actual 
invoices that were paid under this contract.
    Effectively implementing the Department's new ERP systems 
is a key component of its auditability strategy. These new 
systems are intended to eliminate many old legacy systems, 
provide useful, timely, and complete financial management data. 
However, unless the Department first improves its data quality 
and reengineers its underlying business practices, many of the 
intended benefits of these new systems, estimated to cost over 
$9 billion between fiscal years 2010 and 2017, will not be 
realized.
    We've also noted that the milestones for 4 of the 11 ERP 
systems has begun to slip.
    Further, we are concerned that other milestones for 
completing critical financial management improvement efforts 
are very close to the fiscal year 2017 deadline. Full 
deployment of some ERPs, as well as asserting audit readiness 
of the statement of budgetary resources, will not happen until 
fiscal year 2017, as some critical components will also not be 
validated prior to this date. Any delay in these milestones 
will likely prevent the Department from meeting its goal.
    In closing, sound financial management is critical to 
providing effective stewardship over the billions of dollars 
that the Department receives annually. DOD must continue to 
improve data quality and its internal controls in order to 
reduce its vulnerability to improper payments.
    While I recognize the significant effort that DOD 
leadership has put forth to resolve these longstanding 
financial management problems, frankly, much more remains to be 
done. Senior leaders in the Department and the Congress need 
reliable, timely financial information in order to make 
accurate decisions and to ensure that every dollar spent 
actually supports the warfighter and improves military 
readiness.
    This concludes my statement today. I'd be happy to take any 
questions that you may have for me.
    [The prepared statement of Mr. Blair follows:]
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    Mr. Platts. Thank you, Mr. Blair.
    Mr. Khan.

                     STATEMENT OF ASIF KHAN

    Mr. Khan. Chairman Platts, Ranking Member Towns, and Mr. 
Lankford, good morning. Thank you for having me here. It is a 
pleasure to be here to discuss DOD financial management and 
some of the issues they are facing in terms of getting 
auditable.
    At the outset, I would like to thank you for holding this 
hearing. Focused attention is necessary to be able to solve 
these challenges.
    In my testimony today, I will discuss the status of DOD 
financial management weaknesses and its effort to resolve them, 
the challenges DOD continues to face improving its financial 
management operations. My testimony is based on our prior work 
at DOD.
    Regarding the status, for more than a decade, Congressman 
Platts, you mentioned, DOD has dominated GAO's list of programs 
and operations at high-risk due to their vulnerability to 
waste, fraud, and abuse and mismanagement. In the last 20 
years, as a result of significant financial management 
weaknesses, none of the DOD military services--the Army, Navy, 
or the Air Force--have been able to prepare auditable financial 
statements.
    DOD's past strategies for improving financial management 
have generally been ineffective, but recent initiatives are 
encouraging. Changes to DOD's plan, the Financial Management 
Improvement and Audit Readiness plan, the FIAR plan, if 
implemented effectively could result in improved financial 
management and progress toward auditability.
    DOD faces many difficult challenges in overcoming its 
longstanding financial management weaknesses. I will highlight 
five of these significant challenges.
    First, one of the toughest challenges is sustaining 
committed leadership. DOD's Comptroller has expressed 
commitment to the FIAR goals and has established a focused 
approach to achieving long-term goals that, if implemented 
correctly, will include interim goals to provide the 
opportunity for near-term successes on the way to long-term 
goals. However, within every administration--and, of course, 
between administrations--there are changes in senior 
leadership. Therefore, it is paramount for the FIAR plan and 
other current initiatives to be institutionalized at all 
working levels within DOD.
    Second, weaknesses in DOD's internal controls over 
financial management are pervasive and a primary factor in the 
Department's inability to become auditable. DOD has efforts 
under way to address known internal control weaknesses. 
However, their effectiveness has not yet been seen. As 
discussed in our recent report, because of the lack of 
effective internal controls, the DOD Inspector General 
disclaimed the opinion of the Marine Corps' fiscal year 2010 
Statement of Budgetary Resources, the SBR.
    The third challenge I want to cover is a competent 
financial management work force. With the right skills and 
knowledge to implement the FIAR plan, analyzing the skills 
needed and building and retaining such work force are important 
actions now to ensure continued progress in implementing the 
goals of the FIAR plan.
    The fourth challenge is to assure accountability and 
effective oversight. To improve efforts, DOD and its components 
have established senior executive committees and designated 
officials at appropriate levels to oversee financial 
improvement. It will be critical for senior leadership at each 
DOD component to ensure that responsible officials are held 
accountable to their component's progress. We recently reported 
that Navy and the Air Force oversight of their implementation 
plans was not effective, resulting in their incorrectly 
asserting that they were ready for audit. Both the DOD IG and 
the Comptroller made the final decision correctly to determine 
the plans were not ready.
    Fifth, Enterprise Resource Planning [ERP], systems are 
expected to form a core of business information systems in DOD 
components. According to DOD, their successful implementation 
is not only critical for addressing long-term weaknesses in 
financial management but equally important for helping to 
resolve weaknesses in other high-risk areas such as business 
transformation, business system modernization, and supply chain 
management.
    The components, however, have largely been unable to 
implement ERPs that deliver the needed capabilities on schedule 
and within budget. In a preliminary result from a current 
review, we identified issues related to ERPs deployed to DFAS, 
the Defense Finance and Accounting Services, by the Army and 
the Air Force. DFAS users of the ERP told me they needed to 
devise manual workarounds and software applications to perform 
routine tasks. To the degree that ERPs do not provide intended 
capabilities, the goal of DOD-wide audit readiness by fiscal 
year 2017 could be in jeopardy.
    In closing, I am encouraged by the recent efforts and 
commitment DOD leaders have shown toward improving the 
Department's financial management. However, DOD continues to 
face significant challenges; and success may depend on DOD's 
ability to sustain and increase its current efforts, 
commitments, and momentum. Congressional oversight will play an 
indispensable role in assuming continued progress, and I 
commend you for holding this hearing.
    Mr. Chairman, this concludes my statement. I'll be happy to 
answer any questions that you or the other Members may have. 
Thank you.
    [The prepared statement of Mr. Kahn follows:]
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    Mr. Platts. Thank you, Mr. Khan.
    We will move into questions, and I yield myself 5 minutes 
to begin.
    Just a statement up front, Mr. Easton. Your written 
statement and you said here today something that jumped out to 
me as a quote: ``Why will this time be different?'' And I think 
that is something the ranking member and I, because of for 
almost 10 years being involved in these issues, your 
acknowledgment that--you know, we've heard some good, 
encouraging words in the past. I have seen, as with DIMHRS, 
over $1 billion spent on the issue. Yet, here we are still 
struggling to move forward--and I'll get into it if we have 
time a little later--have one branch already saying 6 years out 
they don't think they can meet the deadline, which that does 
concern me also from a leadership standpoint that they are 
saying that, you know, hey, we saved the world in World War II 
in 4 years; yet we can't, you know, get our books straight in 
another 6 years.
    But I want to start with, first, the importance of this 
issue and why it is so important. You know, our hearings are 
not sexy, glamorous, exciting hearings, but they are so 
important because they are about the American people's money, 
how it is being handled and, in this case, how we make sure 
those funds are available for the warfighter.
    Senator Coburn put out earlier this year a report on 
deficit reduction entitled, ``Back in Black,'' and he 
referenced in there that the Marine Corps, through improved 
financial management, had saved an estimate about $3 for every 
$1--$3 savings for every $1 they spent on those improvements. 
Across the government, it actually seems to be about $10 to $1 
savings. So, if we extrapolate that, we are talking probably at 
least $25 billion or more in annual savings in just the 
Department of Defense; and given that we are moving through 
cuts of over $400 billion to the Department in the coming 10 
years and perhaps further cuts as part of the Budget Control 
Act, these type of savings are critically important.
    I guess, Mr. Easton, I would ask you, do you think that 
Senator Coburn's number of at least $3 to $1 savings and 
perhaps as high as $10 to $1 is a legitimate number when we 
talk about what we may be able to save if we are successful in 
this effort?
    Mr. Easton. I'd be reluctant to specifically commit to a 
number. I think that there is clearly value in the importance 
of doing this.
    For example, the Marine Corps has already demonstrated out-
of-pocket costs relative to reducing their bill for finance and 
accounting services. I think that there has been identified in 
their business practices where they've become aware of how to 
use that information in a more timely manner to ensure that 
they can do that. So I am absolutely confident that the value 
is there.
    I would be reluctant--as I said before, I try to stay on 
the financial execution side of the house, but that value 
proposition I think internally is one that we need to look very 
seriously at and act upon.
    Mr. Platts. And even if it is half of that estimate and it 
is $10 to $15 billion in today's--in any economy, in any time, 
that is real money. It is the people's money and especially in 
a tight economy and where we have, you know, trillion dollar 
plus deficits each and every year now.
    Mr. Easton. Absolutely, yes, sir.
    Mr. Platts. Mr. Blair, I want to, again, kind of start more 
of the big picture. The FIAR, the Financial Improvement Audit 
Readiness, plan is so critical here and kind of the game plan 
of how do we get to, you know, a clean audit 2017.
    Given that, I was I guess discouraged by reports from GAO 
that--and I think Mr. Khan just referenced Navy and Air Force--
in at least two of the financial improvement plans that they've 
looked at were done not in compliance with the guidelines of 
FIAR; and not only were they not done in compliance with the 
guidelines which, again, are the critical game plan here, but 
the oversight that was put in place to try and make sure the 
compliance occurred, the oversight didn't occur from what GAO's 
report finds. So from your perspective as IG and then, Mr. 
Easton, yours as well, that is not encouraging. Am I missing 
something here or are we off to not a good step in this area, 
given the failure to comply with the FIAR guidelines?
    Mr. Blair. Mr. Platts, I think that the key point here is 
the oversight that we provided over those FIAR package--FIAR 
assertion packages, it correctly concluded that the Department 
wasn't ready. We found in some situations that the Department's 
initiatives to review their business processes identified areas 
that need to be corrected. Those corrective actions hadn't been 
implemented. Yet the assertions continued to move forward, and 
the Department continues to say we are audit ready. And so I 
think we appropriately stepped in and said, stop, we don't 
think you are ready.
    And I think what is happening now is that there is a 
learning process going on. And the Department's actually taking 
the results of its own review processes, the feedback that we 
give them, they are taking it very seriously, and they are now 
looking at what further improvements do we need to make before 
we come back and say, yes, we are ready for an audit.
    Mr. Platts. And, Mr. Easton, maybe that is--if you can 
touch on what Mr. Blair just said, given that these are kind of 
early ones that were identified as challenges or problems, how 
do we make sure and are we taking proactive steps that the 
lessons of those FIPS--not being compliant, not being properly 
handled, moving forward anyway--that we don't continue to 
repeat those errors? Because, if we do, 2017, 2027, we will be 
here and--I have already got a lot of gray hair, but more gray 
hair--and still be talking the same issues. So how do we learn 
from those mistakes and not repeat them?
    Mr. Easton. We spend a lot of time in terms of trying to 
cross-fertilize, both at a senior level from a governance 
perspective as well as a working level, to be able to learn 
from what we found from the Marine Corps audit, learn from 
those packages. In both of those packages, the GAO identified 
we had, in fact, as Dan said, basically said you are not ready.
    And so I think that what we are trying to do now, it goes 
back to the--a little bit of a competency issue. And I say 
competent meaning our people are some of the best people in 
government--I can assure you of that--but, at the same time, 
from a financial audit perspective, we don't have those skill-
sets. We are not viewing it in the way that a financial audit 
needs to view it and that management needs to view it.
    So we are trying to be able to get in as early on in those 
things to be able to sort of mortarboard this up front to make 
sure that they are going to go into those process and apply the 
lessons up front. So that is what we are doing in that regard.
    Mr. Platts. I want to yield to the ranking member but a 
quick follow up.
    I know you've put in place in essence a certification 
program to try to get your financial management personnel more 
up to speed, I'll say. Is this going to be part of that, you 
know, that they understand the role that the FIAR compliance, 
you know, the guidelines play and that, as they move forward, 
they need to be looking to make sure they are in line with it?
    Mr. Easton. That is absolutely one of the key components. I 
guess the two things--the two real key things in the 
certification program we want to emphasize, this is one of 
them, to ensure that the quality of the information is good, 
and the second is analytical skills so that we can get the most 
out of the program; and so we will be including that.
    Mr. Platts. Okay. Thank you.
    I yield to the gentleman from New York.
    Mr. Towns. Thank you very much, Mr. Chairman.
    You know, I want you just to elaborate a little further, 
Mr. Easton, as to why this time is going to be different. I 
want to hear more about that.
    Mr. Easton. I think that what we have done in the past, 
because I have been involved--this is sort of a second career 
opportunity for me. Having been in the Department of Defense 
for 38 years, I spent most of my time in the logistics 
community, and so I was an operator. And as I got into the 
financial management community, one of the things that I found 
is that I had a much different perspective of what I thought 
financial--the quality of our financial information when I was 
in the logistics community, than when I was working in the 
financial management community.
    So the key issue that I would like to use, using that as an 
example, you know, we have been trying to tackle this too much 
in the past as a financial management issue. It really reflects 
a weakness in our business enterprise. And so every contracting 
officer, every logistics officer, every personnel officer needs 
to understand how they do their job affects money and financial 
information. And so in focusing on the information that we all 
can agree upon, typically budgetary information and logistics 
property, I think we are trying to bring those communities 
together. And so I would characterize that as our primary 
weakness in past attempts, and that is why I think that this 
strategy will work.
    Mr. Towns. Thank you very much.
    Because I want you to know that this is not one of those 
``I got you'' committees. This is one of those ``I want to help 
you'' committees. So that is the reason why we keep staying 
with this and seeing in terms of what we might be able to do. 
However, it is encouraging that, you know, President Obama and 
Secretary Panetta have singled out financial management 
improvement as a top priority at the Department of Defense.
    To quote the Secretary: ``It is unacceptable to me that the 
Department of Defense cannot produce a financial statement that 
passes all financial audit standards.'' That will change, he 
said: ``I have directed that this requirement be put in place 
as soon as possible. America deserves nothing less.''
    As long as leadership remains engaged, I can see this 
process going forward. Unfortunately, however, within every 
administration there are changes in senior leadership--and I am 
happy to hear that you've been around for 38 years, happy to 
hear that--which interrupts their involvement in financial 
improvement initiatives. Sometimes the interruptions are severe 
enough to derail the entire process.
    GAO recommends that current initiatives be 
institutionalized throughout the Department at all working 
levels. In order for success to be achieved--and I want to go 
to you, Mr. Khan. Since this is your recommendation, please 
explain how you institutionalize financial management 
improvement so that it withstands changes at the senior level, 
who comes or who goes, that, regardless, that this will 
continue to move forward.
    Mr. Khan. Mr. Towns, that also touches upon oversight and 
accountability. That is going to go a long way to help 
institutionalize the tenets of the FIAR plan and buttressing 
the financial management within DOD.
    Like we had mentioned in our report, one of the issues with 
the oversight of the two accessible units at the Navy civilian 
pay and the Air Force existence and completeness was that the 
oversight and responsibility at ground level, there was not 
really adequate acknowledgment that they were not really 
following the FIAR guidance. Once the oversight and the 
responsibilities are firmly institutionalized, there will be 
much more of check and balances within the government structure 
to make sure that things are not moving forward unless they are 
actually being done.
    Mr. Towns. Let me ask you this. Do you think that the staff 
that is in place are really capable of carrying out this 
mission?
    You know, sometimes we ask people to do things that they 
just can't do. And based on our own salary scale we watched 
that over at the SEC, that when we had people who were making 
very little money and competing with people that were making 
tons of money, and, of course, the stability in terms of the 
work force was not good because people would stay a little 
while and then leave. Do you see this as being a part of this 
as well?
    Mr. Khan. Like I mentioned in my testimony, competency of 
the financial management work force is very important for two 
reasons. DOD financial management is complex from a technical 
perspective. Working in those integrated systems is not easy. 
DOD is a complicated environment. So, therefore, training, 
getting the right skill-sets to be able to address the current 
challenges is critical.
    I mean, we haven't done specific work on the competency of 
the skill-sets. However, there was a requirement from the 
National Defense Authorization Act of 2008 for DOD to go and do 
skill-set assessments under many different functions, financial 
management being one of them, and that is an area which was not 
done. And I think it is being repeated again in the National 
Defense Authorization Act of 2011, that they go back and 
address the financial management skill-set issue. That is going 
to go a long way to answer the question that you have, sir.
    Mr. Towns. Mr. Chairman, I know my time has expired, but 
let me--I guess to you, Mr. Easton. You know, when we stopped 
the draft, we had to create a bonus situation to be able to 
keep certain folks in the military that we need for these 
essential kind of jobs. Do you think that maybe we need to do 
something like that here to hold people that we need and that 
can help us with some kind of bonus program or something? 
Because, you know, this bothers me, the fact that, you know, we 
don't know how much money--and I am looking at this voucher 
here. I mean, this is very disturbing.
    I'd like you to answer that, but my time has expired.
    Mr. Easton. If I could redirect, I guess several of those 
things, in my estimation, tie together. I think that the key to 
really institutionalizing this is people, as you mentioned. I 
think we absolutely have the capability in our people to be 
able to do this.
    I think that we need to ensure that we are not just talking 
at the senior level. We need to begin to institutionalize this 
by ensuring that, on the one hand, we are bringing people with 
the skill-sets in from the private sector. That is one thing 
that we are doing. I think that we need to factor this into the 
training programs.
    There may be some opportunities to use bonus, things like 
that, but, at the same time--you know, we were at another 
session, and Congressman Conaway mentioned that he was in the 
field and a soldier--I think had mentioned that he's getting 
the word.
    And so, you know, we need to, through training, we need 
through communication, be able to get the word so we are not--
this is not just a Pentagon program. This is a program that has 
to be driven into the field. I think the institutionalization, 
as well as the leadership perspective, but we really have to 
get the word out. It has to become part of our DNA and culture 
in DOD.
    Mr. Platts. Gentleman from Oklahoma, Mr. Lankford.
    Mr. Lankford. Thank you, Mr. Chairman.
    Thanks, y'all, for being here. I am sure this is your 
favorite part of the week. You've been looking forward to it 
all week, thinking I can't wait until Friday, I am going to do 
a congressional committee. And I appreciate your work and your 
service and for staying on top of this. You've probably spent a 
lot of time in a quiet office digging through financials and 
trying to track these things. So I appreciate your work on it.
    You men know, we have the finest military in the world. No 
one does it better than us. No one's ever done it as good as we 
do it. We can park a satellite on the horizon and look through 
a tent and tell you exactly what is in it, but we can't track 
our finances. That is a focus on leadership, and I have 
appreciated everyone mentioning. It is just this consistent 
focus of, if we are going to do get this done, we've got to 
focus on this and get this done.
    I do commend the President and I do commend Leon Panetta 
coming in and saying this has to be a focused priority. You all 
are saying exactly the same things. So I appreciate that. It is 
a focused leadership to be able to get this thing accomplished.
    I do want to get a chance to ask a couple of specific 
questions, though.
    Mr. Easton, you mentioned financial controls--in fact, all 
of you at some point mentioned something about financial 
controls. Give me some specific ideas that you are looking at 
at this point to saying we can improve financial controls by 
doing these things, so you have specific things already on the 
radar for that.
    Mr. Easton. We are going at the key processes. I mean, 
civilian pay--I mean something as simple as civilian pay where 
we look at and identify key controls. We try to standardize the 
processes as much as we can, but we identify key controls that, 
even if the time and attendance systems may be different, we 
have people thinking the same way to be able to implement key 
controls and be able to use them as well. Having a control is 
one thing but actually being able to do that. So civilian pay, 
military pay, and the procure-to-pay process, how we write 
contracts, and some of the issues that Dan mentioned in terms 
of the contracting process.
    This is really a team sport. It is not just a financial 
issue. It is an issue of how we write contracts, how we 
administer contracts and keeping the focus on those controls 
throughout the process.
    Those are a couple of examples that I would offer, and so 
it really is pretty basic, and it amounts to doing your job on 
a day-in-and-day-out basis.
    Mr. Lankford. It is training the people. It is knowing what 
is the job, what is the task, and training people for that. And 
that is why it is challenging for me to look at and say, 6 
years out, there is still some hesitancy to say can we get 
there in 6 years when it is the basics of defining out what the 
job is and training people to be able to do a job.
    Mr. Easton. And I think--and several people mentioned the 
Air Force as a high risk--identified some concerns with risk. I 
think that they link--and it is important to link the 
investment in our systems to this process as well, but getting 
back to the basics I think is something that we can do that 
will support this as well as to increase the likelihood that we 
will successfully do that system. We have had a problem in the 
past where we tend to look for a silver bullet, and when we 
look in the mirror, I think it is just a question of doing the 
basics well.
    Mr. Lankford. Okay. Other comments about dealing with 
financial controls, specific ideas on that, what has to be 
done?
    Mr. Blair. Mr. Lankford, I just want to leverage a little 
bit more on what Mr. Easton just said.
    Really, financial management goes way beyond the 
traditional bean counters. If you look at how the Department 
executes a lot of its missions, it is done primarily through 
contracts; and one of the things that is a consistent theme in 
my testimony is a lack of effective contract oversight, 
effective contract administration. When so much of your money 
is going out that way and you don't have a good process in 
place to review all the vouchers and you don't have good edit 
checks in your systems to make sure that everything is done 
efficiently, those are two areas that I think the Department 
could significantly benefit from.
    Mr. Lankford. Is that the training of the contracting 
officer or is that training of the person that is next after 
the contracting officer? Where is the gap there?
    Mr. Blair. Sir, the gap is in both locations. It is the 
contract officer level when it comes to putting the contract in 
place, but it is also the contracting officer's representative 
who is the person on the ground who is supposed to be doing 
that oversight.
    Mr. Lankford. Because we've had, obviously, numerous issues 
with a contracting officer writing out a contract, putting it 
out there, and then, as we go along, then the definitions 
change and the price skyrockets as the definitions of what we 
are really looking for change. So we really didn't get a good 
definition at the beginning.
    And I am quite confident many of these systems are very 
complicated and it is hard to get it right the first time when 
things--as we go along. But it is also difficult when everyone 
as you go along says, oh, I'd like to also add this and we 
thought about this and can we change this. So is that a matter 
of getting contracting right at the beginning, I say again? Is 
that the bigger of the two issues or is the bigger issue the 
person that is behind it?
    Mr. Blair. I don't think you can look at one as being 
bigger than the other.
    Mr. Lankford. Okay.
    Mr. Blair. I think they are both equally important. The 
requirements have to be correct in the beginning, and the 
oversight throughout the contract process has to be effective.
    Mr. Lankford. Okay. Mr. Khan.
    Mr. Khan. Just to add to what Mr. Easton and Mr. Blair have 
mentioned, I think it is very important to have a baseline of 
all the internal control deficiencies currently to be able to 
build on; and, second, just like Mr. Blair has just mentioned--
--
    Mr. Lankford. I am sorry to interrupt. Is the baseline--
does a baseline like that exist?
    Mr. Khan. Not that we know of.
    Mr. Lankford. Okay. So, at this point, part of the issue is 
just writing out where do we have the problems?
    Mr. Khan. Absolutely, and that is part of the--one of the 
basic FIAR plan tenets, that they have to do the discovery 
process. So that----
    Mr. Lankford. We are set to have that part of the process 
complete by when? Obviously, getting the full list of where we 
have problems precedes solving problems.
    Mr. Easton. I think that we go through the discovery 
process. But in each of the segments--I mean, I think in many 
cases each of the components focusing on that have broken it up 
into segments and so those processes may take place at various 
times.
    I guess I would emphasize, too, it is a process of really 
looking in the mirror and finding out how you are doing 
business today. I would assert that we have more control than 
we are willing to present, and it is a question of stepping 
back and looking at how we do business. And I can give you some 
examples in that regard, but we clearly have to do that.
    Mr. Lankford. Okay. Thank you.
    Mr. Khan, go ahead.
    Mr. Khan. Just to add to that, just like Mr. Easton and Mr. 
Blair have mentioned, I mean, many of these transactions 
originate in nonfinancial areas. Therefore, it is critical--the 
systems are going to be critical. The sooner they are 
implemented, this end-to-end process off a particular 
transaction cycle is going to be put into place. Controls are 
going to change along with the new system. So the sooner these 
systems are implemented, the better it is going to be, and it 
is going to go a long way to addressing the control weaknesses 
that we have right now.
    Mr. Lankford. Okay. Thank you. Gentlemen, I appreciate that 
very much.
    Mr. Chairman, I appreciate your patience with me going a 
little bit long.
    Mr. Platts. No problem, and we are--because we still 
haven't had any vote bells go off, we are going to continue for 
my colleagues who--if your times allow, have a second round if 
you like. I am going to kick it off.
    Before a question on a specific issue of improper payments, 
Mr. Easton, you mentioned in your testimony and Secretary 
Panetta taking a very hands-on approach to this, the importance 
of financial management and improvement, and you referenced 
that you are kind of preparing an update for him, where things 
stand and what your plans are, maybe similar to what you are 
sharing here today. But I guess, what is the timeframe for that 
to be provided? And if it is possible for a copy or a summation 
of what those plans are, if it is possible to have it shared 
with the committee as well, I think it would help us as we try 
to partner with you so we are all on the same page.
    Mr. Easton. Absolutely. We are in the process. Secretary 
Panetta and Mr. Hill are reviewing our current status and 
plans, much of the same things that we've talked about today, 
and so we would anticipate--I don't want to get out too far in 
front of my boss or his boss, but we would certainly want to 
share those with you and the committee.
    Mr. Platts. That would be great. Thank you.
    I want to turn to the specific issue of improper payments. 
You know, across the government, the official number, most 
recent, is $125 billion of improper--when I share that number 
back home, my fellow citizens think I misspoke, that every year 
we are making improper payments of at least that. We think the 
real number is probably at least $200 billion, because we don't 
account for maybe every improper payment made.
    When it comes to DOD, I know, Mr. Easton, you I think 
reference a 1 to 2 percent rate, which, even in comparison, 
that would be a good percent, but given we are talking $550 
billion, that would still be billions of dollars of improper 
payments within the one department. But I guess what I want to 
is--Mr. Easton, you highlight that as a strength of where you 
are doing well.
    Mr. Blair, Mr. Khan, IG GAO raise some specific concerns 
that there is not a real ability to accurately assess if that 
is the right amount, 1 to 2 percent, and specifically that 
there are hundreds of billions in outlays that were not 
assessed at all. And so how do we know what the real number is?
    So I guess, Mr. Easton, we can start with you. How you 
think you come up with your number of that 1 to 2 percent; and 
then, Mr. Blair and Mr. Khan, if you could reference your 
concerns and where you differ here.
    Mr. Easton. We have about six major programs. DFAS, our 
finance and accounting operation, disburses about 90 percent of 
our dollars. So there is five or six primary programs that they 
report upon as well. Many of our payments--many of our payments 
are recurring payroll-related payments, contract payments. 
Admittedly, some of them are very, very complex.
    The two areas of difference--I mean, I have to acknowledge 
the fact that, lacking a clean audit opinion, lacking and 
acknowledging comprehensive controls, there are weaknesses. I 
would say that we try to compensate for those weaknesses to the 
maximum extent possible and report accurately in each of those 
numbers, and that is why I consider it a strength.
    However, the two areas of difference, just to mention two, 
is in the commercial pay area because of the difficulty--and, 
you know, we put so much emphasis in prepayment audits. We had 
not moved into a statistical sampling, and a lot of your $125 
billion is driven by legitimate statistical sampling. That was 
the point GAO has brought up with us at the time. OMB was on 
board with our approach. We've since changed that. So we've 
closed that one particular gap.
    The issue relative to the DOD IG report--and Mr. Blair will 
comment more on that--was there was about a hundred and--I want 
to say $130 billion, I believe, that were not included. Much of 
that number represented a transfer payment into a trust fund, 
and their point was accurate. In other words, we should be able 
to reconcile all outlays, but some of the outlays that were 
considered technically excluded then were not intended to be 
included. It was a difference of opinion, admittedly, between 
us and the IG.
    Mr. Platts. Mr. Blair.
    Mr. Blair. Mr. Easton's correct that we do differ on some 
of these issues. There are some areas where the Department did 
not do a very good analysis or did not do an analysis at all 
and really focused a lot in the contract and commercial 
payments areas; and, as I indicated before, that is where so 
much of the Department's dollars are going.
    With regards to the transfer--was it a transfer, was it not 
a transfer--what we said to the Comptroller staff is, you know, 
we'd like to see a reconciliation so that you can show us what 
was a transfer, what was a real disbursement or a payment of a 
bill that was owed.
    And one of the things that we wanted to do with our report 
was to say here are some ideas that we think you can 
incorporate in your next estimate methodology. The results of 
DCAA's audit, the results of our audits, those oftentimes point 
to areas where vulnerabilities exist.
    The other thing that the Department can do is expand its 
methodology to look at the instances where they offset a future 
contract payment because of a prior improper payment or 
overpayment amount to include the results of when EFTs, 
electronic fund transfers, are rejected because it went to the 
wrong place. That is another indication that it is an improper 
payment.
    Also, to look at where there are recalls. A recall is a 
situation where the Department can go in and take the money 
back out of the bank account.
    All of those are specific areas that weren't included, that 
if they were included would help develop a more robust 
methodology; and, as I indicated before, you don't know unless 
you look. And so the more introspections that the Department 
has, the better they are going to be able to improve their 
controls.
    Mr. Platts. Mr. Khan, before you answer, if you want to--
what you have to share, and specifically I know in 2009 GAO 
made I think 13 specific recommendations on this issue that 
maybe overlap or complement what Mr. Blair just referenced. 
Where do you think we are on those 13 specific recommendations 
and which, if any, that have not been followed that are most 
important that we've talked about?
    Mr. Khan. Congressman Platts, I will get you the specifics 
on the 13 recommendations for the record, though.
    But just to add to what Mr. Easton and Mr. Blair have 
mentioned, our main concern is, again, that not all the 
transactions, especially about commercial pay, were included in 
the risk assessment calculation for internal--for improper 
payments.
    Also, improper payments is an area which is self-reported; 
and, given the control environment within DOD itself, it may 
not be a complete number. Like we testified yesterday, that 
funds control and payments control is an issue that GAO is 
concerned about the completeness of the reporting of the anti-
deficiency violations and the improper payments. So the lack of 
controls may not provide a complete picture to the officials 
within DOD from which they are reporting.
    Mr. Platts. The question--I mean, the fact that we have 
improper payments at all and especially billions of dollars 
goes to the internal control issue. Years back when we created 
the Department of Homeland Security, this subcommittee, Mr. 
Towns and I, worked and we pushed through an actual audit on 
their internal controls to try to get bedrock in that new 
department so then we could--the feedback we've gotten from the 
Department is that was great for them because it really got 
them a good place to then build on.
    I know the challenge would be dramatically greater here 
with the budget, you know, probably 13 times or so DHS's. So is 
it unrealistic of that type of approach here or some variation 
to try to get the bedrock on the internal control issue that 
relates to improper payments and, you know, ultimately to that 
clean audit?
    Mr. Easton. One of the areas that I think that I can point 
to in the past that have indicated why we haven't made progress 
is that we've looked at it from just a financial management 
perspective, and we've looked at it in narrow slices. What 
we've tried to do is to integrate internal controls, 
particularly internal controls of our financial reporting, into 
this plan. So we are trying to do, as part of this plan, do 
this. So we are not going to go after--just after improper 
payments or improper disbursements. We need to go after a good 
foundation to be able to buildupon. So I think that we are 
trying to do that.
    Mr. Platts. I mean, because, if you get there, that 
addresses the improper payments as well as giving you time-
sensitive information, you know, as far as how you manage the 
resources, how you shift them between priorities, and so there 
is a whole host of benefits, including improper payments.
    Mr. Easton. Absolutely, and we are trying to--there is a 
couple of paradigms that I think that we are trying to shift 
and teach ourselves. You know, one is the difference between 
positive assurance and negative assurance, and both of these 
gentlemen have taught me well over the last several years is 
what we seek is positive assurance, to be able to say this is 
why management is confident. And then because problems will 
happen in an enterprise as large as the Department of Defense, 
but, at the same time, a sound basis of internal controls 
increases the likelihood that we will find a problem and deal 
with it quickly, but it also increases the credibility of those 
admittedly self-reported numbers.
    Mr. Platts. Okay. Mr. Towns, I yield to you.
    Mr. Towns. Thank you very much, Mr. Chairman.
    Let me ask, is the problem that you have not been able to 
make a decision whether you want to use more outside auditors 
and/or to hire inside folks to be able to do--I mean, because 
when I look at the fact that you have these 2,200 different 
systems, I mean, is that part of the problem? I am trying to 
figure out how we get past that or what precipitated it.
    Mr. Easton. I think that we--I like to think of this as 
Henry Ford waking up. You know, he was managing Ford Motor Co. 
out of his pocket as an individual proprietorship, with no 
requirement to get a clean opinion, and then all of the sudden 
he's a multinational corporation. We have evolved over many 
years, and so the systems that have evolved, many of the 
systems--we don't have nearly that many financial systems, but 
we have that many systems feeding our financial numbers.
    And so part of this process that will enable us is to 
increase--reduce the number of systems, improve the level of 
standardization. It will make an audit not only doable but also 
affordable. And so that is what we seek to do. I think that we 
got there just through evolution more than anything else and 
organizationally and growing without a thought process of this, 
you know, prior to the CFO Act. But that would be my 
assessment, sir.
    Mr. Towns. One of the most pressing issues with DOD's 
financial management system has been that they are low tech. In 
your testimony, you note that many of these systems exchange 
information slowly and inaccurately, lack controls, and are 
nonstandard. It appears as if you have begun to remedy these 
problems by overhauling this system. I am especially encouraged 
by your recognition that these systems must be designed with a 
holistic rather than a stovepipe approach. Can you describe 
what this holistic approach to IT system comprises? What does 
that constitute?
    Mr. Easton. I think that we would describe that as being 
able to develop a framework for how we want to do business. 
That framework is embodied in our enterprise architecture, and 
this is a relatively new invention. We have begun on this 
around 2001.
    We have an enterprise architecture that is essentially a 
set of end-to-end processes of how we would want to do 
business. And so what we are trying to do is to take the 
systems that we are investing in, oftentimes an commercial off-
the-shelf system, to ensure that it is complying with that set 
of ground rules. That is how we are trying to evolve and be 
able to deal with it on a holistic basis.
    Mr. Towns. Let me ask this question. Then I am going to 
yield back. Is there anything that we can do on this side that 
we are not doing that would be helpful?
    Mr. Easton. I think----
    Mr. Towns. I know you are not going to recommend more 
hearings. I understand that.
    Mr. Easton. If I did, I think my boss would shoot me.
    But I think that sessions like this, your interest is very, 
very important; and I think that Mr. Blair and Mr. Khan 
mentioned that. That kind of focus I think does, in fact, help 
keep us focused.
    As I look back, and I mentioned being in the Pentagon in 
the mid-'90's, and these kinds of hearings occurred, but they 
did not occur with the frequency, the knowledgeable intent, and 
focus that we see them occurring now. And, from my perspective, 
that is very, very helpful.
    Mr. Towns. Mr. Blair.
    Thank you, Mr. Easton.
    Mr. Blair. I don't want to say that I want to be up here on 
a regular basis testifying, but I think the tone from the top 
is very important to keeping the pressure on.
    Other types of reporting sometimes become helpful tools to 
prod the Department to do certain things by certain points in 
time, and so you may want to look at some interim reporting 
mechanisms to closely track the milestones and where they are 
slipping. And I know that there is already some of those 
reporting requirements, but I think, between the two of those, 
the continued pressure and the tone from the top, as well as 
the reporting, along with the sustained leadership the 
Department has in place and a sustained consistent direction of 
how we are going to fix this problem, I think we are in a 
better situation now to see real improvement than we have been 
in the past.
    Mr. Towns. Mr. Khan.
    Mr. Khan. Just to add to what Mr. Blair and Mr. Easton have 
said, GAO has highlighted that oversight and investment 
management in IT projects or ERP implementation is essential. 
By that I mean that when the ERPs are being implemented and 
moving to a next phase, there should be more questions asked 
that the ERP is meeting the intended functionality.
    Like I mentioned in my testimony, many of the ERPs have 
slipped their timing or their timelines because they were not 
meeting their functionalities. So strengthening the oversight 
and investment management is critical.
    Though we are seeing positive signs, and one of the ones, 
if I may highlight, is the milestone decision authority 
recently precluded DEANS, which is the Air Force general ledger 
system, from being deployed further from the Scotts Air Force 
Base until some of their implementation problems were 
addressed. So we are seeing some positive signs, but that is a 
critical area where they need to strengthen.
    Mr. Towns. Okay. Thank you.
    I yield back, Mr. Chairman.
    Mr. Platts. I thank the gentleman.
    Mr. Lankford.
    Mr. Lankford. Thank you, Mr. Chairman.
    Who is kind of living and breathing this all the time? Is 
there an individual or a group of individuals? Obviously--
y'all, obviously, live with it a lot. But someone's got to wake 
up every morning thinking, how am I going to fix contracting? 
How am I going to fix training contracting officers? How are we 
going to chase this down? Somebody has to wake up thinking, 
when is the last time we went down to the line and talked to 
civilian employees about waste? When's the last time I sat down 
with a warfighter and said how do we really get receipts back? 
When is the last time that we actually sat down with a 
contractor and said did this work and getting feedback and 
evaluation and gathering those ideas on the ground? Who's kind 
of living and breathing that all the time?
    Mr. Easton. It takes place at a lot of levels. I guess I 
feel like I wake up thinking about it all the time.
    Clearly, I have a leader for my FIAR team. I hired him with 
experience in financial audit to be able to do that. It really 
goes down into the field, and when I visit the field I am, 
quite frankly, more encouraged because those kinds of things 
are happening, but we need to make sure that they happen within 
the context of these kinds of outcomes.
    Mr. Lankford. So is there--as far as comparing the 
education, for instance, I have heard very high praise on 
Veterans Affairs and how they are handling some of the training 
of their contracting officers. Is there that kind of 
conversation happening agency to agency? Or maybe y'all would 
look at it and say, I disagree, I don't think they are doing a 
good job either. But y'all may have a different opinion on that 
from what I am hearing. But is there that kind of conversation 
agency to agency saying how are you training people? It is 
something that we are trying to deal with as well the training, 
the equipping of the contracting officer.
    Mr. Easton. There's forums--I can speak to forums. OMB 
sponsors a CFO Council. There is an analogous group for the 
acquisition community and the HR community. Oftentimes, it is 
important to not only have those conversations across the 
functional areas but then within the organizations. Because 
these things really do, you know, have to fit together from an 
enterprise perspective. But those are--at least that is an 
example I could point to.
    Mr. Lankford. Okay. Any comments on that?
    Mr. Khan. Just to add to that. I mean, it is very important 
to look at the financial management within the context of the 
business transformation or the enterprise transformation within 
DOD itself. So, just like Mr. Blair and Mr. Easton have 
mentioned, it has to be a multifunctional approach so that we 
avoid some of the silo'd initiatives in the earlier days. So, 
consequently, acquisitions--procurement, acquisitions, supply 
chain management, infrastructure development all has to be 
looked at collectively to be able to address these issues.
    Mr. Lankford. Okay. While we are talking back and forth, 
too, there were several comments that were made, and Mr. Easton 
has a part of his testimony, a section about recovering 
improper payments and such. Obviously, that is important when 
we discover that is an improper payment to recover. As a part 
of this conversation as well how do we prevent those improper 
payments ever being done, and how are we doing on the progress 
on that?
    Mr. Blair. Mr. Lankford, I think that is the key: Don't try 
to recover the money once it has gone out the door but try to 
prevent it up front. And that is what all the discussion this 
morning has been focusing on, internal controls. And when the 
Department has a solid set of internal controls that provide 
the positive assurance that Mr. Easton referred to earlier, 
when that is in place, then the number of improper payments is 
going to significantly decline. So it is very important for the 
Department to improve this internal control structure first, 
rather than to emphasize trying to recover the money after it 
has already gone out the door.
    Mr. Easton. But I might add that we have emphasized the 
prepayment checks. In fact, when GAO came in, that was our 
position, is that we would prefer to invest in stopping before, 
and I think the GAO position was, well, you should do both. And 
that is what we are currently doing with the commercial 
payments, but we had a business activity monitoring tool, an 
automated tool that was particularly critical because we had 
multiple entitlement systems, and so potentially a vendor could 
submit--as a weakness, could submit an invoice to two different 
systems, and we had to make sure that we were able to address 
that, address it before something like that happens, and it has 
produced good results.
    Mr. Lankford. That is great.
    One final question and I'd be glad to be able to yield 
back.
    We are obviously gearing up for a large-scale single audit 
happening 6 years from now, on time, ready to go, well checked, 
all those wonderful things. What about 2017, 2018, 2019? Are 
the systems and the process and the conversation in place to 
say this is not going to be gear up for 20 years to get the 
check and then we will do this again 20 years from now? Or are 
these systems all gearing up and saying we will be prepared for 
an annual check from here on out?
    Mr. Easton. I think we certainly understand that this is an 
annual routine. This is not--again, from a Department of 
Defense cultural perspective, oftentimes you get into--in my 
experience in uniform, you get into where you, in one 
particular tour, you would experience inspection one time. I 
spoke to a group of marines, and as we go through auditing the 
Marine Corps statement of budgetary resources, a young marine 
raised his hand and said, sir, you mean we have to do this 
every year? And the answer is absolutely.
    But the key to being able to do it every year and as the 
chairman mentioned the sustainability aspect is really based on 
the scale we operate systems and strong internal controls. And 
so that is what we have to be able to be building now.
    Mr. Lankford. Culture change.
    Mr. Easton. Absolutely.
    Mr. Lankford. Thank you. I yield back.
    Mr. Platts. I thank the gentleman.
    I yield to the gentleman from Virginia, Mr. Connolly.
    Mr. Connolly. Thank you, Mr. Chairman. Forgive me for being 
late. I had an amendment on the floor.
    Mr. Easton, Congress first required DOD to audit its 
finances in 1997. How much has the DOD budget increased since 
1997?
    Mr. Easton. I don't have the specific numbers off the top 
of my head, but significantly increased, particularly in the 
last 10 years since 2001.
    Mr. Connolly. Probably doubled, right?
    Mr. Easton. Yes, sir.
    Mr. Connolly. Plus wars. So, presumably, it is more 
imperative than ever, given the huge amounts of money we are 
talking about, that, in fact, DOD meet that requirement. Now, 
we are talking about extending it to 2017, which means we will 
have gone 20 years from the first congressional requirement to 
the actual deadline. From a confidence-building point of view, 
you think that is a problem for the Department of Defense?
    Mr. Easton. I think we know why we are not financially 
auditable. I wish that--and, as was mentioned earlier, 
Secretary Panetta has publicly said he finds it unacceptable, 
as do we. We have a plan, the complexity of what we need to 
do--and I venture to say that in 1997 the Department of Defense 
did not fully understand what it meant to become financially 
auditable. We do now. We have a plan, and I think we are 
committed to it. I wish we could deliver it tomorrow, but it 
will take time. I think that we are on the right track.
    Mr. Connolly. Good. Well, I just--I think on both sides of 
the aisle we share the same view that it is imperative that 
that be accomplished sooner rather than later in order to make 
sure there is public confidence in the vast amounts of money we 
are investing in defense.
    DOD has 2,200 noninteroperable business management systems, 
and I know that Mr. Towns asked a question about this, but what 
progress are we achieving on trying to get that number down to 
ensure more efficiency and more accountability?
    Mr. Easton. We are making significant progress. I think 
with each of these--with each of these major systems, 
Enterprise Resource Planning systems, there is not just one or 
two, but there is tens of--you know, the Navy ERP, for example, 
when it was implemented at the Naval Air Systems Command, 
eliminated 60 systems. And so we have a significant ways to go, 
but we are making progress with each implementation at each 
individual activity.
    Mr. Connolly. I hope so.
    DOD spends more than--given the fact that it has the 
largest budget, it spends more than any other Federal agency on 
outsourcing contracts. Contract management, especially given 
the growth in the budget that we talked about since 1997, 
obviously becomes even more important. Can you talk a little 
bit about the role of training contract managers and whether 
we've looked at ways to create a professional path that is more 
attractive and longer lasting so there is continuity built into 
large, long-run contracts?
    Mr. Easton. The acquisition community has developed--and I 
think that under the acquisition work force--has developed a 
framework to be able to develop a career pattern to be able to 
develop those capabilities.
    Quite frankly, within the financial management community, 
we are trying to model that under the same kind of thing. But 
training and awareness, not only of directly contract 
administration but issues associated with the financial 
weaknesses associated with the gaps, need to be included in 
that training. So I would absolutely agree.
    Mr. Connolly. I just--and maybe Mr. Blair and Mr. Khan 
wants to comment, but I have just got to tell you, as somebody 
who came from the Federal contracting world until I came here, 
I can remember one contract, not your agency, in which we had 
14 managers in like a 3-year period, no continuity. Everyone 
had different expectations of what the contract really meant. 
Everyone had the wrong informal ways of changing scope. And, 
cumulatively, by the end of the contract, it had radically 
changed the nature of the contract. And it is very difficult 
for a conscientious contractor to try to provide quality 
service when the client, frankly, is so changeable.
    Mr. Blair, Mr. Khan, if the chair would indulge, any 
comments on the whole contracting piece.
    Mr. Blair. Mr. Connolly, I think you've identified a key 
part of the Department's business processes that has to 
improve. So much of what the Department does on a day-to-day 
basis it executes through contracts. Those contracts have to be 
well-defined in the beginning, the requirements have to be 
well-established in the beginning, and, equally important, 
throughout the life of the contract there has to be effective 
contract oversight so that the Department actually knows that 
it is getting what it pays for. The more improvement the 
Department can put in place in the requirements, in the 
oversight, the better off we are going to be to know that we 
are effectively spending our money.
    Mr. Khan. Just to add to what Mr. Blair said, like I had 
mentioned earlier on, that a lot of these financial management 
or transactions they originate in contracting and procurement. 
Therefore, just stepping away a little bit from contractor 
training from a contract execution perspective, but it is very 
important for the contracting personnel to have the training so 
that they enter the financial information correct in the 
systems. Because if it is not entered correctly, then 
correcting and rectifying it downstream, it is a challenge 
without reworking it.
    Mr. Connolly. Thank you very much.
    Mr. Chairman, I want to thank you for holding a 
substantive, non-gotcha hearing which, of course, characterizes 
your leadership in this subcommittee.
    Mr. Platts. Thank you, Mr. Connolly.
    And, as I said earlier, that the issues we deal with, 
because accounting and things is not the most exciting but very 
important, and your participation, as well as Mr. Lankford and 
the ranking member, is much appreciated.
    My understanding, we are probably going to have the first 
vote go up in 5 to 10 minutes, which means we have a chance to 
squeeze in a few more questions and if we could and maybe have 
one quick opportunity for each of my colleagues as well to wrap 
up, and we will likely follow up with you in writing. A number 
of issues, I know we are not going to get to, and that is a 
credit to the written statements that you provided, which gave 
a lot of good detail, and your testimony here today that gave 
us a good ability to have an exchange.
    I want to make sure I get in about the issue that has been 
mentioned a number of times and the training and the 
sustainability and that the systems we put in place--and it 
goes to Mr. Lankford--that we don't just have 2017 and, oh, we 
are good for 20 years and see what happens. But our goal is 
that when we get to 2017 that we have a work force that is 
well-trained and fully up to speed and moving forward with the 
FIAR guidelines, to have that audit be a clean audit and 
thereafter be able to do so. But the other is the systems we 
put in place in information technology.
    When I first came along to this committee just as a ranking 
member--I mean as a member and then became the chair in January 
2003, we were in the initial years of DIMHRS, the Defense 
Integrated Military Human Resource System, and it was promised 
as the savior of how it was going to help us get our hands 
around this, you know, personnel human resource systems in 
particular and all the expenditures related to it.
    Last year, after I think 12 years of expenditures, over $1 
billion, it was basically cast aside. Admiral Mullen, Chairman 
of the Joint Chiefs, was quoted as saying it is a disaster.
    I know there is a draft report that GAO has put out 
entitled Information Technology: OMB Needs to Improve Its 
Guidance on IT Investments. In that draft report from GAO, it 
references that, in the fiscal year 2011 expenditures, that 
governmentwide, it is just shy of $79 billion in planned IT 
investments, of which almost half of those, $37 billion, are 
Defense Department IT investments. And I think if I do my 
numbers correctly, maybe two-thirds are operations and 
maintenance of existing systems and a third is new investments.
    Given the history of DIMHRS and $1 billion of hard-earned 
taxpayer funds spent without a good return or perhaps any 
return in the end, what are we doing to make sure that the $37 
billion we are spending this year, some on existing, some on 
new investments, that we've learned the lessons of DIMHRS and 
that we are not getting far down the path and saying, you know 
what, this isn't going to do what we need to do and we start 
over again?
    Mr. Easton, if you could take that.
    Mr. Easton. We are trying to apply the lessons, and I think 
that we are very deliberate, and there is a balance between 
holding these programs up and making sure that we are going to 
get our money's worth. But DIMHRS is a classic example of 
something that we cannot afford to repeat.
    And in many cases, we--number one, we are trying to 
leverage something from the DIMHRS program. I certainly hope 
that we can. I don't know for sure if we will. But in at least 
one instance one of the components is stopping to say we are 
not sure we need a large system. We are not sure that we can 
make, you know, with a smaller investment to be able to get the 
capabilities.
    It starts with applying the lessons and also ensuring that 
the specific problem that we are trying to solve and the 
specific functional advocate that is thinking about this all 
the time is involved and we don't just put this into a program 
and just expect things to happen. And so, you know, we are 
trying to apply that in our investment review process to be 
able to make sure that that never happens again.
    Mr. Platts. In that review process to learn the lessons, 
not repeat them, there are issues. When I see a number $37 
billion, perhaps maybe a third of which is new investment, are 
you also looking at making sure you are not being duplicative 
in those investments, that there is across-the-Department 
coordination of what you are doing, both that you are not 
duplicating efforts and that whatever different efforts are out 
there in the end will be able to talk to each other and be 
coordinated for the overall assessment?
    Mr. Easton. I co-chair an investment review board that 
partners with a weapons systems acquisition logistics, and I 
think that that makes sense. Because, in many cases, we said 
that we spend a lot of money in acquisition and logistics 
support functions.
    We ask those specific questions. As systems come up to us 
for approval, whether it is a legacy system or a system that 
has to be modernized, if there is this question of why does the 
Air Force have this system and the Navy has the same system to 
do the same thing--and we've been able to make some successes, 
but, admittedly, that is still--that mindset is that everyone's 
special and we are trying to be able to do that and minimize 
that investment.
    I should say as we go through the current budget process we 
are getting a lot of help in terms of reducing the amount of 
money that is invested in the business systems, and so we are 
going to have to make some hard decisions in that regard as 
well.
    Mr. Platts. Mr. Blair, as we go forward and have the 
lessons of DIMHRS--and I know your office plays a role in 
auditing and kind of after the fact but also proactive--what 
role does the IG have in looking at those investment decisions, 
you know, proactively and prospectively so it is up front that 
you can help make sure the lessons learned are applied?
    Mr. Blair. One of the things that we have ongoing right now 
are several audits of the ERP systems, and we are going to be 
starting in fiscal year 2012 doing audits of additional ERP 
systems. And it is important to note that these audits are not 
tail-end, gotcha-type things you should have done 10 years ago. 
What we are really doing, as the systems are being developed 
and as they are being rolled out in a staged manner, we are 
looking at the current scenario for the system and saying 
here's some areas that we think you need to correct before you 
roll it out any further.
    GFEBS and LMP are two examples of systems where we've done 
a lot of audit work, and what I think is encouraging is the 
dialog that Mr. Easton and I have had over the past several 
weeks, especially on these systems, and how lessons learned can 
be taken from those ERPs to the other ERPs that are being 
developed so that the information that we are providing to them 
on one particular system can then be used to leverage and 
improve the rollout of other systems.
    Mr. Platts. And, Mr. Khan, GAO I know has done a lot of 
work in this area of the investments. Have they done anything 
comprehensive that captures how much has been invested in IT in 
the broad sense, but specifically DOD, that was not productive 
and what the consequences of those failed investments were?
    Mr. Khan. Mr. Platts, I mean, we haven't gone down to that 
granular level of whether it has been productive or not. We did 
do a body of work last year which was focused on 10 business-
related ERPs, and it was of concern. There were cost overruns 
and time slippages, and we had made several recommendations.
    Like I mentioned early on to Mr. Towns' question, we have 
seen some positive signs and we hope to continue to see them in 
terms of investment management and milestone decisions.
    An example I gave you was the Air Force's general ledger 
system where the milestone decision authority had made a 
decision to not give them permission to deploy that outside of 
Scotts Air Force Base until the current functionality was 
addressed. But there needs to be more oversight and hard 
questions to be asked before additional funding is given.
    Mr. Platts. I am going to wrap up there, because I know 
votes are up. Mr. Towns, Mr. Connolly, do you have any other 
questions?
    Mr. Connolly. I just had one.
    Mr. Platts. Just one.
    Mr. Connolly. Thank you.
    As you know, we bifurcate Federal contracting training 
between the Defense Acquisition University and the Federal 
Acquisition Institute. Unfortunately, the FAI has only six 
employees and nowhere near the capacity to train contracting 
staff as needed by non-defense agencies. Do you believe if FAI 
could perhaps take some object lessons from how DAU operates 
and other opportunities from your point of view perhaps to 
scale up FAI in coordination with DAU?
    Mr. Easton. I am afraid I'd have to take that for the 
record and look into that from an acquisition perspective, and 
I'd be glad to do that.
    Mr. Connolly. I would welcome that. Thank you, Mr. Easton.
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    Mr. Connolly. Mr. Khan, GAO got a point of view about that?
    Mr. Khan. I do not. I don't think we have looked at it. I 
will take that for the record if there is any work that we have 
done.
    Mr. Connolly. I would just note for the record that we got 
a letter from Dan Gordon from OMB, very strange letter, given 
the fact that I am the author of the legislation, try to scale 
up FAI, indicating that we really didn't need to do much and we 
already were doing a fine job.
    That is not true. It is shocking to me that OMB would send 
such a letter without at least first consulting with the author 
of the legislation. And I can just assure you this Member of 
Congress is going to aggressively continue to pursue trying to 
scale up FAI so that we have contracting--skilled contracting 
managers in place to manage complex, large, often systems-
integration-type contracts for other Federal agencies besides 
DOD; and I'd appreciate you taking that word back.
    Thank you so much.
    Mr. Platts. I thank the gentleman.
    There are a whole host of issues that we didn't get to, but 
we are going to need to wrap up here, and my understanding from 
the ranking member is we have 14 votes. So we will not be 
asking you to stay. You would have lunch and dinner and still 
be waiting, I think.
    One issue in particular that I wanted to put out there is 
the Logistics Modernization Program with the Army. One of the 
things that jumped out in, Mr. Blair, your testimony about this 
program is that implemented I think over $1 billion again 
invested; and yet, as you say in your testimony, the system 
also did not resolve any of the 10 Army working capital fund 
internal control weaknesses.
    That is where--while I want to believe you, Mr. Easton, 
that--why should we, you know, this time think, hey, we are 
going to get it right? When I look at that, it makes me think 
we are back at DIMHRS 7 years ago and that we are spending a 
lot of money and we are not actually achieving the success we 
need.
    So I want that to be on the radar. You know, again, that is 
a concern.
    A final comment would be we are grateful for all three of 
you and your colleagues that are working hand in hand with you 
on this important issue. And, as Mr. Lankford said, we have the 
best military in the world, and it is tremendous in defending 
this country, but if we can get these issues right, we will 
have an even greater ability to provide the resources that that 
military needs to continue its heroic efforts on behalf of our 
Nation.
    And I know each of you share this perspective that we 
really are about not that heroic effort to get a check but to 
put in place long-term solutions so that this is a systemic 
change in the mindset of the personnel, in the systems in 
place, in every aspect, that 2017 will be the start of a long 
history of DOD being able to say we know how much money we've 
got, we know where it is going, how it was used, year in and 
year out, day in and day out. Because that will better serve 
all the managers in DOD who are using those resources for the 
good of the military personnel.
    We look forward to continuing to work with each of you and 
your offices going forward. As I said, Mr. Towns and I have 
been partnering on this issue for almost a decade now, and 
hopefully neither one of us is going anywhere anytime soon. We 
might keep trading chairs sometimes. I don't know. Hopefully 
not anytime soon, changing our chairs here. But it is something 
that we very much believe in the importance of and as good 
partners we do right by the American people and our military 
personnel and their families.
    So we will keep the record open for 2 weeks for additional 
information, and thank you, again, for your testimony.
    This hearing stands adjourned.
    [Whereupon, at 11:40 a.m., the subcommittee was adjourned.]

                                 
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