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





  THE STATUS OF GOVERNMENT FINANCIAL MANAGEMENT: A LOOK AT THE FISCAL 
              YEAR 2011 CONSOLIDATED FINANCIAL STATEMENTS

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

                                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

                             SECOND SESSION

                               __________

                         TUESDAY, MARCH 1, 2012

                               __________

                           Serial No. 112-145

                               __________

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
                                _____

                  U.S. GOVERNMENT PRINTING OFFICE

74-457 PDF                WASHINGTON : 2012
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001

















              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 March 1, 2012....................................     1

                               WITNESSES

Mr. Gene L. Dodaro, Comptroller General, the U.S. Government 
  Accountability Office
        Oral Statement...........................................     2
        Written Statement........................................     4
Mr. Daniel I. Werfel, Controller, Office of Management and Budget
        Oral Statement...........................................    25
        Written Statement........................................    27
Mr. Richard L. Gregg, Fiscal Assistant Secretary, U.S. Department 
  of the Treasury
        Oral Statement...........................................    32
        Written Statement........................................    34

 
  THE STATUS OF GOVERNMENT FINANCIAL MANAGEMENT: A LOOK AT THE FISCAL 
              YEAR 2011 CONSOLIDATED FINANCIAL STATEMENTS

                              ----------                              


                        THURSDAY, MARCH 1, 2012,

                  House of Representatives,
Subcommittee on Government Organization, Efficiency 
                          and Financial Management,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 2154, Rayburn House Office Building, Hon. Todd Russell 
Platts [chairman of the subcommittee] presiding.
    Present: Representatives Platts, Guinta, Towns and 
Connolly.
    Staff Present: Ali Ahmad, Majority Communications Advisor; 
Michael R. Bebeau, Majority Assistant Clerk; Robert Borden, 
Majority General Counsel; Linda Good, Majority Chief Clerk; 
Tegan Millspaw, Majority Research Assistant; Jaron Bourke, 
Minority Director of Administration; Beverly Britton Fraser, 
Minority Counsel; Ashley Etienne, Minority Director of 
Communications; Devon Hill, Minority Staff Assistant; Paul 
Kincaid, Minority Press Secretary; Mark Stephenson, Minority 
Director of Legislation.
    Mr. Platts. This hearing of the Subcommittee on Government 
Organization, Efficiency and Financial Management will come to 
order.
    We certainly appreciate everyone's participation, 
especially our witnesses. In the interest of time management, 
we are going to dispense with opening statements here with 
Committee members and submit our statements for the record, and 
leave the record open for seven days for any other members to 
submit opening statements or extraneous material, and go right 
to our witnesses.
    We are honored to have three very distinguished public 
servants. We are grateful for your participation here today and 
especially for your work day in and day out, as part of the 
Federal Government's work on behalf of all of our Nation's 
citizens.
    We are honored to have the Honorable Gene Dodaro, 
Comptroller General of the United States; the Honorable Daniel 
Werfel, Controller of the Office of Management and Budget; and 
the Honorable Richard Gregg, Fiscal Assistant Secretary of the 
Department of Treasury. Again, we have had a chance to review 
your written statements and we appreciate that preparation that 
you provided us. It allows us to be a little more prepared for 
a good engagement here today.
    The practice of the Committee, if I could ask, now that you 
are all seated, is to stand, and we will swear you in. If you 
would raise your right hand. Do you solemnly swear or affirm 
that the testimony you are about to give this Committee will be 
the truth, the whole truth and nothing but the truth?
    [Witnesses respond in the affirmative.]
    Mr. Platts. Let the record reflect that all witnesses 
answered in the affirmative. And Mr. Comptroller General, we 
will begin with you and again appreciate your participation 
here today.

                    STATEMENTS OF WITNESSES

                  STATEMENT OF GENE L. DODARO

    Mr. Dodaro. Thank you very much, Mr. Chairman. It is a 
pleasure to be here this morning. Ranking Member Towns, nice to 
see both of you to discuss the results of our latest review of 
the financial statements for fiscal year 2011.
    I might take this opportunity, Mr. Chairman, with your 
announcement that you are not running for re-election, I just 
want to take this opportunity to thank you on behalf of myself 
and all my colleagues at the GAO for your dedication to 
financial management improvement. I think your efforts with the 
DHS Accountability Act and improper payments, working on a 
bipartisan manner with your colleagues has really made a 
difference. I just want to thank you for that.
    Mr. Platts. Mr. Comptroller General, I appreciate the kind 
words. It has been a remarkable experience for the last 12 
years. I don't know what is next, but I look forward to 
whatever that chapter is. But as I said before we started, 
working with you and your staff at GAO has been a great 
experience and we are grateful. And working with my Ranking 
Member, my former Chairman, we kind of keep swapping seats, who 
is Chairman and Ranking Member. But the approach I know that we 
have taken, along with you and our other witnesses, is just a 
team effort. It has been a real privilege to work with you and 
all here in Washington on behalf of the people of my district.
    So I appreciate the kind words.
    Mr. Dodaro. Sure, thank you. You leave with our 
appreciation and best wishes.
    With regard to our report this past year, as will be no 
surprise to either of you, we again disclaimed to give an 
opinion on the accrual based audited financial statements of 
the United States Government. Three main reasons remain; 
serious financial management problems at the Department of 
Defense and issues at Treasury with both preparing consolidated 
financial statements and eliminating inter-governmental 
transactions.
    Now, there are a few important developments with regard to 
DOD that I would like to highlight this morning. First, in 
addition to this Committee's focus, the House Armed Services 
Committee has had a special panel on DOD financial management, 
held a number of hearings, issued a report encouraging them to 
continue with their improvements. So the Congress is getting 
more actively engaged, and I think that is a very positive 
development and hope that it continues as DOD progresses.
    Also, having the Congress set a firm deadline of 2017 in 
terms of auditability for the Department is an important step.
    Secondly, Secretary Panetta has advanced those goals by 
setting a date of 2014 for the audits of the statements of 
budgetary resources. This is a very important early step and I 
think will give indications as to whether or not they are going 
to be able to make the 2017 date as well. Because it will 
highlight additional problems up front.
    Thirdly is that the Department has set priorities for the 
beginning of their financial Management improvement in dealing 
with budgetary resources and also the existence and 
completeness of military assets. These are the things they care 
about at the Department. And I think if they can't make 
progress in these areas, it is going to be even more difficult 
in dealing with some of the other issues associated with 
preparing financial statements.
    So I think all these elements, against the backdrop of a 
lot of fiscal pressure that the Department is going to be 
under, are creating the proper environment, hopefully, for 
improvement. Now, one should not underestimate the serious 
challenges that DOD is going to face in improving their 
controls and systems and the skills of their workforce. But I 
think these are encouraging signs.
    With regard to Treasury, they have taken some important 
steps in order to help deal with inter-governmental 
transactions by engaging the agencies on a quarterly and 
regular basis, which I think is very important. They have also 
signaled their intent to prepare financial statements for the 
general fund transactions, which is really important in order 
to really figure out how to finally deal with this inter-
governmental transaction issue. There hasn't been enough 
transaction history in order to make sure that they can find 
and eliminate all these transactions. This will create a better 
record for them to eliminate those transactions.
    Also, again we have identified weaknesses and improper 
payments and information security and tax collection 
activities. I would be happy to talk about any of those and the 
Qs and As.
    Just in closing, Mr. Chairman, I would say it is really 
critical that the Federal Government continue to make progress 
in addressing these financial management challenges I have just 
outlined at DOD and Treasury. But it is really important also 
that the civilian agencies continue to maintain their record of 
improvements and sustain that going forward. All these things 
are critical to make sure there is proper accountability and 
stewardship of the taxpayers' funds and also to more 
effectively manage the cost to government. All this occurring 
against a backdrop of really long-term serious challenges 
facing our Federal Government.
    So I thank you for the opportunity to be here today. At the 
appropriate time be happy to answer any questions.
    [Prepared statement of Mr. Dodaro follows:]




    Mr. Platts. Thank you for your testimony. You certainly hit 
some of the important high points, and your reference 
specifically on the improper payments with Mr. Towns 
introducing recent legislation, along with Senator Carper in 
the Senate, to take kind of the next step, even going a little 
further on how we can continue to tighten up the issue of 
improper payments and preventing that from occurring up front, 
rather than after the fact, trying to collect the money back. I 
look forward to working with you and your staff on that issue 
as well.
    Mr. Werfel?

                 STATEMENT OF DANIEL I. WERFEL

    Mr. Werfel. Thank you, Chairman Platts, and Ranking Member 
Towns, for the invitation today to discuss the state of 
financial Management in the Federal Government, and in 
particular, the 2011 Consolidated Financial Report of the 
United States. Sound financial management is essential to the 
effective stewardship of taxpayer dollars and enabling agency 
decision makers to make tough choices on day to day and long-
term management challenges. In this time of tight budgets, 
families across the Country are sitting around their kitchen 
tables and figuring out how to make the most of every penny. 
And they should expect nothing less from their government.
    To meet this commitment, last year the Administration 
launched a campaign to cut waste, dedicated to combing through 
the entire Federal Government and rooting out any areas of 
waste an inefficiency. We have made tremendous strides to date. 
We are cutting real estate costs, driving down the amount of 
improper payments the government makes, closing data centers 
and saving money on information technology, and reducing 
administrative costs across the board.
    Underlying all these efforts is the need for robust 
accounting practices, effective internal controls and reliable 
financial reports. These tools create an environment where 
agencies can be more effective in meeting our most critical 
bottom line results: effective and efficient programs, free of 
error and waste.
    In addition to providing a comprehensive view of the 
Federal Government's finances, its current position as well as 
issues and conditions that impact future operations, the 
financial report provides us with an annual update on agency 
financial audit results, a critical indicator of the success of 
our efforts to strengthen financial management practices across 
government.
    On those efforts, I am pleased to report that great 
progress was made in 2011. Twenty-three of the 24 CFO Act 
agencies obtained an audit opinion. The best performance by the 
Federal Government to date, and only two agencies received a 
qualified opinion. Moreover, auditor-identified material 
weaknesses continued to decline. And again, all major agencies 
met the 45-day deadline for producing audited financial 
statements at year end.
    These successes are due to the tireless efforts, leadership 
and long-term commitment of our Federal agencies. For example, 
this year, NASA was able to overcome longstanding challenges 
with reporting certain assets and achieve a clean opinion on 
their financial statements for the first time since 2002. 
Similarly, the sustained leadership and persistence of the 
Department of Homeland Security led to them obtaining an 
opinion on their balance sheet for the first time since the 
Department's inception.
    And although DOD was not able to obtain an audit opinion, 
they have significantly accelerated their efforts for getting 
there, with Secretary Panetta specifically expressing his 
strong commitment to achieving an audit of the Department's 
budgetary statement by 2014, which would establish a firm 
foundation for full financial auditabilty by 2017.
    As we move forward on these efforts, we are cognizant that 
a foundation now exists that enables us to go beyond the 
balance sheet to ensure every dollar spent on programs and 
services is spent wisely. In today's continually challenging 
fiscal environment, wasting money is inexcusable and cannot be 
tolerated. As I mentioned earlier, we have already made 
tremendous progress in cutting administrative costs, saving 
money on real estate, reducing improper payments and other key 
reforms under the campaign to cut waste.
    But in each of these areas, there is still significant work 
to be done in order to cut waste and improve efficiencies 
wherever possible. To achieve these goals, we will continue to 
improve financial management and identify ways to better manage 
and report on how the Federal Government spends taxpayer 
dollars. I look forward to working with Congress, GAO and the 
financial Management community to achieve our mutual goal of 
providing reliable and relevant financial information in a 
readily available and easily accessible format.
    Since I finished a minute early, let me echo Mr. Dodaro's 
comments about your service to this Country, to this 
Subcommittee, Mr. Chairman. I would just mention, earlier in my 
career, I think it was around 2003, I saw you give a speech on 
the CFO Act and financial management generally. Some of the 
themes that you emphasized in terms of the purpose of the CFO 
Act and that are, you talked a lot about the audits that we do 
on a quarterly and an annual basis, financial statements are a 
means to a larger end of better Management and better data for 
information and decision making.
    Those certainly resonated with me as I was starting out in 
financial management in 2003. I started my career in government 
in 1997, but got into financial management right at the time I 
saw that speech. And it was very helpful for me in terms of 
formulating my approach and my strategic vision for financial 
management from OMB's perspective.
    So for all your work, OMB thanks you and wishes you the 
best of luck in the future.
    [Prepared statement of Mr. Werfel follows:]




    
    Mr. Platts. Thank you.
    Secretary Gregg?

                 STATEMENT OF RICHARD L. GREGG

    Mr. Gregg. Chairman Platts, Ranking Member Towns, thank you 
for inviting me to talk about the financial report for the 
United States Government for fiscal year 2011. Your interest in 
financial management is greatly appreciated.
    The financial report provides the U.S. Government, 
President, Congress and the American people with a 
comprehensive view of the Federal Government's financial 
position. The projections in the report demonstrate that we 
must continue to take action to put the Federal budget on a 
more sustainable path. The Obama Administration is committed to 
meeting that challenge.
    The Affordable Care Act of 2010 and the Budget Control Act 
of 2011, both of which Congress passed and President Obama 
signed, are expected to help bring the Government's 
expenditures more in line with its receipts. Together, these 
two laws substantially reduce the estimated long-term fiscal 
gap.
    But there is still more work to be done. The fiscal year 
2013 budget that President Obama submitted on February 13th 
seeks to build on that progress through a balanced plan for 
deficit reduction. The President's budget reduces projected 
deficits by a total of more than $4 trillion over the next 10 
years, by adding more than $3 trillion in deficit reduction to 
the approximately $1 trillion in savings already enacted 
through the BCA. These savings would cut the deficit and begin 
placing the Federal debt on a downward path as a share of the 
economy by the middle part of the decade.
    Addressing our Nation's fiscal challenges will require a 
sustained commitment, not just today, but for the long term. As 
Secretary Geithner has said, ``Restoring fiscal sustainability 
will require substantial additional changes, including tax 
reforms to increase revenue and changes to make our entitlement 
program sustainable over time.'' But these reforms, if done on 
a broad-based and balanced way, and phased in over time to give 
Americans a chance to plan and adjust, will not impose an 
unfair or excessive burden on the citizens of this Country.
    Let me turn to the financial report. The Federal 
Government, as Mr. Dodaro said, continues to receive a 
disclaimer of opinion on the government-wide audit. Last year I 
spoke to the Subcommittee about my personal commitment to 
addressing the audit issues for which Treasury is primarily 
responsible, the mitigation of the inter-governmental out of 
balance conditions and to improve the process for compiling the 
report itself. I think we have made significant progress on 
those two fronts over the last year.
    Treasury, working in cooperation with OMB and GAO and all 
the Federal agencies, is pursuing a number of strategic 
solutions to resolve these issues and improve financial 
management across government. For example, we have launched a 
coordinated, multi-faceted effort to resolve inter-governmental 
differences, including working groups that get together and 
identify areas where we can not only clear out the out of 
balance conditions but resolve the underlying problems. We have 
taken the lead in working with agencies to resolve 
reconciliation differences. We are creating metrics to go out 
to the agencies to measure their performance and we are 
developing an automated system to address the buy-sell issue 
which is a complicated one in this area.
    In addition, in this fiscal year, in fact, in June, we will 
implement a central account group, or general fund, against 
which millions of transactions can be reconciled and validated. 
The original government-wide accounting construct lacked a 
central account of this type, giving rise to the audit issues 
that we have been facing.
    And while additional work is certainly necessary, we 
continue to clear out many of the audit issues that GAO has 
identified over the years.
    Let me just touch on a few financial management areas that 
complement what Danny said about things that are going on 
within the government and within Treasury. Within Treasury, we 
have launched an automated electronic invoice that any 
government agency can use to move away from paper invoice 
processing to electronic processing. It will save money and 
improve performance.
    Treasury is also working to accelerate the use of 
electronic transactions. Many of our payments are now made 
electronically as a result of an initiative we started a couple 
of years ago. We have moved savings bonds from paper to 
electronic, and we also have the tax payments coming into 
Treasury almost all electronic these days. Those three 
initiatives alone will save about $500 million.
    We are working with OMB to improve the payment process and 
to identify potential for improper payments before the payments 
go out through the goVerify program that we have put together. 
And there is a host of other things that we have done.
    The last one I would mention is the provision in the fiscal 
year 2013 budget that consolidates the two fiscal bureaus that 
report to me, Public Data and FMS. We are doing that primarily 
to give us a greater opportunity to help other agencies across 
the government in the financial management realm. We are also 
going to save some money, but the primary reason is to 
strengthen our capacity to deal with financial management and 
to be a leader in financial management across government.
    Mr. Chairman, that concludes my remarks. I would like to 
echo what my two colleagues said about your work over the years 
in providing great leadership in this area. It has been greatly 
appreciated by all of us in Treasury who have sat in this chair 
and you will be sorely missed. Thank you.
    [Prepared statement of Mr. Gregg follows:]




    
    Mr. Platts. Thank you, Mr. Secretary. It has been an 
interesting experience, in working with Mr. Towns on the 
Subcommittee over the years, and trying to raise awareness in 
the general public, I guess, that the issues that all of you 
deal with every day are critically important.
    I reference back that, years back when we had a hearing on 
steroids in baseball and you couldn't fit everyone or all the 
cameras in this room, I am a huge baseball fan, but if they 
want to kill themselves doing steroids, that is not a priority 
issue for this Committee. And yet when we are talking about how 
we spend trillions of dollars, we have a lot of empty seats.
    The issues you are working on every day really are the 
issues that this Committee and the Federal Government needs to 
be focused on. So I appreciate all of your nice words, and 
certainly look forward to the final 10 months working with you 
and then I will be a private citizen. Then I will keep tracking 
how we are doing.
    But we are going to try to get through some questions here. 
The votes have gone up, but we are going to try to get through 
as many as we can, so that ideally we don't have to have you 
wait while we run over.
    I am going to start with Danny, Mr. Werfel. You started a 
reference I wanted to start with, which is, what is the real 
purpose of what we do when it comes to audits and financial 
statements. That is to have knowledge that we can then act on, 
and not just once a year, but throughout the year. And to be 
able to make informed decisions.
    I will start with you, but if any of the three of you want 
to comment. What percentage of the departments and agencies do 
you think are still having to make heroic efforts to make that 
45-day deadline as opposed to having in place the systems that 
really are going to generate the information at the end of the 
year ready for audit that we really are after? Because that is 
what is ultimately going to benefit the department heads, the 
agency officials in day to day Management. I know it is going 
to be an estimate or a guesstimate, but any ideas?
    Mr. Werfel. I would say that about, roughly 70 percent of 
the major agencies at this time have hit their stride and 
gotten their sea legs.
    Mr. Platts. That is a seven zero?
    Mr. Werfel. Seven zero, where--that is not, I don't mean to 
say that they are as efficient as they can be. But I would say 
that they have hit the point where there is a routine nature to 
the manner in which the financial statements are put together 
and the year-end activities occur.
    Every once in a while, within those agencies, there is some 
kind of surprise that comes up in October that is unexpected, 
and there is a lot of scrambling and we might ramp into heroic 
efforts mode. But more and more I think we have achieved a 
stability. There are several agencies out there that still, it 
is a lot of workarounds, and it is a lot of manual processes. 
And you used the term heroic efforts. It is just not the right 
efficiency point, they just haven't hit their efficiency. And 
that impacts how they can manage more to the bottom line.
    And I said in my remarks, the goal here is that financial 
statement reporting, internal controls, basic accounting, 
become a routine functionality, so that where you are doing 
your heroic efforts and where you are staying up at night 
worried is around things that are more impactful to the bottom 
line, like are the dollars going to the right person in the 
right amount.
    Mr. Platts. General Dodaro?
    Mr. Dodaro. I agree with Danny that things have gotten 
much, much better over time. There is no question about it.
    Another benchmark, though, that we look at is whether or 
not the agencies are able to be in compliance with the Federal 
Financial Management Improvement Act. We still have 11 of the 
agencies that are out of compliance with one of the three 
requirements there in terms of the standard general ledger, or 
whether they are following generally accepted accounting 
standards or Federal systems requirements. But it is much, much 
better. It is hard to quantify, but there is no question that 
it is marked Improvement from where we started back in 1996 and 
1997 with these audits. There is no question.
    A couple of areas, one area that we are still heroic 
efforts, still at the IRS on the tax collection activities, 
which is why we list that as a material weakness. We are still 
using their statistical sampling estimates to estimate the tax 
receivables. There is really not yet a good system there. They 
are making good strides with their system improvements efforts, 
but I would like to see more improvement over there. Because I 
think it would benefit the taxpayers as well as the government 
in that particular case. And of course, we have the issues at 
DOD, DHS and a few others.
    But by and large, I would give it a much improved 
situation. We just need to keep it there. I am concerned, if 
you notice, some agencies slip out of unqualified opinions, 
slip back in, slip out. That is a little bit of a sign there 
too, that they are not smooth, you don't have smooth processes 
in place.
    Mr. Platts. And continuing to have leaders like Secretary 
Panetta, who are emphasizing this as a clarity issue, not in 
place of their key functions at HHS or DOD or whatever, but 
along with. That leadership at the top really plays a huge role 
in whether they stay focused and don't slip out.
    Mr. Dodaro. That is essential. That is essential, as well 
as continued emphasis from OMB and Treasury.
    Mr. Platts. Yes.
    Mr. Secretary?
    Mr. Gregg. The only thing I would add would be to reiterate 
what Danny said, is that whether it is the financial report or 
any other kind of operation or accounting process, you can't 
jump into it once a year and expect to deal with the issue 
appropriately. It has to be an ongoing process, and many of the 
things that we are working on is to not have the period that we 
have to issue the financial report to address the imbalances. 
But throughout the year, work at the agencies and OMB and GAO 
to know what the causes of those are and fix them so 
ultimately, when we get to the end of the year, we could be at 
some point pushing a button and the report is generated and the 
reconciliations are there.
    Mr. Platts. Thank you.
    One other quick question, then I am going to turn to the 
Ranking Member. DOD, obviously is a huge part of ever getting 
to a clean audit, the Secretary has been great in setting the 
priority there, and getting to 2014 with the statements. Do we 
think that is realistic? In other words, I think just a few 
months back we had the CFO at Air Force saying they were going 
to have trouble meeting the 2017 deadline, and now we are 
talking about part of that being 2014. Your estimate of whether 
we can meet that goal, which we need to, and obviously Congress 
has said we will, in law. But we have said some other things in 
law about financial Management that were not yet achieved.
    Any idea?
    Mr. Dodaro. I think this time we have more interim measures 
to be able to determine whether we are going to make 2017 or 
not. If you recall, in the past, DOD always had an out year 
estimate of when they were going to make it. But there weren't 
interim milestones to be able to tell.
    That is why Secretary Panetta's decision on 2014 is so 
important. If they can't make 2014, and get audits on the 
statement of budgetary resources, it is going to be really, 
really difficult to make the 2017 goal. So I think over the 
next couple of years, particularly, I applaud the Marines, 
because they have gone out front, as they usually do, and are 
trying to get their statement of budgetary resources audited. 
They are trying for the third time this year. I think every 
year the are learning more, and hopefully the other Services 
will benefit from their experience.
    So these interim milestones, Mr. Chairman, I think will 
give us a better, more realistic assessment than trying to 
speculate at this time about 2017.
    Mr. Platts. Great.
    Mr. Werfel. I absolutely agree. I have talked many times 
about what I thought was a critical missing piece to the 
Defense Department's efforts. It is what I call a moment of 
truth for the finance shop. They have many moments of truth at 
the Defense Department more broadly.
    But for the finance shop, the rest of government looks at 
November 15th each year as the day in which they have to hand 
in their final papers and get graded. And in many agencies, 
that is embedded into performance appraisals and it is embedded 
into the manner in which the effectiveness of the CFO and their 
entire operation is working.
    But the Defense Department, they have had a disclaimer for 
so long, they don't have that healthy stress that exists. But 
by Secretary Panetta putting a line in the sand and saying, we 
will be auditable on the statement of budgetary resources by 
this date, I know for a fact that internally inside the Defense 
Department, this is making waves and people are recognizing 
that there is a line in the sand and for agencies like Air 
Force and others, they are moving in new directions to try to 
make sure they meet that commitment.
    And it is a smart line in the sand that he has drawn, 
because the statement of budgetary resources is so central, the 
budget execution, whether program managers and field commanders 
throughout the Defense Department can know what cash they have 
on hand, what their obligation rate is, what their expenditure 
rate is, to meet emerging commitments. That is the bread and 
butter of what they do.
    And you can convince people that if you can't pass this 
test, then it is impacting your mission. Now you are in a place 
where you will get more accountability and I think it is a good 
place to be.
    Mr. Platts. Great.
    The Ranking Member, Mr. Towns.
    Mr. Towns. Thank you very much, Mr. Chairman.
    I am pleased to see that the rates of improper payments 
have decreased, as we discussed in our hearing on this matter 
several weeks ago. Today, however, I want to focus on the 
President's goals to recapture at least $2 billion in improper 
overpayments by the end of the fiscal year 2012. So I guess, 
let me ask you, Mr. Werfel, your testimony indicates that 
Federal agencies are on track to meet or exceed the President's 
goal in 2012.
    My question is simply this. If we proceed with ten new 
payment recovery audit programs as has been proposed by my 
legislation and Senator Carper's legislation, would you expect 
to see a significant impact to the recovery of the improper 
payment fund?
    Mr. Werfel. I would. I think that the challenge that we are 
having right now is making the transition from recovery audits 
and a contractor/vendor payment setting to recovery audits in a 
grantee-making environment. Let me explain that. The recovery 
audits first launched as a legal requirement in 2002. It 
focused on vendor payments. So we have this, we built up this 
capacity to send in these specialized auditors and scrub both 
the agency's books and the contractor receiving the funds books 
and find errors, keep a portion of what they find. The 
incentive structure is there. And the process is working very 
effectively.
    That was expanded to Medicare. And it was a seamless 
transition, because the Medicare processors operate very much 
like contractors. There is an expectation that the way they 
keep their books would be audited, and auditable. And the types 
of transactions between the agency and the Medicare contractors 
looked and felt a lot like Federal contract payments. So there 
is familiarity.
    Where we have been challenged is in expanding that to 
grants. So we have not yet figured out exactly how to maximize 
the impact of sending recovery auditors down to States, local 
governments, universities, it is a much different proposition. 
There are a lot of different cultural issues. When Federal 
employees knock on the door of a State government office and 
say, we are here to audit, show us your paperwork, it is very 
different than showing up at a Medicare claims processor. And 
that is something we need to work on.
    I will finish by saying that in Medicaid, the Affordable 
Care Act specifically expanded, and the expectation to do 
recovery auditing in Medicaid, which operates, as you know, 
like a grant program. And HHS, with this pressure of, this 
healthy pressure of needing to be successful in the Affordable 
Care Act, has gotten out front and done a lot of work and 
issued the regulations and done a lot of outreach to get that 
Medicaid program started. It started in January of this year.
    I am very hopeful that with that program, if it can get off 
the ground and get off the ground well, that a lot of lessons 
would be learned that we can carry over to other State and 
grant programs.
    So to go back to your answer, absolutely, Congressman 
Towns, we will increase, we will go way above $2 billion, if we 
can expand beyond contracts to grants effectively. We just 
haven't yet figured out the exact critical path, but Medicaid 
is going to be a critical moment in time for us.
    Mr. Towns. Right, thank you very much. Is there anything 
that we should do on this side to sort of help you implement 
it?
    Mr. Werfel. I think that the important point is to keep us 
accountable, make sure that we are reporting to you 
consistently on the different challenges we are seeing in the 
grants realm, the State and local government realm, so that 
there is an openness and a dialogue around how to fix this. It 
may be at some point in the there is a future hearing where 
this is your first panel and your second panel are State 
controllers or State finance directors, and you are asking 
them, help us figure out how to make a recovery audit program 
work at the State level. This is something that I think is 
going to require that type of collaboration to make it work.
    Mr. Towns. Right. Thank you very much, Mr. Chairman.
    Mr. Platts. We are going to need to run for votes. I do 
have some others, and I think it is only going to be about 15, 
20 minutes. Probably no more than 20 minutes, and I should be 
able to be back. So I apologize in holding you, was hoping to 
get through more.
    But as a follow-up to your answer, I appreciate the 
suggestion, I think it is a great one as far as when we are 
looking at Medicaid and these grant programs to get that 
insight from the States and how they can better partner with 
us, something I think we will look at doing with the auditor 
general in Pennsylvania or the equivalent position in New York. 
You are right, if we are going to be successful in improper 
payments in a lot of these areas, especially Medicaid being 
from a dollar level one of the biggest, we are going to have to 
have a better relationship, because it is ultimately at a State 
level where those dollars are being spent and need to be 
tracked.
    We are going to stand in recess for approximately 15 to 20 
minutes then continue. Thank you.
    [Recess.]
    Mr. Platts. Hearing will come to order.
    I offer Mr. Towns' apologies, he is having to run to Energy 
and Commerce now, so he won't be able to join us. But I do 
appreciate your patience and while I catch my breath, having 
run over and back to the Floor to try to expedite the hearing 
here.
    I want to pick up, we were talking about DOD, and certainly 
one of the big challenges. General Dodaro, in your testimony 
you talk about the importance of implementing the enterprise 
resource planning system and the number of challenges, ten, 
when you talked about six of the nine of the critical ERPs had 
experienced delays. One of the things that caught my attention 
was two to twelve years of delay that you referenced, and that 
you have made recommendations to DOD to try to improve their 
implementation of these plans as well as to deal with the cost 
of them. You reference in your testimony cost increases 
totaling almost $7 billion.
    Can you expand on what you think the challenge DOD is 
facing here, and especially, if we are talking about 2014 for 
the first statement, being auditable, 2017, to be able to have 
the whole department audited, when we see two to twelve year 
delays with implementing ERPs, that is not real encouraging.
    Mr. Dodaro. Basically the problems that DOD is having here, 
and I would be happy to submit our detailed reports for the 
record, where we have outlined all the recommendations, aren't 
dissimilar from what we see in other IT investment issues 
across government in terms of making sure, you have to have the 
requirements there, properly outlined, the fact that they have 
to make sure that they stabilize the systems going forward. And 
it has proven to be a difficult issue across government in 
terms of managing these IT investments.
    And DOD business systems modernization more broadly is on 
our high risk list. So it is not just isolated in the financial 
management area, but it is a broader issue. We have recommended 
that DOD have better enterprise architectures to manage their 
systems. Right now they have over 7,000 different systems, 
2,000 investments in new ones. It is a massive activity. And to 
have an enterprise architecture to guide it.
    A lot of the information they are going to need eventually 
comes not just from the financial management community but from 
logistics, procurement, and other parts of DOD.
    So there are two really sets of issues here. One is to have 
a good architecture, where all these systems can be integrated 
properly, because that is one of the big problems now. Then 
secondly is to manage the systems using a disciplined process 
that is put in place. Many of our recommendations go to 
instituting good practices.
    Mr. Platts. Is one of the challenges, since we are talking 
multiple years of implementation, to then have access to that 
good information, from when there is a change of 
administration, does that an impact on why we see delays 
estimating two to twelve years? Is that a factor, or is it more 
that they are just not putting in place that architecture to 
then follow along and implement?
    Mr. Dodaro. It is more the lack of disciplined systems than 
it is a change in administration. Although we have recommended 
in the past that you need to have a chief management officer at 
the Department of Defense. Right now, the Deputy Secretary is 
double-hatted, but there is a CMO structure in place in the 
Services, and a deputy CMO that reports to the Deputy 
Secretary.
    So we are watching that very carefully to make sure, and I 
hope that that makes a difference in instituting more 
disciplined management practices in place.
    A big challenge DOD is going to have, even if they have the 
good systems, is getting the right data entry to get reliable 
data in there. Part of the issue is that they are being able to 
document a lot of their transactions. Having not been able to 
document some of their transactions was one of the main reasons 
they couldn't get an opinion on the Marine Corps statement of 
budgetary resources.
    So a lot of this is really, I think, better perfecting and 
having discipline in the record-keeping and their systems and 
development, which hasn't been a priority in the past.
    Mr. Platts. We are going to be doing a hearing in a couple 
of weeks with Army, related to personnel and accounting.
    Mr. Dodaro. You will see that issue vividly in that 
hearing.
    Mr. Platts. And that kind of leads to the broader issue, 
and you referenced it, General Dodaro, and maybe if any of the 
three of you want to comment, that a number that jumps out is 
that in the past fiscal year, we spent almost $80 billion on IT 
systems. Yet we are still having the difficulty of how those 
systems are being implemented and then generating useful 
information.
    Is there, in the big picture, not just DOD, but in any of 
the departments or agencies, is there any one issue that as a 
committee we should be conscious of that IT implementation, 
expenditure and actual how the money is used, that is most 
problematic, that we are spending tens of billions and not 
maybe getting the return on that investment that we hope to?
    Mr. Dodaro. I would say there are two things the Committee 
could focus on. One is the implementation of this IT dashboard 
that has been put in place. We have made recommendations, that 
dashboard is helping because it better tracks the performance 
of the systems enhancements on cost schedule and whether or not 
they are really going to achieve the results that they are 
intending to achieve.
    So there is much more transparency now than there ever has 
been. We have made further recommendations to make sure that 
information is most current as possible.
    But that gives the Congress and the public a window into 
the performance of these new systems investments. And we can 
work with you to provide our recommendations on that area.
    Secondly, I was here two days ago talking about 
duplication, overlap, fragmentation of the Federal Government. 
I pointed out, at DOD and Energy Department that we identified 
37 different investments totaling over a billion dollars that 
were potentially duplicative. So if you are spreading your 
talent out across more systems than you really have to, and you 
are not concentrating on managing the performance of a fewer 
number of systems properly, you are going to have even bigger 
problems. So the potential, having processes in place, 
investment management processes to look at the portfolio of 
programs and make sure that you don't have duplicative 
investments. And many of these occur in administrative systems, 
whether they are in personnel management systems. We also 
talked about the Office of Personnel Management and other 
agencies are developing individual case Management systems for 
background investigations on their own, rather than using one 
common system. I was pleased that OMB accepted our 
recommendation to work with OPM and to try to streamline that 
across process.
    So I think there are plenty of fruitful opportunities for 
the Committee to pursue in this area.
    Mr. Platts. Yes, I, because of being in another markup, 
wasn't able to be at the hearing on Tuesday. And DOD is a 
perfect example, 7,000 systems that you know there is overlap, 
duplication in those that could have been much better managed. 
And because it wasn't, now to try to get control or bring it 
under control is going to be very challenging.
    Mr. Werfel?
    Mr. Werfel. I would like to add a few thoughts if I could. 
First of all, I appreciate Mr. Dodaro mentioning the IT 
dashboard. Obviously transparency is the staple of any 
effective government reform effort. Bringing to light credible 
and reliable information about the status of projects helps 
drive accountability.
    And I agree with Mr. Dodaro about the emphasis on 
duplication and overlap.
    The one area that I would suggest the Committee look into 
is an area where we have been extremely focused from the start 
of this Administration, and that is on the overall size and 
scope of our IT projects, our basic assessment is that we have 
not historically as a government done a good job in right-
sizing the business requirements for these systems. We take on 
a lot of nice to haves in terms of what our systems need to do.
    And we bought into, I think unfortunately, a notion that we 
can move to these large, single instance systems that can solve 
multiple problems simultaneously in a seamless way. And on 
paper it looks good. But when you get down to the practicality 
of whether our government organizations have the capacity to 
manage the change involved, which is a lot of business process 
change, it is a lot of data cleanup, it is cultural changes and 
training, all things that need to happen. But if you take on 
too big of a project, we tend to never get across the finish 
line in the way we envision.
    So our emphasis has been on downsizing and down-scoping our 
IT projects across the board into more bite sized chunks. And 
here is what that does. It does a couple of key things. By 
doing that, you get to meaningful points of functionality 
quicker. So if you have this large project, and even the best 
project management team in the world is going to take five 
years to deploy, a lot of the key senior officials involved 
won't be there five years from now. And the taxpayer is not 
getting the benefit of an active system for another five years.
    If you say, okay, our first landing point will be 18 months 
from now and it won't do everything that the full vision does, 
but it will give us meaningful return on investment 
functionality within 18 months, well, first of all, the senior 
leaders will be there. And on that go-live date, there will be 
a sense of accountability. And it creates a change management 
environment that is more manageable.
    So we have in financial systems over the summer of 2010, we 
looked at every financial system project with this thought in 
mind. And we shrunk the budget of our financial systems by $1.6 
billion, just on the notion of, you have asked for too much, 
you have asked for too many nice to haves. We are doing that in 
a lot of other areas.
    So I think as a government, we need to be on a better diet 
in terms of what business requirements we are asking our 
systems to do, and look for these shorter bursts of 
functionality. The challenge we have with agencies like DOD are 
that they have already, when this Administration came on board 
with this guiding principle of smaller, more targeted, higher 
priority business needs for our systems, the Defense Department 
had already launched into these broad ERPs. It is hard to walk 
back from the big systems once you are halfway down the 
football field.
    I think they are looking very closely at areas where they 
can as they are implementing forward shrink the size of the 
problem, shrink the footprint of business requirements, make 
some important adjustments so that they can get to meaningful 
deployment sooner.
    Mr. Platts. I know we saw, I am drawing a blank on the name 
of the program at DOD where they had spent $100 million over I 
think seven years, with no, as you say, result. By the time 
they got far along, it was realized that it couldn't actually 
do what it needed to do, and the taxpayers were out the money 
without a benefit.
    Mr. Dodaro. Yes, a couple other points I would suggest 
along these lines. One is we pointed out in our report that was 
released Tuesday not only duplication systems but for cost 
saving opportunities . And one in Defense was this next 
generation email system for the Navy, where they looked at 
different alternatives and then they actually selected an 
approach that wasn't one of the alternatives that they had 
identified. And it was much more costly and involved many more 
contractors than any of the alternative approaches. So we 
recommended re-assessing that.
    What we have been trying to do at GAO is get in earlier in 
these decisions along the lines that Mr. Werfel mentioned early 
on.
    One of the major pieces of legislation that this Committee 
sponsored many years ago was the Clinger-Cohen Act that 
actually put chief information officers in place across 
government. The idea there was to have a disciplined investment 
management process, to do more modular approaches and not the 
big systems approach.
    So I think this Committee has opportunity to look at how 
well that is working. We could provide a lot of assistance in 
that area.
    Mr. Platts. That might be, using the specific example of 
the Navy system where we maybe partner with you to do some 
productive oversight and help to see if they will reevaluate 
what their decision was. Secretary Gregg?
    Mr. Gregg. If I might add, actually, you can do these 
things successfully. Just to give another point, the Bureau of 
Public Debt, which is part of the Fiscal Service, they provide 
services to other government agencies accounting services, 
through a franchise activity. They are well along to 
implementing an upgraded ERP. They are on time, they are under 
budget. And they have done that two or three times. It gets 
down to identifying exactly what you are going to do and 
sticking to it and having the management, discipline to do 
that.
    And the minimizing the reliance to the extent you can on 
outside contractors.
    Mr. Platts. Which agency or office was that?
    Mr. Gregg. It's the Bureau of Public Debt, part of the 
Fiscal Service. They provide franchising services to 55 or 60 
smaller government agencies in the accounting area. They have 
done that and they are on schedule to implement that.
    Mr. Platts. Maybe we need to loan those men and women out 
to DOD on their ERPs.
    Mr. Gregg. The one thing that often, I think both Gene and 
Danny alluded to it, is that these projects tend to grow. And 
the Public Debt office service, this is what the service is, 
and in one respect it may be somewhat vanilla. But they don't 
modify it for their customers. This provides basic, good, sound 
accounting, and they don't deviate from that. If you don't want 
to come and be their customer, then that is fine. But if you 
do, here is what you get. I think that has really paid 
dividends for them over the years, and for their customers, in 
keeping the costs down and the quality high.
    Mr. Platts. Yes. I want to touch on kind of a different 
issue, different track. And it relates to one of the audit 
issues raised by GAO, was Medicare cost growth. Secretary 
Gregg, in your testimony you talk about the projected savings 
because of the Affordable Care Act and what will transpire. And 
the GAO referenced that as one of the areas of concern. We 
probably saw evidence of that just a few weeks back, with the 
payroll tax bill, where at least for the next 18 months, we are 
suspending the provider payment reductions, which would have 
been drastic and ultimately led to less access to care for 
seniors.
    Secretary Gregg, if you want to comment, given that that 
legislation is now passed and is an example of I will say the 
fallacy of the Affordable Care Act on the fiscal impact, there 
really won't be savings, because of that type. Congress, we are 
not going to let Medicare provider reimbursements drop 25 
percent or more now, or I would contend, ever, because of what 
it would mean to seniors getting access.
    Mr. Gregg. I think two things. One is that the auditors for 
the associate programs identified in their view significant 
uncertainties about the amount that was identified. Having said 
that, I think there is still significant savings through the 
Act.
    Mr. Platts. I am not saying there is not anything in the 
Act. But if I remember, and this number, my memory is it was 
$220 billion or $240 billion over ten years, was specifically 
related to Medicare provider payment reductions. I am pretty 
sure it was over $200. I don't remember the exact number. That 
is significant, that aspect of the bill.
    Mr. Gregg. And I think there are a couple provisions in 
there where the auditors and GAO said, well, based on 
experience that there is some uncertainty whether or not these 
are actually going to be realized. I think that was the reason 
for the disclaimer. But on the one hand you have a statute that 
is in place, and on the other hand, you have past experience 
that might suggest that additional legislation may come along 
and modify it.
    Mr. Platts. I think it is one of the challenges when we 
pass the bill, and then as we go forward with audits, whether 
it is CBO and how they score the bill or now how we try to 
assess its actual impact, is CBO did what they were required to 
do, look at what the bill said and score it based on what it 
said, even though everyone knew at the time it passed that we 
would not allow, as we now have not allowed those payments to 
drop.
    Until we get to a more frank or accurate, I am trying not 
to use the word honest, meaning I don't think there is any 
intent of dishonesty, but the reality of the impact was we 
didn't have an accurate or honest assessment of the impact, we 
really will struggle with trying to have a true understanding 
of the fiscal situation or challenges coming, and then how we 
deal with them.
    Mr. Dodaro. There are really a few things I would like to 
comment on that I think will help shed some light on it. One 
is, the financial statements were prepared, as you mentioned, 
in order to assume that the law was enacted. But there are 
uncertainties. Now, a couple of things in that regard. One is 
the reimbursements to doctors, which you mentioned was 
deferred. And there are questions about whether that will 
continue to be deferred or not in the future. That is one 
answer.
    Now, there are provisions in the health care legislation to 
reduce payments to hospitals that are different. Supposedly the 
hospitals have agreed to accept those in exchange for greater 
coverage of individuals under health care. So that should be 
okay, perhaps, if that arrangement holds over the next decade.
    Then there is the question of assumed productivity 
increases in other parts of the health care profession. That is 
another degree of uncertainty. So those are the reasons that 
led us to disclaim to give an opinion on there. And you have a 
lot of inherent uncertainties in the health care field anyway 
in terms of cost growth. But I just wanted to offer those 
comments.
    Mr. Platts. Because we are trying to assess what, in 
reality, future Congresses will do, they are always going to 
have some uncertainty in how we make those projections. I don't 
want to dismiss, Controller Werfel referenced earlier the 
Medicaid aspects of the bill, of trying to have a proactive 
approach that can prevent misuse of funds, as one of those 
examples of a positive aspect.
    So while I was opposed to the bill in total, I don't want 
to dismiss or contend that there are not aspects of it that I 
think are wise and good policy going forward.
    I want to touch on just a couple of things. General Dodaro, 
you talk about in your statement compliance with auditing laws, 
and you referenced earlier the Federal Management Financial 
Improvement Act and the number of entities still not in 
compliance and the impact that has. Would any of you comment, 
are we doing a better job? And this has been one of my 
frustrations, I guess, whether I was Chairman or Ranking Member 
here, that we have laws that are not complied with but there is 
no consequence for those who fail to comply. Are we doing a 
better job of sending, and Mr. Werfel, you might have mentioned 
earlier, DOD, the fact that the Secretary is saying in 2014 we 
will do this, that there is a better understanding in the 
Department that there is a hard deadline and there will be 
consequences. Unless we have consequences, the deadlines 
ultimately don't mean anything. Here we have laws that are 
being ignored and not complied with.
    Are we doing a better job of sending the message out, 
whether it is civilian or with DOD, military personnel, that 
you are giving this charge and you will fulfill it, and if not, 
it will reflect on you from a personal standpoint in your job 
rating or assessments? Is that culture changing at all?
    Mr. Werfel. I think it is. There are examples of statutory 
requirements where there were no particular sanctions where the 
global accountability on it was so high that we, that we were 
going to make it no matter what. The example I am referring to 
is the Recovery Act. All the various reporting deadlines within 
the Recovery Act to get the information out, that we had to 
stand up a nationwide data system in a matter of months and it 
took an enormous amount of combined stakeholder engagement and 
senior leadership attention to get that all done, all in not 
just the name of a statutory deadline but a broader expectation 
that Congress, the President, citizen intermediaries like the 
media all placed on----
    Mr. Platts. So the public, the fact that it was a very 
transparent public aspect helped to make sure that--yes.
    Mr. Werfel. Yes. And then on the other end of the spectrum, 
if you have a law that is out there that doesn't have that type 
of attention, whether inherently within an administration, 
there are no hearings on it and the media is not paying 
attention, you might see situations where statutory deadlines 
are missed and there is not a lot of accountability or 
attention to it.
    I think the place likely to land is somewhere in the 
middle, where clearly, where there are moments in time where a 
statutory deadline is surrounded by a tremendous amount of 
attention from this Committee, from other committees, from the 
Administration, it is kind of, it feeds off each other. We end 
up in a situation where these deadlines are consistently met.
    But you can't prioritize everything. And you can't expect 
that in all situations. For those places where we don't see 
that, I feel there can be different things we can do to drive 
greater accountability, including organically within the 
government embedding these things in performance appraisals, 
which is happening more and more, thanks to efforts at OPM and 
others to try to enforce more performance-based work from 
Federal employees and tying merit-based promotions and salary 
increases and things like that.
    And then there are some creative things that I have seen 
come out of this Committee and on the Senate side in the area 
of improper payments, saying that if the IG finds you non-
compliant, there needs to be a disclosure to the Hill with 
these kinds of explanations. There is a transparency element to 
that, an additional reporting requirement to that, that can be 
helpful.
    So it is finding that right calibration, but yes, I think 
there are moments in the Federal financial frame where if there 
is not enough attention to it and not enough teeth in the 
statute, it is hard to keep everyone in line on every single 
requirement.
    Mr. Platts. So maybe a good example, if my good friend, Mr. 
Towns, was here, in the coming term, 2013-2014, he would say if 
he was Chairman, and I would say whoever succeeds me as 
Chairman from our side, but that they work with DOD, not wait 
until 2014, but in early 2013 maybe mid-year 2013, in getting 
to that 2014 deadline that DOD knows that this Committee, 
whoever is in this chair for the next two years, leading up to 
that 2014 deadline, is very public about scrutinizing DOD 
meeting that deadline?
    Mr. Werfel. Yes. It is like the point Gene was making on 
the IT dashboard. It is out there, there is a report card for 
it, it is public. It reinforces. If there are interim report 
card moments for the Defense Department that are public, that 
is going to be a better ingredient for accountability and 
sustained leadership attention than if we just wait until 2014 
and see what happens.
    Mr. Dodaro. I would offer a couple of observations on this. 
First, the last update we did of the high risk list, we took 
two times off the high risk list. In both of those cases, over 
a dozen hearings had been held by Congress since we put the 
area on the high risk list to get them off. There is no doubt 
in my mind that that would not have happened absent 
Congressional oversight and top commitment by the 
Administration. One was personnel security clearances, we were 
way behind in clearing people, and that was a big issue after 
9/11. So the Deputy for Management at OMB and the OPM Director 
led a task force, they focused on it, Congress focused on it 
and it got fixed. There were metrics, they moved to a specific 
period of time.
    Now, I contrast that to the Anti-Deficiency Act which has 
criminal and civil penalties in it, and we know there have been 
violations, but nobody has ever been prosecuted as a result of 
those violations. So I think transparency and involvement of 
top people, where there is a coalescing of Administration 
priority and Congressional priority and things get done. And 
that is really, I think, the proper vehicle to pursue.
    I was involved in the original development of the 
legislation back in 1996 that created the Financial Management 
Improvement Act. And there was in draft legislation, there were 
penalties in there. If you didn't achieve compliance, your 
budget was reduced by so much, but that created so much 
problem. And people were afraid, I think rightfully so, of 
unintended consequences, that that could occur, that that was 
removed from the final legislation that is in place. But in my 
view, there is no substitute for Congressional and 
Administration attention.
    Mr. Platts. That may be, as we look at the remainder of 
this year, with the number of oversight hearing issues, such as 
the State cooperation on Medicaid and grant programs, perhaps 
with Navy and IT, and that type thing, we look at maybe in the 
fall one that is DOD-specific on where they are, to kind of set 
the stage for whoever does succeed me as chair.
    And as far as getting more attention, I always think about 
asking the three of you to admit to steroid usage so that we 
would have more media focus on these important issues. So for a 
future hearing, we may ask you to start bulking up.
    [Laughter.]
    Mr. Platts. And I appreciate your patience. If I can, maybe 
two final issues. I always have too many probably for the time 
frame. In the testimony, and I guess it goes to one of the 
uncertainties and the impact of the economic recovery efforts, 
and specifically, General Dodaro, you referenced the $316 
billion in future payments related to Fannie Mae and Freddie 
Mac and what that ultimate cost is going to be.
    That number, I have not seen before, and maybe just missed 
it. But it is, to me, was much higher than any estimates I had, 
which were $150 billion, $200 billion. Can you comment on that 
and is that a pretty, do you think, a pretty solid estimate of 
what that ultimate cost is going to be?
    Mr. Dodaro. So far, and probably the numbers you are 
referring to that are most often referenced is what has already 
been paid, which is about $183 billion recently. This morning 
in the paper, another disclosure about losses for this last 
quarter for one of the NGSEs.
    The $316 billion, there is also a disclosure in there that 
there may be an additional $60 billion over and above the $316. 
Now, this changes every year based upon circumstances and 
estimates. So we will have to watch it. But I do think that 
ultimately this will be one of the greater costs of the 
financial recovery efforts, will be Freddie Mac and Fannie Mae. 
That is setting aside even what the transition issues would be, 
once the Congress settles on what their ultimate disposition 
should be.
    So this is something we are watching closely, the same way 
we are watching under the TARP program, we still have to exit 
from AIG, General Motors. We have made recommendations to 
Treasury that they have the expertise to be able to divest 
there at an appropriate point in time to protect the taxpayers.
    And so all these investments we are watching very closely 
going forward.
    Mr. Platts. And obviously that has a huge impact on the 
bottom line, when we talk about future liabilities and our 
fiscal position.
    Mr. Dodaro. Oh, definitely. Fannie Mae and Freddie Mac are 
huge entities and they have a lot of repercussions.
    Mr. Platts. Great. We have been joined by the gentleman 
from Virginia, Mr. Connolly. Do you have questions?
    Mr. Connolly. I do, thank you, Mr. Chairman.
    And thank you to our panelists. Mr. Dodaro we heard from 
just the other day. Mr. Werfel, we have missed you. There was a 
period of time during Congress I thought you had a cot 
somewhere. But thank you so much for your willingness and 
patience to share with members of Congress. Mr. Gregg, welcome.
    Mr. Dodaro, there has been a lot of talk about balancing 
the budget and ways we can do it. I want to talk to you a 
little bit to follow up on the conversation we had in full 
committee the other day. Do you remember what percentage of GDP 
revenue Federal revenue represented the last time we balanced 
the budget?
    Mr. Dodaro. Not off hand.
    Mr. Connolly. Would 19.6 percent roughly sound right to 
you?
    Mr. Dodaro. Yes.
    Mr. Connolly. And 20.5 percent the very last year we 
balanced the budget? Roughly, roughly guess.
    Mr. Dodaro. All right.
    Mr. Connolly. And it is somewhere between 14 percent and 15 
percent today?
    Mr. Dodaro. Yes.
    Mr. Connolly. Would it be fair to say that when you look at 
the fact that we are at 25 percent spending, which is too high, 
higher than it was last time we balanced the budget, but 
revenue is too low, relative to that record, that we have to 
address both sides if we really seriously want to put ourselves 
on a sustainable path toward balance in the Federal budget?
    Mr. Dodaro. I am on record as saying we need to address 
everything, revenue, entitlements and other government 
spending.
    Mr. Connolly. Would it be fair to say that it would be a 
very hard climb to try to balance the budget only on the 
spending side of the ledger?
    Mr. Dodaro. Yes.
    Mr. Connolly. Thank you.
    Mr. Gregg, in your testimony, you actually said, you 
pointed out that the Affordable Care Act reduced Federal 
outlays and helped reduce deficit spending, if I understood 
your testimony correctly.
    Mr. Gregg. Pardon me?
    Mr. Connolly. I said, in your testimony, you talked about 
how the Affordable Health Care Act actually helped reduce 
Federal outlays and long term actually will contribute to 
deficit reduction. Is that your testimony?
    Mr. Gregg. And while there is some uncertainty on the 
numbers, the savings are still very significant.
    Mr. Connolly. Very significant. Do we have any evidence 
with respect to, for example, Medicare premiums or Medicare 
Advantage premiums that maybe the promise of the Affordable 
Health Care Act is in fact being realized, or shows some 
empirical evidence that it might be? Did Medicare Advantage 
premiums go up or down the last two years?
    Mr. Gregg. I am sorry, Mr. Connolly, I can't answer that. 
But I can get an answer for you for the record.
    Mr. Connolly. Would it surprise you to learn that as a 
matter of fact the answer to that is they went down both years 
for the first time in the history of the program?
    Mr. Gregg. No.
    Mr. Connolly. And Medicare premiums this year went down. 
And in both cases, especially Medicare Advantage, the number of 
people enrolled, because one of the criticisms of health care 
reform was, it will destroy Medicare Advantage, in both of the 
subsequent years since passage of the Act, not only did 
premiums go down, benefits went up, with lower cost to the 
consumer, and the number of people registered actually 
increased very significantly. Other than that, the predictions 
of killing Medicare Advantage have been proved correct.
    We were talking, Mr. Dodaro, the other day about metrics. 
And one of the things, and I know the Chairman certainly has 
not only concurred with this concept but tried to help it 
along, there are some investments we can make in the Federal 
Government that actually have huge return on them. I want to 
give you the opportunity to revisit the issue of what that 
ratio was for every dollar we were investing in new resources 
at GAO, what was the payoff for taxpayers in terms of dollars 
saved?
    Mr. Dodaro. Basically, our return on providing, the record 
at GAO returning financial benefits for every dollar invested 
at GAO in the last four years was on average $91 to every 
dollar invested in GAO.
    Mr. Connolly. Ninety-one to one?
    Mr. Dodaro. Yes. The last year was 81 to 1.
    Mr. Connolly. And what has happened to your budget?
    Mr. Dodaro. Our budget has been reduced about 8.3 percent 
since 2010. And our number of staff by the end of this year 
will be 11 percent lower than it was in 2010. That will be the 
lowest staff level that we have had in GAO since 1935.
    Mr. Connolly. I would say to my friend, the Chairman, whose 
retirement still causes me sorrow, because his voice is going 
to be very much missed here in the Congress, this Subcommittee 
has done some pioneering work on a bipartisan basis, looking at 
issues like this, improper payments. And Mr. Werfel, you 
testified about this, and I hope the Chairman will indulge me 
just a few more seconds. We have to get out of this mindless 
narrative that all spending is the same and all spending is 
bad. There are such things as strategic investments.
    A hundred and twenty-five billion dollars a year in 
improper payments, if we could in theory bring that to zero 
times ten, that exceeds the sequestration number we are 
sweating buckets of blood about around here. If you could have 
even half that 91 to 1 ratio, let's say in the first year it is 
that, but you come down a little bit in the next year, it is 
still a bargain. Instead, we are at the lowest level since 
1935. We are actively dis-investing in opportunities to enhance 
revenue and to catch waste, fraud and abuse and mistakes early 
on and prevent them. That is good for taxpayers.
    This Subcommittee has talked about the need for, and thank 
God the Congress passed the Federal Acquisition Institute 
Training Bill that I introduced. And again, Mr. Platts was a 
co-sponsor. It is penny-wise and pound-foolish not to have 
highly skilled, highly trained managers of big, large 
contracts. What can go wrong if you have someone who doesn't 
really know what they are doing?
    Mr. Dodaro. Lots.
    Mr. Connolly. Right. And so it just, we have to change the 
narrative around here. Again, I want to thank my friend, the 
Chairman of the Subcommittee, who has tried to change the 
narrative around here about this. We need to highlight that 
kind of statistic more. We need to educate our colleagues 
around here that it aint all the same and that there are some 
investments worth making if we share this goal about reducing 
the deficit and getting our arms around the fiscal situation.
    Well, what are the tools we need? And all too often we have 
substituted ideological rhetoric and political catch phrases 
that are not a substitute for thoughtful, analytical work about 
what are the analytical tools we need, frankly, to do our job 
and do it better.
    Mr. Werfel, I have not given you an opportunity. If the 
Chairman will indulge one more minute, just to allow Mr. Werfel 
to respond. I thank the Chair for his indulgence.
    Mr. Werfel. I think you are hitting on a central issue: 
where are there investments that have a positive return on 
investment for the taxpayer, in particular in program 
integrity. Every year the President's budget includes a suite 
of program integrity proposals that will improve our track 
record on improper payments in Medicare and improve tax 
enforcement. The numbers are staggering in terms of the types 
of savings we can achieve, over a one-year window, over a ten-
year window. Either way you are looking at very large numbers, 
in the $100 billion range.
    Often, those investments are not enacted through the 
appropriations process. And it is enormously frustrating that 
investments that can return dollars and help us in our battle 
against the deficit are not enacted. So I agree.
    And I also would emphasize that I think as we move forward 
as a Federal Government, the more that we can do to improve the 
analysis that we have on the return on investment of our 
dollars, whether it is for GAO, Inspector General's shop, a new 
fraud detection technology that we need to invest in, and we 
can expose that and make it clear, I think we are better off. 
This is an area where this Committee can play a critical role 
in highlighting places, in any President's budget, whether it 
is this one, the next one or the previous one, where those 
investments have a positive return to drive down error and 
improve efficiency. More people need to be singing that song 
that you are singing and bring attention to it.
    Mr. Connolly. I thank the Chair for his consideration.
    Mr. Platts. I thank the gentleman for his comments and 
being right on point. When you look at the number, the $91 or 
$83 return for every dollar spent, perhaps the gentleman and I 
can look, as we move into the appropriations process, see if 
there is a way in a bipartisan way to make sure we are making 
that investment specifically, and being able to make that case 
of the wisdom of it and the return to the taxpayer.
    We are going to conclude, and I want to thank each of you 
again for your insights that you share with us and giving us 
some more work to do with your knowledge and things that we 
need to highlight. We will keep the record open, as I said 
earlier, for seven days for any additional information you want 
to provide, or members that want to provide a statement for the 
record.
    I know I will have the chance to interact with you some 
over the next 10 months, but I very much appreciate what you do 
every day and your commitment to good fiscal management, which 
is one of the Federal Government's most important 
responsibilities, is how we handle the hard-earned dollars of 
our fellow citizens. I know each of you and your staffs are 
focused very much on that day in and day out. That is 
commendable.
    When I talk about public service being a calling, what you 
are doing epitomizes that calling of serving your fellow 
citizens. So thanks for your testimony and your patience as we 
had to break for votes.
    This hearing stands adjourned.
    [Whereupon, at 11:44 a.m., the subcommittee was adjourned.]

