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



 
                         [H.A.S.C. No. 112-157] 
             DEPARTMENT OF DEFENSE AUDITABILITY CHALLENGES

                               __________

                                HEARING

                               BEFORE THE

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                                 OF THE

                      COMMITTEE ON ARMED SERVICES

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD

                           SEPTEMBER 14, 2012

                                     
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13

                                     
  


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              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                    ROB WITTMAN, Virginia, Chairman
K. MICHAEL CONAWAY, Texas            JIM COOPER, Tennessee
MO BROOKS, Alabama                   ROBERT ANDREWS, New Jersey
TODD YOUNG, Indiana                  MARK S. CRITZ, Pennsylvania
TOM ROONEY, Florida                  COLLEEN HANABUSA, Hawaii
MIKE COFFMAN, Colorado
               Michele Pearce, Professional Staff Member
                          Paul Lewis, Counsel
                     Arthur Milikh, Staff Assistant


                            C O N T E N T S

                              ----------                              

                     CHRONOLOGICAL LIST OF HEARINGS
                                  2012

                                                                   Page

Hearing:

Friday, September 14, 2012, Department of Defense Auditability 
  Challenges.....................................................     1

Appendix:

Friday, September 14, 2012.......................................    25
                              ----------                              

                       FRIDAY, SEPTEMBER 14, 2012
             DEPARTMENT OF DEFENSE AUDITABILITY CHALLENGES
              STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

Critz, Hon. Mark S., a Representative from Pennsylvania, 
  Subcommittee on Oversight and Investigations...................     2
Wittman, Hon. Rob, a Representative from Virginia, Chairman, 
  Subcommittee on Oversight and Investigations...................     1

                               WITNESSES

Commons, Hon. Gladys J., Assistant Secretary of the Navy, 
  Financial Management and Comptroller, U.S. Department of the 
  Navy...........................................................     8
Hale, Hon. Robert F., Under Secretary of Defense (Comptroller), 
  U.S. Department of Defense; and Hon. Elizabeth A. McGrath, 
  Deputy Chief Management Officer, U.S. Department of Defense....     3
Matiella, Dr. Mary Sally, Assistant Secretary of the Army, 
  Financial Management and Comptroller, U.S. Department of the 
  Army...........................................................     6
Thomas, Marilyn M., Principal Deputy Assistant Secretary for 
  Financial Management and Comptroller, U.S. Department of the 
  Air Force......................................................    10

                                APPENDIX

Prepared Statements:

    Commons, Hon. Gladys J.......................................    52
    Hale, Hon. Robert F., joint with Hon. Elizabeth A. McGrath...    32
    Matiella, Dr. Mary Sally.....................................    46
    Thomas, Marilyn M............................................    59
    Wittman, Hon. Rob............................................    29

Documents Submitted for the Record:

    Deputy Chief Management Officer Response to DOD IG Audit 
      Report.....................................................    67

Witness Responses to Questions Asked During the Hearing:

    Mr. Wittman..................................................    75

Questions Submitted by Members Post Hearing:

    [There were no Questions submitted post hearing.]
             DEPARTMENT OF DEFENSE AUDITABILITY CHALLENGES

                              ----------                              

                  House of Representatives,
                       Committee on Armed Services,
              Subcommittee on Oversight and Investigations,
                        Washington, DC, Friday, September 14, 2012.
    The subcommittee met, pursuant to call, at 9:00 a.m., in 
room 2118, Rayburn House Office Building, Hon. Rob Wittman 
(chairman of the subcommittee) presiding.

 OPENING STATEMENT OF HON. ROB WITTMAN, A REPRESENTATIVE FROM 
       VIRGINIA, CHAIRMAN, SUBCOMMITTEE ON OVERSIGHT AND 
                         INVESTIGATIONS

    Mr. Wittman. I will call the Oversight and Investigations 
Subcommittee of the House Armed Services Committee to order on 
today's hearing on Department of Defense Auditability 
Challenges. I want to welcome everybody to today's hearing. I 
appreciate our witnesses coming in to talk to us more about 
those challenges facing the Department of Defense as it works 
toward audit readiness in 2014 and 2017.
    I would like to welcome our distinguished panelists this 
morning. Mr. Robert Hale, Under Secretary of Defense, 
Comptroller, U.S. Department of Defense; Ms. Elizabeth McGrath, 
Deputy Chief Management Officer, U.S. Department of Defense; 
the Honorable Gladys Commons, Assistant Secretary of the Navy, 
Financial Management and Comptroller, U.S. Department of Navy; 
Dr. Mary Sally Matiella, Assistant Secretary of the Army, 
Financial Management and Comptroller, U.S. Department of the 
Army; and Ms. Marilyn Thomas, Deputy Assistant Secretary for 
Financial Management and Comptroller, U.S. Department of the 
Air Force.
    Thank you very much for being here with us today. 
Collectively you share the responsibility for managing nearly 
$700 billion of net operating costs and accounting for nearly 
$2 trillion in assets. These are weighty responsibilities, 
particularly when you consider the importance of your mission 
to our Nation's national security and to our warfighters.
    I want to thank you for your service and for the commitment 
you have demonstrated on this issue. Achieving audit readiness, 
when considered against this backdrop, is both complex and 
challenging and it is clear to me that you are making tangible 
progress forward. This hearing is meant as a follow-up to the 
Defense Financial Management and Auditability Reform Panel, 
which was appointed by Chairman ``Buck'' McKeon and Ranking 
Member Adam Smith in July 2011 to carry out a comprehensive 
review of the Department's financial management system. The 
purpose of the review was to oversee DOD's financial management 
system and its capacity for providing timely, reliable and 
useful information needed for making accurate decisionmaking 
and reporting.
    I would like to thank Mr. Conaway, who served as chairman 
of the panel, and Mr. Andrews, who served as ranking member. 
Because of your diligent efforts and outstanding leadership, we 
now have a much better understanding of the issues surrounding 
audit readiness and the path that lies ahead.
    Audit readiness is an important aspect for many reasons, 
but for me it is most important because of what it means for 
our national defense strategy. Put simply, every dollar we 
corral for our national defense budget matters, especially 
because of impending cuts and financial constraints. The budget 
shapes not only our discussions on force size, structure and 
capability, but ultimately determines whether our warfighters 
have the tools and equipment they need to do their jobs. This 
is the prism through which I view discussions about audit 
readiness and why I am pleased to be having this discussion 
today.
    Before we get started with questions, I have a quick 
administrative matter to address. I anticipate a number of 
other members from other subcommittees will join us and I would 
like to ask for unanimous consent that they be allowed to 
participate.
    Absent objection, it is so ordered. I will recognize these 
members at the appropriate times for 5 minutes after all 
Oversight and Investigations Subcommittee members have had an 
opportunity to question the witnesses.
    At this point, I will turn to our acting ranking member, 
Mr. Critz, for any statement that he may have.
    [The prepared statement of Mr. Wittman can be found in the 
Appendix on page 29.]

    STATEMENT OF HON. MARK S. CRITZ, A REPRESENTATIVE FROM 
   PENNSYLVANIA, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

    Mr. Critz. Thank you, Mr. Chairman. I do not have an 
opening statement other than to say thank you for being here, 
and, as we all know, accurate information is critical to making 
the best decisions. So I look forward to the hearing and your 
testimony.
    Mr. Wittman. Very good. Thank you, Mr. Critz.
    At this point we turn to our panel members for your opening 
statements.
    Ms. Thomas, we will begin with you.
    Ms. Thomas. Thank you, Chairman Wittman.
    Mr. Wittman. Ms. Thomas, if you will, just go ahead and 
pull your microphone up to you.
    Secretary Hale. Mr. Chairman, if I may, if it is okay with 
you, I think the order we prefer is that I would start out and 
give an overview from the Department's standpoint and then go 
to the services. Will that work for you?
    Mr. Wittman. That will be fantastic.
    Secretary Hale. Ms. McGrath and I will do that jointly.
    Mr. Wittman. Very good.

 STATEMENT OF HON. ROBERT F. HALE, UNDER SECRETARY OF DEFENSE 
 (COMPTROLLER), U.S. DEPARTMENT OF DEFENSE; AND HON. ELIZABETH 
A. MCGRATH, DEPUTY CHIEF MANAGEMENT OFFICER, U.S. DEPARTMENT OF 
                            DEFENSE

    Secretary Hale. Mr. Chairman, members of the committee, 
thank you for the opportunity to discuss financial operations 
at the Department of Defense and our progress in audit 
readiness. Ms. McGrath and I submitted a statement for the 
record. In the interest of time we will summarize it briefly.
    Let me begin by saying that we remain fully committed to 
meeting our audit goals and we are reasonably confident that we 
will meet those goals in the timeframes that have been 
established by us and in some cases in the law.
    So why is it important to do this, to achieve auditability? 
It is important first because it is the law. Auditability also 
matters because, as you said, Mr. Chairman, it will help us 
make better use of taxpayer resources. That is important 
especially in these times of fiscal stress and declining 
budgets.
    But in my view the most important reason that we need to do 
this, to achieve auditable financial statements, is public 
confidence. I don't think we will ever convince the American 
public, I don't think we will convince the Congress that we are 
good stewards of their funds unless we can pass an audit test.
    I should note that even though DOD's financial statements 
are not auditable, we still know where we are spending taxpayer 
dollars, and I think that is a very important point. With rare 
exceptions, we pay our people and our vendors on time and 
accurately and record the transactions properly. If that 
weren't the case, you would see massive problems of missed 
payments and mission failure, and I am pleased to report none 
of that is happening.
    Our financial statements fail audit tests not because we 
don't know where the funds are being spent, but because we 
can't document the transactions properly and quickly and 
because in some cases our financial processes and internal 
controls are not sufficiently strong and consistent. These are 
problems we can and will fix.
    I believe we will fix these problems and achieve auditable 
statements for several reasons. First, we have a workable plan 
that focuses on the information we most use to manage. I mean 
everybody is pulling in the same direction. We have a 
combination of short-term goals and long-term goals, a 
supportive governance structure, dedicated funding at $300 to 
$400 million a year throughout our planning period, and 
accountability that begins with Secretary Panetta, who is 
deeply committed to this effort.
    As a result we are seeing meaningful progress: A Marine 
Corps that is on the verge of an auditable budget statement for 
current resources; a Navy that is showing auditability for a 
key weapons system; an Army and an Air Force that are 
demonstrating progress in key areas; and, for the first time, 
defense agencies that are now all focusing on achieving 
auditable financial statements. The service financial managers 
who are with me today will describe their services' efforts in 
more detail.
    In all our auditability efforts across the Department and 
in many the other ways, state-of-the-art financial systems are 
critical, and for a few words on our progress in this area I 
would like to turn to our Deputy Chief Management Officer, Beth 
McGrath.
    Ms. McGrath. Good morning. Like Mr. Hale, I appreciate your 
interest in this topic and also your unwavering support to our 
military members and their families.
    Our efforts to improve financial management and achieve 
audit readiness are part of a broader effort to improve 
business operations across the Department. We continue to make 
steps to mature our business environment. These steps include 
better definition of our target environment utilizing our 
business and in-place architecture. We continue to push hard on 
business process reengineering that addresses not only at the 
system level, but the appropriate end-to-end process that that 
system resides within.
    Strategic planning and performance measurements continue to 
increase, and finally an investment management process that 
addresses both IT [information technology] modernization and 
sustainment funding across the business enterprise. We are 
accomplishing this comprehensive investment management process 
through the legislation Congress passed in section 901 of the 
2012 National Defense Authorization Act [NDAA].
    The Department's implementation of this change enables an 
integrated governance for our entire portfolio of business 
systems by a single investment review board. This has been 
significant for us. This board reviews and certifies planning, 
design, acquisition, development, modernization, all aspects of 
a project, again how they fit into the broader business 
conversation, and it is for all systems and initiatives that 
are greater than $1 million across the FYDP [Future Years 
Defense Program], which is virtually everything.
    This helps us make not only better investment decisions, 
but it reinforces the relationship of the business environment 
to those specific system investments and the business outcomes 
that we are trying to achieve like audit readiness. It also 
accelerates the retirement of legacy systems. For example, in 
2012 we retired 120 legacy systems--I am sorry, 2011. In 2012, 
the number is approaching 200, and we are projecting at least 
150 for 2013.
    Our modernized systems environment includes each of the 
departments' enterprise resource planning, ERPs [Enterprise 
Resources Planning], which will improve financial management 
and accounting operations and help with future audits. At 
present, each one of these systems is at a different stage of 
its life cycle. Many have experienced challenges, certainly 
from design to implementation, leading certainly to cost and 
schedule overruns, but we are proactively addressing each one 
of these challenges like data conversion, business process 
reengineering, stabilization of requirements, and certainly the 
culture challenges associated with implementing a new IT 
system.
    We are committed to achieving and overcoming those 
challenges. It is important to also state that while we are 
experiencing challenges, we are also delivering capabilities; 
shorter repair cycle times, better visibility of our assets, 
reduced interest penalties and better scheduling of maintenance 
activities.
    Effective implementation of our new business systems will 
not enable audit by itself. However it will establish a modern 
business environment we need to meet and sustain our goal of 
audit readiness. We recognize the amount of work that lies 
ahead and are committed to its successful execution.
    Secretary Hale. Systems are critical to this. Another one 
is committed leadership, and we definitely have that, starting 
with Secretary Panetta. He has issued a memo on this. He did a 
videotape. I update him periodically at our morning staff 
meetings. And despite all the other challenges he faces, he 
always shows interest and usually asks questions about this 
topic.
    We have the full support of our Deputy Secretary who is, of 
course, the Department's Chief Management Officer. We have the 
support of our service Secretaries and Chiefs of Staff. They 
have all met on this topic. I talk to them periodically, as, of 
course, do the service reps you will talk to, and, I think, 
relevant members of our civilian SES [Senior Executive Service] 
leaders. In short, I think we have commitment in this 
Department, military and civilian, to take action.
    I would be less than candid if I didn't tell you there are 
problems and challenges and not much time to solve them, but we 
are, I think, addressing those challenges. We need to continue 
to build the skills of our people. We have got a force-based 
certification program we are putting in place to do that as 
well as some specific audit training.
    We have got to implement comprehensive and meaningful and 
consistent financial controls, which we don't always have, and 
we are taking a number of steps, including getting the service 
audit agencies involved to try to do that. And we have got to 
sustain the momentum during the upcoming changes in leadership 
which tend to occur regardless of what the outcome of 
presidential elections.
    We are grateful for the support that we have gotten from 
the Congress, including the recommendation of the committee's 
Financial Improvement Panel, Mr. Conaway and Mr. Andrews and 
other members. Congressional attention is one effective means 
of ensuring that audit readiness remains a high priority.
    There is another thing you can do to help. In recent years 
we have encountered unprecedented budgetary uncertainty, 
including no fewer than four shutdown drills for which we 
planned and a long-term continuing resolution in fiscal 2011. 
They have generated time-consuming and unproductive planning 
efforts. Sometimes I think I spend most of my time planning for 
things I hope don't happen. Now we face the prospect of 
sequestration and yet another long-term continuing resolution.
    Dealing with these extraordinary actions is sapping the 
time we could be spending on other things, including audit 
readiness. The single biggest thing you could do to help me 
would be to return to a more orderly budget process.
    We will close by reiterating our full commitment to 
financial management goals of the Department of Defense, 
including auditability. I take this seriously. I started in 
1994 as the Air Force [inaudible] and I am still trying now as 
the DOD Comptroller. We owe it to all of you to do that, we owe 
it to the troops and we owe it to the American taxpayers.
    Mr. Chairman, that concludes our joint opening statement 
and I would suggest Army, Navy, Air Force if that fits, if that 
is okay with you.
    [The joint prepared statement of Secretary Hale and Ms. 
McGrath can be found in the Appendix on page 32.]
    Mr. Wittman. Yes.
    Secretary Hale. Dr. Matiella.

 STATEMENT OF DR. MARY SALLY MATIELLA, ASSISTANT SECRETARY OF 
THE ARMY, FINANCIAL MANAGEMENT AND COMPTROLLER, U.S. DEPARTMENT 
                          OF THE ARMY

    Dr. Matiella. Good morning. Congress Wittman, members of 
the subcommittee, thank you for the opportunity to testify 
today regarding the Army's work to achieve financial statement 
audit readiness. I want to convey to you that Secretary McHugh, 
General Odierno, Under Secretary Westphal and I commit to 
improving financial management and becoming auditable.
    The Army will assert audit readiness for its financial 
statements by September 2017, as required by NDAA for fiscal 
year 2010. The effort to increase financial accountability and 
achieve audit readiness go hand-in-hand with Secretary McHugh's 
call for a leaner, faster and more adaptable Army. A more agile 
Army is only possible if we have timely, accurate and reliable 
financial information to inform our resourcing decisions.
    We recently achieved a significant milestone that 
simultaneously supports our audit readiness and our business 
transformation objectives. On July 1 of this year, the Army 
completed the scheduled deployment of the General Fund 
Enterprise Business System, GFEBS. This system is designed to 
comply with audit requirements. Each day more than 25,000 users 
are using GFEBS across 28 Army commands, component commands and 
direct reporting units. Of course, in an organization as large 
and complex as the Army, a transformation that requires a 
change in our day-to-day business and a fundamental shift in 
our culture faces significant challenges.
    Both Houses of Congress and the GAO have been valuable 
partners in our transformation endeavors. The Army's audit 
readiness strategy addresses each of these six concerns: 
leadership engagement; accountability; internal controls; 
competent workforce; business architecture; and compliance.
    Audit readiness is part of the Army's campaign plan and in 
alliance with the Secretary's top 10 priorities. Top leadership 
has communicated through memorandum and other means the 
critical nature of audit readiness across the enterprise and 
our intent to hold personnel accountable, military and 
civilian.
    For example, in April, the Chief of Staff sent a message to 
all general officers informing them of the importance of audit 
readiness. Also, we have greatly increased accountability and 
oversight by embedding audit readiness criteria in the annual 
performance plans of all Army Senior Executive Service 
civilians. In addition, we are engaging commanders and holding 
them accountable for implementing effective internal controls.
    Building a competent workforce requires comprehensive 
communications and training efforts. In 2012 alone we have 
trained more than 8,000 personnel across all business functions 
in audit readiness principles and implementing the internal 
controls within the Army business processes. We are using the 
Army learning management system, an online system, to broaden 
our reach in a cost-effective manner and enabling users to 
assess the training content within 24 hours a day.
    Finally, I established the Army Financial Management 
Workforce Transformation Working Group to identify the required 
workforce skills and staffing levels that will support our 
financial management transformation. We are strengthening 
internal controls through installation-level process and 
control assessments, corrective action implementation, and 
business process and control training.
    At the end of June we reached two major milestones that 
demonstrate how far we have come in implementing internal 
controls. First, we asserted audit readiness for 9 processes at 
10 different installations for the Statement of Budgetary 
Resources [SBR]. An independent auditor will validate the 
assertion through the second of three SBR exams leading up to 
the Secretary of Defense's 2014 SBR mandate.
    The first SBR exam in 2011 resulted in a qualified audit 
opinion, that was at three installations, that highlighted that 
the standardization of business processes across locations is 
in place, which is a major achievement for the Army. The second 
SBR exam evaluates our internal control environment.
    Second, in June, the Army asserted audit readiness for 
three missile programs, Javelin, Hellfire and TOW [Tube-
launched, Optically tracked, Wire command-link guided], which 
represents approximately 16 percent of the operating materials 
and supplies. The DOD IG [Department of Defense Inspector 
General] will conduct exams to validate this assertion.
    For the remaining two challenges we developed a well-
defined business architecture which enables our ERP [Enterprise 
Resource Planning] system to better support Army audit 
readiness objectives. We are conducting internal assessments of 
our ERPs and material feeder systems using the GAO [Government 
Accountability Office] Financial Information Systems Control 
Audit Manual, FISCAM, which provides the guidelines an auditor 
will follow when conducting a financial statement audit of a 
Federal agency. I am confident that the Army's ERPs will fully 
support the Army's audit readiness schools as independent 
auditors have already confirmed GFEBS to be substantially 
compliant with FFMIA [Federal Financial Management Improvement 
Act] and DOD's standard financial information structure. With 
SFEBS, GFEBS is about 93 percent compliant.
    We have achieved some significant accomplishments in the 
last 12 months. We received a clean opinion on appropriations 
received. For exam one we received a qualified opinion, and we 
have fully deployed GFEBS, our new accounting system. I 
recognize the challenges we face, but I am confident that we 
are executing a sound plan that will achieve the NDAA 2010 
mandates. Our plan is sufficiently resourced and has the full 
support of the Army's top leadership and has resulted in 
successfully achieving several milestones to date.
    I am personally committed to this effort and I look forward 
to working with the members of the subcommittee, GAO and the 
Comptroller to ensure the continued improvement of the Army's 
business environment.
    Thank you.
    Mr. Wittman. Thank you.
    [The prepared statement of Dr. Matiella can be found in the 
Appendix on page 46.]
    Mr. Wittman. Ms. Commons.

STATEMENT OF HON. GLADYS J. COMMONS, ASSISTANT SECRETARY OF THE 
NAVY, FINANCIAL MANAGEMENT AND COMPTROLLER, U.S. DEPARTMENT OF 
                            THE NAVY

    Mrs. Commons. Good morning. Mr. Chairman, members of the 
committee, thank you for the opportunity to provide you an 
update on the work we are doing to achieve audit readiness. We 
appreciate your engagement and focus in this area.
    The Department of the Navy remains fully committed to 
achieving audit readiness within the timeframes established by 
the Secretary of Defense and the Congress. We have a detailed 
plan and believe we are on track to accomplish the goals 
necessary to achieve audit readiness.
    Our financial management community, business process 
owners, and service providers are working hand-in-hand to 
accomplish the tasks necessary to improve our business 
processes. In some cases, such as transportation of people, the 
business process owners at the senior executive level have 
taken the lead to examine the process and to ensure that the 
internal controls surrounding the business process are 
effective. They have demonstrated the functional ownership that 
we need by taking the initiative to implement the changes 
required for audit readiness, train the staff and monitor 
sustainment efforts.
    The Marine Corps continues under audit and we are 
leveraging the lessons learned from their audit experience over 
the past 2 years. Where they have implemented processes and 
procedures that meet audit standards, we have incorporated them 
in our detailed plan for the entire Department and share them 
with other departments and defense agencies. This year we are 
focused on current year activities and I am hopeful that we 
will receive a positive report in the December-January 
timeframe.
    Over the past year the Department asserted that a major 
defense acquisition program, the E-2D Advanced Hawkeye Program, 
was audit ready. In July a review by an independent public 
accounting firm validated that the financial transactions 
associated with this program were accurate and that reasonable 
internal controls were in place. They issued an unqualified 
opinion.
    We have also received unqualified audit opinions on the 
existence and completeness of the majority of our military 
equipment. We have assessed our civilian personnel pay and 
travel processes, identified deficiencies in both the processes 
and the internal controls. We have remediated those 
deficiencies across the business enterprise, documented the 
process and tested to ensure that changes have been made and 
that they are working effectively. We are now awaiting review 
by an independent public accounting firm which should begin 
within the next several weeks.
    We have examined all of our business processes and 
completed at least one round of testing to identify any 
deficiencies which would preclude audit readiness. We are in 
the process of making the necessary changes to remediate those 
deficiencies.
    We are also examining the general application controls in 
our business systems to determine the systems changes required 
to meet audit standards. We will complete this fall a thorough 
assessment of the Navy ERP, the internal controls, using the 
GAO established audit standards, the Federal Information 
Systems Controlled Audit Manual.
    I am pleased with the significant progress we have made. We 
have embraced audit readiness as an opportunity to improve our 
business processes and to correct longstanding issues that were 
not priorities in the past.
    However, achieving audit readiness is not without 
challenges. First, because our systems and processes were not 
designed to achieve the standards demanded by a financial 
audit, changes are required to sustain our efforts. It will 
take time to implement all the necessary changes, but we are 
identifying and prioritizing those changes, particularly the 
systems changes, in an effort to eliminate intensive manual 
workarounds.
    Second, we know that our business process internal controls 
need to be strengthened and enforced. We have identified the 
key controls required in each business process. The challenge 
is to make sure the controls are implemented across the 
Department, verify their effectiveness and ensure through 
testing that they remain in place.
    Third, we execute our resources across many organizations 
and activities generating millions of transactions. We rely on 
thousands of people inside the Department of the Navy and 
outside the Department to perform segments of our business 
processes. These dependencies require constant nurturing, 
collaboration, consultation, close coordination and monitoring 
to make sure we all remain in sync with the requirements for 
audit readiness.
    Fourth, we operate in a decentralized manner. Gathering the 
evidentiary documentation required to support the millions of 
financial transactions we execute and having that documentation 
readily available for audit review is a substantial effort. 
While these challenges are significant, we will have included 
in our detailed plan actions to address each of these 
challenges.
    In closing, I am encouraged by our forward momentum, the 
progress we have made, the relationships we have forged with 
our business process owners and service providers, the support 
they are providing, and the experience and knowledge we have 
gained to date. Thus, I am cautiously optimistic we will meet 
our goal.
    I will be pleased to answer any questions you might have at 
the appropriate time.
    Mr. Wittman. Very good. Thanks, Ms. Commons.
    [The prepared statement of Mrs. Commons can be found in the 
Appendix on page 52.]
    Mr. Wittman. We will go now to Ms. Thomas.

  STATEMENT OF MARILYN M. THOMAS, PRINCIPAL DEPUTY ASSISTANT 
   SECRETARY FOR FINANCIAL MANAGEMENT AND COMPTROLLER, U.S. 
                  DEPARTMENT OF THE AIR FORCE

    Ms. Thomas. Thank you, Chairman Wittman and the members of 
the panel, for the opportunity to testify today.
    First, let me start by confirming the Air Force's continued 
support of Secretary Panetta's accelerated goal of achieving 
audit readiness of the Statement of Budgetary Resources by 2014 
and for all financial statements by September 30, 2017. The Air 
Force is faithfully committed to maintaining the public's trust 
in our stewardship of taxpayer dollars and developing a culture 
that values efficiency and resource stewardship.
    Air Force leaders have consistently emphasized the 
importance of an all-encompassing Air Force-wide effort which 
is, as Secretary Panetta puts it, an all-hands effort, to 
successfully reach audit readiness by established deadlines.
    Due to the commitment of leadership and to the dedicated 
professionals across the Air Force, we have made significant 
progress to date. However, due to the enormity and complexity 
of the task before us, we view reaching the 2014 and 2017 goals 
as having moderate risk.
    Before going into the challenges of reaching the goals, 
however, I want to share with this panel the progress the Air 
Force has made toward audit readiness goals. Over the last year 
we have received two independent opinions on previous 
assertions.
    In October an independent public accounting firm issued an 
unqualified opinion on our fund balance with treasury 
reconciliation process, a process reconciling over 1.1 million 
transactions with an accuracy rate of 99.96 percent, exceeding 
the 98 percent recommended. In June, the DOD IG issued an 
unqualified opinion on our aerial target drones and cruise 
missiles valued at approximately $86 billion, representing 41 
and 14 percent of Air Force and DOD mission critical assets, 
respectively.
    We have also completed two assertions of audit readiness 
for uninstalled missile motors and spare engines which together 
represent 6,395 end items valued at approximately $11.5 
billion. A DOD IG examination is under way for this effort and 
we anticipate a final report in November.
    Additionally, we have submitted our $4 billion space-based 
infrared radar system selected acquisition report assertion 2 
months ahead of schedule and will contract with an auditing 
firm this month to perform an independent examination and issue 
an opinion.
    In the process going forward we have made significant 
progress on end-to-end business processes and are hiring 
additional contractor and organic resources with financial 
reporting and auditing expertise to allow us to continue making 
headway on more assertions and reduce overall schedule risk.
    Last August, for example, we earned an independent public 
accounting firm unqualified opinion on budget authority 
distribution to our major commands and are completing 
corrective actions on funds distribution to base, so that we 
can assert audit readiness on that early next fall.
    We have also completed initial testing and corrective 
actions on reimbursable budget authority and civilian pay 
processes which will allow us to assert those two areas as 
audit ready in 2013. Later this fall we will kick off initial 
assertion testing for military pay and contracts. Our 
preliminary assessments in both areas are very encouraging.
    Despite the progress we have made to date, we face many 
challenges, most significant of which is the need to improve 
our legacy information systems in order to support the 2014 SBR 
assertion. With over 160 different systems recording, tracking 
and reporting information for financial statements, the 
challenge is to identify, prioritize and implement cost-
effective improvements to support the statement of budgetary 
resource assertion goal.
    Our enterprise resource system, the Defense Enterprise 
Account Management System, otherwise known as DEAMS, which is 
our next generation accounting system, and is critical to full 
audit readiness by 2017, has had some development and 
deployment challenges.
    Recently the Air Force Operational Test and Evaluation 
Center completed an operational assessment of DEAMS and 
highlighted some concerns with accounting accuracy and 
consistency, software development and testing and change 
management of our workforce. We have corrective actions in 
place to address these issues and we are doing some preliminary 
testing, and I can tell you that what we are hearing is very 
encouraging on that.
    In closing, the Air Force appreciates this panel's 
commitment and support to the Air Force audit readiness efforts 
and we look forward to continuing to work with you and 
achieving auditable financial statements.
    Again, thank you for holding this hearing and allowing me 
to testify today. I look forward to your questions.
    Mr. Wittman. Thank you.
    [The prepared statement of Ms. Thomas can be found in the 
Appendix on page 59.]
    Mr. Wittman. Thank you, panel members. We appreciate your 
efforts here.
    I want to welcome Mr. Cooper and ask if he might have any 
opening comments?
    Mr. Cooper. I have no opening comments.
    Mr. Wittman. Okay. With that, we will begin with our 
questions. Secretary Hale, I will begin with you and then ask 
the other panelists to give me their perspective.
    The Senate recently passed a bill which includes a number 
of sanctions if a full-scale clean audit isn't achieved by 
September 2017, and one sanction requires essentially the 
moving of jurisdiction from DFAS, the Defense Finance and 
Accounting Service, to the Treasury.
    I wanted to get your perspective on that, if you believe 
that you avoid that, or if you did get to that point, what your 
perspective would be on the transfer of that from DFAS to 
Treasury?
    Secretary Hale. Well, I think that transfer would be a bad 
idea. I think the goal Senator Coburn has and his cosponsors is 
to I guess try to reduce the oversight role for me, because I 
do provide oversight over DFAS. It is going to have the 
opposite effect. It will increase the workload, I believe, 
because I mean they are day-to-day accounting firms. We need 
them working in the Department of Defense.
    But let me step back and comment on the Audit the Pentagon 
Act just briefly and more broadly. We support the goals of that 
act which are to get to audit readiness, you have heard us all 
say that, and we think we have a system of accountability. We 
are concerned about a number of the sanctions that are in 
there. You mentioned one. There are several others I can go 
into that are of concern to us.
    It is because there is some uncertainty here whether we 
will make this. You know, we have over-promised and under-
delivered for years, I want to be honest with you. I am 
reasonably confident, but I can't be absolutely sure, for two 
broad reasons. One, as we finish our discovery efforts, there 
may be problems that come up that we didn't anticipate that 
will take longer than we think; and, two, frankly, because of 
all the uncertainty in the budgetary world that you have heard 
me mention. I mean, if we go through sequestration it will both 
affect the resources and drain away an enormous amount of time.
    Mr. Wittman. Secretary Hale, excuse me for just a moment. 
If you would, if you could pull the mike up a little bit 
closer.
    Secretary Hale. Is that better?
    Mr. Wittman. Very good. Thank you.
    Secretary Hale. So bottom line, we support the goals of the 
Audit the Pentagon Act. We are concerned about some of the 
means.
    Mr. Wittman. Thank you. I wanted also to get your 
perspective, the DOD IG recently published a report to talk 
about some of the problems with enterprise planning systems, 
schedule delays, cost overruns. I wanted to get your 
perspective on what the root causes of those might be, what the 
plans are to overcome those, to get things back on track. 
Obviously that is a critical element of long-term success in 
meeting the 2014 and 2017 milestones.
    Secretary Hale. If I may, I would like Ms. McGrath to 
answer that. She has got the oversight there.
    Ms. McGrath. Thank you. I think that the IG report 
highlights many different areas that are the root causes, if 
you will, with regard to scheduling delays. You have heard in 
our opening statements today some of the challenges. I 
mentioned in mine data conversion, the change in management 
challenge, the training aspects, all of which we absolutely are 
taking actions to ensure that, one, we understand very acutely 
what the root cause was and then the steps we need to take to 
correct those. So I think that for each program there is a 
slightly different scenario which is driving the schedule 
change, although those are consistent, in particular the data 
conversion and the change management aspects.
    What we have really learned with the implementation of 
these ERP solutions is that it can't just be the accounting 
team with the financial management solution, it must be the 
entire operation understanding the role that this capability 
plays within their overall execution. And that, to be honest 
with you, has been one of the most challenging. You heard Ms. 
Matiella mention that in her opening, how do we use these 
systems and capabilities to really execute our business? And it 
does require a change in what we do every day. We must move 
away from, frankly, the years of practices that we have had 
into the new environment. And there are a lot more controls in 
the new systems.
    So although a nice new modern system sounds a lot easier 
than sort of a legacy system, really there are a lot more 
internal controls and complexities such that you have got 
referential data integrity and all those other things that are 
so very important to achieving auditability and full accounting 
of the money.
    Mr. Wittman. Ms. Commons, let me ask, I know I have 
received some feedback from some contractors that are working 
with the Navy about the new accounting systems and some of the 
elements of timeliness in payment. Apparently there have been 
some delays. I think those delays have been addressed but have 
not been totally, I think, reduced to a satisfactory level.
    Can you give me some perspective on the Navy's efforts 
there? I know we are putting in place obviously a new 
electronic system. In the transition there are always 
challenges there. But I think there is some concern out there 
from what I am hearing about the timeliness. I know previously 
there was a great amount of attention paid to making sure that 
payments got out in a timely way, but apparently with the new 
system there are some problems with that. So I just want to get 
your reflection on what you see as the challenge and what the 
solutions are in the future.
    Mrs. Commons. I am not really aware of any delay in 
payments within the Department of the Navy. We will deploy our 
ERP system fully on 1 October. We will go live on 1 October. I 
am not aware of any delay in payments. We are making our 
payments on time, and we are in fact moving more toward 
electronic payments so that we take the hands-on out and that 
it becomes a more automated process.
    Mr. Wittman. If you will take that question for the record.
    Mrs. Commons. I will be happy to look into it for you, sir.
    [The information referred to can be found in the Appendix 
on page 75.]
    Mr. Wittman. Thank you. Mr. Cooper.
    Mr. Cooper. I will pass to Mr. Andrews.
    Mr. Andrews. I thank my friend for yielding and I apologize 
for being slightly late this morning but I am happy to be with 
you.
    The chairman asked a question about the legislation, the 
Audit the Pentagon Act. And I appreciate the difference in 
approach that Chairman Conaway and the chairman of the 
subcommittee have taken on this issue because we believe that 
rather than pass the act, the Audit the Pentagon Act, we should 
act to audit the Pentagon. Introduce all the bills you want, 
the hard work of this is the work that you ladies and gentlemen 
have done and are doing, and we appreciate it. And frankly, on 
this committee, Mr. Conaway's laser beam-like focus on this for 
a number of years is really the proximate cause of this. So I 
wanted to get into the progress that we are making and the 
problems that we have found on the act of auditing the 
Pentagon.
    The first has to do with the problem of a beginning 
balance. Obviously to get a clean audit letter, you need to 
have an accurate beginning balance. And this is a problem that 
you all inherited, did not create. But obviously if we have had 
a history of no audits for centuries, at least decades, getting 
a good beginning balance is not an easy thing.
    So, Mr. Hale, what steps are being taken to try to deal 
with this inherited problem of the beginning balance?
    Secretary Hale. The problem--I am going to answer and then 
ask of my colleagues, perhaps Ms. Commons in particular will 
want to add to it. The problem is lack of our ability to 
document the transactions. The way we do financial management 
in the Department of Defense, some of these transactions in the 
beginning balance can go back 10 years or more. So we have, for 
example, 5 years to obligate money for shipbuilding and then 
another 5 years to actually expend the dollars, and we just 
don't have the records or we can't get them quickly enough. 
That is another problem. The auditors expect a reasonable 
timeliness so that they can produce their opinion in a timely 
manner.
    And that caused problems. It caused us to decide that for 
this year in the Marine Corps Statement of Budgetary Resources 
we will focus on current resources. The plan here, frankly, 
would be to build up better documentation gradually as we move 
toward an audit effort. That will cause us to retain the 
documentation so that a few years from now we will have much 
more ready access to it and better documentation. But it will 
take a while before that is complete.
    Mr. Andrews. And let me say, I think you have leaned in the 
right direction on this. It is very important to know where the 
money has been, but it is also important to know where it is. 
And I think by focusing on the ``where it is'' question before 
the ``where it has been'' question, I think you have made the 
right judgment. We want to get the right answers to both, but 
really, you know, this is not an historic review. It's meant to 
be a useful tool for the present and the future.
    The second question I want to ask was about the problem of 
software that would give us access to usable data, and that is 
really the whole ERP issue that the Inspector General looked at 
as recently as 2 months ago.
    Dr. Matiella, did I pronounce your name correctly? I am 
sorry. I want to know what lessons we have learned about GFEBS 
thus far. It has only been since 1 July, right?
    Dr. Matiella. It was fully deployed on 1 July.
    Mr. Andrews. But what did we learn in that period of time 
of full deployment, what is working, what isn't, what lessons 
should we take from that to try to make GFEBS a success?
    Dr. Matiella. Well, it is all about change management. It 
is all about folks changing their practices from what isn't 
auditable to what is auditable. And one of the ways that you 
approach change management is you train and train and train. So 
training becomes very important.
    I think one of the lessons that we learned in the very 
beginning of the GFEBS deployment was that we didn't train 
enough, and this is what you may have heard in some comments 
from DFAS, they need to do more training in the MILPAY 
[military pay] report. So certainly that was a big lesson for 
us, was to be very mindful of training, help desk, online 
tools, providing just-in-time training, all those different 
things.
    Mr. Andrews. To what extent do you think that the training 
provided by the vendors of the product is better or worse than 
the training provided in-house? I am sure there is a mix of the 
two. What is the quality of the training provided by the 
vendors of the products?
    Dr. Matiella. It is very good. The training provided by the 
vendors is very good. We just need to continually reinforce it 
and reinforce it. And so that is where our internal staff comes 
in, is that when we have these super users, those are the folks 
who are reinforcing that good training that was given. It is 
just one of those--it just has to be continuous.
    Mr. Andrews. Thank you. Mr. Chairman, I just also want to 
say that I have seen personally and up close that Secretary 
Panetta and Mr. Hale and this team have worked diligently and 
tirelessly on this project. I know that they are committed to 
overcome these obstacles and I am proud of them and commend 
them for it.
    Mr. Wittman. Thank you, Mr. Andrews. We will now go to Mr. 
Conaway.
    Mr. Conaway. Thank you, Mr. Chairman. I walked in the room 
and a couple of movies occurred to me. One is the Blues 
Brothers where the guy said let's get the band back together, 
and then the one that you guys probably think about is 
Groundhog Day, which is over and over and over. I appreciate 
you being here.
    Mr. Andrews. Let's just hope it is not the Titanic.
    Mr. Conaway. Exactly. I stay away from some of those. I, 
too, want to echo Mr. Andrews' compliments to you guys. You 
have been very forward leaning throughout this process, 
particularly when Leon Panetta a year and a half ago, a year 
ago, I guess, said let's get this done. Unprecedented 
leadership from the top. And I have personally seen that 
percolate down through many levels of the organization. And I 
do hope, Mr. Hale, that we do have the momentum going such that 
whatever leadership changes occur, and there will be some, no 
matter what, as you said, that one of the things I hope we can 
get the Senate to focus on as well as House Members and that is 
that new leadership, making sure they are as committed to 
making this work as you and your team have demonstrated over 
and over and over. There is a verse in Galatians, I think, that 
says don't grow weary of doing good, and this could get 
wearisome because it is such a daunting task and has taken so 
long.
    Ms. Commons, I watched a video yesterday, the Navy's, kind 
of a publicity pitch to get audit readiness done. Impressive. I 
hope we get more people to watch it, just go viral, but good 
job on that.
    Ms. Thomas, one of the things that I perked up on when you 
were giving your testimony was you have a challenge, you and 
the Air Force have a challenge, and it is how do you walk that 
fine line between continuing to maintain legacy systems in 
order to get audit ready by 2014 but at the same time a longer 
pitch to pivot to the permanent systems that will be in place 
year after year after year to be able to audit it.
    Can you give us some sense as to how you are going balance 
between being able to get ready by 2014 and your reliance on 
legacy systems and not continuing to resource those things in 
ways where we in effect don't need long term, they are not 
going to be there for the long term.
    Ms. Thomas. Certainly. Thank you. Yes, up until April of 
this year, as you are well aware I am sure, the Air Force 
strategy was to be audit ready in 2017 with the full Air Force-
wide implementation or deployment of DEAMS. And when we 
received the challenge from Secretary Panetta to accelerate the 
Statement of Budgetary Resources, we knew we weren't going to 
have DEAMS deployed Air Force-wide in order to meet that 
timeline. So we have gone back and we have looked at our legacy 
systems to determine which of those we need to do some 
remediation on in order to achieve the Secretary's goal of 
audit readiness in 2014.
    We have found the systems themselves for the most part, 
with some small modifications, will support SBR readiness in 
2014. Where we have really had to do a lot of work and we are 
continuing to work is on the people and the processes because 
the controls really in order to remediate the use of the legacy 
systems, the controls in many cases lie outside the systems 
themselves. In addition to that, there is a lot of interfaces 
that we have had to closely monitor, document and implement 
tighter process controls on.
    So through a combination of those efforts and training of 
people, that is another, as we have learned as we have done 
funds distribution to base, sometimes it is an issue of just 
understanding what it is we are trying to do and obtain. And we 
have done a number of things where we have pulled funds 
managers in and conducted training courses, showed them this is 
a good audit product, this is a deficient one, and they are 
carrying that information back to their bases and installations 
and training the trainer.
    So through a combination of training, process controls, 
some system remediation on the legacy, in addition we are 
continuing our forward progress on DEAMS because we really need 
DEAMS to achieve full audit readiness in 2017 in a way that is 
sustainable.
    Mr. Conaway. Ms. McGrath or Bob, you put in place about 
this time last year the senior executive staff requirements 
that they meet certain criteria for the personnel evaluations 
as well as some commanders. When will those evaluations begin 
to happen and when will you be able to report to us, not on a 
person-by-person basis, but certainly where folks have exceeded 
expectations and/or not made progress that was set up for them 
and the impact of that success or failure has on their 
advancement and/or compensation?
    Secretary Hale. Why don't I start and then I will ask if 
any of my other colleagues want to add.
    We have performance goals in the SES plans we believe now 
across the Department for those members of the Senior Executive 
Service that are relevant, that have audit involvement. I will 
say it is not the primary goal. If you are a logistician then 
the primary goal is still logistics, but it is a part of the 
subsidiary goals. And the performance evaluation process is 
starting right now and within a few months we will have that. 
How much we are going to be able to say with all the privacy 
rules, I am not sure.
    Mr. Conaway. I understand that.
    Secretary Hale. I understand you know that. But we are 
watching it too and would like to tie this as closely as we can 
to assessments and bonuses so that there is some tangible 
rewards for success and some stigma, if that is the right word, 
or some change in behavior if we are not making success.
    I think we have got people's attention. I am a little less 
confident but beginning to believe that they know what they 
have got to do around the Department. So I think it is a major 
step forward. But I am humble about all the changes that we 
have got to pull off over the next couple years; hence the 
reasonably confident, moderate risk, you have heard various 
words up here. And like I said, Mr. Chairman, we have over-
promised and under-delivered for a long time. I don't want to 
be part of that. I want to tell it as best we can and try to 
meet these goals.
    Ms. McGrath. I would just add that the performance period, 
the rating period ends at the end of this month for the year 
for the Senior Executive Service and then the evaluation 
process starts. So as Mr. Hale indicated, it is probably a 
month and a half or so before that is all finalized.
    Secretary Hale. If time permits, Mr. Chairman.
    Mrs. Commons. If I may, 250 of our 303 senior executive 
leaders have an audit readiness objective in their performance 
plan. With the cooperation that I am getting, I believe that 
they are performing and that they will continue to perform. I 
think we all see the benefit of audit readiness, not just to 
produce a financial statement, but to improve our business 
processes across the board. So I am getting very good 
cooperation within the Department of the Navy and I think those 
senior executives, the fact that we have that audit readiness 
objective in their plan, that they are taking it seriously.
    Mr. Conaway. Thank you.
    Mr. Wittman. Thank you, Mr. Conaway.
    Mr. Critz.
    Mr. Critz. Thank you, Mr. Chairman.
    Ms. McGrath, I think I misheard and I just want to clarify, 
you talked about the retirement of legacy systems. Did you say 
200 or 2,000 in 2011?
    Ms. McGrath. I said 120 for 2011 and approaching 200 for 
2012 and about 150 in 2013.
    Mr. Critz. I must have zoned out at that point. So these 
legacy systems, and I would like to ask this to the service 
representatives as well, part of the move to auditability was 
the implementation of the Enterprise Resource Plan, ERP, and I 
know there is delays in that, although Secretary Hale mentioned 
that you feel very confident that you are going to meet goals 
in the timeframe allotted. So I am trying to figure out, are we 
going to have a mix of systems and how does that play out going 
forward?
    Ms. McGrath. I will certainly start and then ask the 
service representatives to add additional details. I think that 
is exactly right. There is a mix of IT solutions and 
capabilities that will enable the audit readiness to happen I 
believe in both 2014 and 2017. Some of the strategies include 
ERPs as the centerpiece. Of the Army, for example, it is very 
much an ERP-based strategy for their entire business 
environment. So they are using that as their lead. It is not 
the same in the Department of the Navy or Marine Corps, and 
then I think with the Air Force we have heard with their 
schedule delays to date they are assessing both how they get to 
2014 and then what 2017 looks like.
    But at the end of the day it is a combination of the entire 
business capabilities, be it the new or the--I will call it the 
legacy, but some of the legacy is still pretty good IT 
capability. And the importance that you have heard is not just 
the system piece, it is understanding how you do what you do 
and the execution of your business process and how does the IT 
enable that to happen. So ITS [information technology services] 
is extremely important, but if you don't know how you do what 
you do, the process piece, the IT, is not nearly as important 
nor is it relevant. So really getting at that process piece and 
the data flow is extremely important and all of the military 
departments are focused on that as they implement whatever 
their IT solutions are.
    Mr. Critz. Would your analysis be that most of the legacy 
systems were populated through the different branches or was it 
more focused at the Pentagon and in sort of the overall 
management of it?
    Ms. McGrath. Definitely the former. And it wasn't even 
necessarily at the military department head of the department 
level, it was very much a bottoms-up, met a local need, I had a 
function I needed to perform at my base/installation and I did 
what I needed to do to execute my piece.
    I think the difference today and I have seen in the last 
few years is that we really are taking an enterprise 
perspective and sort of lifting up, if you will, and looking 
across the organization, not only at the military department 
level but also at the DOD enterprise to say, well, what do I 
have and how is it helping or not? And it really achieves again 
the business outcomes that we want today. We are talking about 
audit readiness.
    Mr. Critz. Secretary Hale, moving on, I had a question 
earlier and I understand that obviously we need to drive to 
this auditability so that it will help us plan and help us work 
with you in future planning. But I also have a concern of as we 
drive to these reports, the separation of items that have to 
remain at the secret and top secret level and how these reports 
will impact sort of the cross-pollination, I guess you could 
say, or will we have to be that much more cautious when it 
comes to making sure that the data can't be mined to determine 
some of that secret information.
    Secretary Hale. This is a man bites dog problem. We are 
finally getting better systems, we are getting visibility of 
our data, but that is a problem, and we are actively looking at 
it, and I want to be careful what I say here. But we are very 
conscious of this problem and are actively looking for ways to 
solve it. It may mean that we have to have separate systems 
that are classified, although that will proliferate systems to 
some extent. There may be other approaches. I am being a little 
vague.
    Mr. Critz. No, it is just a concern because obviously the 
more data available----
    Secretary Hale. I don't want to tell people I don't want to 
help. But it is an issue and one we are addressing.
    Mr. Critz. Thank you, Mr. Chairman.
    Mr. Wittman. Thank you, Mr. Critz.
    Mr. Coffman.
    Mr. Coffman. Thank you, Mr. Chairman, and thank you all for 
being here today and thank you for your service to our country. 
Maybe I will start with Mr. Hale.
    It would seem to me that every branch of service is allowed 
to do its own contracting in terms of computer systems and it 
seems to me that we have all these disparate systems. Now, I 
understand that you are trying to consolidate now. But are we 
moving to a single system when it comes to financial 
management?
    Secretary Hale. Well, if you mean a single system 
throughout the Department of Defense, the answer is no. The 
departments have different business practices and I believe it 
would be a bridge too far to try to get them on one single 
system, and it would frighten me a bit because it would be so 
large and size is itself sometimes a problem in terms of 
implementation. We are trying to move to many fewer systems. 
There probably won't be just one per department, there won't 
be, throughout financial management. But as Ms. McGrath said, 
we are trying to retire a lot of these legacy systems and 
greatly reduce the numbers.
    Beth, do you want to add to that?
    Ms. McGrath. I would add to what Mr. Hale said, we are 
taking a standards-based approach, so you have heard I believe 
mentioned the standard financial information structure, so 
instead of mandating a single solution, IT solution, we are 
mandating the implementation of standards in each one of those 
solutions so that at the end of the day you can aggregate the 
data. And so it is sort of both a standards process base and 
then the implementation of standards.
    Mr. Coffman. Where are we in that process again?
    Ms. McGrath. With regard to the standard financial 
information structure, which is the main financial standard, 
all of the ERPs, the ones the military departments--actually 
all of them--have implemented what we call the SFIS, the 
Standard Financial Information Structure, and we did validation 
for each of the ERPs on their implementation. I believe Ms. 
Matiella mentioned 90-some percent in terms of compliance. Each 
one of these is I am going to say compliant with the standards. 
And it is not only the financial system, because the logistics 
and other systems feed the financial systems. So we really are 
doing a full audit of all of the ERP solutions in their 
implementation of the standard. We completed that I think in 
the last couple of months.
    Mr. Coffman. Are we aware of in terms of looking at major 
commands, it was mentioned that some of them are auditable and 
obviously the majority of them probably right now are not. Is 
there a list in DOD of those major commands or programs that 
are auditable?
    Secretary Hale. Yes. It is not commands. We have a couple 
of agencies that are auditable; Defense Finance and Accounting 
Service, Defense Contract Audit Agency, Defense Commissary 
Agency all have auditable statements. The Defense Information 
Services Agencies, DISA, has achieved partially auditable 
statements. Within the services, it is pieces so far that are 
auditable. The one that is furthest along is the Marine Corps, 
not auditable yet, but we hope close.
    But as you have heard all of my colleagues say, the 
strategy we have taken is to try to bite off pieces of this and 
get independent public accountants, auditors involved, because 
we learn so much from them. They know how to do it. We don't. 
So as we bring them in, we often learn a great deal. We have 
certainly learned a lot from the Marine Corps and I think we 
have in the other audits that have been done. So pieces of each 
service have been done.
    Do you want to add to that?
    Dr. Matiella. I would like to add that the Corps of 
Engineers has been auditable for a few years now and we are 
using their audit approach and their audit lessons learned to 
guide us. So they are a huge success.
    Mr. Coffman. Thank you, Mr. Chairman. I yield back.
    Mr. Wittman. Thank you, Mr. Coffman.
    Mr. Andrews.
    Mr. Andrews. Thank you, Mr. Chairman, for giving us a 
little further opportunity to explore this. I also want to ask 
about the personnel training in a bit more detail. One thing 
that our work together has really taught us is that we can have 
really well thought out software systems and we can clean up 
some of the other problems, but if the people are not properly 
trained to use the systems, it doesn't work.
    What would each of you identify as our principal problem 
right now in the personnel training area, what is our biggest 
deficiency or flaw, and what do you think we need to do to fix 
it. What would be the number one problem you would point to?
    Secretary Hale. Well, I will start, and then again this is 
an organize, train and equip issue, so I would ask my 
colleagues, those that want to, to comment.
    We don't right now have a framework in the defense 
financial community that allows us to require training across 
the board. We have a lot of courses and I think our training is 
generally pretty good, but it is not--as I say, there is not a 
framework. And one of the things we can't do easily is ensure 
that everybody gets appropriate training, say, an audit 
appropriate to their needs. Everybody doesn't need to be a CPA. 
They can't and never will be and shouldn't be. But everybody 
probably should have some familiarity with the importance of 
this and their general role.
    Mr. Andrews. Is that a collective bargaining issue, or why 
can't we have it?
    Secretary Hale. Well, it is influenced by it. We started 
this course-based certification program. We are really copying 
essentially what the acquisition community did a number of 
years ago. You gave us legal authority to do it a couple of 
years back. We are actually just beginning pilot programs now. 
What it will do is establish a framework. We will set levels 
for each position, and depending on the level they will need to 
complete certain courses and other requirements in order to be 
certified at that level. And one of the things we will do is 
create an FM-101 course that we hope essentially everybody 
coming into our community will be required to take, and part of 
that will have an audit module. So that will move toward 
everybody understanding why this is important and the general 
requirements of audit, which for many people will be all they 
need to know, and then there will be more advanced requirements 
for varying groups.
    So we have done some special training for the financial 
improvement and audit readiness. We have hired a contractor, so 
we call it FIAR-101 training that is focused on audit.
    Let me ask Marilyn, would you like to start?
    Ms. Thomas. Sure. Thank you.
    Well, one specific example I can provide in an area that we 
have learned a considerable amount here recently is with the 
implementation of DEAMS. One of the things that the operational 
assessment pointed out was that we had some issues with change 
management, particularly in the area of training. And as we 
peeled the onion back to find out what the core issue was, we 
talked to the workforce that was using the system. And the key 
thing they provided us feedback on was you taught us how to use 
the software, you taught us about the software; you didn't 
teach us how to do our job with the new system.
    So in response what we have done is we have developed 
training manuals for each of the respective jobs, each of the 
desks, and they have that training manual on their desk. 
Additionally, our plan going forward is we are actually going 
to forward deploy people who have implemented the system before 
on location to help the people when they receive the new 
software learn how to use it along with those training manuals.
    So I think sometimes our challenge is we are introducing 
something new and we think because we have been in the 
development process of that and the oversight process, that the 
people who receive it are going to understand it the way we do.
    Mr. Andrews. This is the cultural change that many of you 
mentioned in your testimony, part of it, right?
    Ms. Thomas. Yes, sir, exactly.
    Mr. Andrews. Any other takers?
    Mrs. Commons. I would like to comment. We have done several 
things to make sure that our workforce, that they are trained 
in audit readiness. And certainly I would like to thank the 
FIAR team who came over and actually did several training 
sessions for our nonfinancial managers to train them on what it 
meant to be audit ready.
    Mr. Andrews. It does strike me that one hurdle we have got 
to get over, it is not just the financial and accounting people 
have to be audit ready, it is all operational people. If they 
don't understand why they are collecting these documents, it 
doesn't work. It is not a financial practice.
    Mrs. Commons. Absolutely. And we have what we call regular 
office hours where we have people who can call in and we can 
have discussions about the things that we need to do in audit 
readiness. And I would like to say we have some very 
enterprising, energetic people who are working for us. What we 
have found is that they like to establish ways that they can 
get the job done quicker. However, they do not realize the 
impact that it is having on the overall organization when they 
invent their own methodology and practices.
    So what we have done is we have a major effort to 
standardize our processes and to publish those standards so 
that everyone knows what they need to do in their part of the 
process. It has been very beneficial. We have had lots and lots 
of discussions. So it is not something that is new to them. It 
is not something that we are pushing to them. They have been 
engaged in the process throughout, so they themselves had a 
part in determining what that standard process would be.
    Mr. Andrews. Thank you very much. Thank you, Mr. Chairman.
    Mr. Wittman. Thank you, Mr. Andrews.
    Mr. Conaway.
    Mr. Conaway. Just one follow-up thing that is going to be 
patently unfair, but that is what Members of Congress get to 
do.
    We have got to convey to our constituents and others a 
sense of how far you have come versus how far you have to go. 
And I don't know if you want to put it on a percentage basis or 
what, Bob, and each of the folks, with respect to the SBR. We 
could go global and say 2017, but that is meaningless at this 
point. But with respect to the auditing the Statement of 
Budgetary Resources, being audit ready for that, can you give 
the committee and our constituents a sense, and maybe 
percentages that--anyway, but we got to have something to take 
away from this morning that says we are halfway there, we are 
two-thirds there, something that we can in a short 30 seconds 
talk to folks who just want the answer. They don't want how to 
build a watch, they just want to know what time it is, and that 
clock doesn't work up there.
    Secretary Hale. Can I get away with a football analogy?
    Mr. Conaway. Sure.
    Secretary Hale. So, look, I will regret this, but I think 
we are in midfield, but I also think we just got Robert Griffin 
III and he is looking good and that we have some momentum on 
our side. I would invite my colleagues--we didn't practice this 
answer--I would invite my colleagues to question this. I think 
we are kind of crudely halfway there, but we have the ball and 
we are on the offense would be the analogy I would offer you.
    Mr. Conaway. Can I get just each of you just down the line? 
Ms. Commons, what do you think down the line? What do you think 
for the Navy?
    Mrs. Commons. Well, in terms of dollar value, and I will 
use that as the metric, I think we are probably about 30 
percent there relative to the dollar value. Our big areas of 
contract vendor pay and military personnel pay, we are still 
working. Those are big areas for us. So I think we are about 30 
percent there. But I am encouraged by the momentum that I am 
seeing in the Department of the Navy. We are working those 
issues constantly to make sure. I am reasonably optimistic by 
the end of 2013 that the Navy will be audit ready for its 
Statement of Budgetary Resources.
    Mr. Conaway. Ms. Matiella.
    Dr. Matiella. To get audit ready, we chunked it. We are 
going through three exams. The first exam, we have already 
finished it and that we got a qualified opinion on the first 
exam. The second exam is underway. And then the third exam 
starts next year. So I believe that, again, the same thing, we 
are about midfield in terms of getting us ready to be 
auditable.
    I did want to say though as far as implementing our ERP, we 
are 80 percent there. Eighty percent of our current funds are 
in our new system. The only part that is not in the new system 
to a large extent is sensitive activities, and that is why we 
are waiting for that authorization to be able to start working 
on sensitive activities versions.
    But we are almost there in terms of fully deployed. Only 
sensitive activities is not done. But we are making a lot of 
progress in terms of looking at ourselves.
    Mr. Conaway. Ms. Thomas.
    Ms. Thomas. The Air Force Statement of Budgetary Resources 
in our approach is divided into about, well, 15 units, 
accessible units. Of that we have completed audit assertion on 
five. But we have several others that are in progress, one 
which is very close, we expect to assert this fall. So I think 
midfield is probably a pretty fair assessment of where we are.
    Mr. Conaway. All right. Anything else on that?
    Secretary Hale. No.
    Mr. Conaway. Again----
    Secretary Hale. One more thing. The defense agencies, they 
are almost 20 percent of our budget, and, frankly, we hadn't 
paid as much attention to them as we should have. A few of them 
have auditable statements already. But under the guidance of my 
Deputy Chief Financial Officer back here, Mark Easton, who I 
might add has done many helpful things, a great deal of 
attention to this, we are now kind of acting as their belly 
button, if you will, to try to get all of them to move toward 
audit readiness. Many of them are a lot smaller, they are all 
smaller than the services for sure, and so have easier 
problems, but there are a lot of them. And so I think we are 
making progress there. We may not quite be to midfield with 
them, but we are getting there.
    Mr. Conaway. Offline you will have to explain to me what 
being their belly button means. I am not sure I got that one. 
But please convey to the hundreds and hundreds of people 
sitting behind you and throughout this whole system that is 
having to do the heavy lift every single day to make this 
happen, our heartfelt thanks for not only what they have done 
to this point, but all that hard work yet to get ahead to get 
to that red zone and then score by getting this thing done.
    I for one know how hard it is, how difficult it is, what 
the scope is. It is stunning once you begin to look at it. So 
at least for me, thank you so very much for what you have done 
already and I am looking forward to the success of getting this 
thing done. Thank you very much.
    Mr. Andrews. Mr. Chairman, if I might, I would like to 
associate myself with Mr. Conaway's remarks and say the same 
thing. I do want to raise one objection on the record. The 
Washington Redskins reference I found offensive.
    Secretary Hale. I stand by my remarks.
    Mr. Andrews. As a devoted Philadelphia Eagles fan, I just 
want to let the record show my objection to that reference.
    Mr. Wittman. Well, I was expecting the gentleman from Texas 
to maybe object to that, too.
    Mr. Conaway. I don't have a dog in that fight.
    Mr. Wittman. Are there any other questions for the panel 
members before we conclude?
    Hearing none, I do have two specific questions, Secretary 
Hale, I would like for you to address for us, and you don't 
have to do it here, if you could do it for the record. One is 
that, and you can let me know this and provide this to the 
committee if this is where things are going.
    The IG evaluation or the challenges pointed out there, is 
there a plan to have a formal response to the IG findings to go 
back, and, if so, it would be nice for the committee to have 
that so we can get that to our members.
    Secondly, as you go through this process, and we all have 
heard from each of the branches here and yourself of the many 
challenges that are out there, and what we would like from each 
of you are any suggestions that might be appropriate in 
authorization language next year that would help you in 
achieving the path that you are on to meet your 2014 and 2017 
milestones. So we would like to have specifics there, and then 
again with the response to the IG report for us to get a copy 
of that.
    Secretary Hale. We will do it.
    [The information referred to can be found in the Appendix 
on page 75.]
    Mr. Wittman. Thank you, Mr. Hale. If there is nothing else 
to come before the committee for this hearing, we will adjourn.
    [Whereupon, at 10:15 a.m., the subcommittee was adjourned.]
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                            A P P E N D I X

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              WITNESS RESPONSES TO QUESTIONS ASKED DURING

                              THE HEARING

                           September 14, 2012

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            RESPONSES TO QUESTIONS SUBMITTED BY MR. WITTMAN

    Mrs. Commons. I have reviewed the timeliness of payments on 
contracts accounted for in the Navy Enterprise Resource Planning (ERP) 
system. For Fiscal Year 2012 (FY12), payments on these contracts met 
the prompt payment standards set by the Office of the Secretary of 
Defense. However, this overall on-time performance does not mean that 
there are not challenges in meeting these standards. For example, 
during FY12 Navy ERP implementations, some Working Capital Fund 
organizations including Naval Surface Warfare Center Dahlgren 
experienced abnormally long lead times for issuing contracts and a 
delay in payments during the start-up period. This problem was remedied 
through additional training, was procedural, and not caused by a 
shortcoming in the Navy ERP system. I continue to monitor timeliness of 
contract payments, and I would be pleased to look into any specific 
instances which have come to your attention.
    We continue to move forward, aggressively executing our detailed 
plan to improve the Department of Navy's, end-to-end contracting 
business process, making it more efficient, better controlled, and in 
compliance with financial audit standards. Our strategy applies both to 
our legacy business environment, as well as to our target Navy ERP 
system. We continue our efforts to strengthen internal controls over 
business processes and systems, enforcing more discipline, consistency 
and adherence to established standard procedures. We are also improving 
the flow of data passing end-to-end in an electronic commerce format 
resulting in reduced errors, processing times and costs. [See page 13.]
    Secretary Hale. DoDIG Report on ERP Implementation--The final 
Department of Defense Inspector General (DoD IG) report on Department 
Enterprise Resource Planning (ERP) system implementations (http://
www.dodig.mil/audit/reports/fy12/DoDIG-2012-111.pdf) includes the 
formal responses of the Office of the Under Secretary of Defense 
(Comptroller) and each Military Department. The response from Ms. 
McGrath, the Deputy Chief Management Officer, was provided to the IG 
separately and is attached.
    [The information referred to can be found in the Appendix on page 
67.]
    In general, we do not agree that the DoD IG has accurately depicted 
significant facts and has mischaracterized ongoing actions to improve 
business operations and ERP system implementations. The Department does 
acknowledge challenges implementing ERP systems but the report does not 
acknowledge the significant capability delivered by many of the ERP 
systems nor does it sufficiently discuss the improvements the 
Department has already made to our ERP acquisition processes and 
controls.
    While schedule delays and cost growth are almost never acceptable, 
the Department didn't buy these ERPs for just the audit readiness 
capability. These modern systems, when properly implemented, provide 
more operational support capability as well as better financial 
fidelity leading to audit success. In the past, many were convinced 
that the ERPs were a ``silver bullet'' required to achieve audit 
readiness. Now, we understand this is not the case.
    We can no longer afford the schedule delays and cost growth, but we 
can only influence the future . . . not the past. We have audit goals 
(2014 and 2017) to achieve and we must apply the lessons of the past to 
make appropriate adjustments as we move forward. This applies to both 
FIAR planning and implementing ERP Acquisition Program Baselines.
    NDAA Language to Support Audit Readiness--The Department of Defense 
(DoD) is fully committed to meeting the audit deadlines established in 
law and by the Secretary of Defense. The prioritization on improving 
information used to manage the department, and the clear message from 
Secretary Panetta that audit readiness is an important goal, have the 
Department making more progress than ever before. The Department feels 
the necessary resources, authorities, and incentives are in place to 
have success in this effort. No further legislation is needed.
    There is one way that Congress can help. In recent years we have 
encountered unprecedented budgetary uncertainty, including no fewer 
than four threats of government shutdown, which generated time-
consuming and unproductive planning efforts. Now the shadow of possible 
sequestration is falling across our path. Dealing with these 
uncertainties drains valuable time and leadership attention from 
important initiatives, including our commitment to audit readiness. 
Congress could help a great deal by returning to a more orderly budget 
process. [See page 24.]

                                  
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