[Senate Hearing 117-46]
[From the U.S. Government Publishing Office]
S. Hrg. 117-46
WASTE, FRAUD, COST OVERRUNS, AND AUDITING AT THE PENTAGON
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON THE BUDGET
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
May 12, 2021
__________
Printed for the use of the Committee on the Budget
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
U.S. GOVERNMENT PUBLISHING OFFICE
45-251 WASHINGTON : 2021
COMMITTEE ON THE BUDGET
BERNARD SANDERS, Vermont, Chairman
PATTY MURRAY, Washington LINDSEY O. GRAHAM, South Carolina
RON WYDEN, Oregon CHARLES E. GRASSLEY, Iowa
DEBBIE STABENOW, Michigan MIKE CRAPO, Idaho
SHELDON WHITEHOUSE, Rhode Island PATRICK TOOMEY, Pennsylvania
MARK R. WARNER, Virginia RON JOHNSON, Wisconsin
JEFF MERKLEY, Oregon MIKE BRAUN, Indiana
TIM KAINE, Virginia RICK SCOTT, Florida
CHRIS VAN HOLLEN, Maryland BEN SASSE, Nebraska
BEN RAY LUJAN, New Mexico MITT ROMNEY, Utah
ALEX PADILLA, California JOHN KENNEDY, Louisiana
KEVIN CRAMER, North Dakota
Warren Gunnels, Majority Staff Director
Nick Myers, Republican Staff Director
C O N T E N T S
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WEDNESDAY, MAY 12, 2021
Page
STATEMENTS BY COMMITTEE MEMBERS
Chairman Bernard Sanders......................................... 1
Ranking Member Lindsey Graham.................................... 3
WITNESSES
Statement of Lawrence J. Korb, Ph.D., Senior Fellow, Center for
American Progress.............................................. 6
Prepared Statement of............................................ 24
Questions and Answers (Post-Hearing) from:
Senator Chris Van Hollen................................. 63
Statement of William D. Hartung, Director, Arms and Security
Program, Center for International Policy....................... 8
Prepared Statement of............................................ 31
Statement of Mandy Smithberger, Director, Center for Defense
Information, Project on Government Oversight (POGO)............ 10
Prepared Statement of............................................ 37
Questions and Answers (Post-Hearing) from:
Senator Chris Van Hollen................................. 65
Statement of Roger Zakheim, Director, Ronald Reagan Institute.... 12
Prepared Statement of............................................ 49
Statement of Lieutenant General (Ret.) Thomas Spoehr, Director,
Center for National Defense, The Heritage Foundation........... 14
Prepared Statement of............................................ 56
ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD
Sustainable Defense: More Security, Less Spending, Final Report
of the Sustainable Defense Task Force of The Center for
International Policy, submitted by William D. Hartung.......... 68
WASTE, FRAUD, COST OVERRUNS, AND AUDITING AT THE PENTAGON
----------
WEDNESDAY, MAY 12, 2021
U.S. Senate,
Committee on the Budget,
Washington, D.C.
The Committee met, pursuant to notice, at 11:01 a.m., via
Webex and in Room SD-608, Dirksen Senate Office Building,
Honorable Bernard Sanders, Chairman of the Committee,
presiding.
Present: Senators Sanders, Kaine, Van Hollen, Padilla,
Graham, Grassley, and Crapo.
Staff Present: Warren Gunnels, Majority Staff Director;
Nick Myers, Republican Staff Director; Ethan Rosenkranz,
Majority Senior Budget Analyst for National Defense; and Derek
Gondek, Republican Professional Staff Member.
OPENING STATEMENT OF CHAIRMAN BERNARD SANDERS
Chairman Sanders. Good morning, and let me thank Ranking
Member Graham and our colleagues on the Committee and our
witnesses for being with us this morning.
It is no secret that as a Nation we face enormous needs.
Over 90 million Americans today are uninsured or underinsured.
Almost 600,000 Americans are homeless. Our child care system is
dysfunctional, and we have one of the highest rates of
childhood poverty of any major country on Earth. And I think we
are all in agreement that our roads and our bridges and our
infrastructure are in terrible shape. And in my view, we face
the existential threat of addressing climate change, which
could wreak havoc on our country and the world.
In other words, there is an enormous amount of work that
has to be done, and much of that work will be very expensive.
For that reason, we as Members of Congress have the
responsibility to make sure that our taxpayer dollars are spent
wisely and that they are spent cost-effectively, and that is
true whether the issue is health care or education or anything
else.
It is certainly true when it comes to the Department of
Defense (DOD), an agency with a budget of $740 billion, by far
the largest spending category in our discretionary budget,
consuming more than half of all discretionary spending.
In my view, the time is long overdue for us to take a hard
look at the enormous amount of waste, at the cost overruns, at
the fraud, and at the financial mismanagement that has plagued
the Department of Defense and the military-industrial complex
for decades. And today that is exactly what we will be doing.
At a time when we have so many unmet needs in America, we
have got to ask ourselves why we are spending more on the
military than the next 12 nations combined. Why is it that the
United States of America is now spending more on the military
in real inflationary-adjusted dollars than we did during the
height of the Cold War or during the wars in Vietnam and Korea?
Why is it that the Pentagon remains the only agency in the
Federal Government that cannot pass an independent audit, 30
years after Congress required it to do so? How does it happen
that about half of the $740 billion annual defense budget goes
not to our troops--many people think that it does, but it does
not--but to defense contractors while virtually all of them
have paid huge fines for misconduct and fraud while making
massive profits on those contracts? As it happens, since 1995,
Boeing, Lockheed Martin, and Raytheon have paid over $5.4
billion in fines or related settlements for fraud or
misconduct.
Further, I find it interesting that, despite the fact that
the lion's share of revenue for some of the defense contractors
comes from the taxpayers of the United States, these same
companies provide their CEOs and executives excessive and
extremely large compensation packages. Last year, Lockheed
Martin paid its CEO over $23 million while 95 percent of its
revenue came from defense contracts. Raytheon paid its CEO
$19.4 million while 94 percent of its revenue came from
defendant contracts. Boeing paid its CEO $21 million while 45
percent of its revenue came from defense contracts. In other
words, these companies for all intents and purposes almost
function as Government agencies, the vast majority of their
revenue coming from the public, and yet their CEOs make over
100 times more than the Secretary of Defense of the United
States of America.
And I think one of the issues that we have to also take a
look at is the whole question of the revolving door where many
of our top military officials end up on the boards of directors
of these major defense companies.
Senator Grassley and I sent a letter to all three of these
CEOs asking them to testify this morning. All of them declined
to come.
Further, as the General Accountability Office (GAO) has
told us, there are massive cost overruns. This is a huge issue
unto itself: cost overruns at the DOD acquisition budget that
we have got to look at. According to the GAO, the Pentagon's
$1.8 trillion acquisition portfolio currently suffers from more
than $628 billion in cost overruns, with much of the cost
growth taking place after production. GAO tells us, and I
quote, ``Many DOD programs fall short of cost, schedule, and
performance expectations, meaning DOD pays more than
anticipated, can buy less than expected, and in some cases
deliver less capability to the warfighter.''
That has got to change, and let us be clear. As I stated
earlier, a major reason why there is so much waste, fraud, and
abuse at the Pentagon is the fact that the Defense Department
remains the only Federal agency that has not been able to pass
an independent audit 30 years after Congress required it to do
so.
I think it is extremely important--and I do not know how
familiar you may be with this quote. I have to admit that
Donald Rumsfeld, Bush's Secretary of Defense, was not a hero of
mine. But 1 day before 9/11--I do not know if you are familiar
with this--he made some remarks, and this is what he said, and
it did not get a lot of attention, obviously, because 9/11 came
the next day. But this is what he said on September 10, 2001,
and I quote, this is from Donald Rumsfeld: ``Our''--meaning the
Pentagon's--``financial systems are decades old. According to
some estimates, we cannot track $2.3 trillion in transactions.
We cannot share information from floor to floor in this
building''--the Pentagon--``because it is stored on dozens of
technological systems that are inaccessible or incompatible.''
And yet 20 years after Rumsfeld's statement, I wonder if
the situation is any better today when the Pentagon has now
received three failing audit opinions in a row.
In 2011, the Commission on Wartime Contracting in Iraq and
Afghanistan concluded that $31 to $60 billion spent in Iraq and
Afghanistan had been lost to fraud and waste, and so forth and
so on. In my view, it is time to hold the DOD to the same level
of accountability as the rest of Government.
And let me conclude by saying this: I think everybody in
this Congress and in this Committee understands that we need a
strong defense and that the men and women in the military and
their families must be treated with the respect that they are
due. But we do not need a defense budget that is bloated, that
is wasteful, and that has in too many cases massive fraud.
I hope that all of my colleagues remember what former
President Dwight D. Eisenhower, a good Republican, said as he
left office in 1961, and I quote: ``In the councils of
government, we must guard against the acquisition of
unwarranted influence, whether sought or unsought, by the
military-industrial complex. The potential for the disastrous
rise of misplaced power exists and will persist.'' And in an
earlier speech, Eisenhower, remember, a four-star general who
led the effort in Europe in World War II, this is what he said:
``Every gun that is made, every warship launched, every rocket
signifies in the final sense a theft from those who hunger and
are not fed, those who are cold and are not clothed. This world
in arms is not spending money alone. It is spending the sweat
of its laborers, the genius of its scientists, the hopes of its
children. This is not a way of life at all in any true sense
under the cloud of threatening war. It is humanity hanging from
a cross of iron.''
What Eisenhower said was true then, and it is true today.
Let me now turn the microphone over to the Ranking Member,
Lindsey Graham, for his opening remarks.
OPENING STATEMENT OF SENATOR LINDSEY GRAHAM
Senator Graham. Well, thank you, Mr. Chairman. I have
really enjoyed the hearings we have had. I think you raise
questions that the country needs to grapple with, so let me
give you my view of things.
I think Senator McCain, who both of us admired, was a big
proponent of trying to make procurement more transparent, and
cost-plus contracting really incentivizes spending more. The
big problem I have seen with weapons system development is
change orders. They will ask that the weapons system do things
down the road they were not designed to do early on. And
sometimes that is due to the threat we face from enemies. We
have to adjust our new systems to counter their new systems.
But count me in for looking at procurement reform and giving
the Pentagon a good once-over in terms of its modernization of
its computer systems and contractors and all that good stuff.
But what I want to do is remind the American public that
the number one goal, in my view, of the Federal Government is
to protect us. Without national security, Social Security and
every other social network hangs in the balance. There are
people out there that would destroy our way of life if they
could, and we need to make sure they cannot do that. So let us
talk about defense spending in historical terms.
First, let us talk about threats. Now, this is since April.
We have had Russian bombers test us since March of 2021 in
Alaska at historic levels. We had 25 Chinese war planes enter
into Taiwan's defenses in April of 2021, a major escalation.
There are 80,000 Russian troops amassed on the Ukrainian
border. There were 100,000. They say they have withdrawn. They
have gone from 100 to 80. From Somalia to Mali, Nigeria, and
Mozambique, ISIS in that part of the world is on the rise. We
just had over 80 people killed at a school in Kabul because
radical Islamic terrorists are trying to destroy all the gains
we have made for women in Afghanistan. North Korea just fired
two short-range missiles for the first time in more than a
year. The Chinese are trying to develop a deepwater blue navy.
They are building aircraft carriers, and the Russians are on
the prowl, and I fear ISIS and al Qaeda will come roaring back
if we do not watch it. I have not mentioned anything about the
current conflict between the Palestinians and the Israelis.
So this is a time of great peril. What should we be doing?
We should have a defense budget that deters war, and if you
enter into one, you win it.
Let us go to the next chart. Last year, the Defense
Department produced a 5-year spending plan to keep
modernization and replenish the weapons systems that have been
worn out since 9/11. Mr. Chairman, our military men and women
have been deployed more since 9/11 than any time since World
War II. We have flown the wings off the planes. Our equipment
has been heavily utilized, and our people have really borne the
brunt of this war on terrorism and other conflicts. So they
projected in the 5-year plan that we would be spending $722
billion this year. The Biden budget is 715. My good friend
Senator Sanders has an amendment to cut the defense budget by
10 percent. It would put us at $660 billion, way below the
projected defense needs, according to the Pentagon, over the
next 5 years.
Now, in terms of gross domestic product (GDP) spending, you
spend on the defense what you need to protect the Nation. In
World War II, we were up to 41 percent. We had a worldwide war.
The world was at risk. Life as we know it was hanging in the
balance, so we went all in to win World War II. Everybody did
what they had to do.
In Korea, we were 14 percent of GDP on that conflict.
During the peak of the Cold War, it was about 10 percent to
make sure that the Soviet Union did not gobble up the world and
keep communism at bay, and I would say it worked.
Now, from Vietnam up to the end of the Cold War, we were
spending about 4.9 percent of GDP. When the Berlin Wall fell,
we started coming down. On September 10, 2001, we were at 3.11
percent of GDP, a historical low. The peace dividend did not
last very long, did it? The global war on terror, something
nobody really thought about, and how do our weapons systems
relate to that conflict, we have been at about 4.6 percent. We
are withdrawing our forces from Afghanistan. We are going to be
at about 3.4 percent going towards 3.3 percent.
So here is what I would say. We are on the low end of
defense spending, but we are on the high end of the threat
matrix. Personally, I have never seen more capability aimed at
the United States than I do right now. You see Iran getting
stronger, not weaker, when it comes to their military
misadventures. You see them enriching--let us put that up. Iran
is enriching at 60 percent. I want to remind you that just a
few years ago we went through an event called ``sequestration''
where we were going to take $1 trillion out of the defense
budget in some budget deal as a punishment for not reaching a
budget number.
Sequestration, according to General Mattis, for all the
headaches caused by the loss of our troops during these wars,
no enemy in the field has done more to harm the readiness of
our military than sequestration. Remember the good old days of
sequestration? They were horrible days. We were having to
cannibalize weapons systems to keep them going. It was a
nightmare for the Pentagon. I asked Secretary Panetta, a
Democrat, who is a fine man, ``If we enact sequestration, would
we be shooting ourselves in the foot?'' He said, ``We would be
shooting ourselves in the head.'' Sequestration was an effort
to just blindly cut $1 trillion from the Pentagon, and it made
us less capable at a time we needed more capability.
So to those who are watching today, half the money we spend
virtually is on personnel costs; $50 billion in the Pentagon
goes to health care costs. I think Senator Sanders is right to
be asking the Pentagon to be more accountable and transparent.
But I think it is a very dangerous idea to suggest that our
defense footprint, given the threats we face, needs to be
changed in terms of less. I think it needs to be more in terms
of capability to deal with the multiple threats we face, but
that ``more'' should be wisely spent.
So this is a great debate we have been having for a long
time, but the facts are the facts. Given the world we face, we
are on the low end of spending at a time when our enemies are
on the high end of misadventure and spending.
The one thing you do not want to do, Mr. Chairman, is have
the enemy miscalculate and entice them to make mistakes that
could cost us all by not being ready to meet the challenges.
Thank you very much.
Chairman Sanders. Okay. Thank you, Senator Graham.
We have an excellent panel today. I think we have four
panelists who are here; one will be virtually.
Larry Korb is a senior fellow at the Center for American
Progress. He formerly served as President Ronald Reagan's
Assistant Secretary of Defense from 1981 to 1985.
Bill Hartung is the director of the Arms and Security
Program at the Center for International Policy. He is the
author of a number of books.
Mandy Smithberger is the director of the Center for Defense
Information at the Project on Government Oversight. She has
previously worked in the House of Representatives and served as
an analyst at the Defense Intelligence Agency and the U.S.
Central Command.
Roger Zakheim is the Washington director at the Ronald
Reagan Presidential Foundation and Institute. He previously
served as General Counsel and Deputy Staff Director at the
House Armed Services Committee as well as Deputy Assistant
Secretary of Defense for President George W. Bush.
Lieutenant General Thomas Spoehr is the director of the
Center for National Defense at the Heritage Foundation. He
previously served in the U.S. Army for 36 years during which he
was Commandant of the Army's Chemical, Biological,
Radiological, and Nuclear School.
So this is a very strong panel. Let us begin with Larry
Korb. Larry?
STATEMENT OF LAWRENCE J. KORB, PH.D., SENIOR FELLOW, CENTER FOR
AMERICAN PROGRESS
Mr. Korb. Thank you very much, Mr. Chairman, Senator
Graham----
Chairman Sanders. Larry, talk a little bit closer into the
microphone, if you could, please.
Mr. Korb. Thank you very much, Mr. Chairman, Ranking Member
Senator Graham. It is really an honor to be here with you to
talk about what I think is the more important thing in national
defense, which is the budget, because in defense dollars are
policy. So I think it is really important.
I would also like to say that it is also an honor to be
here with you, Senator Sanders, and Senator Grassley because I
cannot think of two members who have worked harder to make sure
that every dollar that the Defense Department spends is spent
wisely and effectively. And Senator Grassley and I go back to
the Reagan administration when we were trying to deal with
those things.
Now, I am going to make three points today.
One, the size of the budget that President Biden has
proposed I think is too much.
Number two, there are at least three major programs that I
think can be cut back, if not eliminated.
And then, finally, the whole question of waste in the
Pentagon itself.
Let me begin with President Biden has proposed a budget for
fiscal year 2022 which is essentially the same as the Trump
budget and basically calls for spending more than $750 billion
on defense.
Now, it is important to keep in mind that under the Trump
administration, the defense budget rose by $100 billion, and
President Trump basically said that that was necessary because
of the terrible state of the military he inherited. But that is
not true. If you go back to the fall of 2016 and read the
writings of individuals like General David Petraeus, who I
think we all know, along with Mike O'Hanlon, a distinguished
defense scholar, they point out that the state of our military
was ``awesome.'' In an article in Foreign Affairs, in October
2016, ``America's Awesome Military,'' they said the "United
States has the best military in the world today by far.''
Therefore the Department of Defense did not need a major budget
increase.
It is also important to keep in mind, since we are dealing
with this historically, that military retirement, which up
until the middle of the Reagan administration used to be in the
defense budget, is now outside, and that now totals over $100
billion. And, finally, the Veterans Administration (VA) is
about $260 billion. It is clear, therefore, that we are
spending a large amount on national security, moreover, even if
you control for inflation, the proposed Biden budget level is
higher than at the height of the Reagan buildup, which I had
the privilege of working on.
And I might point out that in the second Reagan
administration, when we began to have deficit problems and
everything, we cut defense spending by 10 percent.
It is also important to keep in mind that in President
Biden's campaign, he talked about the Defense Department
abandoning all fiscal discipline. Well, if he is going to go
along with the Trump numbers, I do not see how that does not
also abandon fiscal discipline.
Finally, since we are withdrawing from Afghanistan, we
should basically be able to cut defense spending more with the
money we will have not have to spend on that conflict. I might
also point out that, during sequestration the top-line defense
number came down, but--and this is so important--the
warfighting budget, according to the Pentagon Comptroller, was
used as a slush fund to keep defense from being cut too much
onto sequestration.
Very quickly, what weapons? You have got the F-35, which
the late Senator John McCain has called a ``scandal and a
tragedy,'' and basically this is something that the nominee to
be Air Force Secretary called ``Acquisition malpractice,'' he
called it when he worked for Obama. So that is the first thing
you really need to take a hard look at. And whatever else you
do, do not do what Congress has done the last 5 years, which is
basically add to what the Pentagon has requested for the F-35.
I think Adam Smith put it very well. Pouring more money
into F-35 is like pouring money down a rathole.
Second, there is the ground-based missile defense, I agree
with Bill Perry where he says we do not need it, and basically
not only do we not need it to have deterrence, but it is
dangerous because, as many of you know--and I saw it myself
when I was on active duty and when I worked in the Pentagon,
you have to launch them on warning because it is too late if
they are hit because they are not movable. And what happens if
it is a false positive, it is too late. So I do think that that
is something that can be eliminated, and, again, remember we
are talking about a weapons system that has gone up 20 percent
in the last couple of years.
And then there are large aircraft carriers, the Ford
Aircraft Carrier. The first one came in twice the cost of the
last Nimitz, and not only--and, again, I will quote Senator
McCain: ``The era of the big carrier is over.'' So if you want
to build them, you ought to build small ones.
And then, finally, when you get to Pentagon Management. The
Comptroller of the Pentagon admitted they waste $25 billion a
year. They have not passed the audit. We need another Base
Realignment and Closure (BRAC), which I had the privilege of
starting with Senator Goldwater, and take a look at the 800
bases we have around the world.
Thank you.
[The prepared statement of Mr. Korb appears on page 24]
Chairman Sanders. Thank you very much, Larry.
Now we are going to hear virtually from Bill Hartung, who
is the director of the Arms and Security Program at the Center
for International Policy. Bill?
STATEMENT OF WILLIAM D. HARTUNG, DIRECTOR, ARMS AND SECURITY
PROGRAM, CENTER FOR INTERNATIONAL POLICY
Mr. Hartung. Thank you. I want to thank Chairman Sanders,
Ranking Member Graham, and members of the Committee for this
chance to address you today. As was mentioned, I run the Arms
and Security Program at the Center for International Policy,
CIP, and our mission is to make a peaceful, just, and
sustainable world the central pursuit of U.S. foreign policy. I
will focus my remarks on the issue of Pentagon waste.
I see four major types of waste at the Pentagon: misguided
strategy, buying ineffective weapons systems, overpaying for
basic items, and excess overhead.
Let us start with strategy. A defense strategy that
neglects our most urgent security challenges wastes tens of
billions of dollars while making us less safe. The greatest
threats to human lives are pandemics, climate change, nuclear
weapons, and white supremacy. The tools needed to address these
challenges are not primarily military in nature. Our budget
should reflect that reality.
CIP's Sustainable Defense Task Force has come up with a
plan that could save $1.2 trillion over the next decade by
putting diplomacy first, avoiding unnecessary and
counterproductive wars, adopting a deterrence-only nuclear
strategy, and cutting excess bureaucracy. Even after making
these reductions, the United States would have by far the best-
funded military in the world, over 2-1/2 times what China
spends and over 10 times what Russia spends. I ask that our
report be submitted for the record along with my written
testimony.
[The submitted report appears on page 68]
The second area of waste is spending on weapons that are
either unworkable, unnecessary, or unaffordable--and in some
cases all three. As we mentioned, a case in point is the F-35
aircraft. After 20 years of development, it is not fully ready
for combat, and it may never be. The F-35 is immensely costly
to purchase, operate, and maintain. The GAO has determined that
it will cost billions more per year than current Air Force
estimates and that nearly half of the fleet could be grounded
by 2030 for lack of a functioning engine. That is quite an
admission for a plane that is slated to cost $1.7 trillion over
its lifetime. There should be a pause in production of the F-35
until it can be made effective and affordable. If it cannot
meet these requirements, the program should be phased out.
The second case of unwise procurement is the new
intercontinental ballistic missile (ICBM), a ground-based
strategic defense system, or GBSD. Former Secretary of Defense
William Perry has called ICBMs ``some of the most dangerous
weapons in the world'' because the President would have just a
matter of minutes to launch them on warning of an attack,
greatly increasing the risks of an accidental nuclear war. We
can maintain a robust deterrent without building a new ICBM,
which will cost $264 trillion over its lifetime.
The third area of concern is price gouging by contractors.
An egregious case in point is TransDigm, which took profit
level of over 4,000 percent--4,000 percent--on spare parts
provided to the Pentagon. This kind of overcharging is routine
and costs billions of dollars per year.
Finally, there is the issue of excess overhead. The
greatest source of redundancy is the Pentagon's employment of
600,000 private contractors. Many of these contractors do jobs
that can be done better by civilian Government employees at
much lower cost. Cutting spending on private contractors by 15
percent would save over $26 billion per year.
Another source of overhead comes from major weapons
contractors. As was mentioned before, in all more than half of
the Pentagon budget goes to private contractors. The top five
contractors alone received over $150 billion in Pentagon
contracts last year, and Lockheed Martin made $8 billion in
profits. Its CEO made over $20 million, 500 times what a
beginning enlistee in the armed forces makes. If we want to
save on Pentagon spending, we need to go where the money is.
That is why I believe we should have an independent assessment
of contractor compensation, profits, and overhead, ideally done
by the GAO, which would be a tool for cutting corporate
overhead and corporate misfeasance in Pentagon spending.
I think all of us can agree that Pentagon waste benefits no
one and does nothing to enhance our security. So I think there
are measures we can take to eliminate that, but I think we have
to look at both the waste from misguided policies as well as
the waste from mismanagement.
And so, with that, I will conclude my remarks, and I thank
you again for the opportunity to testify, and I look forward to
your questions.
[The prepared statement of Mr. Hartung appears on page 31]
Chairman Sanders. Well, thank you very much, Bill.
Our next panelist is Mandy Smithberger, who is the director
of the Center for Defense Information at the Project on
Government Oversight. Mandy?
STATEMENT OF MANDY SMITHBERGER, DIRECTOR, CENTER FOR DEFENSE
INFORMATION, PROJECT ON GOVERNMENT OVERSIGHT
Ms. Smithberger. Thank you, Chairman Sanders, Ranking
Member Graham, and members of the Committee, for inviting me to
testify before you today. I want to thank the Committee for
holding this hearing and examining spending at the Department
of Defense and to thank the Chairman for his leadership in
forcing a debate on the size of the Pentagon's budget.
While we await details on the fiscal year 2022 budget, what
we know so far shows Pentagon spending continues to increase at
an unsustainable rate. Testimony heard before this Committee
nearly 40 years ago largely remains true. We are paying too
much for too little capability. Buying unproven weapons systems
in quantity before testing is complete, awarding contracts to
companies with histories of waste and misconduct, and giving
disproportionate funding to an agency that is years away from
being able to pass an audit wastes taxpayer dollars and
undermines readiness.
Significant cuts to the Department's budget are necessary
to create the incentives and pressure for reform, to address
how the Department spends its money and how it fails to set
priorities. Throwing even more money at the Department I fear
is going to make these problems worse.
As has been mentioned, the Department's most expensive
program, the F-35, is an instructive case study of current
problems and their expensive consequences. At the beginning of
the F-35 program, the aircraft's public image was that it would
be ``more Chevrolet than Porsche.'' This year, the Air Force
Chief of Staff called it ``something closer to a Ferrari.''
While there are many lessons to be drawn from the F-35 program,
there are four I want to highlight.
First, we must fly before we buy.
Second, we must insist on good data from the beginning of
these programs.
Three, we have to beware complexity in the cost that that
brings onto our force.
And, four, we must secure as much as possible the
intellectual property rights to enhance competition.
The conventional wisdom is that the F-35 program is
politically untouchable due to sunk costs and because contracts
are spread out across the country. I can think of no greater
indictment of our current acquisition system if we cannot
course-correct a program because of corruption in our system. I
think we need to make sure that we are doing the right things
for our warfighter.
We also have an acquisition system designed to increase
costs. The most significant problem, as you mentioned,
Chairman, is the corrupting influence of the revolving door of
senior Pentagon officials going to work for the defense
industry. The end result is officials appearing to or actually
confusing what is in the best interest of our national security
with what is in the best financial interest of defense
contractors.
Of course, the Department does not just pay too much for
complex weapons systems. They also spend too much on spare
parts. We get fleeced on spare parts like pins and drainpipes.
The overpriced plastic toilet seat covers that cost $640 in the
1980s now cost $10,000.
One of the root causes of these overcharges is misuse of
commercial item designations, which makes it difficult for the
Government to obtain cost or pricing information to determine
whether the prices contractors are charging are fair and
reasonable. When an item is designated as commercial,
contractors generally do not have to provide cost or pricing
information to the Government. If something were truly
commercial, prices would not be secret. Reforming the
definition of ``commercial item,'' as the Obama administration
previously proposed, is an overdue reform to reduce
overpayments and waste.
As Mr. Hartung mentioned, another opportunity for savings
is service contracting. Last year, the Department spent $200
billion on service contracts. POGO has found that service
contractors can cost nearly three times more than civilian
employees. Both the Defense Business Board and the Pentagon's
own cost-estimating shop have identified this as a key
opportunity for savings. Looking for those savings and
improving data on that spending will go a long way to helping
the Department.
We must also make sure that taxpayer dollars do not go to
risky contractors. Currently, companies that waste taxpayer
funds or defraud the Government often continue to receive
contracts. The Government could make more informed decisions
about who wins those awards if reporting and transparency of
responsibility information was improved. Chairman Sanders made
sure that much of this information is available to the public,
but it is a shadow of the information that we should have.
One final danger is the opaque nature of beneficial
ownership information. Hiding who really owns controls and
financially benefits from an entity presents corruption risks
and can undermine national security. Congress recently
strengthened public disclosure of beneficial owners, but this
disclosure should go farther.
In summary, we recommend four major areas of reform.
First, we must stop the revolving door between the Pentagon
and the defense industry.
Two, we most reform acquisition laws to empower the
Department to make smarter buying decisions.
Three, we must increase transparency and curtail the
overuse of service contracting.
And, four, we must enhance the Government's tools to ensure
taxpayer dollars only go to responsible companies.
Finally, I want to thank the Committee for continuing to
conduct oversight over the Department's weak financial
management and would urge the Committee to also look at how
statutory requirements for wish lists undermine budget
discipline overall. The importance of the Department of Defense
mission along with its significant taxpayer resources means
that it must be a model for efficiency and for accountability.
Thank you again. I am happy to answer any questions you may
have.
[The prepared statement of Ms. Smithberger appears on page 37]
Chairman Sanders. Thank you very, very much.
Our next panelist is Roger Zakheim, who is the Washington
director of the Ronald Reagan Presidential Foundation and
Institute. Roger?
STATEMENT OF ROGER ZAKHEIM, DIRECTOR, RONALD REAGAN INSTITUTE
Mr. Zakheim. Chairman Sanders, Ranking Member Graham, and
distinguished members of the Committee, thank you for inviting
me to testify today. The following is a summary of my full
statement, which I have submitted for the record.
As Congress reviews the fiscal year 2022 defense budget
request, this Committee should consider three things:
Number one, providing a 3- to 5-percent real growth per
annum increase in defense spending to ensure that the
Department of Defense can execute its current strategy, mission
requirements, and modernize the force.
Two, end the repeated use of continuing resolutions and
revisit the laws that incentivize ``use it or lose it''
spending, and continue to support DOD efforts to realize a
comprehensive, clean audit.
Three, ensuring that emergency spending measures before
Congress do not leave the Department of Defense victim to
reduced appropriations and harmful budget delays.
Defense budgets must be strategy-driven and fiscally
informed, not the reverse. Secretary Austin echoed this view
during his Senate confirmation hearing saying, and I quote, our
``resources need to match our strategy and our strategy needs
to match our policy.''
As the 2018 bipartisan National Defense Strategy (NDS)
Commission outlined, Russia and China have embarked on massive
military modernization initiatives that have diminished
America's longstanding military advantages, and even surpassed
the United States in some key capability areas.
Accordingly, the NDS Commission's recommendation that a 3-
to 5-percent real growth increase in defense spending remains
an urgent priority for the U.S. military to project power and
uphold alliance commitments. The Biden administration has
nominated a Comptroller for the Department of Defense who just
yesterday stood by this recommendation.
Even before the economic downturn triggered by COVID-19,
calls to reduce defense spending emerged from elements in both
political parties. Now, with historic deficits following the
Federal spending on COVID-19 relief and other proposed
emergency measures, those calls are increasing.
To examine the real consequences of cuts to the Pentagon's
resources, the Reagan Institute along with the Center for
Strategic and Budgetary Assessments hosted two Strategic
Choices Exercises this past fall captured in this publication.
The results of this bipartisan group effort were clear: Defense
budget cuts would have a devastating consequence on our
military and our national security. A 10-percent cut, something
discussed today, would leave the United States with a military
that is incapable of carrying out the current National Defense
Strategy. It would compel the Department of Defense to
reexamine its current standard of maintaining a force that can
win one war while deterring another. In other words, ``With
cuts of this magnitude, the United States could be reduced to a
de facto hemispheric power by 2030.''
The administration's $715 billion budget request for fiscal
year 2022, when accounting for inflation, is a reduction from
the previous fiscal year. While this may appear to be
sufficient to maintain the status quo, readiness and
modernization accounts will shrink as other budget lines, such
as personnel and operations and maintenance accounts tend to
demand continued real growth.
Put differently, defense cuts do not equal defense reform;
rather, as our strategic choices exercise makes clear, less
resources result in a less capable fighting force.
As this Committee considers how to reduce waste and
inefficiency, it ought to consider one of the most consistent
drivers of inefficiency in the Department of Defense:
continuing resolutions (CR).
As this Committee knows, the Department of Defense has
started the fiscal year under a CR 15 of the past 20 years,
creating unnecessary uncertainty that creates significant
management challenges for the Department of Defense. Interim
CRs create compressed timelines for expenditures and generate
waste by requiring short-term contracts that must be re-signed
once additional funding has been allocated. These
inefficiencies cost real money, and the NDS Commission, which I
referenced before, concluded CRs have had ``a grave material
impact, encouraging inefficient, `use-it-or-lose-it' spending
by the services at the end of the fiscal year, resulting in
delays in acquisitions and modernization, and exacerbating
readiness problems throughout the force.'' A more radical
reform the Congress might consider is revisiting legal
restrictions that incentivize ``use-it-or-lose-it'' spending.
Last, this Committee should also consider how emergency
spending measures before this Congress may impact the
Department of Defense and the annual appropriations processes.
In the aggregate these measures before the Congress would add
up to the equivalent of over 4 years of Federal discretionary
spending. Though the unprecedented crisis brought on by the
COVID-19 pandemic justifies emergency spending, prioritizing
multi-trillion, multi-year omnibus packages threatens to
exhaust congressional appetite for spending during its regular
consideration of the President's budget request leaving the DOD
in a precarious funding position.
Americans understand what it takes to sustain the peace and
prosperity, and they are willing to make the investments
necessary to support a strategy that delivers just that. It is
imperative that this Congress balance domestic and national
security priorities in a fashion that ensures our military is
properly resourced to meet the demands of our national defense
obligations.
Thank you for this opportunity. I look forward to answering
your questions.
[The prepared statement of Mr. Zakheim appears on page 49]
Chairman Sanders. Thank you very much.
Our next panelist is Lieutenant General Thomas Spoehr, who
is the director of the Center for National Defense at the
Heritage Foundation. General?
STATEMENT OF LIEUTENANT GENERAL (RET.) THOMAS SPOEHR, DIRECTOR,
CENTER FOR NATIONAL DEFENSE, THE HERITAGE FOUNDATION
General Spoehr. Chairman Sanders, Ranking Member Graham,
other members of the Committee, good morning. Thank you for the
opportunity to appear today.
The Department of Defense, with its nearly 20 million
employees, an annual budget of over $700 billion, and more than
$3 trillion worth of assets, has a special obligation to be a
good steward of the resources entrusted to it for the Nation's
defense. No organization is perfect, and the DOD is no
exception. But given the amount of oversight, safeguards, and
reforms in place over the years, it is my opinion that the
Pentagon today is one of the most scrutinized and reformed
organizations in the Federal Government.
In March 2021, the Government Accountability Office
reported ``DOD continues to demonstrate a strong commitment, at
the highest levels, to improving the management of its weapon
system acquisitions,'' and that ``DOD leadership continued its
commitment to financial management improvements.''
Some argue that the Pentagon budget is overly large, indeed
``bloated'' and riddled with waste. But just because something
is big does not mean it is bloated. Dwayne ``The Rock'' Johnson
is big, yet no one in the world would accuse him of being
bloated.
National defense now consumes the smallest portion of the
U.S. Federal budget in 100 years--15 percent--and continues to
shrink. And except for a moment in 1999, spending today on
national defense now consumes the smallest percentage--3.4
percent--of the U.S. gross domestic product in modern history.
Critics will use the statement DOD's funding is bigger
``than the next ten nations' military budgets combined'' as
grounds to argue that the budget is overly large and
unnecessary. But added context and explanation is necessary.
First, when adjusted for purchasing power parity, an
internationally recognized method of equating economies, U.S.
defense spending in terms of its purchasing power turns out to
be roughly equal to that of two countries--China and Russia--
not ten.
The second overlooked element is that the U.S.--for better
or worse--is a global power with worldwide defense commitments
to North Atlantic Treaty Organization (NATO), Japan, South
Korea, Israel, Australia, New Zealand, sea lanes, and other
areas. Other countries do not share these responsibilities, and
it is misleading to compare the United States to others without
that context.
In the end, the best and, unfortunately, the most difficult
way to determine the proper size of the U.S. defense budget is
to understand how well that budget allows the Nation to execute
its current National Defense Strategy.
I would like to turn to the Pentagon's reform efforts. No
other Federal department has undergone the number of reforms
and efficiency drives as the Pentagon has in the last 5 years.
Working in many cases at the direction of Congress, the DOD
converted its defined benefit retirement plan to a hybrid
defined contribution plan, cut headquarters sizes by 20
percent, completely reorganized the delivery of its health
care, and produced a new acquisition framework to acquire
capabilities. Pentagon efficiency efforts, such as the Defense-
Wide Review or the famous ``Night Court'' review in the Army,
saved billions of dollars.
Finally, let me now turn to the DOD financial audit. Some
point to the Pentagon's inability to pass an audit as evidence
that the Pentagon is unworthy of its funding. Congress imposed
the requirement for the DOD to pass a financial audit back in
1990, even though passing an audit is no guarantee an
organization is well managed or free from corruption. Indeed,
Enron, the poster child for corporate abuse, passed all its
financial audits, right up until the moment it imploded from
massive fraud.
The Pentagon has undergone three full audits in the last 4
years without passing any of them. At a recent hearing, the
Acting DOD Comptroller predicted that it would now take until
2028 for the Pentagon to pass the audit.
Albert Einstein is credited with saying that the definition
of insanity is doing the same thing over and over again but
expecting different results. It is not for lack of trying that
the Pentagon has not passed the audit. The audit is larger in
scope and size than any other attempted of its kind. The 2017
audit cost nearly $1 billion dollars--$367 million to conduct
it, $551 million to fix the issues it discovered. And
subsequent years have carried similar costs.
U.S. corporations by law undergo strict financial audits to
assure potential investors of the soundness of their offerings.
But the DOD is not a corporation and has no corresponding need.
Conducting the audit is the law of the land and for that
reason must be performed. But there should be more than a legal
requirement to continue to spend $1 billion a year unless the
payoff at the end is expected to outweigh the costs. But,
unfortunately, most experts believe passing the audit will not
cause the DOD to become appreciably more efficient nor better
managed.
The effort to audit the Pentagon should not be, however,
discarded. There are some elements which, if tackled and fixed,
would provide value-added like fixing problematic financial
transactions and IT systems. But many elements of the audit,
such as verifying physical property existence and valuations--
portions of which demand DOD recount physical property, such as
World War II buildings, or the requirement to place a value on
a 1960s-era armored personnel carry--carry no value. So the
audit requirement should be modified. Congress should take the
immediate opportunity to work with the Pentagon and the
auditing community to narrow and focus the effort of the
financial audit to include only those items which, if fixed,
would add direct value to management and financial operations
of the Pentagon.
Thank you for the opportunity to testify. Nothing I have
said should be taken to mean that the Pentagon deserves a free
pass on efficiency. Indeed, the Pentagon must get better. There
are no quick and easy solutions to making the Pentagon more
efficient. But ``hard'' is not ``impossible,'' and nothing is
more important to the long-term future of this country than an
effective and efficient national security apparatus.
Thank you.
[The prepared statement of Lieutenant General (Ret.) Spoehr appears on
page 56]
Chairman Sanders. Thank you.
Okay. Now we will begin the questioning. Let me begin with
Mandy Smithberger. Ms. Smithberger, in your written testimony,
you talk about the Pentagon providing $334 billion to defense
contractors that defrauded taxpayers over the recent 5-year
period. You talk about defense contractors being found guilty
of price gouging, providing poor-quality goods and services,
and improperly disseminating sensitive military information.
You talk about the Pentagon paying $10,000 for a plastic toilet
seat, $71 for a pin that should have cost 5 cents, and paying
nearly $2,300 for landing gear that should have cost $10.
So my question is: How prevalent is fraud within the
defense contracting industry?
Ms. Smithberger. Thank you for the question.
Chairman Sanders. Speak as close as you can to the
microphone.
Ms. Smithberger. Yes, apologies for that. So we know
anecdotally from these instances that you refer to that--and
POGO maintains a Federal contractor misconduct database so that
we can try and take advantage of what has been publicly
reported. But I do think that we need to have a more
comprehensive review on what the scale of these issues are that
we have not had a review of how the Department is using its
suspension and debarment system to prevent us from continuing
to do business with other contractors. It is easily in the
billions of dollars. I suspect it is in the tens of billions of
dollars. But we really need to have an authoritative look from
independent auditors.
Chairman Sanders. Okay. Thank you.
A question for Bill Hartung. Bill, you note in your
testimony that at least half of the Pentagon budget goes to
private contractors. Is that a problem in its own right? Or is
the issue whether these corporations are held accountable to
provide effective goods and services at a fair price?
Mr. Hartung. Thank you, Senator Sanders, for the question.
I think it is both. When you have five companies getting $150
billion, about 20 percent of the Pentagon budget, it gives them
immense bargaining power over the Pentagon. When you see
examples like the new ICBM, where it was a sole-source contract
because Boeing pulled out of the competition with Northrop
Grumman because Northrop Grumman was allowed to purchase the
biggest producer of solid rocket motors for ICBMs, and Boeing
said, well, you know, this was the end of it, we cannot compete
on this basis. So these big companies and these big mergers I
think just tilted the balance in favor of the contractors
against the taxpayers.
Then, of course, there are many measures that should be
taken, as Ms. Smithberger has noted in her testimony, including
empowering contracting officers to challenge bogus pricing. I
think we need to, as I said, have an audit of contractor
overhead. So there is a whole series of things that could be
done. I think fly before you buy so we are not buying planes
like the F-35, which may never get off the runway in the
numbers needed to meet our defense needs.
So I think it is a combination of certainly not letting any
more mergers happen, maybe looking at reducing and taking apart
some of the prior ones, and then much more rigorous oversight.
So I think it is the combination of the two.
Chairman Sanders. Good. Thank you very much.
Larry, you worked for the Defense Department under
President Reagan. Is that correct?
Mr. Korb. That is correct, yes.
Chairman Sanders. All right. The bottom-line question here,
I think, is all of us want a strong defense. Senator Graham
says it is a dangerous world. It is a dangerous world. But just
spending huge amounts of money does not make our military more
effective. We could be wasting huge amounts of money, making it
less effective, in fact.
So my question to you is a very simple one. You mentioned
during the Reagan years actually defense spending was cut. Do
you believe that, given the enormous problems facing our
country in terms of infrastructure and poverty and health care,
et cetera, et cetera, do you believe that we can maintain the
kind of strong military that we need and yet that we can cut
defense spending?
Mr. Korb. Very definitely I do, because basically no matter
how much you spend on defense, you cannot buy perfect security,
always going to make choices. And so, therefore, my experience
in Government and out of Government--I wrote my doctoral
dissertation on the role of the military in the defense budget
process--basically is you do the best you can with the number
that you have. And so, therefore, if you told me today to go
back to the Pentagon and you have got $700 billion, I think I
could provide security and deal with the deficit. And remember
that the deficit is also a threat to national security. And so,
therefore, if you are cutting defense to help deal with the
deficit, you are actually improving national security.
I think that there is no magic number for the defense
budget. This current number is historically high, and as I
mentioned--and no one pays much attention--we used to have
military retirement in there with the numbers you are comparing
from years ago. It is not there anymore. It is $100 billion
that the Pentagon does not have to spend in this amount, but
the taxpayer still spends it.
Chairman Sanders. Good. Okay. Thank you very much.
Senator Kaine? Oh, sorry, my apologies. Senator Graham.
Senator Kaine. I want to go, but I am not rushing. Go
ahead.
Chairman Sanders. I am sorry. My fault. Senator Graham.
Senator Graham. Okay, I will be quick. Thank you. Thank
you, Bernie.
General Spoehr, are you available?
General Spoehr. Yes, sir.
Senator Graham. You said in your testimony, I believe, that
we are about at 3.4 percent of GDP on defense spending, and
that is the lowest in modern history except for 1999. Is that
correct?
General Spoehr. Yes, Senator.
Senator Graham. Okay. So when people say that we are
spending more on defense, the truth of the matter is, in terms
of GDP, over the arc of time, we are the second-lowest level in
modern history. Is that correct?
General Spoehr. It is, Senator, yes.
Senator Graham. Mr. Zakheim, do you agree with that?
Mr. Zakheim. Yes, Senator.
Senator Graham. Okay. Now, let us compare that to the
Russian-Chinese defense budgets. In what direction are they
headed, Mr. Zakheim?
Mr. Zakheim. Senator, both China and Russia are
significantly increasing their defense spending.
Senator Graham. Okay. How many of you remember
sequestration? Everybody? Mr. Korb--is that correct, sir.
Mr. Korb. That is correct, Senator.
Senator Graham. You mentioned General Petraeus. I have a
quote here. This is in September 2016. ``It is also time to end
the perennial threats of sequestration and place the Pentagon's
budget on a general upwards path in real terms.'' September
2016. But the statement that I would like to run by you, the
Secretary of Defense said, ``For all the heartache caused by
the loss of our troops during these wars, no enemy in the field
has done more to harm the readiness of our military than
sequestration.''
Do you agree with that statement?
Mr. Korb. No, I do not.
Senator Graham. Okay.
Mr. Korb. Because as I mentioned, you had a slush fund in
the Overseas Contingency Operations (OCO) account. For example,
we pay in the warfighting budget----
Senator Graham. Why would he say that? Why do you think he
would say that?
Mr. Korb. Well, I think that it could have that effect, if
you did not use the warfighting budget as a slush fund to
offset sequestration in the baseline budget.
Senator Graham. Mr. Korb, here is what I would say. I lived
through sequestration like Senator Kaine. It was great. It was
devastating. Our readiness was affected. Our modernization
program was robbed. We had to transfer money and equipment to
front-line warfighting, and everything back home deteriorated.
So let me ask you this: Do you support a 10-percent cut in
our military budget as proposed by Senator Sanders?
Mr. Korb. I think you could cut it 10 percent and still
have an effective----
Senator Graham. Okay. Ma'am, what would you say? I do not
want to butcher your name. How do you say your last name?
Ms. Smithberger. Oh, ``Smithberger.'' It is just a German
one.
Senator Graham. Okay. I lived in Germany, and I was not
very good at German then. So would you support a 10-percent
cut?
Ms. Smithberger. I think those are the kinds of numbers
that we need to be talking about.
Senator Graham. Okay. The other gentleman, Mr. Hartung,
would you support a 10-percent cut?
Mr. Hartung. Yes. I think with a realistic strategy and
proper procurement, we could certainly defend the country with
a 10-percent cut.
Senator Graham. Mr. Zakheim, would you support a 10-percent
cut?
Mr. Zakheim. Senator, I would not.
Senator Graham. General Spoehr, would you support a 10-
percent cut?
General Spoehr. Senator, a 10-percent cut to the military
today would not allow us to execute the National Defense
Strategy nor allow us to counter the efforts of China.
Senator Graham. And let me just give you my 2 cents' worth.
I think if we cut our budget 10 percent militarily, our allies
would freak out. NATO without the United States is not a whole
lot. We appreciate all their contributions, but we saw that in
Libya. So we are an indispensable partner in keeping the world
stable. I just cannot imagine the ripple effect throughout the
world if America chose to go below where we are today in terms
of emboldening our enemies.
Mr. Zakheim, what threat does Iran present to the region
and to the world, in your view?
Mr. Zakheim. Senator, Iran presents a threat to freedom
across the world. It threatens our close allies----
Senator Graham. Do you believe if they had a nuclear weapon
they would use it?
Mr. Zakheim. Senator, a threat is a combination of intent
and capability. The mullahs in Iran have demonstrated that they
intent to bully, and with that capability they would use it in
lots of different----
Senator Graham. Do you agree with that, General Spoehr?
General Spoehr. I do, sir. They just lobbed ten ballistic
missiles against U.S. forces in Iraq. Why would they stop at a
nuclear weapon?
Senator Graham. So pivoting to Asia is a great aspiration,
but let me tell you right now, to any administration, if you do
not understand the threats coming from the Mideast to our
national security and that of our allies, you are making a very
dangerous mistake. And it is right to want to challenge China
because they are getting more robust. So the idea of pivoting
from one threat area to another is not an option. You have to
deal with all the threats. And I cannot think of a worse time
in modern American history to be reducing our defense
capability than right now.
Thank you.
Chairman Sanders. And now Senator Kaine.
Senator Kaine. Thank you, Mr. Chair, and thank you for
calling this hearing. It is an important matter for not just
the Armed Services Committee to dig into but the Budget
Committee as well.
I have followed the historic data about defense spending as
a percentage of GDP and other spending categories. We have
often talked about that in the Committee. Most of our spending
categories as a percentage of GDP are going down. Nondefense
discretionary is going down. Defense spending is going down.
Pension and health-related items are going up. Interest as a
percentage of GDP is going up. And the thing that is really
going up fast is tax expenditures. Tax collection as a
percentage of GDP has been dropping, but the tax expenditures
have been dramatically going up.
And so I put it in that background. Even though defense
spending as a percentage of GDP is going down, we ought to get
rid of waste, fraud, and abuse. We should. How do you determine
that and how do you do it is the issue.
First, you ought to match what you are doing against the
threat to the Nation's security. So what I would like to ask
our five witnesses to do--and I will go to the three in person,
starting with Dr. Korb, and then come to our two online--is: On
a scale of 1 to 10, 1 being we should not be worried at all, 10
being we should be very worried, give me your 1-to-10 rankings
of how worried we should be about Russia and China on a 1-to-10
scale?
Mr. Korb. I would say no more than a 5. This is not the
second coming of the Cold War.
Senator Kaine. And you would say no more than 5 for either
Russia or China?
Mr. Korb. Yes. I would say no more than 5 for China, and
Russia maybe a 2.
Senator Kaine. Okay. And if you want to, you can say you
have no opinion about this question, but I just want to now
move to Ms. Smithberger.
Ms. Smithberger. Thank you for the question. I would say a
6, but I think it is important that we look at what is
happening when we have such a large level of spending and
whether we are actually spending money on combating those
threats in an effective way.
Senator Kaine. When you say 6, you would say for both
Russia and China?
Ms. Smithberger. Yes.
Senator Kaine. Mr. Zakheim?
Mr. Zakheim. Senator, I would put China ahead of Russia.
You know, I do not want to make them 10 feet tall, but they are
approaching that. So I would give them an 8 and then put Russia
behind it. The distinction I would make and ask you to consider
is that Russia's adventurism is a real near-term threat;
whereas, China is a problem today and a bigger problem
tomorrow.
Senator Kaine. Now if I could go to Dr. Hartung and General
Spoehr.
Mr. Hartung. Yes, I would probably rank China at a 4 and
Russia at a 2. We are more capable than China in virtually
every major military, you know, capability. We spend three
times as much. We have a more capable navy. We have 13 times as
many warheads----
Senator Kaine. I got you. If I could, I want to move to
another question, but I want to hear General Spoehr's answer.
Mr. Hartung. Sure.
General Spoehr. Sir, I would give China a 9. We have never
seen an adversary like them, and they are on a trajectory. They
are growing their defense budget this year by 6.8 percent. I
would give Russia a 7. Thank you.
Senator Kaine. Thank you for that. I do think it is
important to match spending to threat levels.
Here is the next point I want to make. If we are going to
make cuts--and we should always analyze whether we should--we
should not make them non-strategically. I will give you a
couple of examples.
A few years ago, there was a big battle in the Armed
Services Committee, and over my objection a decision was made
to do across-the-board cuts to headquarters--not strategic
cuts, just we imposed a percentage cut on headquarters. Thirty-
three percent of the Pentagon personnel that were overseeing
military housing were laid off. And then 3 years later, we had
a massive problem about nobody was overseeing military housing.
We have in the last few years reduced significantly
Pentagon staff that oversee MilCon construction projects. We
know of overspending on weapons systems platforms, but if you
looked at the MilCon budget for like 2017 and you looked at
projects and you said what percentage of these came in on time
and on budget, the answer is: Who knows? We do not have anybody
there to do the analysis of this.
So if we are going to make cuts, we should really try to
find what is fraudulent, what is abusive, what is wasteful. The
across-the-board stuff, you end up hurting yourself, and then
it comes back to bite you later.
And then the last thing I would like to say in my last 30
seconds on this is I think it was you, Ms. Smithberger, who may
have said something about inadequate testing. This is a huge
problem with the Pentagon. On weapons systems, on construction
projects, we do not set up the toll booths early enough and
then test to see whether it is working before we just blow
through them. And then the problems turn into massive problems
that could have been solved much earlier.
We had testimony recently in an Armed Services Committee
hearing from the Office of Testing and Evaluation at the
Pentagon, within the last 2 weeks, and they said every weapons
system that they tested in 2020 flunked the, well, I guess it
is vulnerable to a cyber attack. And that was because enough
work was not done up front on the engineering and research and
early testing to protect. And so I think there is significant
ways that we can cut abuse or waste or inefficiency, but we may
have to invest some dollars early in things like testing or the
personnel to oversee construction or acquisitions if we are
going to do it in a smart way rather than in an across-the-
board way that could hurt us.
Thank you, Mr. Chairman.
Chairman Sanders. Thank you, Senator.
Senator Grassley.
Senator Grassley. Thank you, Mr. Chairman and the
witnesses, for this hearing on a very important issue. It is so
important.
I would like to hear from the Defense Secretary to come and
testify as well. Every year when a new defense authorization or
funding bill is due, military leaders and my colleagues claim
additional funding is crucial to countering our enemies and
protecting our interests abroad. National defense is the number
one priority of our Government, and Congress is often reluctant
to deny money that military leaders say is greatly needed.
However, Congress and the Pentagon need to reach an
understanding that fiscal accountability and military readiness
are not mutually exclusive. Earning a clean audit opinion would
strengthen military readiness and boost support for increases
to defense spending with both Congress as well as the taxpayer.
It is crucial for our national defense that the Department of
Defense can fully account for its spending.
Yes, the Defense Department has completed three consecutive
annual audits now. There are some signs of progress. However,
the goalposts continue to shift, and we are told maybe, just
maybe, we will have a clean opinion 7 years from now, nearly 40
years after Congress first passed a law requiring a clean
audit. While some findings have been closed, new ones seem to
be raised.
One of the key findings of the audit year after year is
that internal controls are weak or nonexistent. Sloppy
bookkeeping, antiquated accounting systems that cannot generate
reliable transaction data lead to unaccountable spending and
create an environment ripe for waste, fraud, and abuse. It is
these underlying systems that must be fixed before any real
progress on audit can be made.
We have 3 minutes, Ms. Smithberger, for a couple questions
for you. The Department of Defense has competing priorities,
including supporting the National Defense Strategy of 2018.
Audit remediation efforts are expensive. Do you think it is a
worthwhile use of limited resources to support the efforts to
get a clean opinion? And how do you think the audit efforts
improve accountability in other areas such as defense contract
oversight over bad actors?
Ms. Smithberger. Thank you, Senator, for the question and
for your leadership on these issues. I do think that the audit
is worth it. I think we are already seeing the payoffs where we
are discovering significant weaknesses in our real property
management, discovering billions of dollars of assets and
equipment that we did not know that we had, and being able to--
so I think in many ways it is going to pay for itself.
There are other ways that we have seen real dividends in
investing in these audit processes, as Senator Kaine was
mentioning. There are a number of arenas where we are not doing
enough when it comes to cybersecurity, and the audit is
revealing a number of those vulnerabilities. And I think it has
really been the Congress pushing the Department to prioritize
the audit that has really led to making a number of overdue
changes, and by having those more effective and reliable
systems that we are going to be able to be better at
identifying contractor fraud, we are going to be better at
being able to identify systemic problems that are undermining
our readiness and causing waste.
Senator Grassley. Also for you, my final question. The
Chief Financial Officers (CFO) Act was passed way back in 1990.
It has taken decades for the Department of Defense to even
begin conducting a full financial statement audit, and a clean
opinion is supposedly still years away. What in terms of
incentives or penalties would be effective to accelerate the
pace of the audit effort and ensure that progress is made and
that DOD is not simply conducting an audit every year that is
doomed to fail?
Ms. Smithberger. Thank you for the question. So POGO was
very proud to support your amendment with Senator Sanders that
would actually impose financial penalties to components who are
not able to meet these goals. I think what is important about
this is not only the accountability, but continuing to show to
the Department how seriously you are taking these issues, and
then you are empowering people within the Department to make
sure that these problems are addressed and so that we can
accelerate the rate so that we can get to a clean audit much
sooner.
Senator Grassley. Yes. And then one final statement. Since
Mr. Korb mentioned my name and I do appreciate working with him
decades ago, we did accomplish something that particular first
term--or I guess it was during the second term of Reagan, we
got the False Claims Act passed that has brought $63 billion
back into the Federal Treasury as a result of all of the waste
and abuse and mismanagement that we pointed out in the Reagan
administration first term.
Thank you. I yield back.
Chairman Sanders. Okay. Thank you, Senator Grassley.
Is Senator Van Hollen available? I know he wants to
communicate virtually. He may be tied up. Not now. All right.
Well, with that, then we have a vote, I think, so let me
just conclude by thanking our panelists. This is an issue, I
think, that needs an enormous amount of work on the part of
Congress. The amount of money that we are dealing with is
staggering. The complexity of the DOD budget is quite
unbelievable. And I think at the end of the day we want a
strong defense, but we want to do it in a cost-effective way.
And in my view, there is a lot of work that has to be done to
make that agency much more cost-effective.
So let me thank the panelists, let me thank the Senators,
and this meeting is adjourned.
[Whereupon, at 12:12 a.m., the Committee was adjourned.]
ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD
[Prepared statements, responses to written questions, and
additional material submitted for the record follow:]
Prepared Statement of Mr. Lawrence J. Korb
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Prepared Statement of Mr. William D. Hartung
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Prepared Statement of Ms. Mandy Smithberger
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Prepared Statement of Mr. Roger Zakheim
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Prepared Statement of Lieutenant General (Ret.) Thomas Spoehr
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]