[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
TRACKING PROGRESS: EXAMINING
THE DEPARTMENT OF DEFENSE'S
FINANCIAL MANAGEMENT PRACTICES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON GOVERNMENT OPERATIONS AND THE FEDERAL WORKFORCE
OF THE
COMMITTEE ON OVERSIGHT
AND ACCOUNTABILITY
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 24, 2024
__________
Serial No. 118-132
__________
Printed for the use of the Committee on Oversight and Accountability
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available on: govinfo.gov
oversight.house.gov or
docs.house.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
56-965 PDF WASHINGTON : 2024
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COMMITTEE ON OVERSIGHT AND ACCOUNTABILITY
JAMES COMER, Kentucky, Chairman
Jim Jordan, Ohio Jamie Raskin, Maryland, Ranking
Mike Turner, Ohio Minority Member
Paul Gosar, Arizona Eleanor Holmes Norton, District of
Virginia Foxx, North Carolina Columbia
Glenn Grothman, Wisconsin Stephen F. Lynch, Massachusetts
Michael Cloud, Texas Gerald E. Connolly, Virginia
Gary Palmer, Alabama Raja Krishnamoorthi, Illinois
Clay Higgins, Louisiana Ro Khanna, California
Pete Sessions, Texas Kweisi Mfume, Maryland
Andy Biggs, Arizona Alexandria Ocasio-Cortez, New York
Nancy Mace, South Carolina Katie Porter, California
Jake LaTurner, Kansas Cori Bush, Missouri
Pat Fallon, Texas Shontel Brown, Ohio
Byron Donalds, Florida Melanie Stansbury, New Mexico
Scott Perry, Pennsylvania Robert Garcia, California
William Timmons, South Carolina Maxwell Frost, Florida
Tim Burchett, Tennessee Summer Lee, Pennsylvania
Marjorie Taylor Greene, Georgia Greg Casar, Texas
Lisa McClain, Michigan Jasmine Crockett, Texas
Lauren Boebert, Colorado Dan Goldman, New York
Russell Fry, South Carolina Jared Moskowitz, Florida
Anna Paulina Luna, Florida Rashida Tlaib, Michigan
Nick Langworthy, New York Ayanna Pressley, Massachusetts
Eric Burlison, Missouri
Mike Waltz, Florida
------
Mark Marin, Staff Director
Jessica Donlon, Deputy Staff Director and General Counsel
Bill Womack, Senior Advisor
Mallory Cogar, Deputy Director of Operations and Chief Clerk
Contact Number: 202-225-5074
Julie Tagen, Minority Staff Director
Contact Number: 202-225-5051
------
Subcommittee on Government Operations and the Federal Workforce
Pete Sessions, Texas, Chairman
Gary Palmer, Alabama Kweisi Mfume, Maryland Ranking
Clay Higgins, Louisiana Minority Member
Andy Biggs, Arizona Eleanor Holmes Norton, District of
Byron Donalds, Florida Columbia
William Timmons, South Carolina Maxwell Frost, Florida
Tim Burchett, Tennessee Greg Casar, Texas
Marjorie Taylor Greene, Georgia Gerald E. Connolly, Virginia
Lauren Boebert, Colorado Melanie Stansbury, New Mexico
Russell Fry, South Carolina Robert Garcia, California
Eric Burlison, Missouri Summer Lee, Pennsylvania
Vacancy Jasmine Crockett, Texas
Rashida Tlaib, Michigan
C O N T E N T S
----------
Page
Hearing held on September 24, 2024............................... 1
Witnesses
----------
Mr. Tom Steffens, Senior Assistant to the Comptroller, U.S.
Department of Defense
Oral Statement................................................... 5
Mr. Brett Mansfield, Deputy Inspector General for Audit, U.S.
Department of Defense Office of the Inspector General
Oral Statement................................................... 7
Mr. Asif Khan, Director, Financial Management Assurance, U.S.
Government Accountability Office
Oral Statement................................................... 8
Written opening statements and statements for the witnesses are
available on the U.S. House of Representatives Document
Repository at: docs.house.gov.
Index of Documents
----------
* Statement for the Record; submitted by Rep. Connolly.
* Article, Washington Post, ``Forbidden Russian Oil Flows Into
Pentagon Supply Chain''; submitted by Rep. Biggs.
* Article, Reuters, ``Pentagon Buried Study that Found $125
Billion in Wasteful Spending''; submitted by Rep. Biggs.
* Article, Fairfield Sun Times, ``Waste of the Day, Pentagon is
$50 Billion Behind on Building Repairs''; submitted by Rep.
Biggs.
* Article, Quincy Institute, ``What a Waste, $778 Billion for
the Pentagon and Still Counting''; submitted by Rep. Biggs.
* Press Release, COA, ``Committee Requests Information on
Pentagon's $125 Billion in Waste''; submitted by Rep. Biggs.
* Statement for the Record, POGO; submitted by Rep. Mfume.
* Report, DoD OIG, June 2024; submitted by Rep. Lee.
Documents are available at: docs.house.gov.
TRACKING PROGRESS:
EXAMINING THE DEPARTMENT OF DEFENSE'S
FINANCIAL MANAGEMENT PRACTICES
----------
Tuesday, September 24, 2024
U.S. House of Representatives
Committee on Oversight and Accountability
Subcommittee on Government Operations and
the Federal Workforce
Washington, D.C.
The Subcommittee met, pursuant to notice, at 2:36 p.m., in
room 2154, Rayburn House Office Building, Hon. Pete Sessions
[Chairman of the Subcommittee] presiding.
Present: Representatives Sessions, Palmer, Higgins, Biggs,
Burchett, Burlison, Mfume, Norton, Lee, Crockett, and Tlaib.
Mr. Sessions. This hearing on the Subcommittee on
Government Operations and Federal Workforce will come to order,
and I would like to welcome everybody.
Without objection, the Chair may declare a recess at any
time.
I would like to recognize myself for an opening statement
right now.
I want to welcome each of you and the witnesses who are
here today to take part in what I believe will be a very
important hearing on a bipartisan basis. My partner here, the
Ranking Member, Mr. Mfume, and I are deeply committed to
understanding how we are going to get more money to the reason
why it was given by the taxpayer. More money and efficiency
from a congressional perspective when we provide agencies with
money, and, in this case, the Department of Defense with the
money that it is given for lethality and for the war fighter
effort. I want to thank our witnesses for taking time with me
to discuss and make sure that they knew that today would be
very important to us and them as we really want to hear from
them about their ideas. They are people that are on the front
lines that are day-to-day engaged in the same business that we
intend to engage them on.
Financial transparency of the military is perhaps the most
critical dollar that is spent. To remain confident in DoD's
ability to protect American interest at home and abroad, we
need to be able to properly monitor their financial
performance. I think more than that, that Congress has been
engaged for a number of years in trying to make sure that DoD
was not only efficient but effective, and the efficiency is
where this falls today. In Fiscal Year 2023, DoD received just
over $850 billion, half the Federal discretionary funding.
Also, during that same year, they reported $3.8 trillion in
assets, a whopping 70 percent of the Federal Government's
assets. Last year, we held a hearing asking basic questions
such as how tax dollars are spent, how existing assets are
managed, and which business systems track the flow of funds
through the Department, and today, we still have not completed
that exercise. Some could say we do not have those answers.
DoD failed its sixth consecutive audit and holds the
distinction of being the only Federal Agency that has never
passed a comprehensive audit. I get that, and we are not
jumping up and down upset about it. What we are is here to make
sure that we are on a road to recovery, that we are on a road
to understand that the basic elements that must be understood
in the effectiveness by not only DoD, but by Congress to look
at what needs to be accomplished, it requires us to do it
together. A financial statement audit is not just simply an
exercise. It is an important exercise. It is a purpose of
Congress in our oversight capacity and responsibility. We need
to know where we stand, and we need to hear from the people who
are on the front line.
As required by Fiscal Year 2024 National Defense
Authorization Act, DoD must achieve a clean audit opinion by
December 28, 2028. It is right around the corner. To meet this
goal, DoD has established audit priorities and developed
corrective action plans. However, GAO noted that DoD's
remediation plans were not sufficient and detailed enough to
achieve this clean audit. In other words, not sure that we are
on that path after all. So, instead of focusing on high-level
financial management priorities, instead of the steps needed to
achieve a clean audit, we necessarily are here today to make
sure that that is the pathway. GAO also found that DoD had
consistently missed remediation deadlines established in the
Department's own financial roadmap. Clearly, more work is
needed.
We are not here to point fingers. We are not here to fail.
We are here to effectively work together. Just as Mr. Mfume and
I see this as an issue, I am convinced DoD does, too. I am
convinced that there are people within DoD who see how
important this is. I am convinced that DoD, and we will hear
today, has certain parts of the military that have very
adequately accepted that rigor that would be required for
financial integrity. But it is bigger than that, and we are
going to hear today from this panel to describe to us about how
we can continue to work together, where those distinctions may
be, and how we can work to make sure that they are encouraged
to make this work. Today's hearing, I think is important also
from understanding the scorecard, the scorecard that I think
has been passed out to everybody. Today could be seen as
negative, or it could be seen as a work in progress. I believe
it is a work in progress.
So, we have got questions that we are going to ask about
the major problems. What is preventing progress? Is DoD trying
to remedy its financial management shortcomings? How is DoD
learning from each attempted audit? We see the Marine Corps
has. Can we extend that to other piece parts of DoD, and what
can Congress do, and how can we work together?
So, today we have three distinguished people who will be
with us, who I am going to highlight in just a minute. But
first I want to move to my distinguished Ranking Member, the
gentleman, Ranking Member, Mr. Mfume, for any opening
statements the gentleman choose to make. The gentleman is
recognized.
Mr. Mfume. Thank you very much, Chairman Sessions. I want
to also thank the witnesses for being here today. This is going
to be an interesting hearing, and I hope it is, in fact, the
beginning of a process that gets us to greater financial
efficiency. Last July, we gathered in this Committee room and
held a hearing to address financial accountability in the
Department of Defense. And just like magic, we are back here
again today to continue that conversation and to continue it in
light of the Department of Defense's recent inability to pass a
clean audit for Fiscal Year 2023. Unfortunately, and sadly,
this is not a new phenomenon, as we all know, at the Department
of Defense.
In Fiscal Year 2018, DoD began its efforts to successfully
complete a Department-wide audit. The Fiscal Year 2018 audit
covering $2.7 trillion in assets and $2.6 trillion in
liabilities was likely and probably the largest audit any of us
had ever conceptualized. As expected for such a large
organization, the first audit attempt revealed severe material
weaknesses where DoD could not provide an accurate accounting
of their finances. There have been five, as we know, five
additional audit attempts after the 2018 audit, and yet, most
of the Department of Defense still has not produced a clean
audit.
So, to be clear, like most of us in this room, I support
our troops. I know, like many of you, that Congress has a duty
to ensure our Nation is protected from a growing number of
threats, both at home and abroad. I also know we have a duty,
however, to maintain accountability for the billions of dollars
that make up defense spending, dollars that total about half of
the Federal Government's total discretionary spending and
nearly $3.8 trillion in total assets. In Fiscal Year 2024
alone, U.S. taxpayers turned over $851 billion to the
Department of Defense. That figure represents one of the
largest investments in the DoD budget in our Nation's history.
And while we continue to provide the Department of Defense with
escalating sums of money, only 11 of the 29 components achieved
clean audits. The 18 components that failed, including the
Army, the Navy and the Air Force, comprise about 90 percent of
DoD's assets by dollar amount.
I want to go back to what the Chairman said about the
Marine Corps. Maybe there is something to be learned there by
the other departments, but clearly, they seem to be on the
right path. So, standing in the way of a clean audit for these
components is the wide prevalence of material weaknesses, in
other words, areas in which the Department of Defense lacks
internal controls over financial reporting. We have heard a lot
about that in the previous hearing, we are hearing it again
now, and I am sure as you all testify, that will continue to be
a term that makes its way into this conversation.
So, I am gratified and quite appreciative of the sacrifice
that so many hardworking Americans make to keep our Nation
safe. This Committee believes, however, we must ensure that our
service members have the most sophisticated, modernized
technology systems to eliminate the threats that exist, but
also that the Department has the most modern and efficient way
of doing its accounting. I look forward to discussing how this
Committee and, indeed, the entire Congress can work with the
Department of Defense in modernizing its financial management
systems, and how we can actually incentivize DoD to improve the
acquisition and management practices that it employs every day.
The security of the Nation remains of paramount concern, and
accountability measures across the Department of Defense must
be efficient, they must be effective, and they must be
informative.
So, I look forward, Mr. Chairman, to hearing the
testimoneys of the witnesses before us. I would be remiss if I
did not say that patience is running thin. And I do not know
how to say it any other way, but we expect more, and that is
why we are pushing for more in a bipartisan way to bring about
the change that we know is so desperately needed. And with
that, Mr. Chairman, I would yield back any time.
Mr. Sessions. Thank you very much. I concur with the
distinguished gentleman. And so that the panel knows this, and
our friends that are with us today, Mr. Mfume and I deeply
believe in the United States military, their mission, and the
men and women and the families, but we also believe we have an
obligation to continue working with DoD on this.
I am pleased today to welcome our witnesses. Tom Steffens
is the Senior Advisor to the Comptroller, previously served as
Deputy Chief Financial Officer, advising the Comptroller and
defense senior leaders on all financial matters and management
and reforms, and our conversation yesterday was very
enlightening. And Tom, I am delighted that you decided to show
today. I know you said you would, but thank you. I think you
have a lot to add today. Brett Mansfield is Deputy Inspector
General for audit. Prior to this role, he served as Senior
Advisor to the Inspector General, advisor on matters affecting
the mission operations of Department of Defense Office of
Inspector General. Brett, welcome. We are delighted that you
are here also. And Mr. Asif Khan is Director of the Financial
Management and Assurance team at the GAO, the Government
Accounting Office [sic]. Since 2009, he has focused his work on
financial management and audit readiness for the Department of
Defense. I must say, if I can, to my dear friend, I think today
will be an enlightening hearing for each of us, and I know our
witnesses are up to that task.
I would now ask if each of our witnesses would rise and
raise their right hand.
And pursuant to Committee Rule 9(g) the witnesses will
raise their right hand.
Do you solemnly swear or affirm that the testimony that you
are about to give is the truth, the whole truth, and nothing
but the truth, so help you God?
[A chorus of ayes.]
Mr. Sessions. Thank you. Please let the record reflect that
the witnesses have answered in the affirmative, and I ask that
they please take their seat.
We are delighted that you are here. I did not get a chance
yesterday to personally describe this to each of you, but you
are here for a reason, and we really might want you to complete
your answer, give your testimony. People on this side are very
interested in hearing from you, and we have got a lot of
questions, but we are going to try and stick to a time format.
It does not have to be 5 minutes, it can be a little bit over,
but please make sure your point is well made, and I would say
to Members, I will give them that latitude also. So, I am
delighted you are here, Mr. Steffens. We are going to have you
go ahead and first start your testimony.
The gentleman is recognized for 5 minutes.
STATEMENT OF TOM STEFFENS
SENIOR ASSISTANT TO THE COMPTROLLER
U.S. DEPARTMENT OF DEFENSE
Mr. Steffens. Chairman Sessions, Ranking Member Mfume,
Members, thank you for the opportunity to address the
Committee. I am Tom Steffens, Senior Advisor and former Deputy
Chief Financial Officer for the Undersecretary of Defense
Comptroller. First, I would like to thank Secretary Austin and
Deputy Secretary Hicks for their unwavering commitment and tone
at the top leading our financial management improvement
efforts. This has been a key to our acceleration of audit
progress, as evidenced in our financial modernization efforts
and most recent audit results. Today, I will cover the status
of audit within the Department, our need for continued open
dialog with those entrusted with our oversight, and I will
share my thoughts on PPBE reform.
In Fiscal Year 2023, the Marine Corps was the first
military service to receive an unmodified audit opinion. This
was achieved by using a systemic, cultural, and analytical
approach imposed by an engagement from senior leaders like the
Commandant of the Marine Corps, General Eric Smith. Audit
success was a priority across all fields, like acquisition,
human resources, and logistics within the Marine Corps. The
Department is replicating this success, implementing lessons
learned from the Marines.
At the start of our Fiscal Year 2024 audit, unmodified and
qualified audit opinions together covered 51 percent, or $1.9
trillion, of the Department's total assets, a number that will
increase in the coming years. The Fiscal Year 2024 National
Defense Authorization Act mandated an unmodified audit opinion
on the DoD-wide financial statements by December 31, 2028. This
is also now the Department's audit goal. It demands a fresh
look at our timelines, risks, dependencies and measures of
progress, and is evidenced in our revised audit roadmaps.
We look at five areas when measuring audit outcomes and
benefits: workforce modernization, business operations, quality
decision-making, reliable networks, and finally, enhanced
public confidence. In Fiscal Year 2023, the Department invested
$991 million for audit remediation. This investment focuses
heavily on tackling the root cause of systemic, longstanding
issues that impede success. The Secretary's audit priorities,
revised annually, are an essential part of our audit strategy.
For each audit priority, we establish quantitative goals and
report on progress to the Deputy Secretary of Defense
quarterly.
In Fiscal Year 2023, the Air Force General Fund closed its
fund balance with Treasury material weakness as an audit
priority. Army Working Capital Fund and Navy General Fund and
Marine Corps all improved on fund balance with Treasury
material weaknesses as well. Combined, these results encompass
$423 billion, or 55 percent, of our Fiscal Year 2023 ending
balance of $768 billion in fund balance with Treasury,
validating that addressing this key material weakness as an
audit priority has been effective.
The Comptroller General, Mr. Dodaro, has advised us to
simplify our financial system environment. We continue to
assess, upgrade, consolidate, and retire systems that are
impacting our ability to financially report successfully.
Congress' support is critical to our success, as demonstrated
in the Fiscal Year 2024 NDA inclusion of beginning balance
certification for the Defense Logistics Agency's National
Stockpile Transactions Fund, and we appreciate the support and
the partnership there. We will continue to seek congressional
support when addressing our most difficult systemic issues and
providing adequate and consistent funding and staffing for our
financial modernization efforts. Adequate and consistent
funding is paramount to financial modernization, not to mention
our military's overall readiness.
Over the course of the last 15 fiscal years, there have
been 48 continuing resolutions lasting for 1,794 days, or
nearly 5 calendar years. In a letter to the House Committee on
Appropriations, Secretary Austin detailed to Chairman Cole the
negative impact of a 6-month continuing resolution. As noted in
the letter, our budget is aligned to the National Defense
Strategy. Without a timely budget, we are challenged in
investing in new technologies, equipment, and training. This
has a profound effect on the quality of life of our service
members, damages military hiring, and delays vital investments
in capacity such as submarine and shipbuilding. Undersecretary
of Defense Comptroller, Michael McCord, and I joined Secretary
Austin in urging Congress to act urgently.
Congress and the Department have consistently collaborated
on critical financial management improvements, including
reforming the planning, programming, budgeting, and execution
process. The PPBE process is a fundamental strategic decision
support mechanism for our leadership. The report from the
Commission on PPBE reform, released in March, included 28
recommendations parceled into 35 initiatives. The Deputy
Secretary of Defense endorsed 26 PPBE reform initiatives for
implementation across the Department. The timeline for PPBE
reform relies on outcomes from complex, multi-organizational
discussions and legislative actions, and success depends on
sustained cooperation and transparency.
We appreciate congressional support for the National
Defense Strategy and the Department's financial management
improvement efforts. We are thankful for our interagency
partners' assistance in broadening information sharing. We
value the independent assessments coming from Government
Accountability Office and the Department of Defense Office of
Inspector General, and we will continue to listen to their
recommendations to achieve future success. I welcome any
questions you may have.
Mr. Sessions. Thank you very much. The gentleman yields
back his time. Mr. Mansfield, you are recognized for 5 minutes.
STATEMENT OF BRETT A. MANSFIELD
DEPUTY INSPECTOR GENERAL FOR AUDIT
U.S. DEPARTMENT OF DEFENSE OFFICE OF THE INSPECTOR GENERAL
Mr. Mansfield. Chairman Sessions, Ranking Member Mfume, and
Members of the Subcommittee on Government Operations and
Federal Workforce, thank you for inviting me to discuss the
Office of Inspector General's role in auditing the DoD's
financial statements and oversighting the DoD's efforts to
obtain a clean audit opinion. I am Brett Mansfield, the Deputy
Inspector General for Audit at the DoD Office of Inspector
General, and it is my privilege to be here today to represent
the dedicated oversight professionals that make up the DoD
Office of Inspector General.
The financial statement audits performed or overseen by the
DoD Office of Inspector General are critically important for
maintaining the public's trust, ensuring accountability, and
improving DoD operations. The 2024 financial statement audits
are ongoing now, so I cannot speak to their results today.
However, in Fiscal Year 2023, as you mentioned, Chairman, the
DoD reported discretionary appropriations of just over $850
billion which comprised half the discretionary spending of the
United States. The DoD also reported nearly $3.8 trillion in
assets, which is approximately 70 percent of the government's
total assets. Because of its size and financial reporting
deficiencies, the DoD is limiting the Federal Government's
ability to obtain a clean audit opinion on its financial
statements.
Fiscal year 2023 marked the sixth full-scale audit of the
DoD's financial statements, and for the sixth year, it resulted
in a disclaimer of opinion on the DoD's Agency-wide financial
statements. In addition, of the 29 reporting entities that
underwent standalone audits, 10 received clean opinions, one
received a qualified opinion, and 18 received disclaimers of
opinion. The disclaimers of opinion were issued because the DoD
entities continue to have unresolved accounting issues and
material weaknesses. Fiscal year 2023 also included a major
development with the Marine Corps reaching an unmodified
opinion. However, this only came after substantial effort in
completing an unconventional 2-year audit. Sustaining this
opinion will require significant effort going forward.
As my prepared statement today, I provided a recently
released Office of Inspector General report, ``Understanding
the Results of the Fiscal Year 2023 Financial Statement
Audits.'' There are three key themes discussed in this report,
which I will highlight today.
First, the Comptroller and financial management community
cannot do it alone. Leadership involvement from the commanders
and operators is imperative. The Comptroller does not have
command and control of operators, yet the information and
systems relied upon for financial reporting are often
controlled by soldiers, sailors, marines, airmen, and
guardians. Every time a bomb is released from a plane, a
submarine undergoes maintenance, or a radar system is fielded,
service members are inputting information into DoD management
systems, which ultimately results in a financial transaction
and have a direct impact on the reliability of the DoD's
financial statements.
Second, the inability to support its financial statements
is inherently an operational risk for the DoD. Financial
statements reflect, in part, the assets, such as munitions,
equipment, and spare parts the DoD has on hand. This
information comes from logistics and inventory systems that the
operators rely on to have the right equipment to train, fight,
and win. If the DoD cannot support the information required for
financial statement auditing, such as cost, location, and
condition of these items, it stands to bear that the operators
cannot rely on those same systems to make informed decisions
regarding the availability, location, and condition of supplies
and equipment.
Third, material weaknesses are longstanding and persistent.
While the DoD makes progress each year in addressing material
weaknesses, we still consider 17 of them, of the 28 material
weaknesses, to be scope limiting, meaning the DoD OIG cannot
perform the necessary procedures to draw a conclusion on the
financial statements. These weaknesses cover topics, including
information technology, inventory, and government property in
the possession of contractors. Scope-limiting material
weaknesses stop audit work. In other words, we cannot do our
job until the DoD fully addresses these weaknesses.
Achieving a clean financial statement opinion is a long-
term effort for the DoD. The Office of Inspector General
believes that leaders outside of the Comptroller's office must
continue to focus on material weaknesses. Addressing these
weaknesses requires sustained leadership, focus, and
significant coordination within and between each entity within
the DoD. As for my office, the Office of Inspector General, we
will continue to fully and fairly audit the DoD's financial
statements to identify deficiencies and areas for improvement
and to provide actionable information and recommendations to
the DoD. Our commitment to enhancing the financial health of
the DoD through independent oversight remains steadfast in this
crucial long-term endeavor. Thank you, and I look forward to
your questions.
Mr. Sessions. Thank you very much. The gentleman yields
back his time.
Mr. Khan, you are recognized for 5 minutes.
STATEMENT OF ASIF KHAN
DIRECTOR, FINANCIAL MANAGEMENT ASSURANCE
U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Khan. Chairman Sessions, Ranking Member Mfume, and
Members of the Subcommittee, thank you for the opportunity to
testify on the benefits of financial statement audits for the
Department of Defense.
The DoD is an immense and complex organization responsible
for half the Federal Government's discretionary spending,
overseeing millions of service members and civilian employees
across the globe. At this scale, ensuring sound financial
management and transparency is not just a necessity. It is
crucial for our national security and operational
effectiveness, but just as the size and scope of the Department
is something hard to grasp, so are the benefits of financial
statement audits. An analogy might help provide some insight.
Imagine a professional football team, each game has high
stakes with a lot riding on each play. The team wants to do as
well as possible in every aspect, from training camp all the
way through--each hopes to a Super Bowl victory. Amongst the
tools available to today's professional teams is advanced video
analysis to meticulously review game footage. This is more than
just simply watching highlights. It is about examining every
play, every movement, every strategy. Coaches and players
analyze this footage to analyze strategies and weaknesses,
correct mistakes, optimize performance, and make sure each
player follows the best practices. Errors get corrected, plays
get improved, controls on who does what and how and when get
tightened. This detailed analysis provides important
information to help coaches make best strategic decisions and
players make best choices in both preparation and the moment.
It produces a more successful and cohesive team and more
effective and efficient play and management. It is crucial to
the team's success.
Now let us draw a parallel to the financial statement
audit. Just as a team reviews game footage to improve, auditors
review DoD's financial statements and processes identifying
weaknesses and improving strategies. Video analysis help
coaches to spot inefficiencies in place and areas where players
will need additional training, ensuring the team makes informed
decision to improve performance. Similarly, financial statement
audits identify material weaknesses in internal controls and
processes. By remediating these weaknesses, DoD can improve its
accuracy and reliability of its financial information, leading
to better decision-making and resource management.
Tighter coordination and execution. By reviewing game
footage, teams ensure that every player understands their role
and executes each play correctly. Financial statement audits
identify internal controls that need to be present are
strengthened, ensuring that all financial operations are
executed efficiently and effectively, leading to greater
accountability and transparency vital to managing DoD's vast
resources.
Enhanced decision-making. Insights gained from game film
analysis help coaches make strategic decision about player
positions, game plans, and training focuses. Audit results
provide critical data that help DoD leaders make informed
decision about budgeting, resource allocation, process
improvement, systems development, and strategic planning,
ensuring the Department uses funds effectively and efficiently
to support their mission and improve operational readiness.
Long-term benefits. Regular video analysis leads to
continuous improvement, allowing teams to refine their
strategies and enhance performance game after game, season
after season, as they move closer to achieving their Super Bowl
success. Annual financial statements auditing leads to strong
long-term benefits, including better data reliability, improved
financial visibility, and the identification of previously
unknown assets. These improvements support ongoing efforts to
achieve a clean audit opinion and improve on overall
performance.
DoD's financial statement audits, like game film analysis,
provides invaluable insights and benefits. They identify
weaknesses, enhance coordination, improve decision-making, and
can lead to long-term improvements. They are fundamental
building blocks of sound policy and effectively managing our
Nation's defense resources. Your continued interest and
oversights are essential as DoD strives to achieve these goals.
Thank you once again for the opportunity to testify on this
important subject. Now I will be happy to answer your
questions. Thank you.
Mr. Sessions. Mr. Khan, thank you very much yielding back
your time. Mr. Khan, if you could take a look up, we should
have our scorecard up there in just a second, and that is the
main thesis of what we are attempting to accomplish today.
[Chart]
Do you mind taking a minute and just in an overview process
tell us the good and tell us where we ought to aim of what we
need to make it better?
Mr. Khan. Thank you, Congressman Sessions. Thank you for
that question. The scorecard is a snapshot of the DoD status.
That is what the bottom line is. It tracks five key performance
measures which are necessary for any Federal agencies to get to
auditability. In this case, this has been applied. How the
scores had been developed, this is specific to the DoD's
circumstances. The key categories are financial statement
reliability, the progress that DoD is making in addressing the
issues that have been identified during the financial statement
audit. Then it also highlights the planning, the oversight, and
then, finally, it focuses on the systems. The systems are
critical to driving financial statement auditability at the
Department of Defense, specifically for the military
departments, the large components.
Their audit is only possible if DoD has sound financial
management systems with operating effectiveness, operating
effectively. The key measure for that effectiveness is what we
have toward the bottom, systems compliant with FFMIA. That is
critical for DoD to comply. Without that, it will be very
difficult. The military departments will be challenged to
attain auditability. It may be possible for smaller entities to
be able to do that through manual workarounds, but the size of
the Army, Navy, and the Air Force is immense, so it is critical
for systems to be sound and comply with FFMIA. Thank you.
Mr. Sessions. Earlier in the hearing, we had noted that the
United States Marine Corps discovered that they could get
things done by working hard. Many times, it takes a team
effort, and I think that that is what the Marine Corps has
done. I note that they came across with an overall grade that
was not just passing, but really, for the first time ever in
DoD, they passed the audit. When we look at this, I notice
there are F's on system compliance with financial management
requirements--F, F, F, F. Take a minute and tell me how we make
that better.
Mr. Khan. This grade is, in part, self-reported by the
military services, and, in part, it is also because of a lack
of reporting by the IPAs. Federal Financial Management
Information Act requires compliance with three specific
categories. It is compliance with Federal financial management
systems requirements, it is compliance with Federal financial
accounting standards, and it is also compliance with the U.S.
Standard General Ledger.
Mr. Sessions. Is it fair that we have that as a question,
because I think it is completely within any audit management
system that would be required. Are we asking the right thing of
them?
Mr. Khan. Yes, sir.
Mr. Sessions. OK.
Mr. Khan. It is essential because of the size and
complexity of the military departments that this compliance be
attained.
Mr. Sessions. Mr. Steffens, welcome. You are an Eagle
Scout. You like to leave your campsite better than the way you
found it. Are we fair? Is this grade fair that has been placed
upon this DoD organization?
Mr. Steffens. Mr. Chairman, I believe it is fair. I respect
the grade. I respect the process that was gone through, and the
intent here to try to get to a baseline here of how the
departments are doing. What I would offer, though, as
supplemental to the report card here, the scorecard that was
given, is there are other ways that we are looking
foundationally to try to assist the military departments to
getting there as well.
So, we have a number of metrics that we look at. We have
our own individual roadmaps, as Mr. Khan and Mr. Mansfield are
aware, to get to some foundational things. One of the things we
have learned, sir, particularly I have learned over the past 2
years, is you saw some F grades there, obviously, but there are
a lot of dependencies that those military departments have on
either the DoD enterprise, some of the service providers, some
things perhaps they need at the enterprise level from the Chief
Information Officer to get their F grade to a higher level. And
I understand the need to try to give that baseline grade, but I
also want to stress the interdependency that is required here
amongst the services and the DoD enterprise to improve that
grade. And that is what we are trying to do a lot of focus here
at the DoD level and to providing assistance to those military
departments so they have the tools to improve.
Mr. Sessions. I think Mr. Mansfield very clearly made us
all aware again, downrange you are doing your job. It is hard
to get the widgets done also, and I think that that was what
you tried to get me to understand yesterday. It is not a lack
of effort. It is just as hard getting it done. Thank you very
much.
I would now like to go to the distinguished gentleman from
Maryland. The gentleman is recognized for 5 minutes.
Mr. Mfume. Thank you, Mr. Chairman. Couple of quick things.
Mr. Steffens, I understand you are leaving service after 39
years.
Mr. Steffens. Mr. Ranking Member, that is correct. I am
retiring here next month after 39 years.
Mr. Mfume. Well, congratulations and God bless. That is a
long haul, and oftentimes people in the government do not
always say to those who are leaving, ``job well done,'' but
from everything I have seen, you have had a job very well done
and we wish you well. I know I speak on behalf of the Chairman
when I say that.
Mr. Kahn, when we met for the briefing session, I guess it
was last week, the Chairman and myself, it was very interesting
and informative, particularly the notion about the scorecard.
And I said to you then that my real concern, in addition to
making sure we do what we ought to do when we ought to do it in
terms of an audit, is the other side of that and what happens
when we do not capture the dollars we should capture, when
money is going through a sieve, when people are complaining.
And the other side of that is the human side.
I think I may have said then that whether we are talking
about undergirding the Social Security system, or Medicare for
our seniors, or women, infant and children programs that are in
desperate need of funding, or dollars that get lost that cannot
go to small business loans or development, none of those
dollars can we recapture and replace, they are out of the
window, which is why so many people have a dire and terrible
assessment of the Department of Defense's ability and
capability to manage its finances. So, that human side always
gnaws at me, I mean, every audit, every budget, every year. And
I think more than anything else when I noticed the scoring of
the Marine Corps in various categories, and I think the only
one that it did not do as good in was material weakness
downgrades.
What is so magic about the role of the Marine Corps in this
audit that you can share with us that ought to be a guidepost
to the other areas and other agencies within Department of
Defense that could give some hope?
Mr. Khan. Right. Thank you, Congressman Mfume. The Marine
Corps, like Mr. Mansfield was saying, went through this unusual
timeframe, 2 years, so, I mean, that is something which has to
be considered. The lessons learned are the tone at the top. The
Marine Commandant made this a directive that every person
within the Marine Corps is going to be all hands on deck to
support this audit effort, and they fell in line, and everyone
helped to pull the information together to support the audit.
That was critical.
In addition to that, there was a directive from the
Secretary of Defense and the Deputy Secretary of Defense to the
other business provider, and that is the interdependency that
Mr. Steffens was talking about. That really promoted a lot of
interagency cooperation. It does happen, but they made it a
priority to help the Marine Corps audit effort. And the other
one is that they implemented a new system before the audit
period started. So, when they entered the audit period, the new
system was operating somewhat effectively, but still, it was in
place. That made the path toward auditability that much clearer
and easier to obtain.
Mr. Mfume. Do you see that same kind of leadership,
accountability, and directive taking place in the Army and the
Navy?
Mr. Khan. That will be essential. Whether it happens or
not, I cannot say that. It is yet to be seen. But that sort of
leadership tone at the top, at that level, is essential. In
financial management high risk, we consider leadership to have
been met. There is tone at the top, but it has to happen at
different levels, and we have to see that at the Army, the
Navy, at the Air Force so they undergo the same level of effort
to really be able to move a large amount of data to be able to
reach auditability. And the window is closing down pretty
quickly before that time runs out to reach auditability by
2028.
Mr. Mfume. And I am going to ask you to go out on a limb.
Why do you think that has not been the case at the Army, the
Navy, the Air Force?
Mr. Khan. In large part because of the size and complexity,
the communication lines are somewhat strained. Marine Corps,
like Congressman Sessions has mentioned, is only 2 percent of
DoD. Now, we are talking about the other military departments,
they are 90 percent, so they have to have clearer
communication, and I think that is where the focus should be so
there is no ambiguity as to what is needed to be able to get to
the finish line.
Mr. Mfume. OK. And I think I heard both you and Mr.
Mansfield in your testimony refer to the fact that some of the
financial accounting systems being used date back to the
1980's. Can you talk about that for a minute?
Mr. Mansfield. Sure, I would be happy to talk a little
about that. We issued a report back in January on legacy
systems within the Department of Defense, and what we
determined is that within the DoD, they have identified
internally about 232 systems that they consider to be relevant
to financial statement reporting. We determined that not only
is that list maybe insufficient, so it does not contain or
capture the full amount of systems that the Department actually
uses or relies upon, but also the definition that the DoD
applied at the time that information was collected, in terms of
what a legacy system is, was a little short-sighted in that it
only identified systems that would be retired within the next 3
years.
However, when we looked, for example, the DoD had
identified specifically, I think, 23 systems that they had
reported to Congress that needed to be retired, of those 23
systems, 14 of them were not scheduled to retire until 2029 or
later, so some are going out to 2031. I apologize, 2019 and on.
So, some of these systems, like you said, date back to the
1970's. So, a specific one I can talk to is the Standard Army
Finance Information System. It has a retirement date of 2031.
It is non-U.S. General Ledger compliant. It was created in the
1970's. At the time we did our review, there was no
modernization plan, and that system is not necessarily
considered to be a legacy system because it is not planned to
be retired until 2031.
So that really is, in a nutshell, kind of the issue the DoD
faces. There are a lot of systems that they are using and they
rely upon for operations, so they cannot just turn the systems
off. They have to make determinations on how to replace those
systems. And what we recommended is not to just make
recommendations on each system individually, but to look across
the operational-like responsibilities across the Department and
try and make decisions so you are replacing multiple systems
with one new system to simplify the Department's information
systems, like programs to make it just easier to oversight,
easier to maintain, easier to modernize in the future so you
are only doing a few systems versus a few hundred systems.
Mr. Mfume. So, I am just amazed--my time is up, maybe we
can come back to it--how we all can sit here and see clearly
what has to be done, but the persons running the show cannot
seem to figure it out. It is almost like many of the
inefficiencies are built in. I am not a paranoid person, but I
do not believe Humpty Dumpty just fell. I think he was pushed,
and I think some of these inefficiencies are in place to keep a
good thing going. And in the meantime, it does a disservice to
our troops, it does a disservice to our Nation, and the other
face, which I talked about earlier, the face of all those
Americans that are not getting the benefits they should get
because so much money is lost in this deep, dark hole that we
call DoD. I yield back, Mr. Chairman.
Mr. Sessions. The gentleman yields back his time. Thank you
very much. I would like to yield to the distinguished gentleman
from Louisiana, Mr. Higgins, 5 minutes.
Mr. Higgins. Yes, Mr. Chairman, and thank you, Mr.
Chairman. I am going to be moving fast, which is rare for me.
Mr. Chairman, Federal agencies are required to conduct annual
audits under the Chief Financial Officer's Act of 1990. The
Department of Defense receives more funding than any other
Federal agency. More than half of Federal discretionary
spending goes to DoD, yet it is the only Federal agency not to
achieve a clean audit opinion.
Mr. Mansfield, I am going to be directing my question at
you, so I am going to ask you to tune in with me. Let me ask
you up front. You are the Deputy Inspector General for Audit
under the U.S. Department of Defense Office of the Inspector
General. Is that correct? So, you are like a financial law
enforcement officer. Is that correct?
Mr. Mansfield. I would not go quite that far.
Mr. Higgins. You look at it like that? So, you are familiar
with the term.
Mr. Mansfield. We call the balls and strike----
Mr. Higgins. You are familiar with the term ``reasonable
suspicion?''
Mr. Mansfield. Yes.
Mr. Higgins. So, in looking through money, would you be
able to recognize something that looks suspicious?
Mr. Mansfield. I would like to think so.
Mr. Higgins. Most probably.
Mr. Mansfield. Yes.
Mr. Higgins. Mr. Chairman, may I suggest to you that you
are not going to have clean audits out of the DoD until we
address the culture within the DoD of confounding and even
suspicious decisions out of the Department of Defense regarding
programs costing billions and billions and billions of dollars.
How can you possibly have a clean audit when you have
mysterious things going on? So, I am going to drive into one
example. I am going to give one particularly egregious example.
If you will direct your attention to the screen. Thank you.
[Chart]
Mr. Higgins. Let us just go through the timeline here. This
is one large interaction between Austal shipyards and the DoD,
United States Navy, has been going on for a long time. February
2017, wide media reports highlight concerns about China's
frigate design resembling the United States Navy's littoral
combat ship, the LCS. That coincides with, also, USA's joint
venture with a Chinese shipbuilder. June 2020, Austal gets $50
million. The DoD invests $50 million in a grant to Austal to
establish steel shipbuilding capabilities funded by the DPA and
the CARES Act. They have never built a steel ship, but they got
$50 million American treasure to set up the capability to do
so.
2022, September, myself and Congressman Dunn expressed
national security concerns officially to DHS and Navy
secretaries about Austal USA's OPC contract amidst the LCS
program scrutiny. In 2023, a Federal grand jury indicts three
individuals with accounting fraud at Austal USA related to LCS
contracts. July 2023, myself and Congressman Dunn sent a letter
to the Navy OIG requesting an investigation into Austal USA
regarding connections to China and this ongoing mystery of
money and contracts being awarded for steel vessels when they
had never built a steel vessel.
It continues. May 2024, the DoD IG meets with me after it
had been confirmed to me from the DoD IG that the DoJ was now
involved investigating Austal and things that I had put on the
table. DoD IG meets with me and acknowledges ongoing
investigations in response to concerns, but they refuse to
provide any further details because it is an ongoing DoD IG and
DoJ investigation. June 2024, the former Secretary of the Navy
becomes the Chairman of Austal Limited. You cannot make this
stuff up, America. How are you going to possibly get a clean
audit when this is the culture that we are dealing with?
August 2024, Austal agrees to settle accounting fraud and
false claims with the DoJ by paying a $25 million fine. The
fine was supposed to be $71 million, but they reduced it
because Austal said they did not have the money. September
2024, Austal receives another $450 million contract to expand
their submarine module production in Mobile, Alabama, basically
building them a shipyard with American money. September 2024,
just the other day, Austal gets another $152 million Navy
contract to build infrastructure for the Columbia-class and
Virginia-class submarine modules. That is $600 million that
they have been given just this year, this month. The former
Secretary of the Navy is the CEO of the company, an Australian
company.
Mr. Mansfield, does this rise to the level of reasonable
suspicion in the financial realm, sir?
Mr. Mansfield. I have not looked into----
Mr. Higgins. Are you familiar with any of these
investigations that allegedly have taken place within the IG's
office?
Mr. Mansfield. Sir, so I focus on audits, not criminal
investigations, but I am familiar with the public disclosures
and discussions regarding the settlements reached by DoJ.
Mr. Higgins. That is encouraging. So, you are familiar with
what I am discussing here. The bigger picture here, Mr.
Steffens, Mr. Mansfield, Mr. Kahn, is that the Department of
Defense returns to Congress every year and asks for hundreds
and hundreds of billions of dollars. I am on the Armed Services
Committee. We are responsible for funding, and I am honored to
fund the Department of Defense, but we cannot continue to
operate without some degree of accountability for this money.
It is almost a trillion dollars a year now. When you have
things like this going on, it just blows the minds of Americans
that witness it.
Mr. Chairman, my time has expired, but my passion for this
topic has not. I thank you for having this hearing today, and I
yield.
Mr. Sessions. I thank the gentleman. I now move to the
gentlewoman, Ms. Norton, recognized for 5 minutes.
Ms. Norton. Thank you, Mr. Chairman. For over 3 decades,
the Government Accountability Office has maintained a High Risk
List, as it is called, to identify serious weaknesses in
critical government programs and services. The Government
Accountability Office added Defense Department financial
management to that list in 1995, and it has remained there ever
since. Mr. Khan, briefly, why is the Defense Department
financial management on the High Risk List?
Mr. Khan. DoD has got problems with its internal controls.
They are unable to track the money that they have been given,
primarily because of weak systems which were implemented
decades ago, and those problems continue to persist. We have
made recommendations. DoD could help themselves by implementing
the recommendations we have made in the area of financial
management as well as business system modernization.
Ms. Norton. Well, Mr. Khan, the Defense Department has two
other items of critical concern to the High Risk List: the
business systems modernization and weapons systems acquisition.
Beyond financial management, the Defense Department has
longstanding problems with effectively procuring and overseeing
the products and services it spent more than $456 billion in
Fiscal Year 2023. So, Mr. Khan and Mr. Mansfield, can you
quantify the impact of the Defense Department's ineffective
procurement processes?
Mr. Mansfield. I do not know that I can quantify it, but
what I would say in terms of moving forward, there are, like,
three elements to really solid acquisition, right? The first is
clear requirements. Oftentimes, the DoD's requirements at first
take are not as clear as they could be, and it ends up with
modifications to acquisition programs, right? Because they
adjust the requirements often after they are set up. The second
thing is a clear and measurable oversight plan by the Federal
Government. So, the contracting officers have to have a clear
way of doing quality assurance and quality assessments,
surveillance plans, and making sure that they are getting what
they pay for. So, those two elements are critical. The third
element that is even more critical is the wherewithal within
the Department to actually hold contractors accountable for
failure to meet those contract requirements.
I think if you look through our history of oversight and
acquisition programs, those are the three areas that stick out
the most for us: unclear requirements that are modified, the
Department not having quality oversight of the Department, and
then even when it does its oversight, it does not consistently
hold contractors accountable for not meeting expectations set
out in the contracts.
Ms. Norton. Mr. Khan?
Mr. Khan. The commonality, the common thread between the
three high-risk areas you mentioned are it is tracking the
money, whether it is acquisition, or it is financial
management, or business system modernization. Business system
modernization is really the infrastructure to be able to enable
tracking the money from the budget when it is appropriated to
when the purchase orders goes out, and then when you receive
the goods and services, that has to be tracked. So, that is one
important control DoD needs to have, that they are receiving
goods and services, including large contracts and weapons
systems, for what they have paid for and those goods and
services have been accounted for, and especially if it is
goods, the location, quantity, count, and condition is known.
Ms. Norton. Well, Mr. Khan and Mr. Mansfield, how could
this Subcommittee help the Defense Department improve its
procurement of business and weapons systems? Mr. Khan and Mr.
Mansfield?
Mr. Khan. By continuing to hold DoD accountable through
various means that you have, hearings such as this, is
important, and then asking for additional briefings and
information when you have any questions. We will be more than
happy to meet with you and your staff.
Ms. Norton. Mr. Mansfield?
Mr. Mansfield. Yes. I think transparency is key to the
Department being successful in this area. So, whether it be
through congressional oversight and sharing the information
that you glean from the Department publicly, or oversight like
GAO and the DoD IG do, we provide our findings publicly as
well. And so, sharing that information when we find
deficiencies and we can make recommendations that are
actionable by the Department, the fact that those are known by
the public, that can create additional pressure on the
government to take action in a more responsive, more timely
manner. Not to say that the government and the DoD is generally
responsive to our recommendations, agreeing with us, or working
through alternate approaches, but it is that sunshine that is
placed on that through transparency, through reporting, and
venues like this that actually help, I think, apply that
pressure in a more consistent manner.
Ms. Norton. My time has expired.
Mr. Sessions. I would like Mr. Steffens to, if he could, to
answer this because yesterday, I asked exactly the same thing,
and today is today. It is not yesterday, so we will see what he
says today, but----
Mr. Steffens. Mr. Chairman, to provide some context to the
high-risk list----
Mr. Sessions. Well, essentially what you said is, it was
made important to general officers that they were going to
follow through on this stuff.
Mr. Steffens. Yes. Absolutely.
Mr. Sessions. That is what you said yesterday.
Mr. Steffens. No. Absolutely. The two documents released
within the last year from the Undersecretary for personnel and
readiness, one was for the senior executives to have this
codified in their performance standards for audit.
Mr. Sessions. Right.
Mr. Steffens. Very important. The second thing, just
released within the last month from the Under Secretary for
Personnel and Readiness, was for the general officer and flag
officers to also be held to accountable. This is
groundbreaking. This guidance went out to the military
departments in August, and they have to report back to the
Undersecretary on their plan to achieve this, so I believe this
is a thing that we are tracking very closely. We find this will
be very helpful to us in getting to that tone at the top.
I just wanted to highlight for a second to provide some
context for Mr. Khan's comment about the high-risk areas. We
have been working very diligently in the financial management
arena. I think Mr. Khan will agree we have made progress here.
Yes, since 1995, we have been on the High-Risk List, but since
2017, of the five criteria, we have gone from not met at all to
partially met for most of them, and one for fully met. And we
have closed, out of 52 recommendations, we have closed 15 of
them in the past year, year and a half, so we are moving toward
that. We take it very seriously. We think that the High-Risk
Program is very complementary to the audit as well. A lot of
those things that we get after here in the High-Risk Program
are going to benefit us in terms of getting a clean audit
opinion, sir.
Mr. Sessions. I found your question enlightening, and I
hope you got a good answer.
Ms. Norton. I think so.
Mr. Sessions. Yes, ma'am. Thank you. I would like to move
now to the gentleman, Mr. Biggs. Mr. Biggs is recognized for 5
minutes.
Mr. Biggs. Thank you, Mr. Chairman. I am just going to
change my order of questioning that I had planned because I
thought I just heard you all say to get accountability, we
should do some more hearings, and we should do some more
briefings, and that would help us get accountability for 15
years of failed audits, right? I mean, I find that really
unsatisfactory for me, and I am hoping that maybe you can
dispel some of this.
So, Mr. Mansfield, you talked about some of the problems.
In the acquisition program, I thought I heard you say something
like the requirements are vague, they are indefinite, and then
in oversight, there are problems with oversight, and then there
is a problem with accountability. And I cannot help think but
what Mr. Mfume said, and he said that this money is going down
to a dark hole. And so, I guess, I am finding myself absolutely
apoplectic here in some ways because I am thinking of the F-35
program. When you look at the F-35 program, when you guys are
conducting your audit, Mr. Mansfield, do you take into account
performance of production by the contractors or the program
itself?
Mr. Mansfield. Yes.
Mr. Biggs. And so, about a year and a half ago, the high-
water mark, you had about 55 percent of delivered F-35s were
operable. I am going to put that word in there, ``operable.''
The word I got today, well it is really closer to 29 percent
today. How bad does a program have to be before somebody is
held accountable, Mr. Mansfield? I mean, I am just dying to
know that question. How bad does a program have to be? Because
two aspects of this--this is a program that is supposed to go
through 2088 or something like that, and it is going to cost us
about $2 trillion, and the CBO said 2 years ago that over the
next 10 years, DoD is going to receive $7.1 trillion from the
Federal Government, and I think that is low based on just the
trends that we are taking.
So, I am curious, how do we get accountability besides a
hearing and briefings? And I know that there have been hearings
in HASC about this very program. I know we have had them. We
have had briefings, I have sat in SCIFs, but we are still
looking at a totally failed program. So, what really does get
us accountability?
Mr. Mansfield. So, like I said, one of the roles of the DoD
OIG, is oversight, right? So, we do not take specific action on
a program. We make recommendations to the Department who
ultimately has to take action on those programs. Oftentimes,
our recommendations relate to holding individuals accountable
to stopping programs depending on the scope of the work that we
have conducted. So, I think it really falls to the Department
to take action on the recommendations when we identify those
issues and call them out for them.
Mr. Biggs. I mean, when we have oversight in Congress, we
have you all come in and testify, and you answer our questions,
and this is not the most ideal format, although I will say Mr.
Sessions does a pretty good job because he gives us a little
bit extra time. But in the end, it is like 5 minutes here, 5
minutes there, and it is not the most ideal way. And so, we get
these private briefings, and then the public does not know, but
we are ticked off after the private briefings. But the founders
of this country in the Constitution gave this body the best and
strongest check against this type of mal-administration, and it
is the purse strings. And so, when you see a program where only
21 percent or 29 percent, whatever it is, today, of F-35s in a
multitrillion-dollar program are even operable, maybe this
body, us, this body, this dais, should really be looking into a
different kind of accountability.
You can see that I am frustrated here because this is not
the first one we have done of this, and I appreciate you all
being here to talk about this. But I wanted to just ask one
last area here. Is there a comprehensive audit that is done
over the spare parts suppliers to DoD?
Mr. Mansfield. So, I would say we have not conducted a
comprehensive audit over all of the suppliers, but we have
looked at specific spare parts supplies, streams, or certain
providers of that. Yes, sir.
Mr. Biggs. And over the course of time, when you go back to
the, what, $800 toilets and $600 hammers--there was one DoD
Inspector General who found one supplier was charging 3,800
percent, just a couple years ago, above the contracted amount.
So, my question is, how do we get hold of that end of the
misspend?
Mr. Mansfield. Yes. So, I think we have made some
recommendations related to two sides of that. The first is,
sometimes the contracting officers, when negotiating prices
with a contractor, especially if it is a sole-source provider,
they do not necessarily have the information they need to make
good decisions for the Department, and that comes down to cost
data, right? Usually, they are relying on historical pricing,
or, in other words, last year I paid $100 for that, so this
year they are charging me $101, so that is a fair price. Now, I
do not think you and I would do that, we do a little more
research. How much does it actually cost to produce that item?
What is going into that? So maybe that item actually costs you
$50 to produce. Am I going to pay $101 this year because I paid
$100 last year? Hopefully, I am not.
The problem is the way that the acquisition regulations are
established. It sets contracting officers up to use that
historical pricing data versus the no-kidding-hard-facts of
what the costs are, and that is difficult. It puts the
contracting officer in very difficult position in terms of
making informed decisions.
Mr. Biggs. So, there may be something statutorily needs to
be changed to modify that language. Is that right?
Mr. Mansfield. Yes, and we made recommendation. A couple
years ago, the DoD submitted two legislative requests or
proposals. I do not think they made it into the NDAA. Two years
ago, there was another one for Fiscal Year 2024 that was
submitted. Actually, that one went through OMB and made it up.
I do not believe that is in the current version of the NDAA,
but----
Mr. Biggs. And it is a crying shame, Mr. Mansfield.
Mr. Mansfield. There is some stuff out there, though, to
look at, sir.
Mr. Biggs. Thank you so much, and, Mr. Chairman, thank you,
and I have some documents I would like to include in the
record.
Mr. Sessions. Without objection, so ordered.
Mr. Biggs. Yes, a piece called, ``What a Waste: $778
billion for the Pentagon and Still Counting;'' another one
entitled, ``Waste of the Day: Pentagon $50 Billion Behind in
Building Repairs;'' another one, ``Committee Requests
Information on Pentagon's $125 billion in Waste;'' another one,
``Pentagon Buried Study That Found $125 Billion in Wasteful
Spending;'' and then this one, which I did not get a chance to
ask about. I would like to know what is really going on with
this one as well: ``Forbidden Russian Oil Flows into Pentagon
Supply Chain,'' and I yield. Thank you.
Mr. Sessions. Without objection, we will include those in
the record.
And I would encourage the gentleman, if he would choose to
have additional questions for our witnesses, our witnesses will
find out at the end we are asking them to please answer those
for us, and thank you very much, the gentleman from Arizona.
Ms. Lee, you are recognized for 5 minutes.
Ms. Lee. Thank you, Mr. Chair.
Mr. Sessions. Yes, ma'am.
Ms. Lee. I do thank you all for joining us today, again, as
we continue along on this series of exploring why Congress
continues to funnel hundreds of billions of dollars to an
organization that cannot even keep track of how they spend the
money. I am sorry or I apologize if I do not take or I cannot
take as patient a tone as some of my other colleagues because I
think about how even just a small percentage of that money that
cannot be accounted for could fund things like universal school
meals, or needed infrastructure projects in my district, or
childcare, but instead we do not even know where it is. So, Mr.
Khan, if Congress gave DoD unlimited resources to upgrade
systems and hire people, how long would it take for the DoD to
pass a clean audit?
Mr. Khan. It is a very good question, Congresswoman Lee. I
mean, just laying out their timelines, what DoD is looking
toward is 2028. They have the resources. They are working
toward that timeline. But, you know, whether they need that
data or not, it is difficult to predict because they have huge
challenges before them, as depicted on the scorecard, so it is
difficult to answer that question, Congresswoman.
Ms. Lee. Thank you. So, it is more than just getting the
right computer systems and staff in place?
Mr. Khan. Correct. Yes.
Ms. Lee. OK. Mr. Mansfield, would you agree that unless
DoD's leadership makes this a priority, we are not going to get
a successful audit?
Mr. Mansfield. I would agree with that, yes.
Ms. Lee. Thank you. Auditing DoD is expensive for
taxpayers, and it is lucrative for the corporations that profit
from the military industrial complex.
Mr. Chairman, I would like to ask unanimous consent to
enter into the record a June 2024 report from the DoD OIG
showing how between Fiscal Year 2018 and Fiscal Year 2022, DoD
spent more than $4 billion in government and contract costs
related to finding solutions to help it achieve a clean audit.
Mr. Sessions. Without objection, we will enter that into
the record.
Ms. Lee. Thank you. So much money for zero results. I think
just about anyone else would get fired for that type of
failure, yet the DoD faces no consequences. Mr. Mansfield, can
you explain some of the management issues that the OIG
discovered in reviewing this $4 billion failure to improve its
auditability?
Mr. Mansfield. Yes. I appreciate you bringing that report
up. That is, we looked at the Department's efforts to contract
for remediation efforts in support for the financial statement
audits. And so, some of the things we found in terms of that
was the DoD does not have clear definitions of what should be
contracted for, for remediation efforts. And so, when trying to
compile the amount of effort or to take the amount of effort
and put a dollar figure to it that is spent on remediation
efforts, it was a little difficult to do because different
parts of the Department are using different definitions for
what is considered remediation.
We also went in and looked at some of the contract
requirements, and we found that they were not as clear as they
could be. There were not specific deliverables within some of
those remediation contracts, which makes it very difficult for
the Department to know it got exactly what it paid for. We also
found that a number of the efforts underneath those contracts,
while they were value-added efforts, were not clearly linked to
the Department's remediation goals. And so, if the Department
is saying these are our priorities for remediation, but then
they are putting money into things that are not directly
aligned to that, it does not feel like they are really kind of
having a consolidated focused approach at the remediation.
Ms. Lee. Thank you, and I thank you for your very
thoughtful answer. But the fact remains that the DoD can waste
$4 billion on a failure and barely bat an eye. It just shows
how much of an over-inflated tick the Agency is. It is sucking
the resources and money from our Federal Government. No
government agency should be held above accountability and now
we must ask ourselves, at what point do we stop using the
carrot approach and start using the stick? The solution is
clearly not giving DoD more resources and money for passing
their audit. That has failed over and over again. They have
shown that even with their seemingly unlimited resources, they
do not care to work to improve. Maybe what we need are real
consequences.
Their budget is already over inflated and should be cut
regardless of their ability to give a clean audit. So, how
about slashing their budget every year they fail to deliver a
clean audit? Regardless, this is not a new problem. This has
been going on for decades, and their financial mismanagement is
the reason they have been on GAO's High-Risk List since 1995,
meaning, it is among the Federal Government programs and
operations most likely to commit waste, fraud, abuse, or
mismanagement. The Pentagon must rethink this culture that
enables unchecked and unfettered spending at every level and
prioritize its financial duty. Failing to do so harms our
national security. I do thank you for your time, and with that,
I yield back.
Mr. Sessions. The gentlewoman yields back her time. Now I
yield 5 minutes to the distinguished gentleman from Alabama.
Mr. Palmer. I want to raise some questions, Mr. Chairman,
about what the GAO has tried to do in terms of getting more
accuracy from the Department of Defense. And despite the
massive spending, the only Federal agency in the country that
has failed to pass an independent audit, they remain on the
GAO's High-Risk List for waste, fraud, and abuse for 34 years.
Last year, the Department of Defense failed at six consecutive
audits, was unable to fully account for 63 percent of the $3.8
billion of its assets. A Navy audit found $4.4 billion of
previously untracked inventory. Air Force identified $5.2
billion worth of variances in its general ledger. Reports found
defense contractors routinely overcharged the Pentagon, and, I
would add, the American taxpayer, by nearly 40 or 50 percent.
There is a significant amount of money, Mr. Steffens, being
spent every year, approximately a billion dollars being spent
on projects around getting the DoD to a clean audit. So, about
15 percent of the amount is spent on audit services, but the
rest is spent on building new systems and all kinds of
contracts under the umbrella of audit readiness. That is a lot
of money. How much insight and influence do you have into
ensuring that the money is being well spent?
Mr. Steffens. I appreciate the question on that. I believe,
sir, that we are getting, definitely instilling, more
accountability from the Secretary and Deputy Secretary on this.
Mr. Palmer. But how do you account for the fact that you
cannot pass an audit? I mean, are the systems being modernized?
Are new systems being built? I mean, what improvements are you
making?
Mr. Steffens. So, we have to approach it from about four or
five different fronts. Mr. Khan came to the House Armed
Services Committee, I think, about 13 years ago, with six
imperatives, I think, that need to be, and all of them are
important, not just systems, but he----
Mr. Palmer. But you never implement them.
Mr. Steffens. Well, we are working on each one of them. We
hold, you know, trained and ready workforce, a good defined
business architecture. Business process architecture needs to
be in place as well.
Mr. Palmer. I understand that you need to maintain a
certain level of secrecy in some of the things that you do,
that money is fungible, but the fact that you have not had a
successful audit in 34 years and the fact that you have not
implemented much of what the GAO has recommended is
problematic. I mean, it is important that the American public
have confidence in the Department of Defense. I want to bring
up something else because we keep hearing about massive
overruns in defense systems or weapons platforms as an issue of
change orders. Does the Department of Defense authorize the
construction and manufacture of systems before the design is
final? Does that ever happen?
Mr. Steffens. It would not surprise me that it has happened
before.
Mr. Palmer. Why would that happen? I worked for two
international engineering companies, and we typically did not
start building something until we had a final design.
Mr. Steffens. What I could offer, sir, is there is a delay,
there is a push----
Mr. Palmer. A delay is something different. Not having a
final design but starting the development of a weapon system or
constructing a facility is different. If you start before the
design is final, you are almost guaranteeing that you are going
to have massive numbers of change orders. Would that have
anything to do with the way Congress appropriates funds for the
Department of Defense? Are you starting projects before they
are ready because you are afraid Congress will not put the
money there in the next appropriation? Would that be a problem?
Mr. Steffens. It would absolutely be a problem, yes.
Mr. Palmer. Is that why you do it?
Mr. Steffens. I do not----
Mr. Palmer. Is that why you had such massive overruns on
the F-35? You are afraid that Congress would pull the program?
I mean, there was a project that I worked on in engineering
where we were supposed to be retrofitting rockets, and I think
we had already spent nearly a billion dollars and they pulled
the project. Is that part of what is happening here?
Mr. Steffens. I cannot speak to the F-35 or the project
management piece, but, you know, in----
Mr. Palmer. Mr. Mansfield, can you speak to that?
Mr. Mansfield. So, I can say some of the oversight work
that we have done, some of the things that we have identified
is similar to your point. It really gets to the test and
evaluation process, where throughout the test and evaluation
process for an acquisition program, so looking at a system, the
DoD will do some testing, or----
Mr. Palmer. But that is different from starting before the
design is ripe.
Mr. Mansfield. No. But so, they will identify that there
are deficiencies, and they will still move forward with the
manufacturing process before addressing all those deficiencies,
knowing they are going to have to retrofit down the road
incurring additional cost.
Mr. Palmer. Yes, I understand that because that is an
evolving system. But when you are building a facility or some
other things where you develop a design, and then you build to
the design, from my observation, you are starting work on
projects and facilities before the design is ripe. And I just
wonder, Mr. Chairman, if it is because they are concerned the
money will not be there, so they go ahead and start, and we
wind up spending 30, 40, 50 percent more on these weapon
systems and these facilities than we should, and then you are
not doing adequate audits, oversight of these projects. So, Mr.
Chairman, I do not think we are done with this. I would like
for us to continue to try to exercise oversight and do some
additional followup. I yield back.
Mr. Sessions. Thank you very much. Let me agree with the
gentleman and also agree with the panelist who do not think our
work is done because they do not think we have always made sure
at the highest levels of DoD how important this is. And they
want a clean audit, and they want these things, so I think your
point is well made.
Mr. Palmer. I am not sure they are taking us seriously.
Mr. Sessions. Well, you know, I certainly think that what
this Subcommittee should do is walk a mile in their sandals, so
to speak, and there are a number of things about F-35, A-22, a
lot of these things that became abject failures because someone
thought they were going to use it one way and was used another.
There are hundreds, if not thousands, of people who are
suppliers to F-35, and they may be in other countries and
trying to get those piece parts together and trying to get
that. So, I do agree with you because we all talk about the
billions, not the thousands, and I think that is the point that
the distinguished gentleman has made that I do take at hand,
and we do need to be concerned about that.
Mr. Palmer. Thank you, Mr. Chairman.
Mr. Sessions. Yes, sir. Thank you, sir. Now I would like to
move to the gentlewoman, Ms. Tlaib, for 5 minutes.
Ms. Tlaib. Thank you, Chairman. Mr. Steffens, you know,
just bear with me here. So, they say that, you know, the
Department of Defense failed its sixth audit. How many audits
have they had?
Mr. Steffens. So, ma'am, since Fiscal Year 2018, we have
gone under full financial statement audit, so that has been 6
consecutive years. The first time we ever went under a full
financial statement was 2018, so----
Ms. Tlaib. We never did a full audit before that?
Mr. Steffens. Before that? No, ma'am.
Ms. Tlaib. OK. And so, what is the percentage because I
read that they could not account for half of its assets. You
probably heard a lot of my colleagues talk about it. It is,
what, $3.1 trillion? How much of that is the entire Federal
budget, percentage-wise?
Mr. Steffens. Both asset-wise, I do not have the exact
percentages, but in terms of the budget, we are roughly half
the discretionary spending for the U.S. Government.
Ms. Tlaib. So, it is actually 78 percent of the entire
Federal budget, the excess of $3.1 trillion,----
Mr. Steffens. Yes, that is right.
Ms. Tlaib [continuing]. Seventy-eight percent of the entire
Federal budget. You know, I know my colleagues talk to you all
about this, but I started the Get The Lead Out Caucus, and we
got tremendous bipartisan support. Of course, I think all of us
agree no amount of lead in water is safe anymore, and it never
really was. I mean, $60 billion just to start putting a dent
into removing lead pipes, and just thinking about the fact that
I am always being told, how are we going to pay for it, and you
see this kind of waste. And I really commend my colleagues to
bring this forward because, I kid you not, I could be in a room
in a town hall in Detroit--and I do not just represent the city
of Detroit, I represent some of the suburban communities--this
is one of the consistent things they will agree with me on,
even if politically we do not agree on a lot of other issues.
So, Mr. Khan, one of the things that I was reading in
regard to the clean audit, specifically, I did not understand
what this meant: it said, ``Since 1995, the GAO has designated
DoD financial management as a high-risk area due to
longstanding issues, including ineffective processing
systems.'' What does that really mean? What does it mean to say
that they are designated as a high-risk area?
Mr. Khan. So, it would be similar to any Federal program.
It needs to have systems and processes, especially when a large
amount of assets and money is involved in there. DoD was set up
to support the war-fighting missions. They did not have systems
and control to do financial management. They were to process
logistics. Because of that, they were not able to account for
the money that was given to them in the annual appropriations.
They were not properly----
Ms. Tlaib. So, it is about waste. High-risk is, like, oh,
are they wasting money, right?
Mr. Khan. It leads to waste. It does, yes. It is about
transparency and accountability. If you do not have that, then
it can lead to waste, fraud, and abuse, correct.
Ms. Tlaib. OK. Yes. Mr. Mansfield, and I am, like,
generally, is it only war manufacturing in the Pentagon budget?
What else is in there?
Mr. Mansfield. I am sorry. Can you repeat that?
Ms. Tlaib. In the Pentagon budget, is it just war
manufacturing? Like, if I was to go to my community, and I know
kind of the answer, and I would explain this to them, what else
is in there? Give me something that would blow my mind.
Mr. Mansfield. So, it is like any organization, although I
would say the duty is like a strange microcosmos of society,
right? So, there are grocery stores or healthcare, there are
school systems, there is manufacturing, there are people,
right? You got to pay for all the individuals in addition to
the acquisition program. So, there are a lot of things we----
Ms. Tlaib. So, it is not just war manufacturing like
everybody thinks?
Mr. Mansfield. No, by no means.
Ms. Tlaib. Yes. No, I know that. Chairman, I wish people
would understand that, though. When you were looking at it, Mr.
Mansfield, and I believe you are the Inspector General,
correct?
Mr. Mansfield. I am the Deputy Inspector General for audit.
Ms. Tlaib. Deputy, yes. Sorry.
Mr. Mansfield. Yes. Rob Storch is our Inspector General.
Ms. Tlaib. Yes, of course. I apologize.
Mr. Mansfield. That is OK.
Ms. Tlaib. Even with the work that you are doing, what
stood out to you the most, kind of in line with what Mr. Khan
talked about of high-risk?
Mr. Mansfield. Yes. So, I believe Mr. Khan hit the nail on
the head. It is about systems. So, you know, when we do the
financial statement audit, the auditors issue what are called
notices of findings and recommendations. Those are, as you look
at each individual kind of system or process, you make
recommendations on how to improve those. You know, in 2023----
Ms. Tlaib. So, you guys have been doing that for years now?
Mr. Mansfield. Yes.
Ms. Tlaib. Any of them get implemented?
Mr. Mansfield. Yes. So, in 2023 the DoD closed just over
thousands, almost 1,500, of the NFRs that we had--that is our
kind of lingo--that we had issued in previous years, so they do
make progress every year. But as in any improvement process, as
you fix one thing, that leads to us to be able to look at a
little deeper, dig a little more, and we do identify additional
issues. What I was going to say, though, is about 50 percent,
maybe a little more than 50 percent, of the notices and
findings and recommendations that we issue are related to
information technology, whether that is system security or
controls over system upgrades, system interfaces, those types
of things, so----
Ms. Tlaib. How much of the budget? And I am sorry, Mr.
Chair, but how much of the budget are contractors?
Mr. Mansfield. I do not have an answer for that with me
today. I apologize.
Ms. Tlaib. Do you know what I mean by that? Like, are they,
like, separately done? Like, not outside of the Federal? Like,
they are contracted out?
Mr. Mansfield. Tom, if you have an answer for that? I am
not sure.
Ms. Tlaib. I actually do not know the answer to this, this
is----
Mr. Mansfield. I can take it for the record, though, and
try and get something for you.
Mr. Steffens. Well, you know, budgets are broken down by
program, but each part of that program, as Mr. Mansfield
mentioned, a large part of it is to pay people, both civilians
and military. Some of it is used for, you know, things like
travel and other areas. But, you know, contracting is a large
piece, but a lot of that contracting is----
Ms. Tlaib. I think over 50 percent of the Pentagon budget
is contractors.
Mr. Steffens. I believe it is less than that.
Ms. Tlaib. It is less, OK. Less, OK. Yes. No, I know you
hear this a lot, but 78 percent is a lot. I mean, of the whole
Federal budget, you think about everything, healthcare, Social
Security, everything, and 78 percent of it. And just to think
that I am begging just for $60 billion to actually try to get
clean water across our country. But with that, I mean, I really
commend you, Chairman, for doing this. This is incredibly
important. I hear this question all the time, why can't they
pass an audit? What is going on, you know, and Americans of all
different political backgrounds really do not like wasteful
spending, especially when they are still struggling and they
cannot figure out why they are still struggling, while again,
watching kind of wasteful spending or, as Mr. Khan calls it, a
high-risk area within it. So, thank you so much, Mr. Chair.
Mr. Sessions. The gentlewoman yields back her time. I would
like to now move to the distinguished gentleman who has taken
his time be here. The gentleman is recognized, Mr. Burlison,
for 5 minutes.
Mr. Burlison. Thank you, Mr. Chairman. You know, I think
that I try to treat this role as to try to be the best steward
of the taxpayer dollars that I could possibly be. When I think
about the families of my district and how hard they work and
then their taxpayer dollars are sent here, and the American
people in my district, they are frustrated. The question is,
who is to be accountable for this, right? The concern that I
have is that by having all this uncertainty, we cannot pass an
audit, then all of the conspiracy theories, when people talk
about military industrial complex, all of these things start,
it becomes more prevalent because there is nothing that you can
point to. So, my question is, you know, we have not passed a
clean audit ever. The Department of Defense is the only Agency
that has not done so. Congress has mandated that DoD achieve a
clean audit by December 28, 2028. So, my question to each one
of you on the panel is, do you think that that will happen?
Mr. Steffens. It is a great question. I know there is a lot
of concern expressed about that date and can we meet that date.
It will definitely be a challenge, but I believe if we have a
couple of key elements in place, I think we can do it.
Leadership commitment is first and foremost. More important,
even than the resources is the sense of priority that our
leadership has to have on this. I do feel comforted over the
last 2 years, the last 3 years, really, Secretary Austin and
Secretary Hicks take this very seriously. They have issued, and
I have introduced, I think I have shared some correspondence
with both the Chairman and the Ranking Member's team on some of
the things that they have done in getting, not just the
financial management folks like myself that are here today, but
it is going to require effort from all of the functional areas,
the acquisition functional area, the Chief Information Officer,
folks from human resources.
It is an all-hands-on-deck, just like we gave the example
the Marine Corps and the great success they had this year, very
hard work. But the Commandant and the ACMC for the Marine
Corps, the Assistant Commandant, had required everybody to be a
part of everybody's business. It was that profound, and he was
very, very adamant about that. We will require that same tone
at the top at the Department level. So that, the resources.
The other thing I am excited about, too, recently is
technology. We have not talked much about it today, but ADVANA
is an example. It is a platform, a data base, a data platform
that helps us better remediate, identify where our problem
areas are, the areas that need reconciliation, and to remediate
those things, and so we are utilizing some of that. With that
advanced technology to do better data analytics, is we need
personnel to also be trained to do that data analytics, and we
are working on that very much. Workforce. In addition to the
systems, in addition to the tone at the top, is we have to have
quality professional people to do this. And we are working
toward that, making sure we are developing professional
competencies within our financial management workforce, but
also logistics and acquisition as well. So, they are all
trained on the importance of audit.
Mr. Burlison. Mr. Mansfield, do you believe that there will
be a clean audit by 2028?
Mr. Mansfield. So, you know, our role as the Inspector
General is to perform the audit, and so I am very hesitant to
make any predictions before we have actually done the work, so
I am going to kind of refrain from saying whether they will
pass or not. What I would echo is what Mr. Steffens said. There
is a lot of work to do before they get there. And I would also
add the Department, as much as it is making progress and has, I
think, a solid tone at the top at this point, does have a
history of sliding expectation of goals to the right. And so,
it will be a difficult and uphill battle for the Department,
although I think they are committed to it, but it still waits
to be seen, and we will have to do the actual audit work before
I can give you an opinion on whether they will pass or not.
Mr. Burlison. OK. Mr. Khan?
Mr. Khan. I think there will be early indicators whether or
not they can meet that timeline. The system is going to drive
that. Having a compliance system across the Department. They
have to be in place, in our view, by the end of Fiscal Year
2026 so that they can begin to process transactions in 2027 and
2028 to be able to reach an opinion by that date, so we will
know. We perform oversight of the DoD. So, as we do our work,
we will have good indication as to how the progress is going
and what the path to auditability looks like and if those
timelines can be met.
Mr. Burlison. OK. So, Mr. Steffens--is Steffens or
Steffens? Sorry. You said that it is going to take a commitment
from leadership, and then you said, you know, the current
leadership is committed. If they are committed, why are we not
there yet?
Mr. Steffens. I think we are making progress, and obviously
we have been under full financial statement audit for over 6
years into our----
Mr. Burlison. I think, like, the American people who are
listening, they would wonder, it has been 6 years. That shows
there has not been any commitment.
Mr. Steffens. I do believe we are at an inflection point,
though. I believe over this last 2 years we have been in an
inflection point. The one thing, too, that was pointed out,
which I think has actually energized the leadership, is the
NDAA 2024 that came out with the mandate for 2028. Initially we
saw that, you know, a lot of folks will look that as a threat,
you know, this is challenging, but I have to report to you that
this has created an enormous amount of energy in the
Department. Every functional meeting that we have that
addresses audit and financial audit remediation starts out
with, `team, we have a mandate from Congress for 2028,' so that
has been very helpful.
Mr. Burlison. Sorry, Mr. Chairman. Can I ask one more? Is
this an organizational behavior issue? Is that, is what I am
reading into this is that you have got a cultural resistance to
a lot of this?
Mr. Steffens. But I believe that is changing. I believe
that is changing. You know, the old Army's motto was to fight
and win our Nation's wars, right? I will take the Army's
examples because I spent a lot of time in the Army. They
developed a process, but we have to be accountable as well, and
we have to have sound business operations. That will only help
our readiness. And I think we have to instill that in our
leadership--our senior leadership, operational leadership--
that, hey, doing this, getting better business operations,
getting more sound, getting auditable will actually help
readiness in the long term. That has got to be the message, and
that is what I think is being received now better than it has
before.
Mr. Burlison. Thank you. I yield back.
Mr. Sessions. The gentlemen yields back his time. Does
gentlewoman seek time?
Ms. Crockett. Yes.
Chairman Session. The gentlewoman, Ms. Crockett, is
recognized for 5 minutes.
Ms. Crockett. Thank you, Mr. Chair. I will be honest and
tell you that most of my constituents are not particularly
interested in the finer points of Federal financial auditing.
But what they do care about is whether their taxpayer dollars
are being wasted, whether our military is ready to take on the
next threat, and whether our military can continue to keep us
and our allies safe. Unfortunately, we are seeing right now
what happens when DoD fails to maintain good accounting of its
Federal funds and government-funded property.
A few weeks ago, the DoD Office of Inspector General issued
a report claiming that ``DoD did not effectively or efficiently
implement accountability controls for items delivered to Taiwan
from November 2023 through March 2024.'' It continued noting
that ``2.7 million rounds of ammunition from the DoD, including
some that was expired in a mix of original, loose, and
incorrect packaging.'' This is to say nothing of more than 340
of 504, or 67 percent of the total pallets sent over were water
damaged, resulting, in other things, including moldy body
armor.
And I am going to just pause here really quick because we
just had a larger hearing earlier today that was talking about
the threats of the PRC and the idea that we continue to say
that we support Taiwan and we stand with them. And then because
of our own failures, we are unable to support those that we are
trying to help, at the same time that we are casting
dispersions on this real threat that China presents is
problematic. Not to mention these are items that, essentially,
could have been necessary for our own protection. These are
items that came out of our own stores, and so it does not
instill the most confidence, but also just the amount of money
that was lost.
My district, 20 percent live at or below poverty, so when
they are paying taxes that a lot of them really cannot afford
in the first place because they need every single dime, it is
hard to hear numbers like this and know that, literally, the
amount of money that we send over to DoD are amounts of money
that most of us will never see in our bank accounts in a
lifetime. It is a problem, but we also know that there are real
threats, as we know, that the temperature around the world is a
little high right now, and as we are attempting to be good
allies, we need to do just that and be good allies. And this is
one of the easiest ways we can start, is by making sure that we
are holding ourselves accountable for the money that we are
spending.
DoD's failure to account for and properly oversee its
weapons and property funded by taxpayers in my district and
across the country is an understatement. National and
international security today increasingly relies on good
technology, solid record keeping, and cutting-edge data
analytics, and every dollar lost to fraud, waste, or abuse,
means the American people get a less efficient and effective
military.
Mr. Khan, yes or no? From your experience, can better
financial management at DoD improve Agency decision-making to
better protect our national security and the security of our
allies?
Mr. Khan. Yes.
Ms. Crockett. Now, going back to the DoD report, the
Inspector General stated that because of DoD's failures, our
government ended up spending an additional ``$618,000 in labor
and materials to clean and dry wet and moldy body armor, and
$113,000 to replace damaged body armor delivered to Taiwan.''
This is to say nothing of the additional costs incurred to
replace the unusable munitions sent over which again was sent
over an incorrect packaging. How is DoD supposed to pass an
audit if it is supposedly sending arms and weapons to our
friends and allies with the wrong label?
A sixth of our total Federal budget goes to DoD, and to be
clear, I am not underestimating the vital work of the
Department's mission in protecting our national security and
the security of our allies, but it is because of the vital role
DoD plays in our lives that Americans demand accountability.
The people need to know that if a crisis happens, DoD can
protect us and our allies in worst-case scenarios, and to do
this, DoD must have a successful audit.
Mr. Khan, how long has the Department of Defense's
financial management been on GAO's High-Risk List?
Mr. Khan. It has been around 30 years.
Ms. Crockett. And why is DoD's financial management of
GAO's High-Risk List? Why is it on the list? Sorry.
Mr. Khan. Because of pervasive internal control weaknesses
that prevent accountability of their assets and the budget they
have been provided by the Congress.
Ms. Crockett. Thank you. Has DoD's leadership improved the
Department's financial management in ways that could get it off
of the GAO High-Risk List?
Mr. Khan. Yes. I mean, the High-Risk List has got five
criteria. Probably the most important is leadership. That is
where they have met the criteria. Tone at the top is very
important for remediating the other four areas.
Ms. Crockett. Thank you. Although DoD as a whole has yet to
achieve a clean audit, 10 of its 29 components passed their
audits with clean opinions in Fiscal Year 2023. While this is
nowhere near where DoD needs to be, the progress is promising.
DoD must use the success in these components for the remaining
areas needing improvement. Can I ask one last question, Mr.
Chair?
Mr. Sessions. Yes, of course..
Ms. Crockett. OK. In fact, Mr. Steffens, just so we have it
on record, what are some of the lessons or best practices from
the 10 successful components at DoD that can be shared Agency-
wide?
Mr. Steffens. Sure. Thank you for the question. I believe
there are a number of lessons learned that we have, most
recently, obviously from the Marine Corps. We just talked about
this, tone at the top, the example that General Smith, at the
time was the Assistant Commandant, set, holding his leaders
accountable is vitally important, and we talked about through
several of you today. Second, the important thing in the Marine
Corps, too, is breaking down the stovepipes amongst systems,
the acquisition systems and our financial systems. Making sure
there is free flow of data, the correct data, and the exact
data in the right configuration so a transaction can flow
through the purchasing system, through the financial system is
very important. We learned from that.
But aside from the Marine Corps, and also, I think, the
Marine Corps, too, is having a very modern, capable enterprise
resource planning system or ERP, in the form of the Defense
Agency's initiative system, which they adopted here several
years ago, just recently, and it shows that the systems matter,
right? So, aside from the Marine Corps, I will go to the Army
Corps of Engineers only because I served as their CFO there for
6 years, and we have had clean audit opinions, to your point.
Standardization is so important, standardization among
entities. So, let us, you know, establish the policy and have
all those organizations do it correctly.
Now, I will tell you in the Corps, maybe it was a little
bit easier with 44 districts that could operate the same way.
It is a little more challenging in the military departments
because you have such a differentiation in missions amongst
those various commands, but nonetheless, the standardization
has to be important. It has to be enforced. So, those are a
couple examples of things that we have learned from Marine
Corps, Army Corps of Engineers, and then working closely with
your service provider. I think we have learned here recently
from organizations that the working capital funds from Defense
Information Systems Agency, the partnership you have with the
service provider, being vocal, good exchange on what they can
provide for you, and DFAS has done, that is also a good
example, ma'am.
Ms. Crockett. Thank you so much. With that, I will yield.
Mr. Sessions. The gentlewoman yields back her time. Mr.
Mfume asked me to please provide on his behalf unanimous
consent to enter to the record the statement from Greg
Williams, Director of the Center for Defense Information at the
Project on Government Oversight, that offers specific
recommendations to increase the accountability and transparency
in DoD's acquisition and procurement programs. Without
objection, we will enter that into the record.
Gentlemen, thank you very much. I had an opportunity over
the last few days as we were preparing this--Mr. Mfume did
also--to draw some conclusions that some of our Members may
have gotten at, some of our Members may not have gotten at. We
have new Members. I confess, I have been around for a while. I
have not gotten to where I am going to make any excuses for
anybody, but we have to be able to understand where we are,
just as you have understood where you are in that process.
One of the things I would say is, is that one of the most
interesting parts is that at least the Marine Corps, maybe some
of the others, hold their general officers accountable for
this. No. 2, the Marine Corps did make progress. There is a
specific example of someone who did pass an audit as opposed to
the years where no one did. I think that organizations can see
across themselves specific examples, and I think we ought to
give the Marine Corps a pat on the back. When I was at AT&T for
a number of years, we tried to celebrate victories, good
behavior, encourage things that would organizationally be
beneficial to employees as well as the bottom line of running
the business. I think the Marines Corps should get a pat on the
back, be told that they did the right thing. Mr. Mfume and I
decided today that we are going to go and try and do that, try
and say thank you. I think success needs to be encouraged.
Other things which I learned, which I had known for quite
some time, we are also not actively in a full-time war posture.
There is less movement of issues and ideas, and organizations
can focus, perhaps better, on what their mission is, but less
movement of equipment, less movement necessarily required even
though we are supporting, as has been noted here, a number of
our allies, and not all those things, excuse me, have been done
correctly. But I believe that I could successfully say that
each of you, while you answer the question that all of us had,
I did, over the last couple days, are we going to make it? And
the answer is, we can. There is a model for it, but we are
going to have to keep working together.
So, this Subcommittee has a lot of work. This Subcommittee
has more work than just DoD. It has the rest of the government
to be concerned with. And last week, we held a number of
hearings that were stunning in the testimony about the
inefficiency of agencies. Part of it we want to say we can fix,
must fix in the next few days, but they also, when those
participants came forth, they said we have got to fix it. We
cannot continue to bleed not just the taxpayer, but the
intended purpose of why the money was given in a program.
So, our process is laid out. For Mr. Mfume and I, I will
tell you, I am delighted with the Subcommittee Members, like
Ms. Tlaib and others who showed up, Mr. Palmer, Mr. Higgins,
who, I think, are really dedicated to work with you. Each of
you have distinguished yourself. We appreciate what you do, and
your teams. Mr. Steffens brought a young man with him yesterday
from Georgia, strong colonel who supported him yesterday, and
others. So, it is not just each of you. I know that you have a
team. I know that you have got hundreds of people that go into
this work every day. I hope you will pat them on the back and
tell them somebody does care.
So, this now gets to the end of our hearing. Sorry, I have
got to read a little closing script here. I now recognize that
we are at the end of this, and so, without objection, all
Members will have 5 legislative days within which to submit
additional written questions for each of you as witnesses, and
we will be forwarding these to you, would expect an answer
back.
And with that said, this closes the hearing, and I want to
thank each of you for being here.
[Whereupon, at 4:26 p.m., the Subcommittee was adjourned.]
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