[Congressional Record Volume 140, Number 56 (Tuesday, May 10, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: May 10, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                      DOD FINANCIAL MISMANAGEMENT

  Mr. GRASSLEY. Madam President, I would like to speak about gross, 
continuing financial mismanagement at the Department of Defense [DOD].
  I have spoken on the issue a number of times over the past year.
  Last week, I spoke about the financial horror stories laid out before 
Senator Glenn's Governmental Affairs Committee on April 12, and the 
need for accountability.
  Today, I would like to follow up on the need for accountability.
  All the available evidence suggests the situation is getting worse.
  A slew of recent DOD inspector general [IG] and GAO audit reports 
clearly suggest DOD is faced with a deepening and a dangerous financial 
crisis, and the outlook for reform is dim.
  Now, the new DOD Comptroller, Mr. John Hamre, deserves a lot of 
credit for what he is trying to do. He is leading the Department out of 
the dark ages of denial. He is creating the kind of atmosphere where 
real reform could happen. He is developing a plan to fix the problem. 
He is on the right track.
  But I fear his plan is lacking in one vital area--accountability.
  Without accountability, Mr. Hamre's plan just will not work.
  The bureaucrats will do him in. They are already responding to Mr. 
Hamre's initiatives in very positive but predictable ways. Of one 
thing, I am sure. The bureaucrats will drag their feet.
  The Pentagon bureaucrats have already erected a major roadblock. They 
are saying the Hamre fix cannot be made overnight. The system is so big 
and complicated. It is an evoluationary process that will take years to 
fix--5, 10, or more years.
  Well, that is bureaurcratic baloney. That is just not good enough.
  A good dose of accountability right now would get the bureaucrats off 
the dime and Mr. Hamre's reforms moving at a more reasonable pace.
  Mismanagement must have consequences. Responsible officials should be 
identified and removed from office.
  In my last speech, I identified four senior officials at the Defense 
Finance and Accounting Service or DFAS, including the Director of DFAS, 
Mr. John P. Springett, who are accountable.
  I believe Mr. Springett and his management team are directly 
responsible for the continuing lack of internal controls and discipline 
in accounting.
  Mr. Hamre defends Mr. Springett. He believes Mr. Springett is helping 
him fix the problem.
  I do not buy it. I think Mr. Hamre needs a reality check.
  I am not interested in Mr. Springett's promises. I am interested in 
his performance over the last 4 years.
  What has Mr. Springett accomplished as boss--top manager--at DFAS 
since the day DFAS was created--November 26, 1990?
  DFAS was one of the famous DMR or Defense management report 
initiatives. DFAS was created to clean up the mess, and Mr. Springett 
was placed in charge of the cleanup.
  Did Mr. Springett do the cleanup, or did he make significant 
progress?
  As I said in the beginning, we have a slew of new IG and GAO audit 
reports.
  All the reports point to just one conclusion: Mr. Springett has been 
a dismal failure as Director of DFAS. I know of no other way to say it.
  To gauge Mr. Springett's performance, I would like to examine two key 
issues: His progress on unmatched disbursements; and negative 
unliquidated obligations or NULO's pronounced new-low's.
  I have a document signed by the late Mr. Donald J. Atwood who 
launched the DMR initiatives. He was the Deputy Secretary of Defense at 
the time. The document is dated April 14, 1992. In this document, Mr. 
Atwood outlines DFAS's mission.
  One of DFAS's most important jobs, according to Mr. Atwood, was to 
eliminate unmatched disbursements.
  Unmatched disbursement are so dangerous because they signal the 
breakdown of internal control over money.
  I quote from the April 1992 Atwood document:

       On October 24, 1991, guidance was issued requiring the DOD 
     Components, under the leadership of the Defense Finance and 
     Accounting Service, to develop a plan for eliminating 
     unmatched disbursements. The Components were requested to 
     identify future actions that will preclude unmatched 
     disbursements in the future. The Defense Finance and 
     Accounting Service is tasked with implementing those plans 
     and actions.

  That order went out in October 1991.
  That was over 2 years ago.
  The DMR, Mr. Atwood, and the Comptroller all told Mr. Springett to 
get on the stick; clean up the mess; and eliminate unmatched 
disbursements.
  I bet Mr. Springett promised the last Comptroller that he would help 
him, too.
  Today's $41 billion in unmatched disbursements stands as a monument 
to Mr. Springett's do-nothingness. Under the leadership of Mr. 
Springett, the unmatched disbursements have continued to pile up.
  The April 1992 Atwood document also reveals that DFAS had other 
important marching orders. These too were ignored.
  DFAS was ordered on February 18, 1992, to ``review and resolve all 
account balances with negative unliquidated obligations.''
  Negative unliquidated obligations are accounts where total 
disbursements exceed available funding. These are called new-low's. 
They may constitute violations of the Antideficiency Act. Those who 
knowingly and willfully violate this law can be fined or imprisoned.
  Did Mr. Springett fix this problem? Again, the answer is ``no.''
  In fact, a March 1994 DOD IG audit report states that DFAS is making 
new-low's worse by knowingly forcing payments on to the wrong accounts.
  This devious DFAS maneuver is done for two reasons: First, to conceal 
the practice of writing checks on accounts that are in the red; and 
second, to keep the number of unmatched disbursements down.
  The IG says DFAS finance center at Columbus, OH, had $3.1 billion of 
new-low's at the contract line-item level, and 2,659 contracts has 
negative balance totaling $408 million.
  The IG says the new-low problem is continuing to deteriorate.
  The situation is so bad that Mr. Hamre had to issue a special 
directive, ordering DFAS to immediately stop writing checks against 
accounts with negative balances.
  Madam President, I ask unanimous consent to print Mr. Hamre's 
directive, dated March 31, 1994, in the Record.
  There being no objection, the directive was ordered to be printed in 
the Record, as follows:

                                                Comptroller of the


                                        Department of Defense,

                                   Washington, DC, March 31, 1994.
     Memorandum for Secretaries of the Military Departments, Under 
         Secretaries of Defense, Assistant Secretaries of Defense, 
         General Counsel, Inspector General, Commander-in-Chief, 
         United States Transportation Command, Director, 
         Administration and Management, Directors of the Defense 
         Agencies, President, Uniformed Services University of the 
         Health Sciences, Director, Joint Staff, Directors of DOD 
         Field Activities, Director, Joint Logistics Systems 
         Center.
     Subject: Negative Unliquidated Balances/Disbursements in 
         Excess of Obligations.
       In February the Senior Financial Management Oversight 
     Council met to consider the Department's compliance with the 
     Antideficiency Act. In preparation for that 
     review, I learned that the Department routinely disburses 
     funds in excess of available balances. In colloquial terms, 
     the Department routinely writes checks on accounts that are 
     ``in the red,'' under the assumption that these accounts are 
     in the red because of innocent accounting errors. Indeed, 
     even when accounts have been in a deficit status for some 
     time, Department procedures permit continued expenditure of 
     funds against those negative balances. In other cases, funds 
     are expended in excess of recorded obligations.
       Such practices are clearly contradictory to the 
     Antideficiency Act and flatly violate minimum standards of 
     sound financial management. We cannot continue these ad hoc 
     practices.
       To correct these unacceptable situations, I am directing 
     the implementation of certain policies on a DoD-wide basis as 
     highlighted below:
       If disbursements exceed obligations and the appropriation 
     manager does not have sufficient unobligated balances 
     available, payments will be stopped immediately until the 
     condition has been corrected.
       If disbursements exceed obligations and the appropriation 
     manager or fund holder has sufficient unobligated balances 
     available, an obligation will be required to cover such 
     disbursements if the condition [disbursements in excess of 
     obligations] is not corrected within a specified period of 
     time--generally 120 days.
       I have attached detailed implementing policy guidance, 
     which will take effect immediately.
       As a Department, we have become complacent to accept 
     negative balances as the product of errors with few people 
     feeling responsible for correcting the problem. As of 
     December 31, 1993, the Department had 23 accounts ``in the 
     red'' and another 23 accounts in which disbursements exceeded 
     recorded obligations. The Comptroller is the fund holder for 
     22 of those accounts. I have asked the Inspector General, 
     DoD, to initiate an investigation of 10 potential 
     Antideficiency Act violations in accounts for which my office 
     is responsible. The new guidelines that I am hereby 
     implementing are designed to correct this long-standing 
     problem.
       These new policies will entail a painful period of initial 
     implementation. I recognize that it may be necessary to 
     quickly reprogram funds in order to maintain valid 
     disbursements and to avoid disruption of Defense programs. 
     Also, it may be necessary for DoD Components to reserve 
     additional funds in order to deal with contingencies created 
     by the implementation of these policies. Accordingly, I have 
     asked my staff to work closely with your staffs to maintain 
     expeditious payments and well executed programs.
       Ms. Susan M. Williams is my staff contact for this matter. 
     She may be reached at (703) 697-3193.
                                                    John J. Hamre.
                                  ____


 Department of Defense Accounting Policy and Procedures for Resolving 
   Disbursements in Excess of Obligations at the Appropriation/Fund 
                        Holder/Obligation Levels


                             i. background

       A. Generally, disbursements in excess of obligations occur 
     as a result of accounting or disbursing errors. This 
     condition normally occurs when an accounting station records 
     an expenditure transaction--a disbursement made by a 
     disbursing office--in the official accounting records against 
     a fund holder's availability, and the disbursement is in 
     excess of a previously recorded obligation for that same 
     transaction. This condition may also occur when an 
     expenditure transaction does not match any obligation in the 
     official accounting records or for other reasons.
       1. If the condition occurs at the appropriation level, the 
     appropriation manager could be the Office of the Deputy 
     Comptroller (Program/Budget)--for Defense-wide accounts--the 
     Assistant Secretary (Financial Management) of the Military 
     Department, or the Comptroller of the Defense Agency/Field 
     Activity involved.
       2. If the condition occurs at a lower level, i.e., major 
     command, field activity level, program office, etc., the fund 
     holder could be the activity or organization that has 
     Antideficiency Act responsibility as delegated by funding 
     documents.
       B. When disbursements exceed obligations, accounting 
     stations must perform substantial and intensive research to 
     correct the erroneous transactions. In most cases, the errors 
     are discovered and resolved, and the accounting records and 
     official accounting reports, e.g., document control files, 
     transaction ledgers, general ledgers, reports, etc., are 
     corrected.
       C. In some cases, an accounting or disbursement error is 
     not the cause of disbursements in excess of obligations and 
     the conditions cannot be easily corrected. These situations 
     require further research that may lead to the discovery of a 
     potential violation of the Antideficiency Act or other 
     serious conditions.
       D. Disbursements in excess of obligations may occur under 
     three different primary conditions. These conditions, which 
     are addressed separately in Sections II.A.1., II.A.2., and 
     II.A.3., below, include:
       1. Disbursements in excess of recorded obligations at the 
     appropriation level when the appropriation manager does not 
     have sufficient unobligated balances available in amounts 
     that equal, or exceed, the amount by which disbursements 
     exceed recorded obligations at the appropriation level.
       2. Disbursements in excess of recorded obligations at the 
     appropriation or fund holder level when the appropriation 
     manager or fund holder do have sufficient unobligated 
     balances available in amounts equal to, or in excess of, the 
     amount by which disbursements exceed recorded obligations at 
     the appropriation/fund holder level.
       3. Disbursements in excess of obligations at the obligation 
     level, including when no obligations has been recorded.
       E. This guidance provides policy and procedures for the 
     correction or remedy of conditions caused by disbursements in 
     excess of obligations at the appropriation/fund holder/
     obligation levels. In summary, such corrective actions 
     involve:
       1. The research, and when possible, correction of 
     conditions caused by accounting and disbursing errors.
       2. The reservation, commitment, and when conditions 
     warrant, the obligation of funds.
       3. The investigation and, when conditions warrant, the 
     reporting of violations of the Antideficiency Act when an 
     investigation determines that a violation has occurred.
       F. To assist in the implementation of necessary corrective 
     action, each DoD Component will be required to designate a 
     central point of contact within their Component's 
     headquarters-level financial management office. This 
     individual (hereafter referred to as the ``appropriation 
     manager'') will be responsible for receiving, processing and 
     taking other appropriate actions upon notification by the 
     Defense Finance and Accounting Service accounting stations or 
     other accounting stations.


                          II. RESPONSIBILITIES

       A. The Defense Finance and Accounting Service (DFAS) and 
     other Accounting Stations shall:
       1. When an appropriation does not have sufficient 
     unobligated balances available that equal, or exceed, the 
     amount by which disbursements exceed recorded obligations:
       a. Immediately stop all future payments until the condition 
     is satisfactorily resolved.
       b. Immediately begin research efforts to determine the 
     cause of the condition and correct any accounting and/or 
     disbursing errors identified.
       c. Immediately notify the appropriation manager that:
       (1) All payments against the appropriation have been 
     stopped and that a potential Antideficiency Act violation 
     exists.
       (2) To the extent that any availability exists in the 
     appropriation, such funds are required to be reserved, 
     committed or obligated until the condition is satisfactorily 
     resolved.
       d. If, at the end of 120 days from the date of discovery of 
     the condition, research effort fails to result in the 
     correction and elimination of the condition, immediately 
     notify the appropriation manager that:
       (1) To the extent that any availability exists in the 
     appropriation, the funds are required to be obligated within 
     5 days and the obligation remain until such time as the 
     condition is satisfactorily resolved.
       (2) An obligation funding document is to be provided to the 
     DFAS or applicable Accounting Station.
       (3) A potential violation of the Antideficiency Act should 
     be reported and an investigation initiated, if one is not 
     already underway.
       e. For appropriations, whose availability for new 
     obligations expired at the end of FY 1986 through the end of 
     FY 1991 and which have not yet been canceled, charge all 
     future payments to the applicable current appropriation, 
     subject to a 1 percent limitation and other restrictions, 
     when:
       (1) The provisions of section 1004 of Public Law 102-484, 
     National Defense Authorization Act for FY 1993 apply, and
       (2) The provisions of an Acting DoD Comptroller memorandum, 
     dated December 4, 1992, subject: Additional Requirements 
     Associated with Merged, Expired, and Canceled Accounts, are 
     met, and
       (3) The appropriation manager authorizes such action.
       (f) Once applicable additional funding has been made 
     available and obligated, the DFAS or applicable Accounting 
     Station will initiate action to resume payments.
       2. When the fund holder does have sufficient unobligated 
     balances available that equal, or exceed, the amount by which 
     disbursements exceed recorded obligations at the 
     appropriation/fund holder level:
       a. Immediately begin research efforts to determine the 
     cause of the condition and correct any accounting and/or 
     disbursing errors identified.
       b. Immediately notify the fund holder that the fund holder 
     is required to reserve, commit or obligate funds in an amount 
     equal to the amount of disbursements in excess of obligations 
     and retain such amounts in the fund holder's account until 
     such time as the condition is satisfactorily resolved. This 
     may involve withdrawing funds already allotted or reserving 
     unallotted amounts at higher command levels.
       c. If, at the end of 120 days from the date of discovery of 
     the condition, research effort fails to result in the 
     correction and elimination of the condition:
       (1) Immediately notify the appropriation manager, with a 
     copy to the fund holder, that:
       (a) The fund holder, is required to obligate, within 5 
     days, funds in an amount equal to the amount of disbursements 
     in excess of obligations and retain such amounts in the fund 
     holder's account until such time as the condition is 
     satisfactorily resolved. This may involve withdrawing funds 
     already allotted or reserving unallotted amounts at higher 
     command levels.
       (b) An obligation funding document is to be provided to the 
     DFAS or applicable Accounting Station.
       (2) After the receipt of a funding document from the 
     applicable DoD Component, record an obligation.
       3. When disbursements exceed obligations at the obligation 
     level:
       a. Immediately begin research efforts to determine the 
     cause of the condition.
       b. If, at the end of 120 days from the date of discovery of 
     the condition, research effort fails to result in the 
     correction and elimination of the condition, immediately 
     notify the fund holder that:
       (1) Disbursements exceed obligations at the obligation 
     level.
       (2) If, at the end of 60 days from the date of the 
     notification, further research efforts of the fund holder 
     fail to result in the correction and elimination of the 
     condition, the fund holder is required to immediately:
       (a) Obligate funds sufficient to cover the disbursement in 
     excess of the obligation, and
       (b) Provide the DFAS or applicable Accounting Station an 
     obligation funding document, and
       (c) Maintain that obligation until such time as the 
     condition is satisfactorily resolved. This may involve 
     withdrawing funds already allotted or reserving unallotted 
     amounts at higher command levels.
       4. When a disbursement transaction is cross-disbursed and
       a. The DFAS or other Accounting Station that received the 
     disbursement transaction agrees that the disbursement is a 
     valid charge to the obligation, fund holder, appropriation or 
     DoD Component, the policy guidance in sections II.A.1. 
     through 3. applies.
       b. The DFAS or other Accounting Station that received the 
     disbursement transaction, and the DFAS or other Accounting 
     Station that made the payment, agree that the disbursement is 
     not a valid charge to the obligation, fund holder, 
     appropriation or DoD Component charged; and also agree as to 
     the proper obligation, fund holder, appropriations or DoD 
     Component to be charged, then a correction document will be 
     initiated to charge the proper obligation, fund holder, 
     appropriation or DoD Component.
       B. The Deputy Comptroller (Program/Budget) (ODC(P/B)), the 
     Assistant Secretaries (Financial Management) of the Military 
     Departments, Comptrollers of the Defense Agencies and DoD 
     Field Activities and other Fund Holders shall:
       1. Designate an appropriation manager to receive, process 
     and take actions on notifications from the DFAS or other 
     Accounting Stations, and to take other appropriate action(s) 
     regarding the stoppage of payments, the expedition of the 
     obligation of disbursement transactions within prescribed 
     timeframes allotted for such action(s), and other actions 
     provided for in this guidance.
       2. After the receipt of an initial notification from the 
     DFAS or other Accounting Station that a disbursement exceeds 
     an obligation at the appropriation/fund holder level, but 
     sufficient unobligated balances are available that equal, or 
     exceed, the amount by which the disbursements exceed recorded 
     obligations at that level:
       a. Reserve, commit, or obligate funds.
       b. Provide the DFAS or applicable Accounting Station a 
     commitment or obligation funding document, as appropriate, to 
     cover the amount of this disbursement that exceeds the 
     obligation.
       3. Within 5 days after the receipt of a 120-day 
     notification from the DFAS or other Accounting Station that a 
     disbursement exceeds an obligation at the appropriation/fund 
     holder level:
       a. Obligate funds.
       b. Immediately initiate a review of the circumstances to 
     determine whether an investigation of a potential 
     Antideficiency Act is warranted.
       c. Notify the Office of the DoD Comptroller when an 
     apparent/potential violation of the Antideficiency Act has 
     occurred, through appropriate funding channels.
       d. Initiate an investigation of an apparent violation of 
     the Act when an investigation of a potential Antideficiency 
     Act violation is deemed appropriate.
       e. Provide the DFAS or applicable Accounting Station an 
     obligation funding document to cover the amount of the 
     disbursement that exceeds the obligation.
       4. Within 60 days from the date of a 120-day notification 
     from the DFAS or other Accounting Station that a disbursement 
     exceeds an obligation at the obligation level and the 
     condition has not been corrected:
       a. To the extent availability exists in the appropriation, 
     provide the DFAS or applicable Accounting Station an 
     obligation funding document to cover the amount of the 
     disbursement that exceeds the obligation.
       b. To the extent sufficient availability does not exist in 
     the appropriation:
       (1) Request a realignment of funds within an account or 
     between accounts, a reprogramming of funds, a deficiency 
     supplemental, or other acceptable funding solution, as 
     applicable and appropriate.
       (2) Provide the DFAS or applicable Accounting Station an 
     obligation funding document to record an obligation under 
     section 1004 authority, if applicable.
       (3) Forward supplemental funding documents to the DFAS or 
     applicable Accounting Station to cover any funding 
     shortfalls.
       5. Immediately initiate a review of the circumstances to 
     determine whether an investigation of a potential 
     Antideficiency Act is warranted, and, as appropriate, notify 
     the Office of the DoD Comptroller that a fund holder may not 
     have sufficient unobligated balances available that equal, or 
     exceed, the amount by which disbursements exceed recorded 
     obligations and a potential violation of the Antideficiency 
     Act may have occurred.
       6. Submit a report of violation in accordance with DoD 
     Directive 7200.1, Administrative Control of Appropriations, 
     if the investigation reveals that an Antideficiency Act 
     violation has occurred.
       7. Advise the DFAS or applicable Accounting Station to 
     correct any error(s) when applicable reviews or 
     investigations identify any error(s) as the cause of the 
     condition.
       C. When (1) funds in a particular Defense-wide account are 
     allocated to a number of fund holders (limits) and (2) 
     disbursements exceed obligations at the appropriation level, 
     but not at a fund holders' level, the Deputy Comptroller 
     (Program/Budget) shall ensure that:
       1. The applicable DoD Component(s) reserves, commits or 
     obligates appropriate amounts against the fund holders' 
     accounts.
       2. A report of a potential violation is submitted to the 
     DoD Comptroller.
       3. An investigation of a potential violation of the 
     Antideficiency Act is initiated.
       4. Corrective actions are taken by fund holders and the 
     DFAS or applicable Accounting Station, as appropriate.
       D. Effective date:
       1. Section II.A.3 of this guidance is effective October 1, 
     1994.
       2. This guidance is applicable to Military Personnel, 
     Reserve Personnel, and National Guard Personnel 
     appropriations effective October 1, 1994.
       3. All sections of this guidance (other than section 
     II.A.3) are applicable for all other appropriations and funds 
     (other than Military Personnel, Reserve Personnel, and 
     National Guard Personnel appropriations) as of March 31, 
     1994.

  Mr. GRASSLEY. Madam President, Mr. Hamre states and I quote:

       The department routinely writes checks on accounts that are 
     in the red. Indeed, even when accounts have been in a deficit 
     status for some time, Department procedures permit continued 
     expenditure of funds against those negative balances.

  That Mr. Hamre should have to issue such an order is a disgrace.
  It castes doubt and distrust on DFAS and its Director, Mr. Springett.
  Writing checks on accounts that are in the red violates Federal 
statutory law. It violates DOD regulations, and it violates commonsense 
practices. To repeatedly and routinely write bad checks is careless and 
irresponsible.
  Comptroller General Bowsher says ``such practices are inexcusable and 
must not be tolerated.''
  A consensus was reached at Senator Glenn's April 12 hearing: Someone 
must be held accountable for what is happening.
  Deputy DOD IG Vander Schaaf and Comptroller General Bowsher both 
suggested in testimony that senior officials in accounting and finance 
are responsible.
  Madam President, Mr. Bowsher has offered to conduct an investigation 
to determine more precisely where accountability lies.
  The law requires that much.
  Under title 31 of the United States Code, Mr. Bowsher had broad 
responsibilities to ensure that expenditures are recorded, accounts are 
accurate, and accountability of assets is maintained.
  He is authorized to settle accounts and to recover public money 
illegally or erroneously paid. Money can be recovered from public 
officials who acted in bad faith or who failed to diligently carry out 
their duties.
  The settlement of accounts and recovery improper payments requires 
detailed audit and investigative work, work that needs to be undertaken 
by Mr. Bowsher's office.
  Madam President, I call on Mr. Bowsher to help us pinpoint 
responsibility.
  Madam President, I yield the floor, and since I do not see anybody 
else seeking the floor, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. SPECTER. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER (Mr. Breaux). Without objection, it is so 
ordered.

                          ____________________