[Congressional Record Volume 141, Number 98 (Thursday, June 15, 1995)]
[Senate]
[Pages S8458-S8460]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      DOD UNMATCHED DISBURSEMENTS

  Mr. GRASSLEY. Mr. President, many times in the last several months, I 
have addressed my colleagues in this Chamber on the subject of the bad 
accounting system in the Defense Department and particularly the 
subject of unmatched disbursements, a subject that involves the 
principle that if you are going to spend the taxpayers' money, you 
ought to be able to show exactly what that money went for.
  The Defense Department has accumulated several billions of dollars 
over the last several years in money that has been spent. It is very 
difficult for them or anybody else to show exactly what that money has 
bought: A service or commodity.
  So the unmatched disbursement problem at the Pentagon has been a 
problem that has been simmering on the back burner for several years. 
Now, all of a sudden, it is on the front burner, and the pot is boiling 
over.
  The Department of Defense is getting hammered with bad publicity 
about this problem. Most of the heat is directed at the Defense 
Department's chief financial officer, Mr. John Hamre. He is fighting 
back, countering with damage control, sending letters and papers to 
allies on the Hill. He is trying to debunk all the criticism being 
directed his way.
  As I have said many times, I think that Mr. Hamre is trying to do a 
good job. I think his heart is in the right place, but career 
bureaucrats under him are feeding him bad information.
  In a nutshell, Mr. President, this is the problem: The Department of 
Defense does not match disbursements with obligations before making 
payments. Unless the matches are made, [[Page S8459]] then we do not 
know how the money is being spent. Of course, this leaves the 
Department of Defense accounts vulnerable to theft and abuse.
  DOD accounts are vulnerable to the tune of at least $28 billion. 
Those are not my numbers, those are the Department of Defense numbers. 
Mr. Hamre is desperately trying to diffuse all the criticism. Mr. Hamre 
says that my arguments that I have been stating on the floor over the 
last several months are baloney. He says the Department has, in his 
words, ``certified receipts for every penny spent.''
  Mr. President, he said that in his latest rebuttal, and his rebuttal 
appears on page A15 of the June 10, 1995, Washington Post. I ask 
unanimous consent to print that article in the Record.
  There being no objection, the article was ordered to be printed in 
the Record, as follows:

               [From the Washington Post, June 10, 1995]

                    Pentagon Spending: by the Books

                           (By John J. Hamre)

       Colman McCarthy's May 23 column ``The Pentagon's 
     Accountability Problem'' so badly distorts my statements on 
     Department of Defense financial management that the record 
     must be corrected.
       McCarthy implies that I am a naive dupe absolving 
     government workers and defense contractors of any financial 
     responsibility. He further suggests that our reform efforts 
     are merely verbal smokescreens to mask business as usual. 
     Nothing could be farther from the truth.
       It is clear McCarthy did not attend the May 16 
     congressional hearing on which he bases his column. Had he 
     been there he would have learned that not a penny of taxpayer 
     dollars has been ``lost,'' as his article implies--since the 
     crux of the matter is not ``phantom payments'' but outmoded 
     accounting procedures.
       For every disbursement he characterizes as lost, we have a 
     validated receipt with an independent confirmation that the 
     government received the goods and services. He also would 
     have learned that in the past 18 months we researched and 
     correctly accounted for $20 billion in problem disbursements 
     inherited from a decade of defense spending. He would have 
     learned that during the same time period we also froze more 
     than 20,000 payments to more than 1,500 contractors until we 
     could correct underlying accounting problems.
       He would have learned that we are reversing a 25-year-old 
     ``pay first, account later'' policy. Beginning this summer, 
     we will match disbursements to accounting records--not just 
     against valid, certified invoices as we do now--before 
     payments are made. And he would have learned that we created 
     a special financial fraud detection organization.
       Unfortunately none of this was reported by McCarthy, and I 
     am unaware of any effort on his part to attempt to gather the 
     facts.
       The public has every right to know the extent of the 
     Pentagon's accounting problems, as well as the efforts in 
     place to remedy them. Your readers deserve far better than 
     McCarthy provided.

  Mr. GRASSLEY. Mr. President, I want to state, where he says that 
``the crux of the matter is not phantom payments but outmoded 
accounting procedures,'' I will agree with him on the outmoded 
accounting procedures, but I will not believe that that is an excuse 
for getting off the hook. It is designed to put us at ease, Mr. 
President. I think it is a neat distraction. Outmoded accounting 
procedures are seemingly harmless, are they not? They pose no threat, 
seemingly, to the security and the control of money. But that is a long 
way from the truth.
  To assure us that no money has been lost, Mr. Hamre makes one bold 
assertion, and he makes it from this article. It says:

       For every disbursement he characterizes as lost, we have a 
     validated receipt with an independent confirmation that the 
     Government received goods and services.

  I think I know what Mr. Hamre is trying to say. He is trying to say 
for every Defense Department payment, he has a receipt to prove that 
the goods and services were actually received. This was brought up in 
some recent testimony of Mr. Hamre on the Hill. He used form DD250 as 
an example of ``validated receipts''--his words. Those are his words, 
``validated receipts for goods handled.''
  The DOD form DD250 is called the Materials Inspection and Receiving 
Report. I have a copy of that here.
  This particular one that I have in my hand is for the purchase of a 
high-powered amplifier for the Air Force Milstar satellite.
  I ask unanimous consent to print this in the Record.
  There being no objection, the report was ordered to be printed in the 
Record, as follows:

                Material Inspection and Receiving Report

       Proc. Instrument Iden. (Contract): F19628-89-C-0131.
       Invoice: 10030-472, 92Dec14.
       Shipment No.: WAL0051.
       Date shipped: 92Dec08E.
       BA: D-2,424,371B.
       TCN: S2206A2275A270XXX.
       Prime contractor: Raytheon Co., Equip. Div. Headquarters, 
     Hager Pond Facility, 1001 Boston Post Rd., Marlboro, MA 
     01752.
       Administered by: DPRO, Raytheon Co., Wayside Ave., 
     Burlington, MA 01803-4608.
       Shipped from: Raytheon Co., 20 Seyon St., Waltham, MA 
     02254.
       Payment will be made by: DFAS--Columbus Center, Attn: DFAS-
     CO-EB/Bunker Hill, P.O. Box 182077, Columbus, OH 43218-2077.
       Shipped to: FB2049, Transportation officer, McClellan AFB, 
     CA 95652-5609.
       Marked for: FB2049, Account 09.
       Item No.: H00A.
       Stock/Part No.: MOD: P00017; CLIN: 0003AB.
       Description: NSN: 5895-01-325-8555MZ; P/N: G287706-1; 
     Amplifier, R.F.; Rev: BT/AV; Ref: PLG494453-21; S/N: 1005; 
     Containers: 1 Skid; Gross shipping wt: 230#.
       Quantity Ship/Rec'd: 1.
       Unit: EA.
       Unit price: $363,735.00.
       Amount: $363,735.00.
       Total: $363,735.00.
       Procurement quality assurance: A. Origin--Acceptance of 
     listed items has been made by me or under my supervision and 
     they conform to contract, except as noted herein or on 
     supporting documents.
       Receiver's use: Quantities shown in column 17 were received 
     in apparent good condition except as noted.
       Date: Dec. 4, 1992.
       Typed name and office: D Albrizio, S2205A.
       Tax coding: 04-671.
       Customer code No.: 53-936493-2.
       Remit to: Raytheon Co., D-3007, P.O. Box 361346, Columbus, 
     OH 43236-1346.
  Mr. GRASSLEY. Mr. President, form DD250 is meant to tell us a lot. 
But what does it tell us? For starters, it gives us the contract 
number: F19628-89-C-0131.
  It tells us that the Milstar amplifier was shipped on December 8, 
1992.
  It tells us the contractor was Raytheon, Burlington, MA
  It tells us the amplifier's destination was McClellan Air Force Base, 
CA.
  It gives us the national stock number: 5895-01-325-8555MZ.
  It gives us the amplifier's serial number: 1005.
  It tells us that the unit price for the amplifier is $363,735.
  Remember that figure, because I am going to tell you how this item 
was sold for $20 in just a minute.
  Finally, it tells us the name of the Government official who accepted 
the amplifier and certified that it met contract specs. The certifying 
official's name shown is D. Albrizio.
  Well, Mr. Hamre wants us to believe that DD250, the form I inserted 
into the Record, is proof that the Government got what it paid for.
  Now, the Air Force got the Milstar amplifier, right? No, they did not 
get it. We paid for an amplifier all right. Yes, we did. But we did not 
get it--at least not right away.
  A citizen in North Carolina--Mr. Roger Spillman--got this $363,000 
amplifier instead. While there is a long trail of signed certified 
receipts proving--and I use that advisedly--that DOD received it, the 
amplifier never showed up at the warehouse where it belonged.
  First, it turned up as something identified as unknown overage cargo 
at the San Francisco terminal of the Watkins Motor Lines. Watkins had a 
DOD contract to deliver it to the McClellan Air Force Base. It was held 
there in San Francisco for 30 days. When no one showed up to claim it, 
it was shipped to Watkins salvage warehouse in Lakeland, FL. The 
Milstar amplifier was stored in the salvage warehouse for about 9 
months.
  Now, at that point, it was declared excess cargo and shipped to DRS, 
Inc., in Advance, NC, for auction. The public auction was held on 
October 25, 1993. The bidding started at $20. Within 45 seconds, Mr. 
Roger Spillman was the proud new owner of the Milstar amplifier, and it 
cost him exactly $75. Remember, for the original product we paid 
$363,000-plus.
  The Air Force did not know the amplifier was missing until the owner, 
Mr. Spillman, called to request the instructions manual because he 
wanted to use it. That was almost a year after DOD officials had shown 
us this validated receipt of the amplifier.
  Mr. President, what lesson does the case of the missing Milstar 
amplifier teach us? It is this: Despite Mr. [[Page S8460]] Hamre's 
assurances to the contrary, the form that I have been reading from 
today--the DD250--provides no guarantee that DOD gets what it pays for. 
All the form does is tell DOD what is supposed to be on the loading 
dock or stocked in some warehouse. It does not mean that it is really 
there.
  The DD250 is not an internal control device.
  The DD250 will not tell us whether the item received was indeed 
ordered.
  The DD250 will not tell you whether the price paid was the price 
agreed to in the contract.
  The DD250 will not tell you whether your accounts contain enough 
money to cover the payment.
  The DD250 will not warn you if you are about to make an underpayment, 
overpayment, or erroneous payment.
  To protect and control public money, then, the Defense Department 
must match disbursements with obligations before payments are made. 
That is the way it must be done.
  These DD250 forms are no substitute for nitty-gritty accounting work.
  If Mr. Hamre wants to do effective damage control and silence his 
critics, then he needs to go back to the drawing board. He needs to 
find a device that addresses the source of the criticism. These forms--
the DD250's--miss the mark, and miss it completely. The DD250's do not 
protect and control the people's money.
  Mr. Hamre is the DOD comptroller, and he ought to know all these 
things.
  Mr. President, I yield the floor and yield back any time I may have.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. PRESSLER. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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