[Congressional Record Volume 141, Number 131 (Monday, August 7, 1995)]
[Senate]
[Pages S11732-S11735]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                   THE DEFENSE MODERNIZATION ACCOUNT

  Mr. GLENN. Mr. President, on Saturday, August 5, 1995, I offered an 
amendment in the nature of a substitute to section 1003 of S. 1026, the 
National Defense Authorization Act for fiscal year 1996. My amendment, 
cosponsored by Senator Roth and Senator Grassley, was accepted by 
unanimous consent of the Senate. At this time I would like to make some 
comments about my amendment. I ask unanimous consent that a copy of the 
amendment be printed in the Record following my remarks, along with 
some relevant correspondence on this issue between Senator Levin and 
Office of Management and Budget Director Rivlin.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See exhibit 1.)
  Mr. GLENN. I would like to say at the outset that I share Senator 
Nunn's concerns that the military departments--indeed, I would say, all 
agencies of Government--should have incentives to find savings within 
the programs under their jurisdiction. I would further agree with the 
distinguished ranking member of the Armed Services Committee that one 
of the flaws of our current budget and appropriations process is that, 
rather than encouraging cost-savings efficiencies, it induces 

[[Page S 11733]]
agencies to spend whatever money is left before their authority expires 
at the end of a fiscal year. So, in this sense, I support the 
underlying purpose of the committee in developing innovative methods 
for providing such incentives, including the defense modernization 
account DMA.
  As a long-time member of both the Armed Services Committee and the 
Governmental Affairs Committee--which I chaired for 8 years--I know 
full well, however, the significant problems and difficulties with 
DOD's financial management and controls systems. DOD has over 260 
disparate accounting systems which are not yet integrated. Despite the 
efforts of John Hamre, the DOD comptroller, we have not yet reached the 
day when DOD can produce accurate, reliable, and auditable financial 
statements. In fact, I can tell you it will not even be in this 
century.
  These problems have led to over $20 billion worth of unmatched 
disbursements, where money has been paid out without proper and 
sufficient documentation. We do not know what it was used for. 
Moreover, DOD has been overpaying its contractors by the hundreds of 
millions of dollars each year, much of that discovered and returned by 
the contractors themselves, not through DOD followup. I will not bother 
to put everyone to sleep here by discussing negative unliquidated 
obligations--NULO's, as they are called.
  These financial management problems should make anyone familiar with 
DOD pause before we give new and additional authorities in this area--
however important the goal.
  Perhaps the most relevant example to this proposal of DOD financial 
management problems is the infamous M accounts, or merged surplus 
accounts. A few years back, in 1991, I was one of the first in Congress 
to uncover this problem and help close these funds down. In layman's 
terms, M accounts had all the features of a slush fund, created by 
pooling together all excess appropriations dollars not spent in a 
fiscal year and using them for almost whatever purpose they wanted. 
Whether authorized by law, or not. There was no auditable trail, no 
accounting controls.
  By the time we began our investigations into the M accounts, they had 
grown to over $50 billion. The legislation which shut these accounts 
down required that an audit be conducted to determine, if we could, for 
what purposes this money was spent. After more than 3 years, we still 
have not figured out where some $5.2 billion has gone. There are no 
matching records for the disbursements.
  There were elements of the defense modernization account that 
reminded me of M accounts--and reminded others as well. In fact, my 
distinguished friend from Michigan, Senator Levin, was kind enough to 
share with me an exchange of correspondence he had with the Office of 
Management and Budget about the problems with this account. And as 
previously stated, I have asked that this correspondence be made a part 
of the Record.
  I am bound and determined that we not repeat the past. Since the 
committee reported the legislation, I have been working with Senator 
Nunn and others to improve section 1003. I now believe that we have 
built in sufficient financial controls and reporting requirements, 
while maintaining the flexibility, incentives, and intent of the 
original legislation.
  I would like to briefly discuss some of the problems as I perceived 
them in the committee's language and describe what my amendment does to 
address those problems.
  As proposed, the DMA had significant control and accountability 
shortcomings. For example, the DMA did not say who is responsible for 
identifying savings. If savings are achieved it is important to know 
how so that this knowledge could potentially be applied to other 
programs. There was no restriction on cross-fiscal year transfers--with 
the corresponding prospect that the DMA could be funded by transferring 
expired funds; and there was no limit on the ultimate size or life of 
the account. Under the original legislation, funds transferred into the 
DMA would lose their fiscal year and purpose identities, greatly 
complicating auditing. Programs would have been able to mask accounting 
and management deficiencies by transferring unobligated balances to the 
DMA at the end of the fiscal year, and transferring money back when 
unrecorded and forgotten bills show up. There was also a substantial 
risk, with no limit on its size or life, that the account could grow to 
embarrassing proportions.
  We addressed these problems and I believe have reached agreement on 
acceptable changes to strengthen the financial controls. With the 
agreed changes, the DMA would require a secretarial determination of 
excess funds and identification of their source for funds transferred 
into the DMA; it would limit transfers into the DMA to unexpired funds 
available in the current year.
  It would preserve the integrity of the Account Closing Act limitation 
on the period of availability for expenditure for funds transferred 
into the account; with this limitation, funds would not lose their 
fiscal year identity.
  It would require notice to the relevant congressional committees of 
the amount and purpose of transfers from the DMA.
  It would prohibit transfers from DMA to cover unliquidated or 
unrecorded obligations from prior fiscal years or to make unmatched 
disbursements.
  It would limit the use of DMA funds to programs and purposes for 
which Congress has authorized funds.
  It would require a quarterly report on transfers to/from DMA with 
amount, source and/or purpose.
  It would cap the fund at $1 billion; limit the availability of funds 
in the DMA to the end of the third full fiscal year after transfer.
  It would sunset the authority to transfer funds into the account 
after 8 years; GAO is to audit the account after 5 years and again 6 
months prior to sunset. This will give DOD time before consideration of 
sunset to fix whatever deficiencies are found in first audit. We also 
provide for the account to be closed consistent with the account 
closing provisions of title 31. (31 U.S.C. Sec. Sec. 1552(a), 1553(a)).
  Mr. President I believe that these controls will help ensure that the 
defense modernization account does not become another M account. I 
appreciate Senator Nunn's willingness to work with me on this 
amendment. I also appreciate the work and input of Senator Grassley, 
Senator Roth, and their staff.
                           Amendment No. 2279

       Beginning on page 321, strike out line 15 and all that 
     follows through page 325, line 18, and insert in lieu thereof 
     the following:
       ``(b) Credits to Account.--(1) Under regulations prescribed 
     by the Secretary of Defense, and upon a determination by the 
     Secretary concerned of the availability and source of excess 
     funds as described in subparagraph (A) or (B), the Secretary 
     may transfer to the Defense Modernization Account during any 
     fiscal year--
       ``(A) any amount of unexpired funds available to the 
     Secretary for procurements that, as a result of economies, 
     efficiencies, and other savings achieved in the procurements, 
     are excess to the funding requirements of the procurements; 
     and
       ``(B) any amount of unexpired funds available to the 
     Secretary for support of installations and facilities that, 
     as a result of economies, efficiencies, and other savings, 
     are excess to the funding requirements for support of 
     installations and facilities.
       ``(2) Funds referred to in paragraph (1) may not be 
     transferred to the Defense Modernization Account by a 
     Secretary concerned if--
       ``(A) the funds are necessary for programs, projects, and 
     activities that, as determined by the Secretary, have a 
     higher priority than the purposes for which the funds would 
     be available if transferred to that account; or
       ``(B) the balance of funds in the account, after transfer 
     of funds to the account would exceed $1,000,000,000.
       ``(3) Amounts credited to the Defense Modernization Account 
     shall remain available for transfer until the end of the 
     third fiscal year that follows the fiscal year in which the 
     amounts are credited to the account.
       ``(4) The period of availability of funds for expenditure 
     provided for in sections 1551 and 1552 of title 31 shall not 
     be extended by transfer into the Defense Modernization 
     Account.
       ``(c) Attribution of Funds.--The funds transferred to the 
     Defense Modernization Account by a military department, 
     Defense Agency, or other element of the Department of Defense 
     shall be available in accordance with subsections (f) and (g) 
     only for that military department, Defense Agency, or 
     element.
       ``(d) Use of Funds.--Funds available from the Defense 
     Modernization Account pursuant to subsection (f) or (g) may 
     be used only for the following purposes:
       ``(1) For increasing, subject to subsection (e), the 
     quantity of items and services procured under a procurement 
     program in order to achieve a more efficient production or 
     delivery rate.

[[Page S 11734]]

       ``(2) For research, development, test and evaluation and 
     procurement necessary for modernization of an existing system 
     or of a system being procured under an ongoing procurement 
     program.
       ``(e) Limitations.--(1) Funds from the Defense 
     Modernization Account may not be used to increase the 
     quantity of an item or services procured under a particular 
     procurement program to the extent that doing so would--
       ``(A) result in procurement of a total quantity of items or 
     services in excess of--
       ``(i) a specific limitation provided in law on the quantity 
     of the items or services that may be procured; or
       ``(ii) the requirement for the items or services as 
     approved by the Joint Requirements Oversight Council and 
     reported to Congress by the Secretary of Defense; or
       ``(B) result in an obligation or expenditure of funds in 
     excess of a specific limitation provided in law on the amount 
     that may be obligated or expended, respectively, for the 
     procurement program.
       ``(2) Funds from the Defense Modernization Account may not 
     be used for a purpose or program for which Congress has not 
     authorized appropriations.
       ``(3) Funds may not be transferred from the Defense 
     Modernization Account in any year for the purpose of--
       ``(A) making any expenditure for which there is no 
     corresponding obligation; or
       ``(B) making any expenditure that would satisfy an 
     unliquidated or unrecorded obligation arising in a prior 
     fiscal year.
       ``(f) Transfer of Funds.--(1) Funds in the Defense 
     Modernization Account may be transferred in any fiscal year 
     to appropriations available for use for purposes set forth in 
     subsection (d).
       ``(2) Before funds in the Defense Modernization Account are 
     transferred under paragraph (1), the Secretary concerned 
     shall transmit to the congressional defense committees a 
     notification of the amount and purpose of the proposed 
     transfer.
       ``(3) The total amount of the transfers from the Defense 
     Modernization Account may not exceed $500,000,000 in any 
     fiscal year.
       ``(g) Availability of Funds for Appropriation.--Funds in 
     the Defense Modernization Account may be appropriated for 
     purposes set forth in subsection (d) to the extent provided 
     in Acts authorizing appropriations for the Department of 
     Defense.
       ``(h) Secretary To Act Through Comptroller.--In exercising 
     authority under this section, the Secretary of Defense shall 
     act through the Under Secretary of Defense (Comptroller), who 
     shall be authorized to implement this section through the 
     issuance of any necessary regulations, policies, and 
     procedures after consultation with the General Counsel and 
     Inspector General of the Department of Defense.
       ``(i) Quarterly Report.--Not later than 15 days after the 
     end of each calendar quarter, the Secretary of Defense shall 
     submit to the appropriate committees of Congress a report 
     setting forth the amount and source of each credit to the 
     Defense Modernization Account during the quarter and the 
     amount and purpose of each transfer from the account during 
     the quarter.
       ``(j) Definitions.--In this section:
       ``(1) The term `Secretary concerned' includes the Secretary 
     of Defense.
       ``(2) The term `unexpired funds' means funds appropriated 
     for a definite period that remain available for obligation.
       ``(3) The term `congressional defense committees' means--
       ``(A) the Committees on Armed Services and Appropriations 
     of the Senate; and
       ``(B) the Committees on National Security and 
     Appropriations of the House of Representatives.
       ``(4) The term `appropriate committees of Congress' means--
       ``(A) the congressional defense committees;
       ``(B) the Committee on Governmental Affairs of the Senate; 
     and
       ``(C) the Committee on Government Reform and Oversight of 
     the House of Representatives.
       ``(k) Inapplicability to Coast Guard.--This section does 
     not apply to the Coast Guard when it is not operating as a 
     service in the Navy.''.
       (2) The table of sections at the beginning of chapter 131 
     of such title is amended by adding at the end the following:

``2221. Defense Modernization Account.''.

       (b) Effective Date.--Section 2221 of title 10, United 
     States Code (as added by subsection (a)), shall take effect 
     on October 1, 1995, and shall apply only to funds 
     appropriated for fiscal years beginning on or after that 
     date.
       (c) Expiration of Authority and Account.--(1) The authority 
     under section 2221(b) of title 10, United States Code (as 
     added by subsection (a)), to transfer funds into the Defense 
     Modernization Account shall terminate on October 1, 2003.
       (2) Three years after the termination of transfer authority 
     under paragraph (1), the Defense Modernization Account shall 
     be closed and the remaining balance in the account shall be 
     canceled and thereafter shall not be available for any 
     purpose.
       (3)(A) The Comptroller General of the United States shall 
     conduct two reviews of the administration of the Defense 
     Modernization Account. In each review, the Comptroller 
     General shall assess the operations and benefits of the 
     account.
       (B) Not later than March 1, 2000, the Comptroller General 
     shall--
       (i) complete the first review; and
       (ii) submit to the appropriate committees of Congress an 
     initial report on the administration and benefits of the 
     Defense Modernization Account.
       (C) Not later than March 1, 2003, the Comptroller General 
     shall--
       (i) complete the second review; and
       (ii) submit to the appropriate committees of Congress a 
     final report on the administration and benefits of the 
     Defense Modernization Account.
       (D) Each report shall include any recommended legislation 
     regarding the account that the Comptroller General considers 
     appropriate.
       (E) In this paragraph, the term ``appropriate committees of 
     Congress'' has the meaning given such term in section 
     2221(j)(4) of title 10, United States Code, as added by 
     subsection (a).
                                                                    ____

                                                  U.S. Senate,

                                    Washington, DC, July 17, 1995.
     Hon. Alice Rivlin,
     Director, Office of Management and Budget, Old Executive 
         Office Building, Washington, DC.
       Dear Ms. Rivlin: I am concerned about the efficacy and 
     wisdom of a new Defense Modernization Account established in 
     Section 1003 of S. 1026, the fiscal year 1996 Defense 
     Authorization bill just reported by the Senate Armed Services 
     Committee. Although I agree with one motive behind this 
     effort, creating an additional incentive for the military 
     services to generate savings from efficient program 
     management, the method this bill establishes strikes me as 
     precedent-setting for other agencies as well.
       No other department of government is allowed to keep 
     unobligated balances that would otherwise expire, and then 
     use those funds to procure items or services that Congress 
     has not expressly authorized. And although Section 1003 is 
     crafted to try to avoid a repeat of past abuses of the DOD 
     ``M'' accounts, I believe the protections may be inadequate. 
     The laws Congress has passed establishing new buying 
     practices and requiring more efficient procurement should 
     provide all the incentive needed. If programs can be 
     completed for less money, shouldn't Congress authorize less 
     money, or rescind unobligated balances and return funds to 
     the treasury?
       Would you please provide me with the Administration's view 
     on Section 1003, and specifically address whether the Office 
     of Management and Budget supports allowing the Department of 
     Defense the new budgeting authority in S.1026?
       As S.1026 could be before the full Senate within a week, I 
     would appreciate a prompt reply.
       Thank you.
           Sincerely,
     Carl Levin.
                                                                    ____

                                              Executive Office    
                                                 of the President,


                              Office of Management and Budget,

                                   Washington, DC, August 3, 1995.
     Hon. Carl Levin,
     U.S. Senate,
     Washington, DC.
       Dear Senator Levin: Thank you for bringing to our attention 
     the establishment of a new Defense Modernization Account 
     (DMA) in section 1003 of S.1026, the fiscal year 1996 Defense 
     Authorization bill. Enclosed is a preliminary technical 
     analysis of this section that was prepared by my staff.
       We are in agreement with the major purpose of the proposal, 
     which is to assist in the modernization of our military 
     forces. Funds in the account would be used for increasing 
     procurement quantities, increasing Research, Development, 
     Test and Evaluation (RDT&E) accounts or modernization of an 
     existing system being procured under an ongoing procurement 
     program, all to support overall defense modernization.
       We are concerned, however, about the erosion of the 
     appropriations process that this provision would encourage. 
     Although uses of funds in the DMA would ordinarily be 
     approved through a reprogramming, and the Appropriations 
     Committees would be able to block any use of DMA funds they 
     disagreed with, reprogrammings are not sobject to the full 
     appropriations process involving both houses of Congress.
       Also, the definitions of sources for the account appear 
     broad. The terms ``procurement'' and ``support of 
     installations and facilities'' would allow deposits of a wide 
     array of funds into the DMA to be used for procurement and 
     RDT&E rather than the original purposes for which 
     appropriations were made.
       Practical considerations may also limit the use of funds in 
     the DMA. Use of DMA funds would increase outlays, and the DMA 
     would not offer any relief from the scoring required by the 
     Budget Enforcement Act. Further, transfers from source 
     accounts would be constrained by the need to keep sufficient 
     balances to cover such things as contract adjustments.
       On balance, we think that section 1003 would provide the 
     Department of Defense some modest additional flexibility in 
     providing for modernization, but the flexibility would be 
     offset by the concerns we have noted above.
           Sincerely,
                                                  Alice M. Rivlin,
     Director.
                                                                    ____

                                  
[[Page S 11735]]



          technical staff analysis of section 1003 of s. 1026

       Section 2221(a) would establish a Defense Modernization 
     Account (DMA).
       Section 2221(b)(1) would authorize the Secretary of Defense 
     to transfer, without limit, (A) funds available for 
     ``procurement'' that would otherwise expire and (B) funds 
     available for ``support of installations and facilities'' 
     that would otherwise expire.
       Since almost all DOD accounts are available for 
     ``procurement'' and the ``support of installations and 
     facilities'', funds could be transferred from many different 
     accounts. For example, all of the O&M, Procurement, RDTE, 
     Housing, and even parts of the Defense Health Program 
     accounts are available to procure goods and services and/or 
     support installations and facilities.
       Section 2221(b)(2) specifies that funds may not be 
     transferred to the DMA by the Secretary if the funds are 
     necessary for programs, projects, and activities that, as 
     determined by the Secretary, have a higher priority than the 
     purposes for which the funds would be available if 
     transferred.
       Section 2221(b)(3) would permanently reappropriate the 
     amounts transferred to the DMA from fixed period (i.e., 
     annual and multi-year) appropriations to no-year 
     appropriations.
       Section 2221(c) would ``attribute'' the amounts transferred 
     to the DMA. Essentially, funds transferred in by a military 
     department, Defense agency, or other element of DOD shall 
     only be available for that department, agency, or element. It 
     is not clear that the term ``element'' is needed. However, if 
     it is retained, it should be clearly defined and in a manner 
     that will not complicate DOD's accounting system.
       Section 221(d) would make the funds available for a broad 
     range of activities (1) for increasing the quantity of items 
     and services procured under a procurement program in order to 
     achieve more efficient production or delivery rate or (2) for 
     research, development, test, and evaluation and procurement 
     necessary for modernization of an existing system or of a 
     system being procured under an ongoing procurement program.

       Section 2221(e) would prohibit the use of the funds: for a 
     purpose for which Congress denied funds; or in excess of:
       --a specific limitation provided in law on either (1) the 
     quantity or the items or services that may be procured or (2) 
     the obligation or expenditure obligated or expended, 
     respectively, for the procurement program; or
       --the requirement for the items or services as approved by 
     the Joint Requirements Oversight Council and reported to 
     Congress by the Secretary of Defense.
       Section 2221(f)(1) would provide permanent transfer 
     authority up to $500 million each year from the DMA to 
     accounts available for the purposes described in subsection 
     (d). This subsection and subsection (b)(3), when taken 
     together, would establish a process that would function 
     through reprogramming.
       Section 221(f)(2) would require the Secretary to notify the 
     Armed Services and Appropriations Committees of any proposed 
     transfers under (f)(1).
       Section 2221(g) specifies that funds in the DMA (to include 
     balances over the $500 million transferred under subsection 
     (f)(1)) may be appropriated for purposes of subsection (d) to 
     the extent provided in Acts authorizing appropriations for 
     the Department of Defense. This appears to provide another 
     method to make funds in the DMA available for obligation in 
     addition to reprogramming.
       Section 2221(h) would require the Secretary of Defense to 
     exercise his authority under this section through the 
     Undersecretary of Defense (Comptroller). If the intent is to 
     allow the Secretary to delegate this authority it is 
     unnecessary. Sufficient authority already exists for such a 
     delegation.
       There is no sunset date for the DMA.
  Mr. GRASSLEY. Mr. President, I join Senator Glenn in offering an 
amendment to Section 1003 of the bill.
  Section 1003 establishes a new account at the Department of Defense 
[DOD].
  The new account is called the ``Defense Modernization Account.''
  When I was first told about the Defense Modernization Account, I was 
very concerned.
  The alarm bells went off.
  Right away, I thought I could see another slush fund like the 
infamous $50 billion M accounts in the making.
  Subsection (B)(3) is what really set me off.
  This is what it says:

       Amounts credited to the Defense Modernization Account shall 
     remain available until expended.

  To me that sounds like a permit to open a laundry operation to break 
down the integrity of appropriations.
  That sounds like another honey pot where unlimited amounts of no-year 
money could be stashed for a rainy day.
  Like the M accounts, I fear this money could be used to cover cost 
overruns and other unauthorized projects beyond the purview of 
Congress.
  Clearly, this is not the intended purpose of section 1003.
  But in my mind, it is a potential problem. Bureaucrats at the 
Pentagon might abuse the new authority.
  I also think section 1003 may be inconsistent with various parts of 
title 31 of the United States Code and most particularly the M account 
reform law enacted in November 1990.
  I am afraid that section 1003 might be used to undermine strict 
procedures for closing appropriation accounts that were established by 
the M account reform law.
  That law set up expired accounts.
  When the period of availability of an appropriation ends--as fixed by 
annual appropriation bills, those moneys are placed in an expired 
account--where they remain for 5 years.
  While in the expired accounts, the fiscal year and appropriation 
account identity must be maintained.
  At the end of 5 years, accounts must be closed and all remaining 
balances are canceled.
  It is important to maintain the integrity of appropriation accounts.
  And it is important to respect the period of availability set in the 
appropriations bills.
  But my concerns are not incompatible with the purpose of the Defense 
Modernization Account.
  The Defense Modernization Account is supposed to encourage the 
Defense Department to save money and to use savings to meet critical 
modernization shortfalls.
  The periods of availability in expired accounts plus the availability 
provided in annual appropriations bills means that procurement moneys--
the primary focus of section 1003--are available for 8 years or more.
  That's more than enough time to identify savings and reallocate them 
into top priority modernization programs--with congressional approval.
  Senator Glenn has crafted an amendment that addresses all of my 
concerns.
  His amendment brings the Defense Modernization Account into line with 
current law.
  Above all, his amendment protects the integrity of the appropriations 
accounts and all moneys involved.
  I thank Senator Glenn for making such an important contribution to 
financial management at the Pentagon.


                          ____________________