[Congressional Record Volume 143, Number 8 (Tuesday, January 28, 1997)]
[Senate]
[Pages S695-S696]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




[[Page S695]]



              ACCOUNTABILITY AT THE DEPARTMENT OF DEFENSE

  Mr. GRASSLEY. Mr. President, for my 85 colleagues who have served 
with me in past Congresses, what I am going to speak of is nothing new. 
It is about the lack of discipline and integrity in financial 
accounting at the Pentagon. This lack of integrity and discipline in 
accounting is the basis for the waste of the taxpayers' money that we 
have had at that institution for a long period of time.
  But for the nine Republicans and six Democrats who are new Members of 
this body, I would ask them to be cognizant of the fact that what I am 
addressing is a crusade that I have been on for a long period of time 
to bring accountability to the expenditure of taxpayers' money at the 
Department of Defense. It is especially important for us Republicans to 
make sure that we are accountable for the taxpayers' money at the 
Defense Department where we tend to be somewhat lax, let me say, 
candidly. We should expect the same sort of accountability that we 
expect of liberals in this body when they spend money through the 
various domestic departments of Education, Labor, Health and Human 
Services and other departments of State government that maybe we 
Republicans ride herd on to a greater extent than we do the Defense 
Department.
  So that subject is a breakdown of discipline and integrity in 
accounting at the Pentagon. When Mr. John Hamre became Comptroller of 
the Defense Department in 1993, I felt very hopeful. He made a personal 
commitment to clean up the books and to get control of the money. I 
really believed that he would get the job done. In fact, I have 
complimented him on this floor several times for making some changes--
maybe not as fast as I would like to have had them made, but making 
changes. That is quite an accomplishment in that very bureaucratic 
organization.
  So I have been working on him, specifically on the issue of unmatched 
disbursements. And, of course, as I have indicated, I thought we were 
making progress. Well, my confidence in Mr. Hamre has been shaken by a 
piece of paper that I am going to submit for the Record, which is 
floating around the Pentagon. I hope Mr. Hamre will reject this paper 
and thus restore my confidence. This piece of paper was brought to my 
attention by a concerned citizen. It is draft bill language. It is 
still under review, but it has lots of momentum. This language, if 
approved by Congress, would significantly loosen--in other words, going 
in the opposite direction of where we ought to be going--control over 
progress payments. The Department of Defense pays out about $20 billion 
a year in progress payments. So we are not talking about peanuts; we 
are talking about big chunks of money.
  The language of this draft legislation tells me that Mr. Hamre and 
his lieutenants in the Pentagon are ready to throw in the towel on this 
problem. They have decided the accounting problem is just too big and 
too complicated to fix. They seem to be saying, ``Let's forget about 
accounting today; we will try to fix it tomorrow.''
  The experts at the General Accounting Office are evaluating the 
meaning of this language, and their verdict isn't in yet. But a 
preliminary reading tells me that this language is bad medicine for the 
taxpayers. It's going to cut down on accountability at the Defense 
Department. It would make a bad situation worse. It would fix nothing. 
The DOD Inspector General has been keeping a close eye on the problem 
for a long time.
  IG audit reports consistently show that the Department of Defense 
regularly violates the laws that this language would undo. This is like 
legalizing the crime. Instead of fixing the problem, just legalize the 
crime. The bureaucrats will be able to relax. The guillotine hanging 
over their heads to be accountable is gone. They don't have to worry 
about breaking the law and getting into trouble. It's OK. Go ahead and 
do it.
  In a nutshell, Mr. President, these are the shortcomings the language 
would sanction:
  Problem No. 1: The Department of Defense is unable to quantify and 
measure work progress on the factory floor.
  Problem No. 2: If you can't accurately measure work performance, how 
do you make progress payments? You don't know how much to pay or what 
money to use.
  Do you use fiscal year 1996 R&D funds, or do you use fiscal year 1994 
procurement money? Those are some examples. But they would have much 
more leeway in making this decision. Less accountability.
  Problem No. 3: If you don't know how to measure progress, or how much 
to pay, or what you are getting, you can't do normal bookkeeping, and 
so you are not as accountable.
  This is why the Department's books are in shambles. When a Department 
of Defense check goes out the door, chances are it's in the wrong 
amount. It could be an overpayment, an underpayment, an erroneous 
payment, or even a fraudulent payment. I have documented proof that a 
number of people have literally stolen millions of dollars through this 
lax process.
  Without accurate bookkeeping, it is impossible to control the money. 
The Pentagon check writing machine is stuck on automatic pilot, and 
nobody seems to know how to stop it.
  This language would lock the checkwriting machine on autopilot.
  Mr. President, the Pentagon bureaucrats want to create a pool of 
money down at the business end of the DOD pipeline--where money is 
disbursed. They would do this by breaking down the integrity of the 
appropriation accounts established in law. That would allow them to 
make payments without regard to statutory law and the Constitution, as 
they once did before we abolished the memorable ``M'' account slush 
funds. The ``M'' accounts were closed by Congress in 1990.

  This language, then, in this proposed draft would subvert the 
appropriations process. Every member of the Appropriations Committee 
ought to be concerned about this. Each year, that committee takes the 
DOD budget and carefully segregates the money in many different 
accounts. The amounts provided for each account are specified by the 
law. Under the law, the money must be expended for the purpose for 
which it was appropriated in the times allowed.
  DOD bureaucrats are thumbing their noses at the appropriations 
process and the law. The IG tells us they do it with regularity--but at 
some risk.
  Well, this language would remove all of that risk. It would authorize 
them to tear down the account barriers so carefully put up by the 
Appropriations Committee. If we are going to protect the taxpayers' 
money, if we are going to make the Department of Defense accountable, 
that's not right.
  The Department of Defense should not be authorized to merge 
appropriation accounts downstream at the contract level, unless they 
are first merged upstream by Congress in law.
  If the money is to be pooled at the contract level, then Congress 
must make some kind of corresponding adjustment in the way those moneys 
are appropriated. Otherwise, the appropriations process might become 
irrelevant down the road.
  Mr. President, as I close, I want to say that I have already brought 
this language to the attention of my friend from Alaska, Senator 
Stevens, the distinguished chairman of the Appropriations Committee. I 
have found him so many other times so respectful of the judgments that 
have been presented to him and his cooperation on other committees 
where he can raise very important questions. So I don't have any doubt 
but what this concerns Senator Stevens, and Senator Stevens will look 
into it and find a solution, but not let the Defense Department get 
away with their irresponsible draft language that would give them an 
open door to doing just about whatever they want to do.
  I have asked Senator Stevens to urge Mr. Hamre to reconsider this 
proposal and find some other way to fix the problem. I also ask my 
friend, John Hamre, to carry out his responsibilities under the Chief 
Financial Officers' Act of 1990, the CFO Act. Under that act, he is 
supposed to be tightening internal controls and improving financial 
accounting.
  This language would move accounting in the opposite direction--the 
wrong direction. It would loosen internal controls and set accounting 
aside until some unknown future date.

[[Page S696]]

  Mr. President, this draft language floating around the Defense 
Department at this point needs close scrutiny. It really worries me, 
and it should worry the taxpayers because there is going to be less 
accountability of bureaucrats, who are responsible for spending the 
money, to the taxpayers if we would change existing law.
  I ask unanimous consent that the document I referred to earlier be 
printed in the Record.
  There being no objection the material was ordered to be printed in 
the Record, as follows:

                        Excerpt From Draft Bill

     SEC.  . ACCOUNTING FOR CONTRACT FINANCING PAYMENTS.

       Section 2307 of title 10, United States Code, is amended by 
     adding at the end the following new subsection (i):
       ``(i) Accounting for Payments.--Payments under this section 
     based upon a contract that is funded by multiple 
     appropriations or multiple subdivisions within one 
     appropriation may be paid from any one or more of the 
     appropriations or subdivisions thereof funding the contract. 
     However, proper accounting adjustments shall be made to 
     conform to the requirements of subsection (a) of section 1301 
     of title 31 upon final payment for the items or services 
     delivered and accepted in performance of the contract.''.


                           Sectional Analysis

       This proposal would authorize the Secretary of Defense, 
     when making contract financing payments for a contract funded 
     by multiple appropriations or multiple subdivisions within an 
     appropriation, to charge any one or more of the 
     appropriations or subdivisions thereof. The benefit of this 
     section under 10 U.S.C. Sec. 2307, ``Contract Financing'' is 
     to the temporary spreading of payments for work-in-process 
     costs across appropriations funding the contract. This 
     legislative relief will permit us the flexibility to exercise 
     our stewardship over the public moneys more efficiently and 
     effectively.
       This section remedies a long standing and on-going problem 
     in the current contract payment process that attempts to 
     assign contract financing payments to a specific 
     appropriation when the process is not capable of efficiently 
     providing the need information. The Department of Defense 
     (DOD) uses the contract financing authority at 10 U.S.C. 
     Sec. 2307, as implemented by Federal Acquisition Regulation 
     Part 32, for many of its contracts. These provisions 
     authorize the disbursement of funds to a contractor prior to 
     the acceptance of goods and services. Contract financing 
     includes advance, partial payments under cost reimbursable 
     contracts and progress payments. Pursuant to this authority, 
     contractors receive progress payments from DOD to finance 
     work performed under DOD contracts. These payments for work-
     in-process may be for specific work or tasks, or for 
     production line setup and equipment or tooling for the entire 
     contract and in some cases are not tied to specific work or 
     tasks. The contracts are often funded with multiple and 
     different appropriations.
       In order to comply with 31 U.S.C. Sec. 1301, which requires 
     that appropriations be applied only for the purpose for which 
     they were made, payments based upon the contractor's work-in 
     process costs must be identified to specific work or tasks 
     and the related appropriation funding the effort. However, 
     given that the nature of the cost incurred during the work-
     in-process period may be funded by multiple appropriations 
     and therefore, cannot be efficiently identified to a specific 
     appropriation, compliance with 31 U.S.C. Sec. 1301 is 
     difficult and time consuming Furthermore, it is not cost 
     effective or realistic to require additional government or 
     contractor information or effort to determine the specific 
     chargeable appropriations while making payments for work-in-
     process costs and for costs which are essentially a means of 
     temporary financing for the contractor. In fact, this 
     additional administrative work to develop the information 
     would not significantly improve the precision of the estimate 
     but would further increase the contractor and taxpayer costs. 
     Currently, unless the specific line item and appropriation 
     are identified to the payment office, contract financing 
     payments are spread pro-rata across the appropriations 
     funding the contract. During the work-in-process period, 
     adequate controls exist to ensure that no appropriation is 
     charged more than is available in the appropriation and, 
     furthermore no payment is made without receipt of a proper 
     government approved authorization to make the payment against 
     the proper contract. The problem, however, is that this 
     method is not in compliance with 31 U.S.C. Sec. 1301.
       The enactment of this bill permit this accounting 
     flexibility when viewed in conjunction with 31 U.S.C. 
     Sec. 1301. The effect would be to provide a specific 
     statutory exception to the requirements of 31 U.S.C. 
     Sec. 1301 until payment is made.

  Mr. DORGAN addressed the Chair.
  The PRESIDING OFFICER. The Senator from North Dakota is recognized.

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