[Congressional Record Volume 143, Number 18 (Wednesday, February 12, 1997)]
[Senate]
[Pages S1265-S1267]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
FINANCIAL ACCOUNTABILITY AT DOD
Mr. GRASSLEY. I want to speak on a problem that I have been speaking
about in the Department of Defense, but it also emphasizes the need for
having a balanced budget, because the shenanigans that go on in the
Defense Department would not go on if we had more discipline in this
town in regard to the expenditures of taxpayers' money.
On January 28, I spoke here on the floor about irresponsible
financial accounting policies being pursued over at the Department of
Defense. This policy is the responsibility of the chief financial
officer at the Pentagon. The person holding that position now is Mr.
John Hamre, but it would be applicable to anybody holding this
position. The chief financial officer is supposed to be tightening
internal controls and improving financial accounting. That is exactly
why we passed, in 1990, the Chief Financial Officer's Act. Mr. Hamre
should be cleaning up the books at the Pentagon and watching the money
like a hawk. If that had been the case, we would not need to have a
constitutional amendment for a balanced budget, if we had been doing
that properly over the last 25 years.
Sadly, the job is not being done. To make matters worse, the
bureaucrats are pushing a new policy on progress payments that will
loosen internal controls and cook the books. This new policy is
embodied in draft bill language that was being circulated in the
Pentagon for review as recently as January 30. I expressed my concerns
about the new policy in my statement on January 28. In a nutshell, this
is what I said then and it is still appropriate today:
I am afraid that this new draft language would subvert the
appropriations process that is so key to keeping tight control on how
the taxpayers' dollars are expended by the Congress of the United
States.
I even alerted the chairman of the Appropriations Committee to the
bad aspects of this language. The new language is not one bit
constructive. It would not fix Defense's crumbling accounting system.
It would merely condone and perpetuate crooked bookkeeping practices.
Since raising this issue here on the floor, I have exchanged letters
with Mr. Hamre. I ask unanimous consent that correspondence be printed
in the Record.
There being no objection, the letters were ordered to be printed in
the Record, as follows:
Under Secretary of Defense,
Washington, DC, January 29, 1997.
Hon. Charles E. Grassley,
U.S. Senate,
Washington, DC.
Dear Senator Grassley: I was astounded yesterday to see
that you went to the floor of the Senate to personally attack
me. You made no effort to discuss your concerns with me
either directly or through your staff. You did not contact me
to ask me to explain my position on a draft proposal
circulating within the Department for comment. And the
``concerned citizen'' you cite in your letter who provided
this information has never contacted me. This was a Pearl
Harbor attack, and I am very disappointed in it.
Frankly, we have done more in the past 3 years to clean up
financial management problems in the Department than anyone
else has done in the past 30 years. Secretary Perry deserves
high praise for making this a priority. I have certainly
dedicated myself to this task. You can ask any objective
individual in town and they would tell you we have made
enormous progress.
In the past 3 years we have closed over 230 inefficient
accounting offices and consolidated them into new operating
locations with improved business practices and equipment. We
have closed over 300 payroll offices and transferred accounts
from some 25 old outdated payroll systems into a new modern
system with a 500 percent improvement in productivity. We
have reduced problem disbursements by over 70 percent in 3
years. We have instituted new policies that freeze activity
on accounts that are in deficient status, and I am forcing
the Services to obligate funds to cover negative unliquidated
obligations. We are prevalidating all disbursements of funds
for all new contracts and have lowered the prevalidation
threshold on existing contracts.
Yet without even offering to discuss the issue with me, you
blast me from the floor of the Senate, claiming I am ``ready
to throw in the towel'' on financial management reform. That
is nonsense, and I am disappointed that you would suggest it.
I don't blame you personally. I worked for the Senate for 10
years and I know how busy Senators are. I know that you are
often given material by staff who represent the fact as
correct. But it is disappointing that you would not even ask
me to come over to discuss it with you. After you had heard
my side, it would be perfectly fair for you to blast me if
you still disagreed. But you didn't even ask me to meet with
you.
For the record, the language which you criticized has
nothing to do with the M account as you allege. It would not
``thumb our nose'' at the appropriations process or the law
as you state in your speech. It would not pool funds at the
contract level. This language merely clarified that progress
payments are a financing device to lower borrowing costs. In
their 40 year history, progress payments were never designed
to do anything other than finance a contract. Every progress
payment we make is linked directly to the source funds
identified to the contract, and detailed audits are conducted
[[Page S1266]]
before the contract is closed. We don't reimburse contractors
for the full costs they incur precisely to guarantee that we
don't overpay contractors. This language was designed to
clarify a problem we have with progress payments. Progress
payments cannot be linked to funding sources unless the
acquisition community mandates that every contractor in the
country change its accounting systems to accommodate DoD
fiscal law prohibitions and invoice us in terms of
congressional appropriation categories. That would not be
good business sense and violates the underlying purpose of
progress payments.
Next time, Senator Grassley, please contact me first before
you attack me on the floor of the Senate. You actually set
back financial management reform by your attacks because
people pull back from actions just to avoid the criticism.
Sincerely,
John J. Hamre.
____
U.S. Senate,
Washington, DC, January 30, 1997.
Hon. John J. Hamre,
Under Secretary of Defense, 1100 Defense Pentagon,
Washington, DC.
Dear John: I am writing in response to your letter of
January 29, 1997, expressing anger and disappointment about
my recent speech on the floor of the U.S. Senate about the
lack of ``Accountability at the Department of Defense.''
Your anger and disappointment seem to flow from one main
source. You think I made no effort to discuss this matter
with you before blasting you on the floor of the Senate. You
state, and I quote:
``You made no effort to discuss your concerns with me
either directly or through your staff. You did not contact me
to ask me to explain my position on a draft proposal
circulating within the Department for comment.''
John, that statement is totally false, and I demand an
apology.
As soon as the draft language on progress payments came to
my attention, my staff contacted your personal office
directly at 703-695-3237 to express concern about it. That
was the very first thing we did. My staff was informed that
you were out of the building on travel and to call Navy
Captain Mike Nowakowski, one of your congressional liaison
officers. That was done immediately. Initially, on January
14th, Captain Nowakowski reported that he could find no trace
of the draft language on progress payments but indicated that
he would keep looking. At that time, my staff communicated my
grave concerns about the proposal in detail, including a
warning that I would go to ``battle stations'' if this
language was, in fact, under active consideration. When
Captain Nowakowski was unable to locate the language, I was
able to obtain a copy elsewhere. My office faxed the document
to him at 4:03 pm on January 14th. During a subsequent
conversation on January 22nd, Captain Nowakowski confirmed
that the language was indeed under review within the
department. He also told me that he had personally briefed
you on all my concerns.
John, those are the facts. The facts show that I did
everything humanly possible to communicate my concerns
directly to you. Your letter is out of line and inconsistent
with the facts.
Furthermore, I believe Captain Nowakowski is telling the
truth. He briefed you in detail about my concerns. He made
that statement on January 22nd and reconfirmed it again this
morning. I shared my concerns with you--as best I could
through that unresponsive and cumbersome bureaucracy that is
your office. So why did you say I made no effort to discuss
my concerns with you either directly or indirectly through my
staff? And why didn't you react and respond to my concerns?
You should have called me and asked to see me. My door is
always open to you.
John, you know that when I am disturbed about some
development at the Pentagon, I usually go to the floor and
talk about it. My staff informed one of your other
congressional liaison officers--``Hap'' Taylor--that I was
planning to do exactly that. When I do it, it is usually an
unpleasant experience for some. But it's unpleasant only for
those who fail to be responsible and accountable for the
taxpayers' money. Since I am not a member of the Armed
Services Committee, I think of the floor as my committee
forum for defense issues.
John, you owe me two things. First, you owe me an
explanation. If Captain Nowakowski is tell the truth--and I
believe he is, then you need to explain the inaccurate
assertions in your letter. Second, you owe me an apology.
I look forward to your response.
Sincerely,
Charles E. Grassley
U.S. Senator.
____
Under Secretary of Defense,
Washington, DC, January 30, 1997.
Hon. Charles E. Grassley,
U.S. Senate,
Washington, DC.
Dear Senator Grassley: I have received your January 30
letter demanding an apology. I am sorry that I won't do that
because I believe I am the wronged party. You blasted me on
the floor of the Senate and I wrote you a personal letter. It
seems to me that a modicum of decency would hold that if you
intend to criticize me by name on the floor of the Senate, I
should have a chance to talk with you first before you do
that. Yet you didn't do that.
You state in your letter ``I did everything humanly
possible to communicate my concerns directly to you.'' I
really don't know how you can conclude that. On two separate
occasions in the past I had breakfast with you. I have spoken
with you in previous occasions on the phone and at hearings.
I have repeatedly stated my willingness to meet with you at
any time. You have written me numerous letters and I have
written back. Yet on this occasion you did not call my
office, you did not ask me to come to meet with you, you did
not send me a letter outlining your concerns.
My staff aid, Captain Nowakowski, told me that your
staffer, Mr. Charles Murphy, had a copy of this language and
``had some serious concerns.'' At the time the document was
in circulation for comment and did not represent Department
policy. It is still in the coordination stage. We hadn't
decided on what to do yet, so it was inappropriate to respond
to a staff call expressing concerns on something that the
Department had not adopted. Even then, Charlie (whom I have
known for 10 years and consider a friend) didn't call me or
ask to meet with me to relay your concerns.
Senator, I do respect you, but I owe you no apologies.
Sincerely,
John J. Hamre
____
U.S. Senate,
Washington, DC, January 27, 1997.
Hon. Ted Stevens,
Chairman, Committee on Appropriations, U.S. Senate,
Washington, DC.
Dear Ted: I am writing to express concern about a
legislative proposal that is under consideration within the
Department of Defense (DOD).
This provision, if approved, would significantly loosen
controls over progress payments. DOD progress payments total
about $20 billion per year. A copy of the proposed language
is attached.
First, the Inspector General (IG) has been keeping a close
eye on this whole problem for a number of years. IG audit
reports consistently show that the department regularly
violates the laws that the proposed language would undo. This
is like legalizing the crime--instead of trying to fix the
problem.
Second, this proposal is inconsistent with Comptroller
Hamre's commitment to begin the process of matching
disbursements with obligations before a payment is made. In
last year's Report No. 104-286 (pages 18-19), your Committee
directed Mr. Hamre to develop a detailed plan, including
dollar thresholds and milestones, for eliminating all problem
disbursements. The attached language would put that whole
idea on a back burner indefinitely.
Third, the attached language would subvert the
appropriations process. If DOD is to be authorized to merge
and pool acquisition monies--R&D and procurement funds--at
the contract level, then Congress must make some kind of
corresponding adjustment in the way those monies are
appropriated. To do otherwise might make the appropriations
process irrelevant somewhere down the road.
I would like to ask you to urge Mr. Hamre to reconsider the
attached proposal and search for a better way to solve the
problem. Ted, there is obviously a problem in the payments
process. We need to understand the problem before we try to
fix it.
Sincerely,
Charles E. Grassley,
U.S. Senator.
Mr. GRASSLEY. Mr. Hamre's letters tell me that he may not understand
this issue. He seems confused. It is confusion like this that dictates
more fiscal discipline in this town, and that can only come from a
constitutional amendment requiring a balanced budget.
His letter of January 29, I think, contains two contradictory
statements. In one breath he says that payments and appropriations are
in sync. In the next breath, he admits that payments and appropriations
are out of sync.
But then he goes on to say that the cost of getting them in sync
would just be too high, that we cannot worry about whether payments are
matched with a particular product or a particular invoice or
appropriation account. He says, ``that would not be good business
sense.'' It would place an unfair burden on the contractors.
Just think, when it comes to matching disbursements of money with an
invoice, it might also place an unfair burden on contractors and
government accountants.
So just what is the thinking of the chief financial officer? Clearly,
there is a problem in the Department of Defense's payment process.
There is a major disconnect. On the one hand, we have a whole body of
law governing the use of appropriations; on the other, we have payments
for factory work that are supposed to be matched with corresponding
appropriations.
Unfortunately, the law and the payments just don't mesh. They can't
be reconciled. So long as the two are not
[[Page S1267]]
in sync, the Pentagon is operating outside the law, and it doesn't
reflect the fiscal discipline that we need in this town and that we
would get with a constitutional amendment.
Unfortunately, the new policy in this draft language that is floating
around the Pentagon does not put them back in sync. It will keep them
out of sync permanently.
To understand the root cause of this problem, we need to step back in
time. Bureaucrats do not like it when congressional overseers revisit
history, but that is what we need to do. We need to revisit an old IG
report, the inspector General's audit report dated March 31, 1992. That
is number 92-064. It is on the Titan IV Missile Program.
That is where the problem was first detected and exposed, and that is
the problem the bureaucrats are trying to cover up in this new policy.
The Titan IV was not an isolated case. Unfortunately, the practices
uncovered on Titan IV typified common practices throughout the
Department. This report showed the Defense Department regularly
violates the laws that the draft language would undo. Instead of fixing
the problem, this proposed language would legalize the crime.
Mr. President, the laws that were violated were designed to protect
Congress' constitutional control over the purse strings. Progress
payments to Martin Marietta on the Titan IV contract were made in
violation of those laws. Those payments were made on a predetermined
sequence of appropriations. Those are words that mean the money was
drawn from available appropriation accounts using a random selection
process.
What a way--random selection to justify the expenditures of the
taxpayers' money. That is a blatant violation of the law. That is the
inspector general talking, Mr. President, not the Senator from Iowa.
Yet, as difficult as it may be to comprehend, this unlawful procedure
was sanctified by Air Force Regulation 177-120, starting February 15,
1988. In other words, that is an outlaw decree.
Congress appropriates money for specific purposes. Those purposes are
specified in law, and that is how the money must be spent. That's what
the law says. The Pentagon bureaucrats promise to straighten up this
mess after the fact, down the road, after the money goes out the door.
They try to retroactively adjust--that's their language--adjust the
ledgers--to make it look like the payments and the appropriations were
in sync.
That is fine and dandy, Mr. President. It makes the books look nice
and neat, but the books then do not reflect the reality of how the
taxpayers' money was spent or what the appropriators intended. The
books do not tell you how the money was really spent. If they don't do
that, then they are inaccurate, and that's what I call cooking the
books.
Back in 1992, the inspector general tried to shut down the Defense
Department's unlawful payment process. Mr. President, the inspector
general told the Department to get on the stick, obey the law, fix the
problem.
Well, guess what? The big wheels over at the Pentagon nonconcurred
with the IG. That means, take a hike, in other words. They said the
payment process was working just fine; it doesn't need any fixing;
don't mess with it.
We should be thankful that the IG had courage and did not back down.
This dispute came to a head, after years of talk, in March of 1993.
There was a high-level powwow at that time. The financial wizards in
the Pentagon got together and signed a peace treaty. They said,
basically, obey the law.
They were given 120 days to do it.
The treaty was signed by: Ms. Eleanor Spector, Director of Defense
Procurement; Mr. Al Tucker, Deputy Comptroller; and Mr. Bob Lieberman,
assistant IG for auditing.
Mr. President, 4 years have passed since that agreement was signed.
Those same officials are still in the same place. But nothing has been
fixed.
Now, we have the DOD CFO telling us that nothing will be fixed. The
status quo will be institutionalized and legalized. Titan IV is the
model for the future.
CFO Hamre is responsible for this mess.
Why didn't Mr. Hamre enforce the March 1993 agreement? What exactly
has happened in the 4 years since the agreement was signed? How did we
end up where we are?
We need to know the answers to these questions. We need to understand
the problem before we try to fix it.
The PRESIDING OFFICER. The Senator from North Carolina is recognized.
Mr. FAIRCLOTH. Thank you, Mr. President. Mr. President, I ask
unanimous consent to speak as in morning business for up to 5 minutes.
The PRESIDING OFFICER. Without objection, it is so ordered.
____________________