[Congressional Record Volume 143, Number 80 (Tuesday, June 10, 1997)]
[Senate]
[Pages S5439-S5441]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
OPPOSITION TO POSSIBLE NOMINATION OF JOHN HAMRE TO BE DEPUTY SECRETARY
OF DEFENSE
Mr. GRASSLEY. Mr. President, on May 27 I sent a letter to President
Clinton.
In it, I expressed opposition to the possible nomination of Mr. John
J. Hamre to fill the No. 2 spot at the Pentagon.
He would be the Deputy Secretary of defense, and it's a big job.
I told the President why I would oppose this nomination--if it's ever
made, and I'll give my reasons in just a moment.
But 2 days after writing this letter, the Washington Post ran a story
about my opposition to the nomination.
Mr. Hamre was also interviewed.
He attempted to respond to my criticism.
Mr. President, I ask unanimous consent that my letter and the
newspaper article be printed in the Record.
The PRESIDING OFFICER. Without objection, it is so ordered.
(See exhibit 1.)
Mr. GRASSLEY. Mr. President, I would like to address some of Mr.
Hamre's assertions.
First, Mr. Hamre's remarks imply that my criticism is somehow
personal.
Nothing could be further from the truth. He is a very likeable
person.
But my personal feelings have absolutely nothing to do with my
position on his nomination.
What I have tried to do is examine all the facts and then reach a
conclusion based on those facts.
These are the facts as I know them.
In 1992, the inspector general [IG] examined the Department of
Defense's [DOD] progress payment procedures.
The IG along with legal counsel declared that these policies
``resulted in the rendering of false accounts and violations of the
law.''
The IG told the Department to get on the stick and fix the problem.
The bureaucrats balked.
Under pressure, they finally signed an agreement in March 1993.
In signing this document, they agreed to comply with the law.
One of the persons who signed this agreement was Mr. Alvin Tucker.
Well, 7 months after Mr. Tucker signed the agreement, Mr. Hamre
became Comptroller and Chief Financial Officer or CFO.
Well, guess what?
Mr. Tucker became Mr. Hamre's most senior deputy. He became the
Deputy CFO.
Mr. President, after becoming CFO, Mr. Hamre did nothing to meet the
terms of the agreement and comply with the law.
Instead, he sided with the bureaucrats who were thumbing their noses
at the law.
He gave them the green light to keep breaking the law.
He personally reauthorized their illegal operation.
Then, early this year he floated a legislative proposal.
His draft language would have sanctioned the procedure that the IG
had declared illegal and that he, Mr. Hamre, had personally authorized.
Mr. President, those are the facts.
In my opinion, Mr. Hamre was attempting to legalize a crime.
Mr. Hamre knew full well his progess scheme was operating outside the
law.
Otherwise, why would he feel like he needed some legal cover?
Second, he accuses me of making a mountain out of a molehill.
He claims I am focusing on a ``small policy'' issue.
I take issue with the notion that this is somehow an insignificant
issue.
The statute that Mr. Hamre's progress payment scheme violates is
section 1301 of title 31 of the United Statess Code.
This law embodies a sacred constitutional principle: Only Congress
has the power to decide how public money many be spent.
This is the device that Congress uses to control the purse strings.
So, Mr. President, this isn't Mickey Mouse stuff. I'm talking about a
constitutional principle.
When a constitutional principle is involved, it's very difficult for
me to see the smallness of an issue.
Third, Mr. Hamre claims this is an acquisition issue--not a finance
and accounting question.
This is an obvious attempt to deflect responsibility--away from
himself.
It's an attempt to make it someone else's problem.
His reasoning is flawed.
If Mr. Hamre thinks this is an acquisition issue, maybe he has
abdicated his responsibilities under the law--as CFO.
The CFO's responsibilities are spelled out in the ``Money and
Finance'' section of the United States Code. That's in title 31.
His payment scheme violates section 1301 in the same book--title 31.
It does it by deliberately charging payments to the wrong accounts
and then juggling the books to cover it up.
Anyone who thinks this is an acquisition issue needs to consult the
law books.
When you go to the law library and locate title 31 and open the book,
the subtitle staring you in the face is: ``Money and Finance.''
Section 1301 lies in a chapter entitled ``Appropriations.''
Mr. President, misappropriation, mischarging and cooking the books
takes Mr. Hamre deep into the realm of money and accounting.
If this is just an acquisition issue, I'll eat my hat.
Fourth, when Mr. Hamre became CFO in October 1993, he declared war on
financial mismanagement.
To claim success today, he cites ``steep drops in contract
overpayments.''
Mr. Hamre's claims are not supported by the facts.
The General Accounting Office [GAO] has issued a series of reports on
DOD overpayments.
These reports demolish Mr. Hamre's success stories.
The most recent report says Mr. Hamre's progress payments scheme is
the biggest, single driver behind overpayments. He's to blame.
That's right, Mr. President, Mr. Hamre's own operations are causing
overpayments to happen.
That's exactly what it says on page 12 of the GAO report entitled:
``Fixing DOD's Payment Problems is Imperative.''
This report is dated April 1997 and has the designation NSIAD-97-37.
GAO reports also say that DOD has no capability to detect
overpayments.
Virtually every overpayment ever examined by the GAO was detected by
[[Page S5440]]
the person who got the check in the mail--the contractor--and not the
Government.
In almost every case, overpayments were voluntarily refunded by the
contractor who got the checks.
Now, Mr. President, if Mr. Hamre were really serious about
eliminating overpayments, why didn't he just shut down the illegal
progress payments operation--like the IG asked?
That would have removed the primary source of overpayments.
If Mr. Hamre has no capability to detect overpayments, how does he
know whether they are going up or down?
How does he know they are going down, if he doesn't know how many
there are?
Perhaps, if overpayments are really going down--like he says, it must
mean the contractors have stopped making voluntary refunds.
Maybe they have decided to keep the money. That would help to keep
the numbers down.
Mr. President, I will have much more to say about Mr. Hamre in the
weeks ahead.
Some of my colleagues have asked me why I oppose this nomination.
I want to be sure they know where I am coming from.
Exhibit 1
U.S. Senate,
Washington, DC, May 27, 1997.
President William J. Clinton,
The White House, Washington, DC.
Dear Mr. President: I am writing to inform you that I am
opposed to the nomination of Mr. John J. Hamre to fill the
number two position at the Department of Defense (DOD).
Secretary Cohen has recommended that Mr. Hamre be the next
Deputy Secretary of Defense.
I am opposed to this nomination because Mr. Hamre has
authorized and protected an illegal payment operation.
The procedure in question is the one DOD uses to make
progress payments on contracts. Under Mr. Hamre's policy,
payments are deliberately charged to the wrong accounts.
Then, after the payments are made, DOD attempts to ``adjust''
the accounting ledgers to make it look like the checks were
charged to the right accounts when the money was, in fact,
spent some other way. Deliberately charging the wrong
accounts and then juggling the books to make them look right
is what I call ``cooking the books.''
Legal counsel has said that DOD's progress payment
procedures ``result in the rendering of false accounts and
violations of Section 1301.'' Section 1301 is a little known
but very important law. It embodies a sacred constitutional
principle: Only Congress decides how public money may be
spent. Section 1301is the device the Congress uses to control
the purse strings.
After the Inspector General declared that DOD progress
payment procedures were illegal, the department's Chief
Financial Officer (CFO), Mr. Hamre, had a responsibility to
institute some reforms. In fact, his senior deputy made a
formal commitment to obey the law. But instead of fixing the
problem, Mr. Hamre tried to legalize the crime. Earlier this
year, he circulated a piece of draft legislation for review
and comment. His legislation would have sanctioned the
payment procedures that the IG had declared illegal and that
he had personally authorized in writing after becoming CFO.
Mr. Hamre's draft bill tells me that he knew full well that
his progress payments process was operating outside the law.
Otherwise, why was he seeking legal cover?
Mr. President, when I found out about what Mr. Hamre was up
to, I went straight to the floor of the Senate to denounce
his actions. I did it on two occasions. Once on January 28th
(See pages S695-696 in the Record) and again on February 12th
(S1265-1267).
I think Mr. Hamre has probably done an excellent job in
making a case for the DOD budget before Congress. And that is
the John Hamre that most senators know--the one wearing the
budget hat. That's John Hamre, the Comptroller. But the
budget is just part of his job. He wears another hat. He is
also the department's CFO. As CFO, he is responsible for
financial management and accounting. This has been his
downfall. In the accounting field, Mr. Hamre has done a lousy
job. I would give him a grade of F for his performance. The
department's books are in a shambles. True, they were that
way when he became CFO, but that was four years ago, and they
are still that way. The department's books are in such a
mess--so much documentation is missing--that they can't be
audited as required by the CFO Act of 1990. And the situation
is not expected to get much better anytime soon. The IG
expects to keep giving DOD disclaimers of opinion ``well into
the next century.''
One reason why DOD keeps flunking the CFO audits is sloppy
bookkeeping. DOD refuses to do routine accounting work on a
daily basis as transactions occur. And one of the most
flagrant examples of sloppy bookkeeping is the progress
payment process. As legal counsel said, it results in the
rendering of false accounts and violations of Section 1301.
Payments are deliberately charged to the wrong accounts and
then DOD doctors the books to make them right with the law.
With this kind of bookkeeping operation, it's next to
impossible to either locate or follow the audit trail.
Mr. President, this is not ``mickey mouse'' accounting
stuff that only ``bean counters'' need to worry about. This
is about the breakdown of discipline and internal controls.
That leaves the department's accounts vulnerable to theft and
abuse. In recent years, several employees succeeded in
tapping into the DOD money pipe undetected, stealing millions
of dollars. They were caught as a result of outrageous
personal behavior and not because of effective internal
controls. How many others are still out there, ripping off
the taxpayers?
Under the CFO Act, Mr. Hamre is responsible for ``improving
internal controls and financial accounting.'' Because of his
personal involvement in the illegal payment process and his
failure to clean up the books, I do not believe that Mr.
Hamre deserves to be promoted to Deputy Secretary of Defense.
Sincerely,
Charles E. Grassley,
U.S. Senator.
____
[From the Washington Post, May 29, 1997]
Official in Line for No. 2 Defense Post Rebuked
(By Bradley Graham)
John Hamre, the Pentagon comptroller in line to become the
Defense Department's new second-in-command, has come under an
unusually sharp attack from Sen. Charles E. Grassley (R-Iowa)
triggered by a dispute over how the department accounts for
progress payments on contracts.
In a letter to President Clinton made public yesterday,
Grassley accused Hamre of having ``authorized and protected
an illegal payment operation'' and announced he would oppose
Hamre's expected nomination.
The accounting practice, Grassley said, is symptomatic of
the Pentagon's chronically ``sloppy bookkeeping.'' He charged
Hamre had ``done a lousy job'' revamping the Pentagon's
financial management during his four years as comptroller,
adding that the Pentagon's books remain a ``mess.''
Hamre, a former Senate staff member who enjoys widespread
favor on Capitol Hill, was stunned and puzzled by the
harshness and personal focus of Grassley's remarks. At issue,
he said, was just an honest disagreement over a Pentagon
contracting practice that dates back several decades.
``The senator has taken an important but small acquisition
policy issue and applied it to my entire tenure,'' Hamre said
in a brief phone interview. ``I'm sorry he's done that, and
I'd welcome a chance to talk about it.''
Grassley repeatedly has called attention to the Pentagon's
antiquated accounting system, deploring its waste and
vulnerability to fraud. Hamre, in turn, declared improvements
in controls and methods a top priority when he took over as
the Pentagon's top financial officer in 1993. Since then, the
Pentagon has reported steep drops in contract overpayments
and unmatched disbursements, begun a shift from paper-based
to electronic payments and consolidated financial offices.
But what troubles Grassley is the Pentagon's continuing
practice of making periodic payments on contracts without
correlating them to the work done, a process that Grassley
says the Pentagon's inspector general declared illegal in
1992.
``Under Mr. Hamre's policy,'' Grassley wrote, ``payments
are deliberately charged to the wrong accounts. Then, after
the payments are made, DOD attempts to `adjust' the
accounting ledgers to make it look like the checks were
charged to the right accounts when the money was, in fact,
spent some other way.
``Deliberately charging the wrong accounts and then
juggling the books to make them look right is what I call
`cooking the books,' '' the senator added.
Hamre maintains there is nothing nefarious about the
practice. He said the system of progress payments was adopted
years ago to allow the contractor to avoid having to borrow
money, and thus keep project costs down. Whether the Pentagon
should move to a more precise billing process now, he said,
is a contracting issue, not a financial management one. Just
how far Grassley intends to go in thwarting Hamre's accession
is unclear. While Defense Secretary William S. Cohen has
recommended Hamre for the job of deputy secretary, Clinton
has not publicly affirmed the choice.
If the nomination goes to Capitol Hill, Grassley could
simply vote against it or, as he has done in previous
instances, exercise his senatorial prerogative to block the
nomination from coming to a floor vote.
``I don't know what we're going to do yet,'' a Grassley
aide said.
The PRESIDING OFFICER. The Senator from New Jersey.
Mr. LAUTENBERG. Mr. President, I ask unanimous consent I may speak
for a few minutes about some concerns about the budget that I have. I
understand the chair will be occupied during that time. I therefore ask
consent I be permitted to speak.
The PRESIDING OFFICER. Without objection, it is so ordered.
[[Page S5441]]
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