[Congressional Record Volume 143, Number 85 (Wednesday, June 18, 1997)]
[Senate]
[Pages S5947-S5948]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      DOD's PROBLEM DISBURSEMENTS

  Mr. GRASSLEY. Mr. President, I would like to talk about the 
Department of Defense's [DOD] problem disbursements.
  I have spoken on the subject many times in the past.
  I would like to speak on it again today because the Pentagon's Chief 
Financial Officer, or CFO, Mr. John Hamre, claims he's whipping the 
problem.
  His claims do not seem to stand up to scrutiny.
  The GAO has issued a new report on DOD's problem disbursements. It is 
entitled ``Improved Reporting Needed For DOD Problem Disbursements.''
  This report rips Mr. Hamre's claims to shreds.
  In May 1996, Mr. Hamre claimed he had an $18 billion problem. Now, 
it's $8 billion and falling.
  The GAO says Mr. Hamre is understating the problem by at least $25 
billion.
  Mr. Hamre is blowing smoke to hide the problem.
  He is falling back on the oldest trick in the bureaucrat's book: 
Redefine the problem to make it appear smaller.
  He did it by administrative decree in December 1996.
  His decree arbitrarily excludes huge chunks of problem disbursements 
from official reports to Congress.
  He just waved his magic wand and shrunk the universe.
  It is not smaller because he cleaned up the books or reconciled 
delinquent accounts.
  He did not do any oldtime bookkeeping to get the job done.
  In fact, he did not get the job done. He just wants us to think the 
did.
  Mr. President, to understand what Mr. Hamre is up to, we need to 
understand problem disbursements. What are they, and why are they a 
problem?
  The GAO says there are three types of problem disbursements: in-
transit disbursements, unmatched disbursement, negative unliquidated 
obligations or NULO's.
  An in-transit disbursement is one that is floating in limbo.
  The check was written and the bill was paid. But the payment has not 
been posted to an account.
  If Mr. Hamre were on the ball, there would be no in-transits. 
Transactions should be recorded as they occur. That's basic accounting 
101 stuff.
  That's how businesses operate.
  The Pentagon's accounting guru--Mr. Keevey--says that's the right way 
to do it. I quote Mr. Keevey:

       Under a good finance and accounting network, you would 
     never make a payment until you check it against the 
     underlying obligation and the underlying records.

  If DOD practiced what Mr. Keevey preaches, there would be no problem 
disbursements. Period.
  Congress has been telling DOD to do exactly the same thing every year 
for the last 3 years.
  Section 8106 of last year's appropriations bill says:

       Match disbursements with obligations before making 
     payments.

  But the bureaucrats complain: ``No can do. It's just too hard.''
  They think it's normal for disbursements to float in limbo for up to 
120 days or even longer. For them, a disbursement floating in outer 
space for 4 months is OK.
  It's not a problem disbursement under Mr. Hamre's exclusion policy.
  Here's a prime example of how well Mr. Hamre's policy works.
  The GAO discovered, for example, that DOD excludes certain 
``recurring and routine'' transactions.
  Mr. President, you should see what the GAO found in the Pentagon's 
``recurring and routine'' basket?
  The GAO discovered $4.5 billion of payroll disbursements from 
automated teller machines or ATM's that were once located on Navy 
ships.
  They just weren't very fresh.
  They were so old that their points of origin had disappeared off the 
face of the Earth. The ships that carried the ATM's have been 
decommissioned.
  Time passed them by.
  Most of these ATM transactions were at least 2 years old but some 
dated back to January 1988, or 9 years ago.
  To the average citizen, a check that is not recorded in a checkbook 
register for 9 years just might be a problem.
  But not to Mr. Hamre.
  He says it's ``normal and routine'' for a disbursement to float 
around in outer space for 9 years. ``It's OK. It doesn't count. Not to 
worry.''
  Unmatched disbursements are more troublesome than in-transits.
  When in-transits finally reach the accountant's desk, the accountant 
tries to match the disbursement with its corresponding obligation.
  An obligation is like a contractual commitment of money.
  When a corresponding obligation cannot be identified, you have a 
problem--an unmatched disbursement.
  In some cases, the hookup is made. Sometimes it takes months or even 
years. And sometimes, the match is never made.
  That's an unmatchable disbursement.
  That happens when supporting documentation has disappeared.
  When you have a check and no supporting documentation, you have a hot 
potato.
  That's a problem, Mr. President. It's a big problem for anyone 
responsible for controlling public money.
  CFO Hamre found a quick and easy cure for this ugly wart. He just 
lopped it off.
  In 1995, he literally wrote off billions of dollars in unmatchable 
disbursements.
  He just wiped them clean off the books. Problem solved.
  When Mr. Hamre did this, I came to the floor and criticized him for 
doing it. I thought it set a terrible precedent.
  Maybe Mr. Hamre had no choice, but when you write off billions of 
dollars of disbursements, some heads should roll. And it should never 
happen again.
  Sadly, no one was held accountable.

[[Page S5948]]

  The third category of problem disbursements are NULO's.
  With a NULO, you get a quick match, but there is not enough money in 
the account to cover the check. It is overdrawn.
  That could be a violation of the Anti-Deficiency Act, and that's a 
felony.
  There is a fourth category of problem disburements that DOD doesn't 
report. I did not mention it up front because it is not official. It 
was invented by the Senator from Iowa.
  I call it mismatched disbursements.
  I have spoken about Mr. Hamre's illegal progress payment policy 
several times this year.
  Under the Hamre policy, checks are deliberately charged to the wrong 
accounts. That creates a mismatch.
  It is a mismatched disbursement.
  A mismatched disbursement is the flip side of an unmatched 
disbursement. It is a problem disbursement, for sure.
  Mr. Hamre's progress payment scheme is producing a whole new category 
of problem disbursements.
  And he doesn't even know it.
  DOD makes over $20 billion a year in progress payments.
  If most are mismatched--as I suspect--then DOD's problem 
disbursements exceed the $45 billion figure cited by the GAO.
  If this were a $1 million problem, I might not worry so much.
  Unfortunately, billions of dollars of public money could be at risk. 
We just don't know--until DOD gets a good match.
  When you have billions of dollars in checks with no documentation and 
you're writing them off right and left, your accounts are vulerable to 
theft.
  As CFO, Mr. Hamre is accountable for this mess.
  Mr. President, Mr. Hamre has been selected by Secretary Cohen to fill 
the No. 2 spot at the Pentagon.
  He would become the Deputy Secretary of Defense. That's a big job.
  I am opposed to this nomination.
  I will have much more to say about Mr. Hamre in the weeks ahead.
  Mr. President, I want to be sure my colleagues understand where I am 
coming from.

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