[Congressional Record Volume 143, Number 91 (Wednesday, June 25, 1997)]
[Senate]
[Pages S6388-S6391]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




               IGNORING THE FACTS AND TWISTING THE TRUTH

  Mr. GRASSLEY. Mr. President, today I would like to talk about two 
letters from the Department of Defense, DOD.
  The first letter is dated June 11, 1997.
  The second one is dated June 13, 1997--just 2 days later.
  Both letters are addressed to the editor of The Hill newspaper, Mr. 
Albert Eisele.
  Both are signed by the Assistant Secretary of Defense for Public 
Affairs, Mr. Kenneth H. Bacon.
  Both were written in response to an article I wrote about Mr. John 
Hamre in the June 4 issue of the Hill.
  Mr. Hamre is the Chief Financial Officer at the Pentagon.
  He has been selected by Secretary Cohen to become the next Deputy 
Secretary of Defense.
  I oppose this nomination for the reason I gave in the Hill article.
  Mr. Hamre is aggressively pursuing a progess payment policy that the 
inspector general has declared illegal.
  Mr. Bacon charges that my article ignores the facts and twists the 
truth.
  Ironically, Mr. Bacon's letters prove he is the one who ignores the 
facts and twists the truth.
  He sent the second letter to correct misinformation in the first one.
  Mr. President, I ask unanimous consent to have his letters and my 
article printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                               Assistant Secretary of Defense,

                                    Washington, DC, June 11, 1997.
     Albert Eisele,
     Editor, The Hill, Washington, DC.
       Letter to the Editor: Last week Senator Charles Grassley 
     authored an article condemning John Hamre, currently the 
     Comptroller at DoD and the nominee to be Deputy Secretary of 
     Defense (``Sen. Grassley looks for missing $50 billion at 
     DoD,'' June 4, 1997). It is a serious distortion of Mr. 
     Hamre's record. The facts actually prove the opposite of 
     Senator Grassley's contentions. It is imperative that The 
     Hill publish a correction.
       First, Senator Grassley stated ``the books at DoD are in 
     such shambles that as much as $50 billion cannot be traced.'' 
     DoD's books were in very bad shape when Mr. Hamre signed on 
     back in 1993, and they are still troubled, but the facts show 
     that the situation is dramatically improved. Back in 1993, 
     DoD's so-called ``problem disbursements'' exceeded $34 
     billion. Last month the total was under $8 billion, a 74% 
     reduction in three years.
       Second, Senator Grassley stated that Mr. Hamre has left 
     DoD's funds vulnerable to theft and abuse. The facts are 
     quite different. Mr. Hamre created a dedicated organization--
     Operation Mongoose--to undertake fraud detection and 
     prevention. He and the DoD Inspector General have hosted 
     governmentwide conferences on fraud prevention. Mr. Hamre is 
     the first, and to my understanding the only, Comptroller that 
     ever initiated an anti-deficiency investigation on himself, 
     asking the DoD Inspector General to review accounts under his 
     jurisdiction.
       Third, Senator Grassley claimed Hamre ``presided over a 
     scheme'' to make illegal process payments. Again, the facts 
     are quite different. Mr. Hamre, working with the DoD 
     Inspector General, has carried out the IG's recommendations 
     on progress payments. Senator Grassley claimed Hamre ``tried 
     to legalize the crime'' by proposing legislative changes 
     concerning progress payments. That legislation was first 
     proposed by the Inspector General.
       Fourth, Sen. Grassley claims Hamre understated his problems 
     through ``a clever bureaucratic trick to make the problem 
     look a lot smaller than it really is.'' The facts are rather 
     different. Rather than report three categories of problem 
     disbursements together, he reported all three categories in 
     two separate tables. None of the data has been dropped and 
     all of it is made available every month to the General 
     Accounting Office.
       Reading Sen. Grassley's article is like looking at a 
     distortion mirror in an amusement park. The image he paints 
     is wildly distorted and in most cases is totally reversed 
     from the truth. Facts do matter, even in Washington, and 
     Senator Grassley has not presented the facts.

                                             Kenneth H. Bacon,

                                    Assistant Secretary of Defense
     for Public Affairs.
                                                                    ____



                               Assistant Secretary of Defense,

                                    Washington, DC, June 13, 1997.
     Albert Eisele,
     Editor, The Hill, Washington, DC.
       Dear Mr. Eisele, I am sorry we have not been able to 
     establish phone contact. In the interim, I thought it would 
     be useful to send you the attached clarification to the 
     letter Ken Bacon sent to The Hill on Wednesday, June 11.
       In reviewing the letter we felt that some points were not 
     clear and we want to ensure that our response is as accurate 
     as possible. We hope you will publish this revised letter.
       I can be reached at 703-697-0713. Thank you for your 
     assistance in this matter.
           Sincerely,
                                             Clifford H. Bernhath,
       Principal Deputy Assistant Secretary of Defense for Public 
     Affairs.
                                                                    ____



                               Assistant Secretary of Defense,

                                    Washington, DC, June 13, 1997.
     Albert Eisele,
     Editor, The Hill, Washington, DC.
       Letter to the Editor: Last week Senator Charles Grassley 
     authored an article condemning John Hamre, currently the 
     Comptroller at DoD and the nominee to be Deputy Secretary of 
     Defense (``Sen. Grassley looks for missing $50 billion at 
     DoD,'' June 4, 1997). It is a serious distortion of Mr. 
     Hamre's record. The facts actually prove the opposite of 
     Senator Grassley's contentions. It is imperative that The 
     Hill publish a correction.
       First, Senator Grassley stated ``the books at DoD are in 
     such shambles that as much as $50 billion cannot be traced.'' 
     DoD's books were in very bad shape when Mr. Hamre signed on 
     back in 1993, and they are still troubled, but the facts show 
     that the situation is dramatically improved. Back in 1993, 
     DoD's so-called ``problem disbursements'' exceeded $34 
     billion. Last month the total was under $8 billion, a 74% 
     reduction in three years.
       Second, Senator Grassley stated that Mr. Hamre has left 
     DoD's funds vulnerable to

[[Page S6389]]

     theft and abuse. The facts are quite different. Mr. Hamre 
     created a dedicated organization--Operation Mongoose--to 
     undertake fraud detection and prevention. He and the DoD 
     Inspector General have hosted government-wide conferences on 
     fraud prevention. Mr. Hamre is the first, and to my 
     understanding the only, Comptroller that ever initiated an 
     anti-deficiency investigation on himself, asking the DoD 
     Inspector General to review accounts under his jurisdiction.
       Third, Senator Grassley claimed Hamre ``presided over a 
     scheme'' to make illegal process payments. Again, the facts 
     are quite different. Mr. Hamre, working with the DoD 
     Inspector General, is working to carry out the IG's 
     recommendations on progress payments. Senator Grassley 
     claimed Hamre ``tried to legalize the crime'' by proposing 
     legislative changes concerning progress payments. Prior to 
     proposing legislation, Mr. Hamre had discussed with the DoD 
     Inspector General the possibility of seeking legislative 
     relief if it was too difficult for the Department to comply 
     with the current statute.
       Fourth, Senator Grassley claims Hamre understated his 
     problems through ``a clever bureaucratic trick to make the 
     problem look a lot smaller than it really is.'' The facts are 
     rather different. Rather than report three categories of 
     problem disbursements together, he reported all three 
     categories in two separate tables. None of the data has been 
     dropped and all of it is made available every month to the 
     General Accounting Office.
       Reading Senator Grassley's article is like looking at a 
     distortion mirror in an amusement park. The image he paints 
     is wildly distorted and in most cases is totally reversed 
     from the truth. Facts do matter, even in Washington, and 
     Senator Grassley has not presented the facts.

                                             Kenneth H. Bacon,

                                    Assistant Secretary of Defense
     for Public Affairs.
                                                                    ____


                     [From the Hill, June 4, 1997]

           Sen. Grassley Looks for Missing $50 Billion at DoD


Age-old practice of cooking the books at the Pentagon is alive and well

                     (By Sen. Charles E. Grassley)

       Between 1989 and 1993, a man named James Edward McGill was 
     paid $3,025,677.99 by the United States Navy for phony 
     claims. With nothing more than a mailbox, a couple of rubber 
     stamps and blank government forms, McGill set up a business 
     to cheat the taxpayers. He delivered no goods. He did no 
     work. But he had no trouble doing business with the Navy. 
     Pure chance, rather than internal controls at the Defense 
     Department (DoD), put an end to this scam. Unfortunately for 
     the taxpayers, the McGill case does not stand alone.
       The sad truth is, the books at the DoD are in such shambles 
     that as much as $50 billion cannot be traced. The department 
     flunks every single audit by its chief financial officer 
     (CFO). And the inspector general (IG) expects the DoD to 
     continue falling short ``well into the next century.'' When 
     you can't audit the books, you don't know how money is being 
     spent. The result is a multi-million dollar money pipe left 
     vulnerable to theft and abuse.
       The problem described here is exacerbated by an illegal 
     operation used by the Pentagon to make progress payments on 
     contracts. Under this policy, payments are deliberately 
     charged to the wrong accounts. Once payments are made, the 
     DoD attempts to ``adjust'' the accounting ledgers to make it 
     look as though the checks were charged to the right accounts 
     when the money was, in fact, charged to some other account. 
     The entire process leads to over-, under-and erroneous 
     payments.
       Presiding over this scheme since October 1993 has been the 
     comptroller and CFO for the DoD, John J. Hamre. In his 
     official position, Hamre is responsible under the Chief 
     Financial Officer Act of 1990 ``to strengthen internal 
     controls and improve financial accounting.'' However, instead 
     of meeting a pledge to reform the process, Hamre tried to 
     legalize the crime. Earlier this year, he circulated for 
     comment draft legislation to sanction the payment procedures 
     declared illegal by the IG and authorized by Hamre at CFO.
       A fundamental issue is at stake. In 1992, the IG stated 
     that the DoD's progress payment procedures ``result in the 
     rendering of false accounts and violations'' of Title 
     31,Section 1301 of the U.S. Code. This law embodies a sacred 
     constitutional principle. Only Congress decides how public 
     money may be spent. Section 1301 requires that public money 
     be spent as proscribed in the appropriations acts. 
     Congressional committees spend considerable effort each year 
     segregating public money in different accounts. For example, 
     the DoD appropriations bill might require procurement money 
     be used for production work and not for R&D purposes. Hamre's 
     payment policy shatters the integrity of the appropriations 
     accounts. It spends money according to an arbitrary scheme 
     dreamed up by DoD bureaucrats.
       While this payment scheme was in place before Hamre's time, 
     he had a golden opportunity to fix this problem. But every 
     time the issue has popped up on his radar screen he's 
     protected the scheme. Under his leadership, the DoD's 
     progress payment operation has flourished and achieved a new 
     level of sophistication.
       When Hamre became CFO he, in fact, did declare war on 
     financial mismanagement. Today, he cites ``steep drops in 
     contract overpayments.'' But his claims are not supported by 
     the facts. Three reports of the General Accounting Office 
     (GAO) issued during the last three years contradict Hamre's 
     success stories. The most recent analysis of the GAO 
     concludes that the DoD's progress payment scheme is the 
     biggest single driver behind overpayments. And each of these 
     reports shows that the DoD has no check in place to detect 
     overpayments. Virtually every overpayment ever examined by 
     the GAO was detected by recipients of checks, not by the 
     government. In most cases, contractors voluntarily refunded 
     the overpayments.
       If Hamre was serious about eliminating overpayments,  why 
     didn't he shut down the progress payments operation? If he 
     has no capability whatsoever to detect overpayments, where 
     does he get the data that shows a steep drop in such 
     payments? How does he know they are going down if he 
     doesn't know how many there are? Perhaps this means the 
     contractors are no longer making voluntary refunds.
       Hamre also has claimed his financial reforms have produced 
     sharp drops in unmatched disbursements. Again, the claims 
     don't stand up to scrutiny. In fact, Hamre has used a clever 
     bureaucratic trick to make the problem look a lot smaller 
     than it really is. In December 1996, he issued a decree that 
     arbitrarily redefined the entire universe of problem 
     disbursements. He simply made the universe smaller by 
     excluding huge numbers of unreconciled disbursements from the 
     totals appearing in official reports. This was not missed by 
     the GAO. In yet another report, the independent analysts 
     challenged Hamre's approach. The GAO concluded that the DoD 
     is understating the size of problem disbursements by at least 
     $25 billion. So, instead of the $18 billion claimed by Hamre, 
     at least $50 billion of tax dollars are unaccounted for.
       Because of these facts, I stand opposed to the nomination 
     of Hamre for deputy secretary of defense. My personal 
     feelings have absolutely nothing to do with my position, as 
     charged by some. Rather, I have reached my conclusion based 
     on the facts. If government does not hold accountable the 
     official who is responsible by law, then who?
       While Hamre inherited a major problem caused by years of 
     neglect, he took aggressive action to perpetuate the mess. 
     True, Hamre has made a lot of promises and statements about 
     reforming the process. But good intentions never get the job 
     done at the Pentagon. The bottom line is, these kinds of 
     problems cannot be corrected unless those in charge are held 
     accountable. Awarding promotions to leadership that drops the 
     ball is a green light for con artists like James Edward 
     McGill.

  Mr. GRASSLEY. Mr. President, I think it would be very helpful to make 
a side-by-side comparison of these two letters.
  It would help bring my main point about Mr. Hamre into sharper focus.
  Mr. Bacon's two letters are identical in every respect but one.
  A major discrepancy exists between the last paragraph on the first 
page of the first letter and the same paragraph in the second letter.
  I would like to quote from that portion of the first letter.
  This is Mr. Bacon talking:

       Senator Grassley claimed Hamre presided over a scheme to 
     make illegal progress payments. Again, the facts are quite 
     different. Mr. Hamre, working with the DOD IG, has carried 
     out the IG's recommendations on progress payments. Senator 
     Grassley claimed Hamre tried to legalize the crime by 
     proposing legislative changes concerning progress payments.
       That legislation was first proposed by the IG.

  Mr. Bacon's statements do not square with the facts. They are 
inaccurate.
  Mr. President, I pride myself on always doing my homework and always 
sticking to the facts.
  My article on Mr. Hamre's illegal progress payment policy is no 
exception.
  I have documents to back up every point I have made.
  From day one, I have never strayed from the facts and conclusions 
presented by the DOD IG.
  From day one, the IG and legal counsel have maintained that the 
department's progress payment policy ``results in the rendering of 
false accounts and violation of the law.''
  Nothing has changed since the IG issued its report in March 1992.
  The illegal progress payment policy remains in effect at this very 
moment.
  The IG has consistently maintained that the ``status quo is 
unacceptable'' and that the policy must be brought into compliance with 
the law.
  After 5 years of unproductive meetings, the IG recommended that the 
department seek ``legislative relief.''
  The IG proposed a temporary exemption from the law, while the 
progress payment operation was being overhauled.

[[Page S6390]]

  But when the draft language hit the street late 1996, it was not at 
all what the IG had in mind.
  This language was drafted by the Defense Finance and Accounting 
Service but was Mr. Hamre's brain child.
  It was far reaching, comprehensive and permanent.
  The IG and legal counsel came unglued when they saw it and killed it 
in the end.
  Mr. President, those are the facts--according to the IG--not 
according to the Senator from Iowa.
  Mr. Bacon's first letter is out of sync with the facts.
  When the IG, Ms. Eleanor Hill, saw Mr. Bacon's first letter, I am 
told, she blew her top.
  She picked up the phone and called Mr. Bacon. He was on travel, but 
his principal deputy, Mr. Bernath, was in his office over at the 
Pentagon.
  She confronted him with the truth.
  He agreed right then and there to retract the false and misleading 
statements in Mr. Bacon's first letter.
  Mr. President, that's how we ended up with Mr. Bacon's second letter.
  I would now like to quote from the revised portion of his second 
letter:

       Mr. Hamre, working with the DOD IG, is working to carry out 
     the IG's recommendations on progress payments. Senator 
     Grassley claimed Hamre tried to legalize the crime by 
     proposing legislative changes concerning progress payments. 
     Prior to proposing legislation, Mr. Hamre had discussed with 
     the DOD IG the possibility of seeking legislative relief if 
     it was too difficult for the department to comply with the 
     current statute.

  These revisions give Mr. Bacon's letter an entirely new meaning.
  ``Is working to carry out'' is a far cry from ``has carried out.''
  ``Discussed with the DOD IG'' is a far cry from ``first proposed by 
the DOD IG.''
  The revisions--demanded by the IG--strengthen my main point, Mr. 
President. They showcase Mr. Hamre's shortcomings.
  I need to thank Mr. Bacon.
  His letters make my case:
  Mr. Hamre has failed to carry out the IG's recommendations and bring 
his policy into compliance with the law.
  Mr. Hamre's policy continues to operate outside the law at this very 
moment, and that's exactly why he felt like he needed legislation.
  He needed to cover his back side.
  He needed legal cover for his illegal policy.
  Now, I would like to commend Mr. Bacon for being more truthful and 
accurate.
  But there's one little problem.
  His first letter still stands as a matter of record.
  Where did the misinformation come from in the first place?
  Did Mr. Bacon dream it up by himself? Or did someone set him up? If 
so, who? Did Mr. Hamre have any knowledge of this letter?
  Mr. President, I have written Mr. Bacon. He needs to answer my 
questions.
  Mr. President, I ask unanimous consent to have this letter printed in 
the Record.
  There being no objection, the letter was ordered to be printed in the 
Record, as follows:

                                                  U.S. Senate,

                                    Washington, DC, June 18, 1997.
     Hon. Kenneth H. Bacon,
     Assistant Secretary of Defense for Public Affairs, 
         Washington, DC.
       Dear Mr. Bacon: I am writing in response to your letters of 
     June 11, 1997 and June 13, 1997, to Mr. Albert Eisele, Editor 
     of The Hill.
       Your letters attempt to address some of the points I raised 
     in an editorial piece, which appeared in the June 4, 1997 
     issue of The Hill.
       Mr. Bacon, you suggest that I have distorted the truth and 
     ignored the facts. On the contrary, I pride myself on doing 
     my homework and always sticking to the facts, and my article 
     on Mr. Hamre's illegal progress payments policy is no 
     exception. Ironically, it is clear from the revisions you 
     were forced to make in your second letter--to correct errors 
     you made in your first letter--that it is you who has ignored 
     the facts and distorted the truth.
       From day one, I have never strayed from the facts and the 
     conclusions presented by the Department of Defense (DOD) 
     Inspector General (IG). From day one, the IG and legal 
     counsel have maintained that the department's progress 
     payment policy ``results in the rendering of false accounts 
     and violation of the law.'' Nothing has changed since the IG 
     issued its report in March 1992. The illegal progress payment 
     policy remains in effect at this moment. From day one, the IG 
     has maintained that ``the status quo is unacceptable'' and 
     the policy must be brought into compliance with the law. 
     After five years of endless meetings and ``seeing no light at 
     the end of the tunnel,'' the IG recommended that the 
     department consider seeking ``legislative relief.'' The idea 
     was to obtain a temporary exemption from the law--while the 
     progress payment operation was overhauled. The language 
     itself was drafted at Mr. Hamre's direction--not by the IG 
     but by the Defense Finance and Accounting Service. When that 
     language hit the street, it was not at all what the IG had 
     envisioned. It was far reaching and comprehensive and 
     permanent. The IG and legal counsel expressed strong 
     objections to it and killed it in the end.
       Those are the facts, Mr. Bacon. If you have any questions 
     about the facts, I suggest you contact the IG. You need to 
     talk with Mr. Bob Lieberman. He is the Assistant IG for 
     Auditing. His number is 703-604-8901. He will set you 
     straight. He knows the progress payments issue from top to 
     bottom and beginning to end. He's the expert.
       When you speak to Mr. Lieberman, you will quickly discover 
     that you are the one who departed from the facts. You will 
     quickly discover that your first letter contains inaccurate, 
     misleading, and even false information. This is the most 
     offensive portion of your letter:
       ``Mr. Hamre, working with the DOD Inspector General, has 
     carried out the IG's recommendations on progress payments. 
     Senator Grassley claimed Hamre ``tried to legalize the 
     crime'' by proposing legislative changes concerning progress 
     payments. That legislation was first proposed by the 
     Inspector General.''
       After you signed and mailed this letter to the Hill, I was 
     given a copy. I immediately realized that your primary 
     assertion was false. The suggestion that Mr. Hamre had 
     brought his progress payments policy into compliance with the 
     law was totally and completely wrong. It did not square with 
     the facts--as I know them. So I sent your letter to the IG 
     for comment to make sure I wasn't off base. I have been told 
     that the IG, Ms. Eleanor Hill, was enraged when she saw that 
     statement. She called your office to complain. You were on 
     travel, but she spoke with your deputy. He agreed to retract 
     your false and misleading statements. As a result of the IG's 
     complaint, you sent a second, revised letter to The Hill. 
     This one is dated June 13, 1997. The false statements have 
     been removed from this letter. They have been replaced by 
     statements that constitute a fairly accurate reflection of 
     the facts. The revised statement is as follows:
       ``Mr. Hamre, working with the DOD Inspector General, is 
     working to carry out the IG's recommendations on progress 
     payments. Senator Grassley claimed Hamre ``tried to legalize 
     the crime'' by proposing legislative changes concerning 
     progress payments. Prior to proposing legislation, Mr. Hamre 
     had discussed with the DOD Inspector General the possibility 
     of seeking legislative relief if it was too difficult for the 
     Department to comply with the current statute.''
       Mr. Bacon, your second letter takes a big step in the right 
     direction. ``Is working to carry out'' is a far cry from 
     ``has carried out,'' and ``discussed with the DOD IG'' is a 
     far cry from ``first proposed by the DOD IG.'' Those 
     corrections conform with the facts as I understand them.
       Mr. Bacon, the corrections you made in your second letter 
     strengthen my main point and showcase Mr. Hamre's 
     shortcomings. In fact, they make my case: Mr. Hamre has 
     failed to carry out the IG's recommendations and bring his 
     progress payment policy into compliance with the law. His 
     progress payment policy continues to operate outside of the 
     law at this very moment, and he knows it. That's exactly why 
     he proposed legislation. He wanted legal cover for an illegal 
     operation. He wanted to sanction a policy that the IG had 
     declared illegal and that he had personally authorized. As I 
     said, he wanted to legalize the crime. And finally, this 
     legislation was not dreamed up by the IG. It was the brain 
     child of Mr. Hamre and the Defense Finance and Accounting 
     Service.
       I commend you for trying to be more accurate and truthful, 
     but your original letter still stands as a matter of record. 
     You signed and mailed it. How did that happen? Was the 
     misinformation of your own making, or did someone else set 
     you up? I would like some answers.
       Mr. Bacon, I would like to understand the true origins of 
     the false information contained in your first letter. Is this 
     something you dreamed up on your own? If not, where did you 
     get the information? What organization within the department 
     provided this information? Please provide the name and title 
     of the person who supplied this information. And did you 
     discuss this particular piece of information with Mr. Hamre? 
     Did Mr. Hamre have any knowledge of this information? Was Mr. 
     Hamre aware of your letter before it was mailed to The Hill?
       I request a response to my questions by June 24, 1997.
       Your cooperation in this matter would be appreciated.
           Sincerely,
                                              Charles E. Grassley,
                                                     U.S. Senator.

  Mr. GRASSLEY. Mr. President, I hope my colleagues will take the time 
to make a side-by-side comparison of Mr. Bacon's first and second 
letter.
  A side-by-side comparison of the two letters will help them to 
understand who is sticking to the facts and telling the truth, and who 
isn't.

[[Page S6391]]

  I yield the floor.

                          ____________________