[Congressional Record Volume 161, Number 125 (Tuesday, August 4, 2015)]
[Senate]
[Pages S6254-S6256]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           MARINE CORPS AUDIT

  Mr. GRASSLEY. Mr. President, yesterday a very important Government 
Accountability Office report came out. I am going to present my view of 
that report in a little bit backward way by giving a summary before I 
speak about the fine points of this report.
  Broken bookkeeping has plagued the Pentagon for years. Under deadline 
pressure, the Marine Corps claimed to be ready for a clean audit. An 
outside auditing firm produced work papers in support of an opinion on 
a clean audit that employees in the Defense Department inspector 
general's office found lacking. However, a manager in the inspector 
general's office overruled his lower level colleagues. That resulted in 
the inspector general's release of a clean opinion on the audit of the 
Marine Corps.
  Meanwhile, work papers began to creep out of the bureaucracy showing 
the unsupported basis for such a clean opinion. The inspector general 
was then forced to withdraw that opinion.
  Now the Government Accountability Office is releasing a report that 
exposes the whole house of cards. One senior employee with an apparent 
bias toward the outside auditing firm led his agency down the wrong 
path. We need to get things back on track and prevent an embarrassing 
setback like this from ever happening again.
  I will go into those details. As I often do, I come to the floor to 
speak about the latest twist in the 25-year struggle to fix the Defense 
Department's broken accounting system. Billions have been spent to fix 
it and achieve audit readiness, but those goals remain elusive. Defense 
dishes out over $500 billion a year. Yet the Department still can't 
tell the people where all the money is going, and now the drive to be 
audit-ready by 2017--that is what the law requires--has taken a bad 
turn and become a fight over the truth.
  As overseers of the taxpayers' money, we in Congress need to get the 
Audit Readiness Initiative back on track, moving forward in the right 
direction.
  I last spoke on this subject a long time ago--December 8, 2011. On 
that occasion, I commended the Secretary of Defense, Leon Panetta, for 
trying to get the ball rolling. He wanted to halt endless slippage in 
audit deadlines. He wanted to provide an accurate and regular 
accounting of money spent to comply with the constitutional 
requirements. He turned up the pressure and in effect drew a line in 
the sand.
  He directed the Department to, in his words, ``achieve partial audit 
readiness,'' with limited statements by 2014, and, in his words, ``full 
audit readiness'' with all-up statements by the statutory deadline of 
2017.
  Not one of the major DOD components--including the Army, Navy, Marine 
Corps, and Air Force--reached Leon Panetta's 2014 milestone. None was 
or is audit ready today.
  That said, one component--the Marine Corps--stepped up to the plate 
and claimed to be ready for what Leon Panetta's goal was. To test that 
claim, the accounting firm Grant Thornton was awarded a contract to 
audit five Marine Corps financial statements, 2010 to 2014.
  The first two, 2010 and 2011, were unsuccessful. The Marine Corps was 
not ready. The third one was the 2012 audit, which is finally finished.
  The 2012 audit was put under a microscope and subjected to intense 
review by the Office of Inspector General along with two other 
independent watchdogs.
  The Marine Corps audit was a disaster. First, it took an ugly turn. 
It got twisted out of shape and turned upside down. Now it is getting 
turned right side up, thanks to the Government Accountability Office.
  Grant Thornton was required to produce a conclusion memorandum. This 
happens to be what we might call a quasi-opinion. Work was to be 
finished by December 2012, but it took an extra year. So right off the 
bat it was running into trouble. The scaled-down financial statement 
did not meet contract specifications. So this was a showstopper that 
got glossed over. The contract was modified to accept a makeshift 
compilation that was cobbled together. It is called a Schedule of 
Budgetary Activity. It covers only current year appropriations and not 
vast sums of prior year appropriations that are still lost in the 
statutory and money pipeline. Of course, that is a far cry from a 
standard financial statement.
  Even reducing the scope of the audit wasn't enough to overcome all of 
the other problems. The Office of Inspector General audit team was 
responsible for issuing the final opinion. After completing a review of 
Grant Thornton's workpapers in early 2013, the team determined that the 
evidence presented did not meet audit standards. It concluded that an 
adverse opinion--or what they call a disclaimer--was warranted. The 
team's rejection of Grant Thornton's conclusions embroiled the opinion 
in controversy and foul play. The trouble began when the Deputy IG for 
Auditing, Mr. Dan Blair, intervened and reportedly overruled his team's 
conclusions. He issued an unqualified or clean opinion that was not 
supported by the evidence in the workpapers--quite a showboat approach.
  Despite mounting controversy about the validity of the opinion, 
Secretary of Defense Hagel rolled out that opinion December 20, 2013--
with trumpets ``ablast.'' At a ceremony in the Pentagon's Hall of 
Heroes, he gave the Marine Corps an award for being the first military 
service to earn a clean opinion. The Assistant Commandant of the Marine 
Corps, Gen. John Paxton, accepted the award. According to press 
reports, he did so with ``reluctance. . . . He mumbled something, then 
bolted from the stage at flank speed.'' Why would General Paxton take 
off like a scalded dog? Was it because he sniffed a bad odor with this 
so-called clean report and all the colorful presentations that were 
made by Secretary Hagel?
  At that point, the word was already seeping out: The opinion was 
allegedly rigged. I heard rumblings about it and began asking Inspector 
General Rymer questions. Because of all the controversy, we asked his 
independent audit quality watchdog, Deputy Assistant IG Ashton Coleman, 
to review the audit. Mr. Coleman sent Inspector General Rymer reports 
in October 2014 and May of this year. These reports ripped the figleaf 
clean off of Mr. Blair's charade. They reinforced the audit team's 
disclaimer. After recommending ``the OIG rescind and reissue the audit 
report with a disclaimer of opinion,'' Mr. Coleman zeroed right in on 
the root cause of the problem. That root cause was impaired 
independence. In other words, the people involved in this charade had 
an agenda that wasn't about good handling of the taxpayers' money, it 
was protecting somebody.
  Mr. Coleman concluded that Mr. Blair ``had a potential impairment to 
independence.'' He and a Grant Thornton partner, Ms. Tracy Porter 
Greene, had a longstanding but undisclosed professional relationship 
going back to their service together at the Government Accountability 
Office in the early 1990s. According to Coleman, that relationship by 
itself did not pose a problem. However, once it began to interfere with 
the team's ability to make critical decisions, he said it created an 
appearance of undue influence. Coleman identified several actions that 
led him in this direction.

  The appearance problem was framed by a four-page email on August 2, 
2013, from Ms. Greene to Mr. Blair but seen by the team and others, 
including me. It was a stern warning. If a disclaimer was coming--and 
Ms. Greene knew it was--she wanted, in her words, ``some advanced 
notice.''
  She needed time then, as she thought, to prepare the firm's 
leadership for the bad news. A disclaimer, she said, would pose ``a 
risk to our reputation.'' At the email's end, she opened the door to 
private discussions to resolve the matter.
  The record clearly indicates that both Blair and Greene began holding 
private meetings--without inviting Contracting Officer's Representative 
Ball and the Office of Inspector General team to participate in those 
discussions. Both believed the contracting

[[Page S6255]]

officer's representative and the team were--in the words of Greene and 
Blair--``biased toward a disclaimer rather than considering all the 
facts.'' I attributed those words to Greene and Blair, but those were 
Mr. Blair's words.
  This shows how the independence of the audit and the review of the 
audit were questionable. To put these actions in perspective, I remind 
my colleagues that the inspector general was exercising oversight of 
the company's work. The inspector general needed to keep top company 
officials like Ms. Greene at arm's length, and holding private meetings 
with Greene wasn't the way to do it. These meetings may have violated 
the contract.
  Why would the top IG audit official prefer to hold private meetings 
with Ms. Greene? Why would he seem so willing and eager to favor the 
firm over his team--even when the evidence appeared to support the 
team's position? Why would he favor the firm over the evidence and over 
the truth? Why would he admit on the record that ``OIG auditors were 
not independent of Grant Thornton''? Why would he order the team to 
give the work papers to the firm so they could be ``updated to reflect 
the truth''? The firm was not even supposed to have those documents, so 
we get back to impaired independence again.
  Coleman cited other indications of this impaired independence. 
Contracting Officer's Representative Ball had rejected the firm's 2012 
deliverables because they were ``deficient.'' They did not meet quality 
and timeliness standards. The deliverables in question were the 
company's final work product, including the all-important quasi-opinion 
called a conclusion memorandum.
  This posed a real dilemma. Until she accepted the 2012 deliverables, 
the follow-on 2013 contract with Grant Thornton could not be awarded, 
and Blair wanted it done yesterday.
  The impasse was broken with a crooked bureaucratic maneuver. A senior 
official, Assistant Inspector General Loren Venable, provided a 
certification that there were no major performance problems and Grant 
Thornton had met all contract requirements. Just then, with the stroke 
of a pen, that deceptive document cleared the way for accepting the 
disputed materials, paying the firm all their money, and awarding them 
at the same time a follow-on contract. Yet the record shows that even 
Mr. Blair admitted that ``we accepted deficient deliverables.''
  Why would a senior Office of Inspector General official attempt to 
cover up a major audit failure by Grant Thornton in order to reward the 
poorly performing company with more money and a new contract? For a 
series of audit failures, the firm got paid $32 million.
  These actions appear to show how undue influence and bias trumped 
objectivity and independence. Alleged tampering with the opinion may be 
the most flagrant example of impaired independence.
  While the team identified major shortcomings with Grant Thornton's 
work and disagreed with its conclusions, the team was blocked from 
exercising its authority to issue a disclaimer. So where is the 
independence? Instead, that team was forced to do additional work in a 
futile attempt to find evidence to match the firm's conclusion, but 
there was no such evidence.
  Two weeks after Ms. Greene's email warning that a disclaimer could 
destroy the company's reputation, the front office resorted to direct 
action. With the team's disclaimer staring him in the face and with 
complete disregard for evidence and standards, Mr. Blair gave the 
Office of Inspector General team a truly stunning set of instructions. 
These were as follows: No. 1, the Marine Corps earned a clean opinion; 
No. 2, Grant Thornton has supported a clean opinion; and No. 3, do what 
it takes to reach the same conclusion as Grant Thornton.
  In the simplest of terms, this August 14 edict says: There will be a 
clean opinion. Disregard the evidence. Figure out how to do it and make 
it happen.
  These instructions provoked an internal brawl. The team manager, Ms. 
Cecilia Ball, balked. She stated flatout:

       I cannot do that. Our audit evidence does not support an 
     unqualified [clean] opinion. We are at a disclaimer.

  She wanted justification for Mr. Blair's decision to overturn the 
team's opinion. She asked:

       Show me where my work is substandard and where my 
     conclusions are incorrect. And I want to know what standards 
     Mr. Blair used to reach his conclusions.

  She never got a straight answer. From that point on, it was all 
downhill. When the team ignored coaxing, they got steamrolled.
  Mr. Blair attacked their competence, professionalism, and 
independence. He repeatedly accused them of being ``biased.'' The 
team's top manager, Ms. Cecilia Ball, reacted to the abusive treatment. 
She said:

       I don't appreciate the accusations to my professionalism 
     and my team's. I don't think we are the right fit as our 
     integrity is being questioned.

  She later quit the team in disgust.
  In early December, just as the clean opinion was about to be wheeled 
out, Ms. Ball made one final request for explanation: Why was ``the 
team's disclaimer of opinion not the correct opinion''? We repeatedly 
documented and explained why Grant Thornton's conclusion was 
unsupportable. ``The vast knowledge of the Front Office could have 
provided us insight as to where the team's logic was flawed.''
  In this case, the front office was unwilling to consider anything 
other than a clean opinion. These words are from the horse's mouth. The 
clean opinion was handed down from on high. The front office was Mr. 
Blair's domain.
  All of these actions, when taken together, appear to show a lack of 
independence and a flagrant disregard for audit ethics, audit 
standards, audit evidence, and accepted practices.
  In his oversight role, Blair had a responsibility to be independent, 
objective, and professionally skeptical. If the firm's work failed to 
meet standards, as it did, then he had a responsibility to face the 
truth and tell it like it is. He needed to be a junkyard dog and issue 
the disclaimer. Maybe he lost sight of his core mission and turned into 
a Grant Thornton lapdog. It sure looks that way.
  Mr. Blair's words, deeds, and prior association with the Grant 
Thornton partner, Ms. Greene--when coupled with their many emails that 
were widely distributed--gave the appearance of undue influence by the 
Grant Thornton partner. The tone and the substance of the Blair-Greene 
emails suggest a professional relationship that was just too cozy--a 
relationship that might have been wise to disclose according to audit 
standards and professional ethics.
  Inspector General Rymer disagrees with Mr. Coleman's findings of 
impaired independence. However, Mr. Rymer's evidence does not square 
with evidence presented by Coleman. For these reasons, Senator Johnson 
of Wisconsin and I will be asking the Comptroller General--the guardian 
of government auditing standards--to review all relevant evidence. 
Since independence is a cornerstone of audit integrity, we must be 
certain it has not been compromised.
  Now, just yesterday another blockbuster report has been rolled out. 
The Government Accountability Office has issued a highly critical 
report. It was prepared at the request of Senator Johnson, Senator 
McCaskill, and Senator Carper. The Government Accountability Office 
report is thorough and competent and tells the story as it happened.
  Over the last 2 years, the GAO team held endless meetings with the 
Office of Inspector General, including Jon Rymer and Dan Blair. So the 
IG has known for some time what was coming down the pike. They knew 
early on the GAO report concluded that the evidence in the workpapers 
did not support the clean opinion of the Marine Corps audit.
  Echoing Ms. Ball's unanswered pleas, the Government Accountability 
Office states: The OIG's management's decision to overturn the 
disclaimer is--in their words--``undocumented, unexplained, and 
unjustified by evidence in the work papers as required by professional 
standards.''
  This is the evidentiary gap identified by the Government 
Accountability Office. There is no legitimate explanation for how the 
auditors got from point A--the disclaimer--to point B--the clean 
opinion. There is no crosswalk between the two poles. It is a bridge 
too far.
  Despite mounting questions about the opinion, the IG turned a blind 
eye

[[Page S6256]]

to Blair's charade. The IG allowed it to go on and on. Countless man-
hours and millions of dollars were wasted on cooking the books and on 
vicious in-fighting instead of productive problem-solving to right the 
ship. Mr. Coleman and the GAO got that done.
  On March 23, the day before the IG's final exit briefing with the 
GAO, came a bolt from the blue. The IG stepped forward with a brave, 
bold announcement. The clean opinion was formally withdrawn. It was 
like a rush of fresh air in a very stuffy room. The inescapable truth 
finally dawned on Inspector General Rymer. So I want to thank Mr. Rymer 
for having the courage to do the right thing.

  An audit failure of this magnitude should have consequences. This one 
is especially egregious. It leaves at least one former Secretary of 
Defense with egg on his face. Mr. Blair was removed as head of the 
Audit Office on June 10 but is still serving as the Office of Inspector 
General's Deputy Chief of Staff. He is the chief architect of the now 
discredited clean opinion. He is the one who planted the seeds of 
destruction when he allegedly quashed the audit team's disclaimer. Of 
course, those responsible for what happened ought to be held 
accountable.
  Mr. Blair wants us to believe that the muffed opinion was the result 
of a routine dispute between opposing auditors' judgments over 
evidence, a mere difference of opinion among auditors. True, it 
reflects an unresolved dispute between the audit team and the 
management, and yes, that happened; however, there is a right way and a 
wrong way to resolve the conflicts.
  The PRESIDING OFFICER. The Senator's time has expired.
  Mr. GRASSLEY. Mr. President, I ask unanimous consent to complete 
this. I was told I would be given the time to do it, and I have about 4 
minutes.
  The PRESIDING OFFICER. Is there objection?
  Mr. SANDERS. Mr. President, reserving the right to object, and I 
won't object, I want to make certain that after Senator Grassley has 
completed his remarks, I will have time to make my remarks for up to 15 
minutes. It will probably be less than that.
  Is that all right, Senator?
  Mr. GRASSLEY. That is OK.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. GRASSLEY. Those responsible for what happened ought to be held 
accountable.
  Mr. Blair wants us to believe the muffed opinion was the result of a 
routine dispute between opposing auditors' judgments over evidence and 
a mere difference of opinion among auditors. True, it reflects an 
unresolved dispute between the audit team and management, and yes, that 
happened; however, there is a right way and a wrong way to resolve such 
conflicts. According to audit standards cited in the GAO report, the 
dispute should have been addressed, resolved, and documented in 
workpapers before the report was issued. It was not because the two 
opinions were irreconcilable.
  The team's disclaimer was based on evidence measured against 
standards documented in workpapers. Blair's so-called ``professional 
preference,'' by comparison, is none of these things. As the GAO's 
evidence gap suggests, Mr. Blair's opinion was hooked up to nothing. It 
was unsupported, and it was improper. So plain old common sense should 
have caused senior managers to realize that issuing the report with the 
opinion hanging fire was a senseless blunder. Doing it had one 
inevitable result: The opinion had no credibility, and that opinion had 
to go.
  True, the integrity of the Office of Inspector General audit process 
may be damaged, but the final outcome of this tangled mess may help 
clear the way for recovery. That recovery ought to lead us to being 
able to have clean audits not only of the Marine Corps but all of the 
four services. The Marine Corps audit was the first big one out the 
box. If Inspector General Rymer had not embraced the truth, we might be 
staring at a bunch of worthless opinions awarded to the Army, Navy, and 
Air Force. The Department of Defense could have declared victory and 
buried the broken bookkeeping system for another 100 years.
  Hopefully, the Defense Department will begin anew with fresh respect 
for the truth, audit standards, and the need for reliable transaction 
data. Reliable transaction data is the lifeblood of credible financial 
statements. Unreliable transaction data doomed the Marine Corps audit 
to failure from the get-go. Without reliable transaction data, the 
probability of conducting a successful audit of a major component is 
near zero.
  With the right leadership and guidance, a plan with achievable 
deadlines can and should be developed. In the meantime, we watchdogs--
and that is all of us in the Congress of the United States, or at least 
it ought to be all of us--must remain vigilant. My gut tells me we are 
still not out of the woods.
  I yield the floor.

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