[Congressional Record (Bound Edition), Volume 147 (2001), Part 2]
[Senate]
[Pages 1635-1637]
[From the U.S. Government Publishing Office, www.gpo.gov]



               DEPARTMENT OF DEFENSE FINANCIAL MANAGEMENT

  Mr. BYRD. Mr. President, the men and women who wear the uniform of 
the United States Armed Forces have great abilities, supreme 
dedication, and they deserve the highest level of support that this 
Nation can give them.
  But despite outstanding military troops, a number of challenges lie 
ahead for the Department of Defense, particularly in the area of 
allocating monetary resources. One of the first budget challenges that 
President Bush and Secretary Rumsfeld will face is how to improve 
military readiness. By now, we are all familiar with the myriad 
problems confronting our military forces today--recruitment and 
retention problems, crushing deployment burdens, aging ships and tanks 
and aircraft, a scarcity of spare parts--even a scarcity of ammunition 
according to yesterday morning's Washington Post--substandard housing 
and outdated facilities--and the list can go on and on.
  All of these factors affect readiness. All of these deficiencies will 
require money to correct. Already, representatives of the Joint Chiefs 
are lobbying the Senate Armed Services Committee for a supplemental 
appropriations bill to increase the current defense budget by perhaps 
as much as $10 billion. Presumably, the Services will get around to 
making their wishes known to the Appropriations Committee as well, 
since it is that committee that actually has the responsibility over 
the supplemental appropriations. But regardless of the tactics 
employed, the supplemental is just the first sortie. Beyond the current 
budget, we are bracing for the likelihood of requests for major leaps 
in defense funding--perhaps as much as $50 billion a year--just over 
the horizon.
  With that said, I was heartened to read President Bush's comments in 
Monday's New York Times, in which he called for a comprehensive review 
of Pentagon priorities and strategies before seeking funding increases 
for modernization that make sense to me, it seems. Hopefully, President 
Bush and Secretary Rumsfeld will be able to impose some order and 
discipline on the Pentagon budget process. That is probably going to be 
a pretty big order--a pretty big order to impose some order and 
discipline on the Pentagon budget process.
  Clearly, it is necessary to focus on defense, readiness, and national 
security. The United States cannot afford to lose sight of the fact 
that a strong defense is the key to national security. We must never 
risk complacency in a world that encompasses the likes of Saddam 
Hussein and Osama bin Laden; a world in which the proliferation of 
nuclear, chemical, and biological weapons represents a threat to our 
very existence.
  But before we consider how much more money we need to spend on 
defense, I believe we should take a close look at how the Pentagon is 
managing the money and the assets it already has.
  Now, one of our colleagues, Senator Grassley, has been very 
interested in this same subject. It was his intention to speak this 
afternoon, but other matters have intervened, and he will speak on this 
same subject one day next week.
  Just recently, the General Accounting Office gave us a good insight 
into the current situation with the release of a status report on the 
Defense Department's management of key programs and assets. The 
conclusions are disturbing. In six key areas--financial management, 
information technology, acquisitions, contracts, support 
infrastructure, and logistics--the GAO found Defense Department 
management practices to be vulnerable to waste, fraud, abuse, and 
mismanagement. Together, these deficiencies represent a tremendous 
drain on the ability of the Defense Department to operate efficiently, 
effectively, and safely.
  The GAO report put it starkly. Here is what it said: If these 
problems are not addressed, the report stated, ``inefficiencies will 
continue to make the cost of carrying out assigned missions 
unnecessarily high and, more important, increase the risks associated 
with those missions. Each dollar that is spent inefficiently,'' said 
the report, ``is a dollar that is unavailable to meet other internal 
Department priorities such as weapon system modernization and 
readiness.''
  What is most disturbing to me is that, in program after program, 
management procedures are so garbled that the General Accounting Office 
cannot even estimate--cannot even estimate--the level of inefficiency. 
This is a critical knowledge gap when one considers the fact that the 
Defense Department accounts for about 15 percent of the entire Federal 
budget, and roughly half of all discretionary spending--roughly half of 
all discretionary spending.
  The Defense Department has a budget of about $310 billion a year and 
assets estimated at $1 trillion. Clearly, keeping score when dealing 
with numbers of that magnitude is a huge challenge. But it is a 
challenge that must be faced. In an agency as vast as the Defense 
Department, which has approximately 3 million military and civilian 
employees, sloppy accounting and accountability procedures can have 
enormous ramifications on personnel, on readiness, and on national 
security.
  Some of the details of the GAO report are shocking. For example, in 
the area of financial operations--just plain old bookkeeping in lay 
terms--the General Accounting Office reported that the Defense 
Department does not know with any certainty how much money it has 
available, and its books are in such disarray that it cannot pass a 
standard financial audit. Now, how about that? How about that? Let me 
repeat that for emphasis: The Defense Department, which is talking 
about needing an additional $50 billion dollars a year to meet 
readiness requirements, does not know with any certainty how much money 
it currently has available and cannot pass the test of receiving a 
clean audit opinion on its financial statements.
  Now, take that home with you and sleep on it. That is worth 
repeating. The Defense Department--this is not Robert Byrd saying this. 
I am just repeating what the General Accounting Office, the arm of the 
Congress, reported: The Defense Department does not know with any 
certainty how much money it has, and its books are in such disarray 
that it cannot pass a standard financial audit.
  The Defense Department, which is talking about needing an additional 
$50 billion--they want $50 more for every minute since Jesus Christ was 
born; that is $50 billion--a year to meet readiness requirements. Yet 
the Defense Department does not know with any certainty how much money 
it currently has available. It would seem to me that before Congress 
appropriates $50 billion more, we ought to know how much money the 
Defense Department has available.
  It cannot pass the test of receiving a clean audit opinion on its 
financial statements; that, despite the fact the Chief Financial 
Officers' Act of 1990 requires the Department of Defense to

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prepare annual audited financial statements. So the Defense Department 
is not living up to the law, is it? The Chief Financial Officers' Act 
of 1990 requires DOD to prepare annual audited financial statements. 
That was 1990. Yet 10 years, 10 long years after the enactment of that 
law, DOD has yet to produce financial statements that can be certified 
as complying with generally accepted accounting principles.
  Examples of DOD's financial management weaknesses abound. For 
instance, the GAO found that the Defense Department could not reconcile 
a $7 billion difference between its available fund balances and the 
Treasury's. GAO also discovered that the Department of Defense was 
unable to substantiate the $378 billion it had reported as total net 
reporting costs in 1999. DOD was unable to substantiate the $378 
billion it reported as total net operating cost in 1999.
  Given this lack of accountability, is it any wonder then that DOD is 
constantly pressed for cash?
  In the space of one year, from 1998 to 1999, the DOD recalculated its 
environmental and cleanup requirements, increasing estimated 
environmental liabilities from $34 billion to $80 billion. Despite the 
increase, DOD still does not have a comprehensive inventory of all 
potential environmental and disposal liabilities. The final bill could 
be billions of dollars more.
  So here is the question I have: If the Department of Defense does not 
know what it has in terms of assets and liabilities, how on Earth can 
it know what it needs?
  Bookkeeping is only the tip of the iceberg. DOD's logistics 
operations, particularly inventory control, are a management nightmare. 
Unfortunately, this should come as no surprise to anybody. The DOD's 
inventory control practices have been flagged as inadequate and high 
risk every year since the General Accounting Office began assessing 
high-risk areas a decade ago.
  I was on the floor a decade ago talking about it, pointing out that 
the inventories were huge and talking about the inventory control 
practices. It seems to me one of the television networks was doing a 
piece on this several years ago.
  As a result, billions of taxpayer dollars are very probably being 
squandered. According to the General Accounting Office, the Defense 
Department continues to stockpile more than it needs. I think that is 
what it was doing 10 years ago when we had the television networks 
looking into that. It seems to me that it was Lesley Stahl, as I 
recall--my memory may be playing tricks on me, but I believe it was 
Lesley Stahl at that time--who was doing this, who went to where some 
of these inventories were stored and was doing a piece on that. Here we 
are 10 years later--same old problem.
  As a result, billions of taxpayer dollars are very probably being 
squandered. According to the General Accounting Office, the Defense 
Department continues to stockpile more than it needs. The television 
network at that time--the particular channel, I don't remember--was 
saying the same thing, bringing out the same thing. In the Baptist 
Church, we have a song: ``Tell me the old, old story.'' Well, this is 
the old, old story.
  According to GAO, the Defense Department continues to stockpile more 
than it needs, purchases items it does not need while at the same time 
maintaining insufficient quantities of key spare parts, and is unable 
to keep track of material being shipped to and from military 
activities. The General Accounting Office discovered that about half of 
DoD's $64 billion dollar inventory in spare parts, clothing, medical 
supplies and other support items exceeds war reserve or current 
operating requirements. At the time GAO reviewed the accounts, DoD had 
$1.6 billion dollars worth of inventory on order that was not needed to 
meet current requirements. GAO found that the Army had no way of 
knowing whether shipped inventory had been lost or stolen, and the 
Navy, in a 1999 review, was unable to account for more than $3 billion 
worth of shipped inventory, including some classified and sensitive 
items.
  And yet this bloated inventory is being amassed at a time when the 
Pentagon admits that it is experiencing readiness problems due to a 
lack of key spare parts. According to GAO, insufficient quantities of 
spare parts is one of the primary reasons that airlift and aerial 
refueling aircraft are performing below the Air Force's mission capable 
standard rates.
  GAO also red-flagged the Pentagon's 100 billion dollar a year weapons 
system acquisition program. The problems are pervasive: questionable 
requirements; unrealistic cost, schedule, and performance estimates; 
questionable program affordability; and high-risk acquisition 
strategies. Simply put, in its rush to acquire the next new thing, DoD 
is riding roughshod over reality, compressing systems acquisition 
decisions into unrealistic schedules and pursuing new weapons systems 
willy-nilly without adequate testing and evaluation, regardless of 
costs or the prospect of future funding, and despite a lack of reliable 
evidence that the systems can actually do what they are supposed to do.
  Was it a mere coincidence in timing or merely a matter of time that 
the GAO's questioning of DoD acquisition strategies involving the V-22 
Osprey aircraft collided with headlines reporting allegations that a 
Marine Corps officer engineered the falsification of maintenance 
records to cover up problems with the Osprey?
  In its report, GAO noted that the Navy was moving toward a full-rate 
production decision on the Osprey aircraft program without having ``an 
appropriate level of confidence that the program would meet design 
parameters as well as cost and schedule objectives.'' Subsequently, GAO 
cited evidence that Navy and Marine Corps officials, in an apparent 
effort to cut costs and stay on schedule, deleted or deferred tests on 
the Osprey that could have revealed crucial information on system 
performance.
  The allegations of doctored records, as well as two crashes in the 
past year that killed 23 Marines, have resulted in the Osprey being 
grounded, the production decision deferred, and numerous investigations 
launched. But the damage has been done.
  Mr. President, the problems emerging from DoD's acquisition decisions 
for the Osprey are alarming enough. Even more alarming is the chronic 
nature of these problems. The Osprey is only the most recent 
questionable acquisition strategy to dominate the news. As GAO noted, 
``After having performed hundreds of reviews of major weapon systems 
over the last 20 years, we have seen many of the same problems recur 
cost increases, schedule delays and performance shortfalls. The 
problems have proven resistant to reform in part because underlying 
incentives have not changed.''
  It appears, from the data that GAO has gathered, that the Defense 
Department has fallen into the trap of making budget and management 
decisions on the basis of wishful thinking, not facts. ``Overly 
optimistic planning assumptions'' is the way GAO framed it. As a 
result, DoD has more programs than money.
  For example, GAO found that although the Defense Department planned 
to increase funding for its $11 billion dollar Defense Health Program 
by $615 million dollars between 2001 and 2005, DoD officials admitted 
that the program actually needed an extra $6 billion dollars during 
that time. That, Mr. President, is a $6 billion dollar understatement 
of need. Defense Department officials admitted to GAO that they 
underfund the health program in outyears to free up current funds for 
other defense programs. ``Overly optimistic'' in my opinion is an 
overly charitable way of characterizing that kind of deceptive 
budgeting.
  The General Accounting Office is not the only entity that has pointed 
out the flaws in DoD financial management practices. According to the 
Defense Department's own Inspector General's audit, the department's 
books are riddled with holes. The Inspector General found that 30 
percent of all entries were made to force financial data to agree with 
various sources of financial data without adequate research and 
reconciliation, were made to force

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buyer and seller data to agree in preparation for eliminating entries, 
did not contain adequate documentation and audit trails, or did not 
follow accounting principles.
  Something is wrong with this picture. At a time when the Defense 
Department is scrambling to make ends meet, there is no excuse to 
invite waste, fraud, abuse, and mismanagement into the mix year after 
year after year. These are not merely administrative headaches. Like a 
steady trickle of water can wear away the mightiest foundation, 
inefficient management and sloppy bookkeeping can undermine the ability 
of America's men and women in uniform to carry out their 
responsibilities efficiently, effectively, and safely.
  GAO concluded that, ``Until DoD presents realistic assumptions and 
plans in its future budgets, the Congress will lack the accurate and 
realistic information it needs to properly exercise its decision-making 
and oversight.'' That summation goes to the heart of the matter. 
Congress cannot make reasonable decisions on future budget needs for 
the Department of Defense until DoD can offer a reliable budget basis 
on which to proceed.
  The Defense Department has been besieged by financial and related 
management problems for years. We all understand that there is no quick 
fix. But we should also understand the magnitude of the problem, and 
the impact that it has on readiness and the impact it will have on 
congressional confidence, the impact it will have on congressional 
appropriations, the impact it will have on the taxpayer.
  GAO is performing a valuable national service by identifying high-
risk management problems at the Defense Department, but Congress needs 
to do more than express dismay at the annual reports. It may cost money 
to modernize the Pentagon's financial systems, but it would be money 
well spent, and could well pay for itself in a short period of time.
  Mr. President, I raised the issue of DoD's financial management woes 
with Secretary of Defense Rumsfeld at his nomination hearing before the 
Senate Armed Services Committee. To his credit, Secretary Rumsfeld did 
not attempt to gloss over the difficulties facing the Defense 
Department in improving its financial management systems. He pledged to 
tackle the problem, but he said that it would probably take outside 
help to find a solution, and that it could take a period of years to 
sort it out.
  I urge Secretary Rumsfeld and President Bush to make financial and 
performance accountability in the Defense Department a top priority, 
and to work with the appropriate congressional committees to slay this 
particular dragon once and for all.
  As I said at the beginning of my statement, Senator Grassley will 
have something to say on this matter next week. He has devoted much 
time and thought to the problem. I am sure his concerns will continue. 
I look forward to working with him and others on the committee to try 
to be of assistance to the Department in cleaning up its act.
  The United States has real national security problems to confront. We 
can anticipate trouble from Saddam Hussein. Talk about all of these 
surpluses that have been projected now for years away from the present 
day. Who knows what Saddam Hussein may do overnight? Remember when he 
went into Kuwait? The world was shocked. America put a lot of men and 
women on the ground in the desert in the Middle East and a lot of money 
on the barrel head. That can happen again. Saddam Hussein is probably 
one of the most dangerous men in the world. There is no doubt about it. 
We don't know what he is doing by way of developing chemical, 
biological, and other weapons. He may threaten a neighboring state at 
any moment, and then watch those projections, those budget surpluses, 
vanish. We can anticipate trouble from him, and we must be ready for 
trouble from other hot spots on the globe.
  So we must invest in readiness. But we must also invest in 
accountability. The United States cannot afford to allow performance 
and accountability problems at the Defense Department to sap the 
strength of our investment in readiness.
  Mr. President, I yield the floor and suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. BYRD. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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