[Senate Report 108-258]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 499
108th Congress                                                   Report
                                 SENATE
 2d Session                                                     108-258

======================================================================

 
 TO AUTHORIZE APPROPRIATIONS FOR FISCAL YEAR 2005 FOR INTELLIGENCE AND 
 INTELLIGENCE-RELATED ACTIVITIES OF THE UNITED STATES GOVERNMENT, THE 
INTELLIGENCE COMMUNITY MANAGEMENT ACCOUNT, AND THE CENTRAL INTELLIGENCE 
    AGENCY RETIREMENT AND DISABILITY SYSTEM, AND FOR OTHER PURPOSES

                                _______
                                

                  May 5, 2004.--Ordered to be printed

                                _______
                                

 Mr. Roberts, from the Select Committee on Intelligence, submitted the 
                               following

                              R E P O R T

                         [To accompany S. 2386]

    The Select Committee on Intelligence (SSCI or Committee), 
having considered the original bill (S. 2386), to authorize 
appropriations for fiscal year 2005 for intelligence and 
intelligence-related activities of the United States 
Government, the Intelligence Community Management Account, and 
the Central Intelligence Agency Retirement and Disability 
System, and for other purposes reports an original bill without 
amendment favorably thereon and recommends that the bill do 
pass.

             CLASSIFIED SUPPLEMENT TO THE COMMITTEE REPORT

    The classified nature of United States intelligence 
activities precludes disclosure by the Committee of details of 
its budgetary recommendations in this Report. The Committee has 
prepared a classified supplement to this Report which contains 
(a) the Classified Annex to this Report and (b) the classified 
Schedule of Authorizations which is incorporated by reference 
in the Act and has the same legal status as public law. The 
Classified Annex to this Report explains the full scope and 
intent of the Committee's action as set forth in the classified 
Schedule of Authorizations. Reports required by the Classified 
Annex and this Report have been incorporated by reference in 
Section 105 of the Bill. In addition, the Committee expects the 
Intelligence Community to comply with any other directions as 
requirements contained therein as it would any other statutory 
requirement.
    The classified supplement to the Committee Report is 
available for review by any Member of the Senate, subject to 
the provisions of Senate Resolution 400 of the 94th Congress.
    The classified supplement is made available to the 
Committees on Appropriations of the Senate and House of 
Representatives, the Permanent Select Committee on Intelligence 
of the House of Representatives and to the President. The 
President shall provide for appropriate distribution within the 
executive branch.

                      SECTION-BY-SECTION ANALYSIS

    The following is a section-by-section summary of the fiscal 
year 2005 Intelligence Authorization Act. Following the 
section-by-section analysis there are general Committee 
comments on other matters.

                    TITLE I--INTELLIGENCE ACTIVITIES

    Section 101 lists the United States Government departments, 
agencies, and other elements for which the Act authorizes 
appropriations for intelligence and intelligence-related 
activities for fiscal year 2005.
    Section 102 makes clear that the details of the amounts 
authorized to be appropriated for intelligence and 
intelligence-related activities and applicable personnel 
ceilings covered under this title for fiscal year 2005 are 
contained in a classified Schedule of Authorizations. The 
Schedule of Authorizations shall be made available to the 
Committees on Appropriations of the Senate and House of 
Representatives and to the President.
    Section 103 authorizes the Director of Central Intelligence 
(DCI), with the approval of the Director of the Office of 
Management and Budget (OMB), in fiscal year 2005 to authorize 
employment of civilian personnel in excess of the personnel 
ceilings applicable to the components of the Intelligence 
Community under section 102 by an amount not to exceed two 
percent of the total of the ceilings applicableunder section 
102. The DCI may exercise this authority only if necessary to the 
performance of important intelligence functions. Any exercise of this 
authority must be reported to the intelligence committees of the 
Congress.
    Section 104 authorizes appropriations for the Intelligence 
Community Management Account (CMA) of the DCI and sets the 
personnel end-strength for the Intelligence Community 
Management Staff for fiscal year 2005.
    Subsection (a) authorizes appropriations of $342,995,000 
for fiscal year 2005 for the activities of the CMA of the DCI. 
Subsection (a) also authorizes funds identified for advanced 
research and development to remain available for 2 years.
    Subsection (b) authorizes 310 full-time personnel for 
elements within the CMA for fiscal year 2005 and provides that 
such personnel may be permanent employees of the CMA element or 
detailed from other elements of the United States Government.
    Subsection (c) authorizes additional appropriations and 
personnel for the CMA as specified in the classified Schedule 
of Authorizations and permits the additional funding amount to 
remain available through September 30, 2006.
    Subsection (d) requires that, except as provided in section 
113 of the National Security Act of 1947, personnel from 
another element of the United States Government shall be 
detailed to an element of the CMA on a reimbursable basis, 
except that for temporary functions such personnel may be 
detailed on a non-reimbursable basis for periods of less than 1 
year.
    Subsection (e) authorizes $34,911,000 of the amount 
authorized in subsection (a) to be made available for the 
National Drug Intelligence Center (NDIC). Subsection (e) 
requires the DCI to transfer these funds to the Department of 
Justice to be used for NDIC activities under the authority of 
the Attorney General, and subject to section 103(d)(1) of the 
National Security Act.
    Section 105 incorporates into the Act by reference each 
requirement to submit a report contained in the joint 
explanatory statement to accompany the conference report or in 
the associated classified annex to the conference report.
    Section 106 authorizes, solely for the purposes of 
reprogramming under Section 504(a)(3) of the National Security 
Act of 1947 (50 U.S.C. 414(a)(3)), those funds appropriated for 
an intelligence or intelligence-related activity in fiscal year 
2004 in excess of the amount specified for such activity in the 
classified Schedule of Authorizations that accompanied H.R. 
2417, the Intelligence Authorization Act for Fiscal Year 2004 
(H.R. Report 108-381).

 TITLE II--CENTRAL INTELLIGENCE AGENCY RETIREMENT AND DISABILITY SYSTEM


                    AUTHORIZATION OF APPROPRIATIONS

    Section 201 authorizes appropriations in the amount of 
$239,400,000 for fiscal year 2005 for the Central Intelligence 
Agency Retirement and Disability Fund.

                     TITLE III--GENERAL PROVISIONS

    Section 301 provides that funds authorized to be 
appropriated by this Act for salary, pay, retirement, and other 
benefits for federal employees may be increased by such 
additional or supplemental amounts as may be necessary for 
increases in such compensation or benefits authorized by law.
    Section 302 provides that the authorization of 
appropriations by the Act shall not be deemed to constitute 
authority for the conduct of any intelligence activity that is 
not otherwise authorized by the Constitution or laws of the 
United States.
    Section 303 amends the National Security Act of 1947 by 
removing the ``unforeseen requirements'' criterion from section 
504(a)(3) of the Act (50 U.S.C. 414(a)(3)) (relating to the 
funding of certain intelligence activities by reprogramming). 
The amendment ensures that the IntelligenceCommunity, in 
cooperation with the Committees, can react more quickly to confront 
higher-priority needs, by eliminating unnecessary and time-consuming 
legal debates with respect to proposed reprogrammings. Elimination of 
the unforeseen requirements criterion will permit reprogrammings to be 
reviewed on the basis of relative needs and priorities.
    Section 304 amends the Foreign Intelligence Surveillance 
Act (FISA) of 1978 by expanding the definition of an ``agent of 
a foreign power'' to include ``any person, other than a United 
States person, who * * * engages in international terrorism or 
activities in preparation therefor.'' This provision is 
identical to Section 1 of S. 113 as passed by the Senate on May 
8, 2003.
    Since FISA's enactment in 1978, the targets of intelligence 
collection and their means of communication have changed 
dramatically. Intelligence Community collection efforts are 
increasingly challenged by enhancements in communications 
technology and by the changing nature of intelligence targets. 
This provision permits the Government to apply for a FISA 
warrant to monitor a foreign person--i.e., not a citizen or 
lawful permanent resident of the United States--engaged in or 
preparing to commit terrorist activities, even if it is not 
known whether the foreign person is connected to a group 
engaged in or preparing to commit similar activities. If the 
Foreign Intelligence Surveillance Court grants a FISA order, 
the Government will be able to monitor the activities of the 
foreign person via electronic surveillance or physical 
searches, as authorized by FISA. This amendment takes better 
account of current operational realities without damaging 
important privacy interests of U.S. persons.
    Finally, this section also contains a sunset provision tied 
to the existing sunset provision in section 224 of the USA 
PATRIOT Act of 2001 (Public Law 107-56; 115 Stat. 295).
    Section 305 contains an additional FISA reporting 
requirement. This section is identical to Section 2 of S. 113, 
as passed by the Senate on May 8, 2003.
    Section 306(a) repeals the eight-year limit on continuous 
service on the Select Committee on Intelligence. The limit was 
included nearly 30 years ago in Senate Resolution 400 (1976) 
which established the Committee. The need for sustained 
oversight of the Intelligence Community, including over 
difficult technical and budgetary issues, has persuaded many 
informed observers that term limits arbitrarily deprive the 
Senate of the experience gained from extended service on the 
Committee.
    Section 306(b) makes clear that this amendment is an 
exercise of the rulemaking power of the Senate, and that it is 
within the constitutional right of the Senate to make any 
future change in the Resolution by action of the Senate alone 
in a simple resolution or in such other measure as the Senate 
may select.

                 TITLE IV--CENTRAL INTELLIGENCE AGENCY

    Section 401 amends the Central Intelligence Agency (CIA) 
Voluntary Separation Pay Act (VSPA) by repealing the otherwise 
applicable September 30, 2005 termination date for CIA's 
authority under that statute and by eliminating the 15 percent 
fee previously required to be paid by the CIA pursuant to 
section 2(i) of the VSPA. The CIA has used its Voluntary 
Separation Incentive Program (VSIP) authority over the past 
five years to restructure its workforce to support the DCI's 
Strategic Direction. The changes in the workforce required to 
support the DCI's direction affect a number of areas within the 
Agency. Authority to offer incentives to targeted groups of 
employees to encourage separation from employment, therefore, 
remains important to the success of the Agency's restructuring. 
Security considerations also support vesting the CIA with 
permanent authority to administer a CIA-specific VSIP for all 
CIA officers and employees, whether in the Central Intelligence 
Agency Retirement and Disability System, the Civil Service 
Retirement System, or the Federal Employee Retirement System. 
Section 401 also amends the Federal Workforce Restructuring Act 
(FWRA) of 1994 by deleting payments made under VSPA from the 
definition of voluntary separation incentive payments in the 
FWRA.
    Section 402 amends the Central Intelligence Agency Act of 
1949 by adding a new section that enhances the cover of certain 
CIA employees. This new section provides that, notwithstanding 
any other provisions of law, the DCI, in order to protect 
intelligence operations and sources and methods, may: pay 
salaries, allowances, retirement,insurance, and other benefits 
to CIA employees under non-official cover in a manner consistent with 
their cover; exempt a category of CIA employees from certain U.S. 
Government rules and regulations; allow certain CIA employees to claim 
and receive the same Federal and state tax treatment available to 
individuals in the private sector; and, allow certain CIA employees to 
receive Social Security benefits based on the Social Security 
contributions made.

         TITLE V--DEPARTMENT OF DEFENSE INTELLIGENCE ACTIVITIES

    Section 501 removes the sunset provision associated with 
Department of Defense authority to conduct commercial 
activities necessary to provide security for intelligence 
collection activities abroad. This authority was first granted 
in 1991 (Public Law 102-88, Sec. 504) with a sunset date of 
December 31, 1995. Since enactment in the Intelligence 
Authorization Act for Fiscal Year 1991, the authority has been 
extended on four occasions (Public Law 104-93, Public Law 105-
272, Public Law 106-398, and Public Law 107-314). Given these 
four previous extensions and the importance of the authority to 
Department of Defense intelligence activities, this provision 
permanently extends the authority and the associated 
requirements for the conduct of these activities.
    Section 502 provides a necessary Defense intelligence 
exemption to a provision of the Privacy Act (5 U.S.C. 552a). 
Section 552a(e)(3) of Title 5, United States Code, requires 
each agency that maintains a system of records to inform each 
individual whom it asks to supply information, on the form 
which it uses to collect the information or on a separate form 
that can be retained by the individual, of:
          (A) the authority (whether granted by statute, or by 
        executive order of the President) which authorizes the 
        solicitation of the information and whether disclosure 
        of such information is mandatory or voluntary;
          (B) the principal purpose or purposes for which the 
        information is intended to be used;
          (C) the routine uses which may be made of the 
        information * * *; and
          (D) the effects on [the individual], if any, of not 
        providing all or any part of the requested information.
    To improve the ability of intelligence personnel of the 
Department of Defense to recruit sources, it is necessary for 
Defense intelligence personnel, without having to divulge their 
affiliation with the Department or the U.S. Government, to 
approach potential sources and collect personal information 
from them to determine their suitability and willingness to 
become intelligence sources.
    The DCI has recognized that compliance with the 
requirements of Section 552a(e)(3) has the potential to 
threaten operational relationships, compromise the safety of 
intelligence officers, and jeopardize intelligence sources and 
methods. Pursuant to Section 552a(j)(1), the DCI has exempted 
all systems of records maintained by CIA from the requirements 
of Section 552a(e)(3). See 32 C.F.R. 1901.62(b). Section 
552a(j)(2) grants a similar exemption to law enforcement 
personnel. Compliance with Section 552a(e)(3) poses similar 
risks to Defense intelligence personnel and to the Defense 
Department's human intelligence mission.
    Section 503 of the Intelligence Authorization Act for 
Fiscal Year 1995 (Public Law 103-359) granted Defense 
intelligence personnel a very limited exemption from Section 
552a(e)(3), i.e., the exemption is limited to a single 
``initial assessment contact outside the United States.'' 
Current counterterrorism operations highlight the need for 
greater latitude for assessing potential intelligence sources, 
both overseas and within the United States. Amending the 
Privacy Act to give Defense intelligence officers the same 
protection enjoyed by CIA when assessing and recruiting sources 
should serve to protect these officers and shield their 
operations. This should improve the Defense Department's 
ability to conduct successful human intelligence operations.
    Section 503 allows funds available for intelligence and 
intelligence-related activities to be used to support a unified 
campaign against drug traffickers and terrorist organizations 
in Colombia. It is identical to section 502 of Public Law 108-
177, the Intelligence Authorization Act for Fiscal Year 2004.

                           COMMITTEE COMMENTS

A. Intelligence Community Reform

    The Committee's examination of our government's handling of 
the events leading to the September 11th attacks and the 
Intelligence Community's prewar assessments concerning Iraq's 
weapons of mass destruction programs have and will highlight a 
number of problems with our intelligence processes. The 
findings of the National Commission on Terrorist Attacks Upon 
the United States (``the 9/11 Commission'') have only added to 
a growing concern that changes must be made to address these 
problems. Although Congress and the President have acknowledged 
publicly the need for Intelligence Community reform, there is 
not yet a consensus on when and how to enact such reform.
    There will likely never be an ideal time for Intelligence 
Community reform. Change is always difficult, especially in the 
middle of a war. The threats our nation faces, however, show no 
signs of abating. While we have made much progress, in some 
areas the threat appears to be increasing. Therefore, the 
Committee believes that the process of reform must begin.
    The Committee will undertake a deliberate and comprehensive 
review of the full range of options for modernizing the 
Intelligence Community. Individual committee members have 
identified specific areas for reform including organizational 
structure, accountability, alternative analysis, security 
clearance procedures, and others. Other members of Congress 
have offered reform proposals, as well. We strongly believe 
that all options are on the table.
    As the Committee embarks on this process, we will be guided 
by an important principle: first, do no harm. Congress must 
resist the impulse to make quick, politically expedient 
changes. Our actions should address identifiable problems and 
ensure that change is institutionalized as a continuous process 
in the Intelligence Community. The Committee must leave in 
place a system that will continue to adapt to new priorities 
and threats without waiting for yet another act of Congress.
    The Committee intends to hold a number of hearings focusing 
specifically on the findings of the Joint Inquiry Into 
Intelligence Community Activities Before and After the 
Terrorist Attacks of September 11, 2001, the 9/11 Commission, 
and the initial report of this Committee on the Intelligence 
Community's prewar assessments concerning Iraq's weapons of 
mass destruction. In addition, the Committee will hold open 
hearings in the coming weeks to consider the relative merits of 
a variety of reform proposals.
    The Committee will also be informed by other studies and 
reports on intelligence activities of the United States 
prepared over the past two decades. As we consider various 
courses of action, we intend to work closely with other 
Committees of jurisdiction and the executive branch. The 
Committee retains the option of seeking the enactment of 
reforms during the present session, either in this Act, as it 
works its way through the legislative process, or in a separate 
measure.

B. Reporting Requirement--Management of the Intelligence Community as 
        an Information Enterprise

    The U.S. Government must fundamentally reexamine the manner 
in which the Intelligence Community manages intelligence 
information. In many instances, the intelligence failures that 
preceded the terrorist attacks of September 11, 2001 were 
marked by an insistence--whether historically or legally 
grounded--that intelligence information must be tightly 
controlled by the intelligence collector. Often, this position 
was based on a mistaken predicate, namely that an agency 
``owned'' information that it had collected.
    In the aftermath of September 11, this Committee, the Joint 
Inquiry into the Terrorist Attacks of September 11, 2001, the 
9/11 Commission, and various commentators have decried the 
``wall'' between Federal Bureau of Investigation criminal and 
intelligence investigators, the inability of analysts to access 
crucial operational information on human intelligence sources, 
the lack of access by intelligence analysts to Foreign 
Intelligence Surveillance Act and other signals intelligence 
data, and a lack of commitment to the provision of threat 
information to State and local officials. In fact, one of the 
important intelligence reforms in the USA PATRIOT Act (Public 
Law 107-56) was the dismantling of the ``wall'' between law 
enforcement and intelligence. Nevertheless, restrictions on 
data access byintelligence analysts--some real and some 
perceived--have been brought to the attention of this Committee on 
numerous occasions during the course of our continuing oversight of the 
Intelligence Community.
    Although sources and methods must be protected from 
unauthorized disclosure, the Intelligence Community continues 
to constrain its analysts through outdated restrictions on 
information access and a stubborn refusal to revisit legal 
interpretations and policy decisions that predate the 
asymmetric threats that now confront the United States. Given 
the evolving nature of the challenges confronting the United 
States, the agencies that comprise the intelligence collection 
and analysis branches of the U.S. Government must begin using 
information like a Community--not a loose affiliation of 
agencies.
    The Intelligence Community must be managed as an 
information enterprise. Pilot programs, ad hoc memoranda of 
understanding, and ``fixes'' based on the crisis of the moment 
are insufficient responses to an endemic problem. Although 
efforts have been made to surmount restrictions, some 
information sharing limitations have reemerged in the very 
programs that were designed to address them. The operations of 
the Terrorist Threat Integration Center (TTIC) are a prime 
example of this transfer of limitations. Although TTIC was 
established to bring intelligence data from across the 
Intelligence Community together at one location, many analysts 
at TTIC are still burdened by the same information restrictions 
that inhibited their work at their parent agency--working under 
a collage of minimization procedures, parent organization legal 
authorities and policy barriers, and perceived limitations that 
still inhibit real all-source intelligence analysis.
    This Committee is impatient for real reforms in information 
sharing and data access. Intelligence data that is collected by 
the U.S. Government belongs to the U.S. Government--not the 
intelligence agency that happened to collect it. By making 
intelligence data available to a Community of all-source 
intelligence analysts and by providing intelligence 
information, in classified or unclassified form, to appropriate 
State and local officials, the United States will be in a 
better position to address the threat environment confronting 
the nation. Recognizing the fundamental protections afforded by 
the Constitution, the nation must reassess legal 
interpretations, policy directives, and other limitations in 
statute, Executive order, and regulation that prevent 
intelligence analysts from accessing the intelligence data they 
need to complete their important work.
    In response to several reporting requirements in the 
Intelligence Authorization Act for Fiscal Year 2004 (Public Law 
108-177), the Intelligence Community Deputies Committee 
approved the establishment of an ``Information Sharing Working 
Group'' (ISWG). Among other things, the ISWG was assigned the 
task of identifying impediments to information sharing through 
an analysis of all existing Intelligence Community and 
Department of Defense policies and laws. As evidenced by 
Section 354 in the Fiscal Year 2004 Intelligence Authorization 
Act, Congress has a direct interest in a comprehensive 
examination of these topics. To that end, the Committee directs 
the Director of Central Intelligence, to coordinate with the 
Attorney General and Secretary of Defense, in completing the 
ISWG review.
    The ISWG should include in its review all applicable 
statutes, Executive orders, regulations, policies, and legal 
interpretations that inhibit all-source analysis by 
Intelligence Community analysts. This review should be a zero-
based assessment of intelligence collection and analysis 
authorities and the effect these authorities and their 
interpretations have on all-source analysis. The review should 
include a fundamental analysis of the protections afforded U.S. 
citizens, lawful permanent residents, and foreign nationals 
under the Constitution and the impact these protections have on 
intelligence analysis. It should include a list of all 
identified inhibitors, as well as an analysis of the statutory, 
regulatory, legal, or policy bases for such restrictions. Given 
the difficulties associated with this comprehensive task, the 
Committee directs that the ISWG report on these issues be 
provided to the Committee no later than February 1, 2005.
    Based on the analysis contained in the ISWG report, the 
Committee requests that the President inform the Committee of 
recommendations for overcoming the restrictions outlined in the 
report. The Committee is particularly interested in 
recommendations that include a reexamination of existing legal 
authorities, the creation of an Intelligence Community-wide 
procedure for minimizing all types of intelligence data to 
protect the privacy interests of U.S. persons, and the 
modification of existing agency authoritiesthat restrict all-
source analysis, whether in statute, Executive order, regulation, or 
policy.

C. Intelligence Community Compliance With Federal Financial Accounting 
        Standards

    For several years, the Committee has been concerned with 
the Intelligence Community's financial management practices. In 
the report accompanying S. 1428 (S. Rpt. 107-63), the Committee 
instructed the Director of Central Intelligence and the 
Secretary of Defense to ensure that the National Security 
Agency (NSA), the Defense Intelligence Agency (DIA), the 
National Geospatial Intelligence Agency (NGA), and the Central 
Intelligence Agency (CIA) receive an audit of their financial 
statements no later than March 1, 2005, to be performed by a 
statutory Inspector General or a qualified independent public 
accountant.
    Reports issued by the Department of Defense (DOD) and CIA 
Inspectors General in 2002 indicated that NSA, DIA, NGA, and 
CIA were unable to produce auditable financial statements. 
Unfortunately, this remains the case. In contrast to these 
agencies, NRO received an unqualified (clean) opinion for its 
Fiscal Year 2003 financial statements.
    The Committee previously acknowledged that NSA, DIA, and 
NGA may be affected by DOD plans to implement a Department-wide 
Financial Management Modernization Program, which is not 
expected to be completed before 2007. The Committee notes that 
in testimony before a Senate Armed Services subcommittee in 
March 2004, the Under Secretary of Defense (Comptroller) 
indicated that DOD plans to earn a clean opinion for its Fiscal 
Year 2007 financial statements, even though its Modernization 
Program will not yet be complete.
    In recognition of the challenges presented by the 
difficulties in acquiring the systems necessary to produce 
financial statements, the Committee indicated in Senate Report 
108-44, accompanying S. 1025, the Senate-passed Fiscal Year 
2004 Intelligence Authorization Act, that it would consider an 
extension of the auditable financial statement due date, 
provided that the relevant agencies offered evidence of 
significant progress in this area.
    Information furnished by the agencies within the last year 
has revealed numerous positive developments. For example, NGA 
planned to triple its accounting staff and move to a single 
accounting system. DIA created a Chief Financial Executive 
position reporting directly to its Director, and it was rated 
third among thirty DoD agencies for the quality of its internal 
controls. NSA received a DoD exemption to purchase financial 
system software in March 2003 that will assist in modernizing 
its financial management systems and has developed a detailed 
implementation plan for the new system. This should allow NSA 
and, in turn, DIA (which uses portions of the NSA's accounting 
system) to produce auditable statements by 2007.
    Based on this and other information provided by the 
agencies, the Committee is satisfied that meaningful measures 
have been devoted to producing auditable financial statements. 
Substantial obstacles remain, however, and the Committee 
believes that maintaining the original March 1, 2005, deadline 
would be counterproductive in that it would require audits that 
would divert resources from actual financial system 
improvements.
    Accordingly, the Committee has decided that it would not, 
and does not, object to extending the due date set in the 
report accompanying S. 1428 (S. Rpt. 107-63), for NSA, DIA, and 
NIMA/NGA to March 1, 2007, to allow for audits of the Fiscal 
Year 2006 financial statements. This change does not affect 
CIA, which is required by Public Law 107-289 to submit audited 
financial statements for Fiscal Year 2004.
    Although obtaining unqualified opinions by March 2007 will 
be a formidable task, the Committee believes that these efforts 
are an essential part of bringing further accountability to the 
Intelligence Community's financial management practices. The 
need for sound financial management practices has grown in 
importance with the large amount of supplemental funding 
received by these agencies in the last several years.
    The Committee expects Agency heads to continue to monitor 
these efforts closely and provide annual progress reports by 
December 1 of each year preceding the audit requirement.

D. Supplemental Funding of Counterterrorism

    The Committee notes a shortfall in Intelligence Community 
counterterrorism funding in the Administration's Fiscal Year 
2005 baseline submission. While the Committee has been advised 
that additional funding for Intelligence Community 
counterterrorism activities will be forthcoming in the form of 
supplemental funds within the Fiscal Year 2005 Defense 
Appropriations Bill, we are increasingly concerned about the 
continuing practice of funding known operational requirements 
through supplemental funding vehicles.
    While the practice of funding baseline expenditures using 
supplemental vehicles has become more prevalent in the past 10 
years, the Committee believes that it is time to rein in this 
practice. The global war on terrorism has been underway for 
almost 3 years. The Administration and Congress have 
acknowledged that this conflict will continue for the 
foreseeable future. The funding requirements for this effort no 
longer qualify as emergency funding. With respect to the 
Intelligence Community, these requirements are, and will remain 
for some time to come, day-to-day operational costs of doing 
business.
    Reliance on supplemental funding requests to fund 
reasonably predictable baseline requirements complicates 
unnecessarily the execution of new and ongoing operations. The 
Congress has recently funded supplemental requests and will, 
more than likely, continue to do so. Nonetheless, operators in 
the field deserve a greater degree of certainty when it comes 
to questions of resources--the operators' life-blood. The 
Committee believes that the global war on terrorism is no 
longer an emergency funding issue, but rather a long-term 
reality to which the nation must adapt.
    Consequently, the Administration should make a concerted 
effort to develop reasonable cost estimates for 
counterterrorism-related intelligence activities over the 
Future Years Defense Plan or some other acceptable time period. 
These costs should be included in the future baseline funding 
requests of the Intelligence Community agencies.

                                
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