south carolina and receive his b s from the university of south carolina welcome mr lewis to the committee mr james l taylor was confirmed by the united states senate as the chief financial officer for the department of labor on june twenty second two thousand and ten prior to this position he served as deputy inspector general for the department of homeland security where he assisted the inspector general in managing over six hundred auditor's inspectors and investigators he received his  from old dominion university and an m t a from the university of delaware welcome mr taylor we're happy to have you with us i think you're both that trims of capitol hill hearings and know that our practices that you are written statements without objection will be accepted as part of the written record we ask you to offer us a five minute summary of your written testimony beginning with mr lewis at the conclusion of those summaries will go to questions from the members of the subcommittee  sure you know the light system that green means go yellow means speed up on like when you're driving a car and red means come to a screeching halt no we certainly would want you to finish your comments mr lewis we begin with you welcome to the i thank you mr chairman mr chairman and members of the subcommittee thank you for the opportunity to discuss the audit of the u s department of labor's f two thousand consolidated financial statements the independent public accounting firm conducted the audit under a contract with the office of inspector general my name is elliot lewis and i'm the assistant specter general for audit the department of labor as you know the oh i g is an independent agency within the department and the views expressed in my testimony are based on the independent findings and recommendations of the audit work and are not intended to reflect the department's position the c f o act requires the to audit and report on the department's consolidated financial statements o m b requires the audit be completed by november fifteenth each year to enable the auditor's to meet this deadline to department must provide significant financial information and supporting documentation throughout the year therefore an inability on the part of the department to produce the necessary information in a timely manner of texas successful completion of the audit and results in a less than favorable opinion for the department as i will detail in my testimony mr chairman for the most part it was the department's inability to provide timely and accurate financial data that resulted in the department receiving a disclaimer of opinion on its two thousand and ten consolidated financial statement the department was unable to provide this data due to a host of system migration integration and configuration problems that occurred when it implemented a new financial system it is important to note that prior to this  department had received an unqualified opinion on its annual financial statement since one nine hundred ninety seven in the mid two thousand the department decided that its financial system dollars was outdated and no longer able to efficiently and effectively meet the department's financial management requirements in july two thousand and eight the department contracted to obtain a new system which had named a new core financial system or new core the department planned a fifteen month implementation period that would conclude at the end of f y two thousand and nine upon implementation in january two thousand and ten the department encountered many unforseen complications that in some cases it is still working to address today it is important to highlight the department experience much turnover in key leadership positions in the office of the chief financial officer during the time it was planning developing and implementing new core this included the retirement of its two top senior executives shortly after new core was implemented the oh i g contract with k p n g to conduct  pre implementation audit of nucor prior to its original schedule deployment in october two thousand and nine during this audit we issued two alert memoranda to the informed a department of issues requiring immediate attention training of staff prior to the implementation of the new system and timely completion of transaction workbooks to be used to record financial activity occurring after dollars was shut down but before nucor became available the audited benefit eleven implementation risk to future integrity and availability of the department's financial data and recommended the department take these risks into consideration when making its decision to implement new core the department disagreed with many of our reported results and went forward with the implementation following implementation our attention turned to preparing for the consolidated financial statement audit we issued several more alert memoranda regarding our concerns that problems resulting from the transition to new core were preventing the department from providing k p m g with the necessary information to complete the audit accuracy and completeness of its financial statement balances and provide data necessary for audit testing was hindered by data migration integration reconciliation and configuration issues the audit report contains twenty four specific recommendations related to finding contributed to the disclaimer but pinion the department generally concurred with the recommendations or noted that many of them corresponded with corrective actions planned or already taken going forward the most important financial management issue facing the department is a need to correct the new core implementation order issues in order to either it reissue corrected financial statements or provide accurate and complete information for the auditor's to audit the opening balances for two thousand and eleven the department indicated that plans to reissue its two thousand and ten consolidated financial statements in early two thousand and eleven the will continue to monitor the department's actions there is much to be done but the challenges are not insurmountable appropriate resources are timely dedicated to the necessary corrective actions thank you mr chairman for the presented to present to present the results of the audit i'd be pleased to answer any questions that you or other members of the subcommittee may have mr lewis thank you for your service and for your testimony mr taylor welcome to the comm mr chairman and members of the subcommittee i appreciate the opportunity to come before you to discuss the financial management of the department of labor and specifically i do understand the purpose of this hearing is to understand why the financial statement audit opinion for the department of labor itself from an unqualified opinion or clean opinion to a disclaimer and a qualified opinion means that of the independent auditors have determined the financial statements fairly represent the position and activities of the department the disclaimer of opinion the department of labor received for two thousand ten means simply that the independent auditors could not complete the detailed ever required to upon these statements it does not necessarily mean that they found any status materially in error in the case of the part of labor this inability to complete the audit resulted from our transition the new core financial management system and the issues but euro's irrespective of the cause the department's leadership is disappointed in this result the fact that other agencies have experienced similar problems and replacing systems and also lost a clean audit opinion does not make this experience less disappointing we have already taken steps to overcome these problems and we are working every day to bring the department's financial systems into compliance with the highest financial standards it is because of this progress but i do intend to resubmit our plan just a was the office of inspector general within the next few months and requested a fully audit our two thousand and ten financial activities and possibly reissued their opinion to better put the financial systems effort in context the department spent thirty five million dollars between two thousand and three and two thousand and eight in an effort to replace an old legacy system which had been in use for over two decades when his previous separate failed department awarded a contract for the development and open taishan of the new corporation maje system in july of two thousand and eight the department is able to eliminate much of its risk by contracting for a product that was already in use with the federal government and since the department decided to use a shared service provider we do not own any hardware or software associated with the implementation or the buy the initial cost of less and fifteen million dollars in annual operational costs approximately twenty million in program use two thousand and ten and eleven million in two thousand and eleven the initial go live date was october first but as has been mentioned the launch was delayed until january fourteenth two thousand and ten to provide additional time to train users and continue data migration activities the department had failures during the new core implementation first new core user requirements were significantly underestimated during the contract development initial contract and vision less than a quarter of the users who are now actually interfacing with the system having significantly underestimate the user base the original contract did not account the additional need for user training systems supporting the contractor and general system loading with resulting from the more than double we have dramatically changed how we process things like invoicing and travel payments and it's a more automated process but that was really impacted a cultural change in how the department does business and that was a lot for a department which been doing the same way  f business for twenty years and swallow third we have a significant challenge with data migration from the old system to the new this involve the transit transfer of detail data some of it decades old legacy financial and peter systems to nu for instance the financial data part us legacy financial system was never reconciled with the financial data protection system before being migrated to new core this was a tacit had to be accomplished so that both systems could use the same financial information these migration issues also  impact our ability to provide timely and accurate financial reporting finally the department experienced significant turnover amongst senior financial managers as my colleagues already mentioned the department lacked a senate confirmed chief financial officer from january two thousand and nine until i was confirmed in late june of this year department career deputy c f o and the associate deputy c f o overseeing the plantation both retired shortly after the system launched in january two thousand and ten leave that apart without any permanent financial management leadership in spite of all these issues of discuss its import to know that none of these problems impacted the mission of the department during two thousand and ten we made a conscious decision that the first priority would be and supporting the activities of the departments agencies we succeeded in that objective the necessary financial activities to provide unemployment benefits job training grants support costs for work place of mine safety inspections continued without interruption and closing mr chairman the challenges which have occurred with  party's new system or unfortunate and i take responsibility for making sure they're overcome in a timely manner when i was confirmed by the senate while i was confirmed by the senate in late june i was detail for my position as deputy i g p part of homeland security to serve as an advisor to deputy secretary of labor from late two thousand to over two thousand and two february two thousand and ten and this was in order to assist the park in identifying issues and trying to mitigate the problems prior to go a lot so i'm very familiar with the issues department faces in addition to audit ing d h s s financial activities are to come in this position i was previously charges implementing finance systems as deputy c f o at fema and it's part of commerce while the process of deal well certainly think i heard you say that sometime in the next few months the department should be ready to present to the auditing firm consolidated financial statements that are audit civil is that correct yes or no about when that will be closes on september thirtieth eleven that the statements the consolidated financial statements will be audited at that point for two thousand and eleven i'm very comfortable that they will be ok and mr lewis i assume it's then your agenc decision as to whether to issue a supplemental report or not based upon those new consolidated financial statements you should put your microphone on that's correct but we have been working very closely with the c f o his office with the department on that and that's exactly what we plan to do at the department wants to reissue and get a new opinion i certainly speaking only for myself not for the other members committee i think would be a very desirable result so that we have you definitive answer but in the review of the an audible statements that your contractor looked at for fiscal ten was there any evidence whatsoever of fraud or theft was there any evidence of any nefarious misconduct that you saw my correcting characterizing this as an absence of sufficient information to make a qualified audit judgment correct mr terrill let me ask you a question which is a bit broader which i think concerns a lot of members of the committee and i do understand that you did not get confirmed until june twenty second of two thousand and ten which is nearly six months after i guess more than six months after the city went live around six months so i'm not in any way using you when i ask these questions but i would certainly wonder the following in july of two thousand and eight the labor  long before secretary solis a cough is by the way in july of two thousand and eight for the part and makes a decision to implement a new financial management accounting system that system is not yet in a position to produce automobile financial statements by november fifteenth of two thousand and ten why what happened that's a very legitimate question the actual implementation took eighteen months and eighteen months in the federal d the planning for the of mentation and the actual cut over of eighteen months is actually a very reasonable timeframe in my in my history of doing this i will confess to you that my governmental fact i think the securities and exchange commission would never accept that explanation again i'm not in targeting these questions that you holding you accountable because you didn't arrive until june of two thousand and ten but what do you think we could do to implement a system the next time we do such a thing more expeditiously why does it take eighteen months at a minimum and my understanding is there's no allegation that any software malfunction is that right  matter of training people how to use it and how to do the data entry and what practices they should follow is that right a lot of the time is used up in making sure that you undergo the proper training and that the interfaces are set up appropriately for all of the users of the system employees  back to prior to secretary solis and i'm not asking this question in any kind of partisan method at all but i must say that taxpayers would wonder why it takes so long to implement such thing and i think it's a lesson we could all learn to avoid such a thing when this amount of money is being handled the possibility that we don't know where it is and what's being spent for because the system is not a lot of the ball is not very good results now on the other side of the coin  it looks to me like you've made a lot of progress since june and i'm encouraged to hear mr lewis says he'll be receiving these reports and i hope to this riveting hearing is that a letter has been issued by the auditor which gives a answer that question probably even if we had completed the entire audit i wouldn't be able to answer that to the extent of what we were able to look at we didn't we didn't see that in what we were able to look at but you're correct there was a lot that we could not look  i'm not implying there's any chance i'm just saying there's no way you've you could say there's not that something didn't happen when you don't have the information you have been on board very long just a few minutes a few months how much  this point because of the work that had to be done as a result of this we are we are right now as we sit here negotiating with the firm in terms of what would be the additional cost to finish and what would be the additional cost if we actually reissue the statements and and reissue the opinion in the middle of the year which we wouldn't have to do and those those calls for about the same for other systems in the automated system of the one  audit the activity so we were convinced that the operational issues that were identified in the audit report they have been resolved day to day activities in the department have better internal controls and are processing very smoothly in terms of getting the but i've done this about three or four times now i've never and never been involved in an activity where we ran parallel financial systems because of financial systems or the systems of record and in order to keep two systems operating at the same time for an extended period of time and keep them in sync is very resource intensive effort and it's really difficult to do successfully in fact part of the problems we have this year was affected because we delayed doing the initially  until january that meant the first quarter was all in the old system we did run parallel for the first quarter and trying to complete better training and do some other things that mitigate the problems going forward and that posed a lot of problems for us that resulted in what maybe also had not been replaced earlier well there had been other efforts to replace the system earlier that did not succeed for various reasons lack of funding  think it was replaced because it was a very old system although it was functioning i think it took more work to meet the demands of what's expected from an agency or in any entity today in terms of having real time financial information that the old system wasn't capable of providing although it could you know eventually comply with what needed to be done and it didn't really have the the realtime capability to provide information  i can tell you that what i've seen in my career is that whenever you try to replace a legacy system you run into similar problems i've seen them before experienced them before and my prior job step we were working with the department of homeland security so that they could actually produce an integrated system they're working on that same time much much grander scale than department of labor but they have the same issues i think  i think the gentleman in the chairs happy to recognize the gentle lady from ohio miss fudges for her questions for five minutes thank you very much and thank you both i certainly do thank both the chair and the ranking member for asking questions that everyday citizens would ask i think it's very important i happen to have served actually in every level of government from local county state and now federal and with the exception of the federal i have dealt with these kinds of issues on a number of occasions and i would say that eighteen months really is very good quite frankly especially when you're dealing with an agency as large as the department of labor and people who have been you to a system for very long all of us know that most of us are resistant to change and it is a very difficult process clearly i would hope that as you look at the findings that we would in fact have a clean or unqualified audit in the near future  and i too am concerned about the fact that our auditor k p m g is large a company as it is could not find one person to be here today certainly timing with us is an issue it's an issue for us sitting here  but to have a company that size that has received these kinds of resources from the government i would have i would have to believe that some one person could have shown up today just in terms of a timeframe and  the ranking member mentioned this to you as well do you believe that you are eighty percent there sixty percent there if you could please mr taylor or mr lewis well the in terms of doing a performing finance reporting a day to day basis we're there we can do the finance reporting right now with our with the court with the new system in terms of providing the extraction data extracts and the information to the authors need to complete their work in the  samples i think we're just about there as well and i think that by the end of january we'll definitely be there so when you you no longer have the problem of trying to transfer data from one system to another you have complete information all that you need to have  right now to get this thing one hundred percent operational and to be put in a position to either file a new report and or get a clean audit you are saying if i could if i could make a clear distinction in terms of being operation we are one hundred percent operational we're supporting the day to day activities of the partment as we speak there's no grant no contract no personnel action that cannot be accomplished in the current system in terms of provide adding all the information to the auditor's that they require i think we're pretty much there now but i think that by the january timeframe i think they will have it all and there will always be issues that arise in any operation  the idea when you're on the audit side you look at materiality and the question is materially do you have any issues and right now materially i don't think i do have any issues and my last question is so you are the person that will be held responsible if in fact by the end of january this thing that come out the way it should if i cannot provide the information to the auditor is by the end of january yes on the one who is accountable for that thank you so much  department provides us and when they provide it but probably within a couple of months after they've given us the final clean information and that there are no problems with it that's probably the earliest we would say something  thank you for your test thank you i thank my friend i think my colleagues especially thank the witnesses it occurs to me the committee then has three agenda items going forth from today number one is we would encourage mr taylor  conclusions april or whenever that is and then number three i think all members of the committee are interested in the more generic problem of how we can avoid this kind of delay in the future so that we never again have a situation if we can avoid it where the labor department or any other department is in a position where there is an inability to provide audit and complete data by the deadline and we appreciate mr taylor your efforts in solving this problem mr lewis we appreciate you and your organization being very vigilant for the taxpayer and for those who depend upon the department and without objection members will have fourteen days to submit additional materials or questions for the hearing record and without objection hearing is a j