announce that we have a vote on the floor and our key witness mr quiet you are voting so i'm going to recess for the next twenty minutes i think we have three votes on and so we want to come out to our research and since we're working against the clock i'm going to go on and make my opening statement and my staff trying to find out and i thank you for your patience i want to welcome you to this afternoon's hearing on the federal government consolidated financial statements for two thousand and eight and the and as you know had this hearing scheduled for a previous date we had to postpone that because consciously so i'm pleased to say that some progress has been made since last year and for the second year running was able to offer i'm qualified opinion on the two thousand and eight statement of social insurance in two thousand and eight a total of twenty one out of twenty four c f o act agencies received unqualified opinions for an increase of one additional clean audit opinion over last year this is the highest total reported in the last six years also i'm happy to share that for the fourth year in a row all major federal agencies satisfy the forty five day financial audit deadline as mandated by the stringent reporting guidelines stablished by the o m b across the government the overall number of material weakness is decreased from thirty nine to thirty two are by eighteen percent mostly due to other klein immaterial weaknesses related to deficiencies in agency financial systems and security the outstanding material weaknesses are linked to the deficiencies in financial management and reporting financial systems and security properly plant and equipment and budgetary reporting some of the changes needed to improve these areas are related to the financial preparation process changes in information technology security the receipt and the tracking a property plant and equipment and funds control and the good news is for the fifth consecutive year there has been an almost fifty percent decrease in material weaknesses since the year two thousand and one however throughout the federal government agencies continue to demonstrate deficiencies that prevented you from rendering an opinion on the u s government's consolidated financial statement for the twelve year in a row i was unable to render an opinion on the federal government's consolidated financial report statement mostly due to material weaknesses and financial reporting and this is an area where change must occur without delay we recognize that the federal government has recently undertaken drastic steps to stabilize the nation's financial markets and the long term effects of these actions in the midst of a recession are unknown which is all the more reason why federal agencies must be more aggressive  was a snake little bit you i'll be interested in hearing your clients regarding the status of federal agencies efforts to put in place effective management systems and internal controls in this time of limited resources and how federal agencies can expedite their efforts to address weaknesses related to financial reporting systems management and improper payments i also look forward to hearing mr gray comments regarding the impact of the ongoing recession and last year's action by the federal government to stabilize the markets on our nation future financial condition in addition we'll hear from michelle and mistress wall regarding the changes their agencies are making to unprove their protocols legislation he sponsors we can find him h r twenty one forty two the government efficiency effectiveness and performance improvement act of two thousand and the intent of mr krios legislation to build upon the government performance and results act of nineteen ninety three by we choir and that ever every federal program be assessed at least once every five years the legislation also requires the performance improvement council and agency improvement officers to comply and that once again i would like to thank the panel as for joining us today and we look forward to your testimony and members who come in we have all without objection we'll have them put their statements on the records and i will allow the minority member the ranking member to make an opening statement and we hope that we get other members and if so they can make a  well a very short statement but what i'm going to do is call up the second panel so i'm going to ask the second panel to come up and we'll start with mr dodaro and then he will be followed and you can sit in the art of that you see your name now it is the committee's policy that members the sworn in and i would like the members of the panel to now stand minister would you please raise your right hand ok do you solemnly swear to tell the truth the whole truth and nothing but the truth thank you that the records show that the witnesses have answered in the affirmative you now se ok troll or general of the united states and the head of the government accountability office the investigative an audience agency for the congress and he has held such positions as the chief operating officer and the head of the g a o says accounting and information management division over the course of his distinguished career with the agency and i ask that each of the witnesses let me go on it mr richard l who has served at the department of trade with distinction for thirty six years and prior to his retirement was the commissioner government for fiscal year two thousand and eight as you pointed out in your opening statement this year for two thousand and eight like prior years were unable to give an opinion on the overall consolidated financial statements on a quarterly basis largely due to a wide range of serious deficiencies but two i would single out one would be serious and longstanding problems at the department of defense and secondly is the inability to reconcile transactions that take place among federal government agencies those have been problems from the very beginning and were main problems today although progress is being made as you no in your opening statement twenty one apartments and agencies were able to get clean opinions this past year that is clearly notable progress more pleased to see that that compared to only six of twenty four agencies when the c and across the government not as you mentioned last year since we've prepared the finance of our audit on treasury financial statements there's been significant efforts made to the economic stabilization act to create the troubled asset relief program and also the american recovery and reinvestment act both of those programs authorized huge sums of money in one case seven hundred billion dollars in the case of one hundred eighty seven billion dollars and so they bring new financial management challenges to the federal departments and agencies and so those issues will have to be worked on this year but they also bring new requirements to treasury to finance the government's operations and if i would direct your attention to the charts i would like to show the impact that it's having on the federal government's financial position and actually in we're going to use the f of the first one shows that held by the public and how that's changed madam chairman woman the debt held by the public in fiscal year two thousand and one was three point three billion dollars or about thirty three percent of the gross domestic product by fiscal year two thousand and eight that it jumped to five point eight trillion dollars and almost forty one percent of the gross domestic product that's before some of these  huge new initiatives have been approved next year's projection is that the debt held by the public will go to eight point five trillion dollars or almost sixty percent of the gross domestic product a also the current debt ceiling for the federal government's twelve point one trillion dollars that's likely going to have to be raised again this year to accommodate financing these operations the next charge shows what the future could look like  the blue line projections is a c b s baseline extended which shows that we're headed to story corps high levels the largest debt that we've ever had as a percent of gross domestic product occurred during w two and it was at that point it was one hundred nine percent of the of the gross domestic product our projections show that it could reach that level again as early as around twenty twenty twenty twenty twenty twenty twenty five unless some action is taken the last chart i'll show gives you some idea of the magnitude of the gap that is occurring and basically the federal government's on an unsustainable long term fiscal path this shows right now in two thousand they were the revenue that the expected to be collected which is represented by the line is not enough to fund the entire federal government's activities and so we borrow the rest of the money that borrowing is going to go up in two thousand and nineteen and by twenty thirty unless some action is taken we would only have enough money to pay interest on a national debt which is the blue bar at the bottom the green bars so security payments to individuals the red bar is medicare and medicaid we would even have enough money to pay that and the orange there's all the rest of the federal government including the department of defense so this is a very serious issue clearly our government had to move to deal with stabilizing the banking system clearly the government had to move to deal with the economic downturn which is very serious but that same level of intensity needs to be focused on a long term plan to bring the federal government's financial situation onto on a more sustainable long term path that concludes my opening statements madam chairman woman and i'll be happy to answer questions  at the appropriate time thank you so much you can  incorporated the holiday to government wide financial statements is designed to report on the fly into a position and condition the federal government following u s federal generally accepted accounting principles your interest in improving federal financial management is greatly appreciated the financial report reflects the treasury and or in the long standing responsibility to provide the congress and the public a timely and reliable information on the cost of government operations the source of funds used to fund them and the implications of the government's financial responsibilities the government's net operating costs for fiscal two thousand and eight was just over one trillion dollars is that better the government's budge deficit for the fiscal year ended september thirtieth two thousand and eight was four hundred fifty five billion which is more than double was absent for the prior year appropriately the financial report discuss financial impact on the government's operations stemming from those steps and the government and the steps the government took to restore stability in the u s financial system all these events had minimal impact on the fiscal two thousand and eight months they will almost certainly play a more substantial role in total two thousand and nine i'll do although the economy and market stabilization issues arose in two thousand and eight and of course remain ongoing concerns the longer term issues of fiscal sustainability cannot be overlooked accordingly the report also discusses the government's long term fiscal challenges funding social security medicare and medicaid for fiscal two thousand and eight geale was also unable was again unable to express an opinion on most of the government wide financial statements that appear in the finance report the lone exception was a second consecutive unqualified or plain out of opinion on the statement of social insurance which shows the estimated cost of the government's exposures of a chill soon sureness programs primarily social security and medicare over seventy five years the disclaimer on the remainder of the statements fams from three longstanding material weaknesses  serious financial management control issues that department found second the government's inability to adequately account for and reconcile intergovernmental activity and balances between agencies and third the government's deficiencies in the process for preparing the consolidated financial statements do you continues to work towards resolution of many counting issues including those pertain to property inventory accounts payable in several other areas d o d faces no small challeng a and other government agencies has made considerable progress towards resolving the intergovernmental transactions and consolidation weaknesses intergovernmental transactions imbalances occur in two agencies conducting business with each other as trading partners record and report the same transaction differently we continue to make progress on the third material witness the need to improve the process for preparing that and to consolidate financial report with made significant strides in financial reports preparation and consolidation by developing short term and long term strategies these include improving data collection better disclosure requirements and more information from the from the agencies thousand and eight audit during two thousand and eight we continue to make significant progress leading to the closure of sixteen of fifty six recommendations are valid standing from the previous audit reports we have implemented have made major strategies to address treasury and other agencies continue to work toward systems and process solutions they need to continue to meet ambitious deadlines agencies contained in meet joe and be celebrated reporting deadline of november fifteenth just forty five days after the end of the a common critique of the financial report of the us government is that despite the fact that it contains more than one hundred eighty pages of detailed information on government's financial position and conditions it is not practical document for communicating with the american citizens or congress in response beginning in fiscal two thousand and seven the treasury department and on be in cooperation with fuel developed an issue to some reporting titled the government's financial health a citizen's guide to the for naturally for the united states government this guide which is included in the financial report provides a summary of the key data and issues addressed in the forward port in the user friendly manner to the public despite our recent accomplishments in progress much work remains  continue to work towards resolution of the government's reporting process weaknesses how are these reports or will limit or even minimal value get to go on read as such in addition to aggression addressing process issues we'll continue to seek ways to make the i would like you to stay in place and we're going to go back to panel one was going to submit the questions we had to you and you can respond then right in the interests of time there's a little game playing going on on the floor the a motion to adjourn so rather than run back and forth we're going to stay here and at least hear your presentations you can explain your bill and then we will ask for the answers  and the questions and then the answers through e mail and i'm sorry we can't share their responses with the audience but we are busy on the floor as you can see mr please stay in place he can use it there  very very much for a lot of the be here with you i want to join the members that have helped me out in this particular bill one of the things i've always believed the federal government can do two things to efficient more effective and more accountable that is we can implement program assessment standards and we can use those standards to conduct legislative oversight but in order to perform both tasks we must have adequate financial information from our agencies and that is a necessity of the piece of legislation that i've introduced h r twenty one forty two the government efficiency effectiveness and performance improvement act improving the performance of our agency is a bipartisan issue which is a hallmark  government also at a great program assessments were provided agencies with data that can help them in the formulation of accurate financial information and i want to thank my colleague dennis moore and for his significant contributions to this legislation as well as other members of co sponsor of this legislation also want to think hard from the government accountability office she and her colleagues have written extensively on this area and  ask you all to take a look at her work what gets measured gets done and this is the focus of this particular focus that we have it's basically looking at resoled oriented government setting goals they call reinventing government there they talk about certain principles and i think man i'm sure this is very important they talk about what gets measured gets done if you don't measure results you can't tell success from failure if you can't see success you can't rewarded you can reward success you probably rewarding failure if you can recognize failure you can correct it can demonstrate results then you can win public support to summarize this i would like to just give you a little bit show and tell and the rest of my testimony is here i would ask you to look at bill patterns bill patterns for appropriations are have been transform across the state as you know most most states have items you can see a little bit little bit of evolution then you move into the modern and i'm using texas as an example basically here what you see is you have the amount of services but you also have to keep going down on look at this type of information the financial information that's provided is put in a particular area in a particular way that provides you more information and therefore provides better legis you will see there that you will have a go for the agency you will see what we told you want to see instead of measuring activity measure the results that you want to see finally the last thing is let me show you the next one and basically the next one is what the federal government looks like if you look at the federal budget this is what we have and it's and in many ways it reminds me of what we were doing the one nine hundred seventy s and a lot of states you see there it's basically they say this program gets x amount of dollars this next program gets x amount of dollars and it's basically what state for doing and the one nine hundred seventy and here we are already in the twenty first century and our federal government has not gone opportunity as especially now we're spending a lot of money is to start looking at results instead of saying here's one million dollars to do this and they look at that and a lot more detail but i think it's all in my testimony and i think the show intel is probably the best way to show where we are as the federal government and how we're probably light years behind what a lot of states have gone to and most of the states have moved into this performance  measures so we have i know the g a o and other organizations have done a great job at talking about this and madam chair i present this in a short period time because we've got to go about but i would absolutely take a look at the information and hopefully we can spend more time at a later time discuss secular while you still see that there let me just ask you you know we've had hearings on the monies that we have sent into iraq after a mission was accomplished and soil and we still can't account for nine billion dollars would this new format that you're laying out in your bill be able to tell us from the department of defense to pinnock on how to trace this money and where possible it will go looking for results i don't know if we got we sell right exactly if you look at the bill pattern the federal pattern and i think it's twenty seven  that is that's that's part of it's one of my attachments there i just gave you an example you can put the military the same thing program military program military be program military  the amounts of billions of dollars we would put it go back to the that one right here where you see the goals you say we're going to put you a billion dollars we're going to give you a billion dollars from the billion dollars we want you to meet this particular go and here are the measures that we want you to meet and if you don't meet those measures and if there's a variance we want you to come back and tell us why the problem is we've been giving money in tools that will provide is this information and i believe that if you look at this this is just an example imagine if we said here's the money billions of dollars that were sent off to iraq and let's look at reconstruction here is the goal for reconstruction the we're still stuck in a one nine hundred seventy s pre nine hundred seven format and i believe this committee has has the opportunity to change the way we do business  in the federal government we're still setting money some programs we're not going to and here's the example of this is what we're doing is we're just saying program a you get this amount of dollars sure there's been some performance measures that have been done in different programs but they're not assessable in a way to members of congress and i guess the best thing i can summarize is if you look at my attachments look at the one nine hundred seventy s look at the one nine hundred eighty s bill patterns look at the two thousand and six sample what texas is doing and you can use california or you can look look at other states are doing this then look at what the federal government is doing and you will see that we're still stuck in the one nine hundred seventy s pre seventy's for me i really want to thank you for the thought teachers have put in to your proposed legislation because our oversight responsibility has not been need to lie to get the best selves we have to find where our dollars to go on particularly doing the time when we have such great deficits and our debt is growing every day i ask you to look at the statement madam chair from david osborne and i think it summarizes what gets measured gets done if you don't measure results you can fax success from failure and you can see success you probably reward how you lay out that measurement that's correct to get the kind of information you want and i do thank you for your proposal in front of us and to the audience we will go through it and we will have certain questions that we are we're just running out of time and but we will have certain questions we'll want to ask the witnesses and then they can respond in writing and we'll have another hearing so that we can share the information that we get back with the general public thank you so much ok we're now going to turn to the third and final panel and again i will have to ask you to stand ratio right hand as they are coming up and if you will continue to stand first as mrs pixy sherry and she is the acting chief financial officer for the department of homeland security and missionary previously served as a definitely deputy chief financial officer for the united states holocaust memorial museum and as a auditor for the government accountability office and let me send you our condolences on the incident that happened within an area of your responsibility and mr onil spall is the chief financial officer for nasa mr spall has served as the executive vice president and chief financial officer and director of i c x technologies and is executive vice president chief financial officer and director of man tech international corporation and as chairman and founder of all client partners mr brian re is a senior policy analyst and grover herman fellow in federal budget terry affairs for the thomas a road institute for economic policy studies at the heritage foundation and his area of expertise includes federal spending appropriations economic growth agriculture and welfare reform and value standings and the brief for you could be the better thank you thank you very much thank you chairwoman watson ranking member bilbray and members of the subcommittee for the opportunity to testify before you on the results of the department of homeland security fiscal year two thousand and eight financial statement audit i also thank you for an acting the d h s s financial accountability act with the passage of this act launched an ambitious multi year effort to build assurances for internal controls as well as executing corrective actions to improve financial accounting and reporting just received a disclaimer of opinion on its fiscal year two thousand and eight financial statement however for the third consecutive year audit results show we continue to make steadfast progress auditors noted the department's progress in implementing corrective action and improving the quality and reliability of our financial reporting our multiple year corrective action plans lead to reducing the number of material weaknesses from ten to seven to six in the past three years we also reduce the number of disclaimer conditions from ten to six to three in the past three years in addition to secretary financial reporting assurance statement has improved from a statement of notion zero five two a statement that illustrates internal controls are well designed in fiscal year zero eight for fiscal year two thousand and nine the partment schools to provide our first ever assurance that internal controls are effectively working with the exception of those in a few components what it challenges do remain but more and more and more focused area we are partnering with and providing oversight to the coast guard the transportation security administration and fema to address audit disclaimer and material witness conditions we continued to demonstrate progress in performance reporting i'm pleased that our two thousand a performance report was recently ranked fourth highest in the federal government for providing useful information on the public benefit and outcomes just delivers this is particularly noteworthy since two years ago d h us was ranked twenty one out of twenty four we improved the link between resources and outcome oriented performance goals and described our improvement strategies when goals were not met we continue to implement initiatives aimed at increasing financial management competencies and sustaining financial management improvement throughout the department for instance in the released financial management policy manual this online manual provides guidance on budget formulation execution financial management accounting and reporting while introducing standardization throughout  s with a strong focus on internal controls also we issued the third edition of the internal control playbook which outlines the department's strategy and process to eliminate internal control weaknesses and build strong management the most important part of building our core financial management competencies is strengthening and training our workforce we are in our fourth series of the c f o mentorship program for mid level managers to help create a pipeline of strong candidates for senior financial management leadership roles that additionally nearly four hundred newly hired employees from across the country have attended common financial management training they learn about the different missions within the department our core financial functions and key financial fine management fundamentals i also sponsor a recurring certification program to professionalize the d h us workforce as we make improvements in our financial reporting and strengthen the skills of our workforce we continue moving forward to consolidate our financial systems this initiative will greatly improve the quality of control over financial data making financial accounting processes more efficient and serve as the foundation for standard business and financial management practices across the department financial management has come a long way and i'm inspired by the extraordinary efforts of our dedicated staff at headquarters and in the components we remain committed to improving financial management continuing our efforts to strengthen internal and to realign business processes for improved effectiveness and efficiency in support of our mission in the american taxpayer i financial information to drive enhanced financial and operational performance with respect to the preparation of the financial state this change in approach began with developing and implementing a new global financial management strategy a comprehensive compliance strategy that focuses on ensuring compliance with generally accepted accounting principles and other financial reporting requirements across the agency this approach begins with identifying the reforms meeting all applicable requirements remains current itself dated on a continuous basis with all applicable governing regulations in accounting staff to support effective c p s implementation and operation nasa has also developed and responsible are also required on a monthly basis backed by rigorous quality control process document documenting that every control activity has been performed at centers monthly says nasa implemented including for example nasa is legacy shuttle and space station related assets comprising the overwhelming portion of the net asset value nineteen of the twenty one point six billion reported last year with the space station this year the agency is focused on mid to rigorous execution using this foundation improving affective operation of its financial systems and processes moving closer to achieving or to deliver these financial statements and ranking member of bel bree good afternoon my name is brian riedl i am the grover herman fellow and federal budget perry affairs at the heritage foundation the views i express here are my own and should not be construed as representing any official position of the heritage foundation the most striking part of the two thousand and eight financial report of the united states government is not the balance sheet showing assets of two trillion dollars dwarfed by liabilities of twelve trillion dollars rather it is a statement of social insurance which show forty three trillion dollars in excess future expenditures over future revenues for social security and medicare indeed the statement of the comptroller general notes the need for the nation's leaders to quote turn their attention to the long term challenges addressing the federal government's large and growing structural deficits and quote and he also warns that quote the federal government is on an unsustainable long term fiscal path and quote as a member of the bipartisan fiscal wake up tour that consists of representatives of the concord coalition heritage foundation and brookings institution as well as former united states com pro or general david walker i have spoken to thousands of would crease federal spending to a peace time record of twenty four and a half percent of g d p by twenty one team and that's not even counting the health care plan because tax revenues will not keep up with the spending growth the president's budget would add nine trillion dollar debt over the next decade it would double the national debt to eighty two percent of g d p by steeply increasing spending and digging the nation deeper into debt the nation would have less financial flexibility and fewer resources to deal with that forty three trillion dollars shortfall that social security and medicare face the basic entitlement challenge is as follows the first of seventy seven million baby boomers have already begun retiring combined with longer life span these requirements drive down the ratio of workers supporting each retirees in one hundred sixty five workers pay the benefits of each retiree today three workers pay the benefits of each retiree and by twenty thirty that ratio will be two to one now what does a two to one worker to retiree ratio really mean imagine a boy and a girl born today in two thousand and nine and twenty thirty they get married and start their own family this young couple just starting out will have to support themselves their children and the social security and medicare benefits of their very own retirees every married couple will have that burden the costs will be enormous especially given the in health care costs that plagues medicare and don't forget the baby boomers long term care expenses will raise medicaid costs up as well overall the combined cost of social security medicare and medicaid is projected to rise by ten percent of p from eight point four percent of g d p to eighteen point four percent of g d p by two thousand and fifty there's really not a lot of options here the first option is to raise taxes but if you raise taxes to close that ten percent of p gap that we the the equivalent today of raising taxes by twelve thousand dollars per household that what ten percent of g d p would feel like according to the congressional budget office the middle class to be pushed into a sixty three percent income tax bracket and the wealthy into an eighty eight percent income tax bracket and even that assumes that health care costs flow down even allowing the two thousand and one and two thousand and three tax cuts to expire even including all of those for the middle class or for  lower income individuals would close just one tenth of the long term debt ok so my second option would be to finance these entitlements by cutting other programs surely there's a lot of waste in the federal budget to eliminate but in order to make room for the big three entitlements every program but defense would have to be eliminated by twenty thirty and by twenty forty nine defense would have to be eliminated to at that point a hundred percent of the federal budget would have to go to social security medicare medicaid and net interest the third option simply running budget deficits is no better borrowing an additional ten percentage e d p would be like today borrowing an additional one point four trillion dollars every year that would drive national unseen in history and create a vicious circle of rising interest rates and debt resulting in economic collapse the only real option is to reform social security medicare and medicaid and entitlement reform commission such as the safe commission by propose congressman jim cooper and frank wolf could design sustainable and high limit reforms and allow congress to vote up or down on that package now some have asked why congress should worry about the long term problems now well the big three  ts already consume forty two percent of all federal spending but more importantly every year of the latest raises the final reform cost by a trillion dollars additionally some people have said that anyone over age fifty be exempt from entitlement reforms but every year four million baby boomers cross that threshold and by twenty nineteen all baby boomers will be fifty five so at that point your only choice would be to pull the rug out from those over age fifty five nor does the social security trust fund reduce these long term obligations either yes the social security trust fund life we guarantee is that benefits will be paid through twenty thirty seven but without any actual economic assets in the trust fund the painful tax increases and spending cuts i described will need to begin in twenty sixteen when the social security program falls in the deficit the trust fund does not reduce the future burden on taxpayers by a nickel in conclusion the challenge of financing retirement benefits is perhaps the greatest economic challenge of our era unless lawmakers promptly reform social security medicare and medicaid america faces a future of soaring taxes and government spending that will cause poor economic performance and lower living standards the question to you i would like not only responses to those questions but recommendations if we have to reform the entitlement programs the top three where does that leave the safety net for society so i'd like you to let us know what in your investigation and research let us know what you would recommend as a great question and i'll be happy to play and i'd like to call on mr bil high ranking member and let me just say as a former mayor and county chairman let's also forget not forget about the fact the federal government thinks of ourselves in isolation but then you have the other branch the other separation or second segments of the frontline service which is the the county city in the states and the impact there because we're not you're looking at us the resources of forty percent of the federal government but when we get into this crisis is a very real possibility that may want to make a priority decision to basically say the federal government needs to absorb all of the government funds that are generated in this country and supersede local and community funding and does the american people want to see now all our funding and power centralized in the federal system and literally bleed the local and community systems dry of any money because there's only so much capital in their way to totally ignore the fact of the eventual impact on the the local communities  and decide is medicare more important than having sewer service is there you know is so security more important than having a firefighter and those are legitimate arguments that we forget about that the great separations of power in this country are not between the three branches of the federal government but actually between the city county and state and the feds and that was other segments are going to be impacted somewhere down the line on a revenue source that we could tap into but at what cost thank you very much  you so much and i think the audience is for being here with us and for your patience and i will now declare the meeting th