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76–805 PDF 2002

S. Hrg. 107–211

NOMINATION OF MARK W. EVERSON

HEARING

BEFORE THE

COMMITTEE ON

GOVERNMENTAL AFFAIRS

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

ON THE

NOMINATION OF MARK W. EVERSON TO BE CONTROLLER, OFFICE OF

FEDERAL FINANCIAL MANAGEMENT, OFFICE OF MANAGEMENT AND

BUDGET

OCTOBER 11, 2001

Printed for the use of the Committee on Governmental Affairs

(

(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS

JOSEPH I. LIEBERMAN, Connecticut, Chairman

CARL LEVIN, Michigan

DANIEL K. AKAKA, Hawaii

RICHARD J. DURBIN, Illinois

ROBERT G. TORRICELLI, New Jersey

MAX CLELAND, Georgia

THOMAS R. CARPER, Delaware

JEAN CARNAHAN, Missouri

MARK DAYTON, Minnesota

FRED THOMPSON, Tennessee

TED STEVENS, Alaska

SUSAN M. COLLINS, Maine

GEORGE V. VOINOVICH, Ohio

PETE V. DOMENICI, New Mexico

THAD COCHRAN, Mississippi

ROBERT F. BENNETT, Utah

JIM BUNNING, Kentucky

JOYCE A. RECHTSCHAFFEN, Staff Director and Counsel

SUSAN E. PROPPER, Counsel

JASON M. YANUSSI, Professional Staff Member

HANNAH S. SISTARE, Minority Staff Director and Counsel

ROBERT J. SHEA, Minority Counsel

JOHANNA L. HARDY, Minority Counsel

DARLA D. CASSELL, Chief Clerk

(III)

C O N T E N T S

Opening statements: Page

Senator Lieberman ........................................................................................... 1

Senator Thompson ............................................................................................ 2

Senator Bunning ............................................................................................... 3

WITNESSES

THURSDAY, OCTOBER 11, 2001

Mark W. Everson, to be Controller, Office of Federal Financial Management,

Office of Management and Budget ..................................................................... 4

Biographical and financial information .......................................................... 11

Pre-hearing questions and responses .............................................................. 18

(1)

NOMINATION OF MARK W. EVERSON TO BE

CONTROLLER, OFFICE OF FEDERAL FINANCIAL MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET

THURSDAY, OCTOBER 11, 2001

U.S. SENATE,

COMMITTEE ON GOVERNMENTAL AFFAIRS,

Washington, DC.

The Committee met, pursuant to notice, at 9:35 a.m., in SD–342,

Dirksen Senate Office Building, Hon. Joseph I. Lieberman, Chairman of the Committee, presiding.

Present: Senators Lieberman, Thompson, and Bunning.

OPENING STATEMENT OF SENATOR LIEBERMAN

Chairman LIEBERMAN. Good morning. Welcome to the hearing

today. We are considering your nomination, Mr. Everson, to be the

Controller of the Office of Federal Financial Management at the

OMB, which, as you know, means you would be overseeing the financial management of all agencies in the executive branch. This

is a tall order under any circumstance, but I do want to just take

a moment to say that I think the next controller has an additional

set of challenges, because the current financial—good morning,

Senator Thompson.

Senator THOMPSON. Good morning.

Chairman LIEBERMAN [continuing]. Current financial condition of

many agencies within the Federal Government is unacceptable because of inadequate financial systems and controls. The GAO, as

you probably know, has identified financial management at the Department of Defense, the Forest Service, the Federal Aviation Administration and the IRS as high-risk because of the significant

systemic problems within those agencies.

More specifically, many agencies are using outdated systems that

cannot provide the kind of timely and accurate information federal

managers need today for daily decision-making. Efforts are underway, I know, to upgrade those systems, but this is a major undertaking that involves a substantial commitment of time. The fact is

that the financial systems in place at many agencies do not comply

with the most basic accounting standards.

Again, progress has been made and is being made, but some

major agencies still cannot produce an auditable financial statement, showing the agency’s financial position at the end of the

year, and those flaws naturally have a ripple effect. The ineffective

systems at many agencies prevent them from tracking and reportVerDate 11-MAY-2000 08:36 Mar 08, 2002 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 76805.TXT SAFFAIRS PsN: SAFFAIRS
2

ing progress on performance goals under the Government Performance and Results Act. Accurate and reliable performance data, of

course, are basic to making proper decisions about which programs

are meeting the objectives that are set down for them.

In some cases, the damage is actually even more costly. The

Committee has been particularly concerned about improper payments that agencies estimate that they have made in recent years,

which caused a major loss of funds that the government should and

could otherwise be using for certainly better purposes. So we need

real strong leadership within the controller’s office to enforce financial accounting standards throughout the executive branch to supervise the implementation of new systems and to guide agencies

in tracking and reporting their assets and obligations. The President’s management agenda places a high priority on improving the

government’s financial performance, and hopefully this will be incentive for significant improvements in this area.

Mr. Everson, I have reviewed your background, which is impressive. I have reviewed your responses to the Committee’s pre-hearing questions, and I appreciate your thoughtfulness. I know you

have had a lot of experience managing the finances of two major

corporations, which will help you as you come into the Federal Government, but these are different and important challenges that will

test your skills. Having seen most significantly in your background

that you are a graduate of Yale University, I know that you will

meet every challenge that you face, and I welcome you to the Committee this morning. Your nomination is certainly on track, and I

look forward to working with you in the coming years.

Senator Thompson.

OPENING STATEMENT OF SENATOR THOMPSON

Senator THOMPSON. Yes, thank you, Mr. Chairman. This is a

very important position, as we all know, and I appreciate your

scheduling this hearing today so that we can get Mr. Everson in

place. Recently, the General Accounting Office released a report required under the Federal Financial Management Improvement Act

that detailed the poor state of the Nation’s financial management

systems. In that report the GAO said: ‘‘Most agencies’ financial

management systems are unable to routinely produce timely, reliable and useful information. Having such financial information is

the goal of the Federal Financial Managers Improvement Act and

the Chief Financial Officers Act. Agency managers and other decision-makers need this information for managing day-to-day operations effectively, efficiently and economically, measuring program

performance, executing the budget, maintaining accountability and

preparing financial statements.’’

Unfortunately, we just seem to be unable to do it. We have been

trying to get the Nation’s financial management cleaned up for

many years now, and progress has been very slow, to say the least.

There has been some progress. Although few agencies have systems

in place that can routinely provide reliable financial information,

many more are able to produce auditable financial statements even

if it is 6 months after the end of the year.

Last year, 18 of 24 Federal agencies received clean opinions on

their financial statements. Next year, we trust we will see even

3

greater progress. The person we will be looking to, to make that

happen, is the Nation’s Controller, the director of the Office of Federal Financial Management. The President has nominated Mark

Everson for this position, and after knowing him only briefly I

think the President has made a very wise choice.

Mr. Everson has a master’s degree in accounting from New York

University Business School, and a bachelor’s degree from Yale. He

has 25 years of experience in both business and government, holding positions of leadership at Arthur Andersen, the Department of

Justice, the United States Information Agency, the American National Can Company, and most recently with Sky Chef International.

Mr. Chairman, Mr. Everson has more experience in financial

management than we have had in the Office of Federal Financial

Management for many years, and he will need every bit of that experience to keep up the momentum in improving the government’s

financial management. Let me just say that we cannot afford to

lose the momentum that we have gained in improving Federal financial management because of the current crisis. Agencies, especially those like the Department of Defense and State, need to

know now more than ever just how much money they have, where

the assets are and whether they are getting what they paid for.

We are going to have billions and billions of dollars flowing

around this town, in addition to what we normally have, and it is

going to be extremely important that we have the financial management systems in place to know that taxpayers know that this

money is not being wasted. So I support Mr. Everson’s nomination

without reservation and look forward to working with him as we

make progress on this front in the years ahead.

Thank you, Mr. Chairman.

Chairman LIEBERMAN. Thank you, Senator Thompson.

Senator Bunning.

OPENING STATEMENT OF SENATOR BUNNING

Senator BUNNING. Thank you, Mr. Chairman. I recently had the

opportunity and privilege to meet with Mr. Everson in my office

last week. I thought our meeting went quite well.

The Office of Federal Financial Management is the Executive

Branch’s central office for developing financial management policy

for the Federal Government. The office is responsible for several

key functions, including financial management planning, financial

management systems, accounting integrity and accountability. Mr.

Everson has a varied background, working in both the public and

private sectors, as my two colleagues have already said, along with

working overseas. I look forward to hearing his perspective on serving as Controller at the Office of Federal Financial Management

and the challenges he expects to face.

My advice to Mr. Everson, whether you like it or not, it is as to

all those who testify and serve, please always tell us the truth and

be brutally honest with us no matter what. Without the truth there

is no trust, and without trust there is no point in any of this.

I thank you, Mr. Chairman.

Chairman LIEBERMAN. Thanks, Senator Bunning.

4

1The biographical and financial information appears in the Appendix on page 11.

2Pre-hearing questions and responses from Mr. Everson appear in the Appendix on page 18.

For the record, Mr. Everson has submitted responses to biographical and financial questionnaires, has answered pre-hearing

questions submitted by the Committee and additional questions

from individual Senators, and has had his financial statement reviewed by the Office of Government Ethics. Without objection, this

information will be made part of the hearing record, with the exception of the financial data, which is on file and available for inspection in the Committee’s offices. In addition, the FBI file has

been reviewed by Senator Thompson’s and our staff, pursuant to

Committee rules.

Chairman LIEBERMAN. Mr. Everson, before we proceed, I would

like to give you an opportunity to introduce any family members

that may be in the audience this morning.

Mr. EVERSON. Yes, sir. I would like to introduce my wife, Nanette, and as you indicated, a fellow Yale graduate. She was a little

modest when you asked her what she does. In addition to being—

right now—a full-time mom, she is an attorney and was working

until we came up here from Dallas. I would point out that, while

I just sort of got through Yale, she was phi beta kappa.

Chairman LIEBERMAN. Hear. Hear. It was obvious to me when I

met her. [Laughter.]

Mr. EVERSON. In addition, really we have three children. Our

first is a foster daughter, a Cambodian refugee who came into our

lives when we were—when I was with INS, and actually her family

came from—obviously, from the camps in Thailand, after they fled

Cambodia, and she lost her dad to Pol Pot. I became her dad, and

Nanette a second mom. She cannot be with us today. She is married and has her own children now in Illinois. Our son, Leonard,

is off in school. He goes to boarding school in Scotland. So subbing

for them is Emma, who is a sixth grader at St. Agnes in Arlington.

Chairman LIEBERMAN. Great. Welcome to both of you. Thank you

for being here. Thank you for supporting your husband and dad.

Mr. Everson, our Committee rules require that all witnesses at

nomination hearings give their testimony under oath, so would you

please rise and raise your right hand? Do you solemnly swear to

tell the truth, the whole truth and nothing but the truth, so help

you God?

Mr. EVERSON. I do.

Chairman LIEBERMAN. Thank you very much. Please be seated.

If you have a statement, now would be the time to make it.

TESTIMONY OF MARK W. EVERSON,1 TO BE CONTROLLER, OFFICE OF FEDERAL FINANCIAL MANAGEMENT, OFFICE OF

MANAGEMENT AND BUDGET

Mr. EVERSON. Yes, I do. It is brief. Good morning, Mr. Chairman,

Senator Thompson, Senator Bunning. As you know, my name is

Mark Everson and I am the President’s nominee to become the

Controller of the Office of Federal Financial Management within

OMB. The Chief Financial Officers Act of 1990 is definitive in vesting lead responsibility for federal financial management in one entity. The sphere of influence of the Office of Federal Financial ManVerDate 11-MAY-2000 08:36 Mar 08, 2002 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 76805.TXT SAFFAIRS PsN: SAFFAIRS
5

agement, and of the controller who heads it, is limited to financial

management, but extends to all its elements: Human, systems,

processes and policies. This portfolio is significant in its own right,

but it is also a central component of the overall management responsibilities of OMB.

I believe that in order to function efficiently and to deliver desired results, an organization must be well managed in all regards.

Strong management, including sound financial management, is a

sine qua non for sustained achievement. This is as true in government as in the private sector, and it is why improved government

management must continue to be an area of focus even and perhaps especially now, when the stakes of an effective government

are so high.

When Mitch Daniels raised with me some months ago the possibility of joining his team at OMB, I, of course, in no way imagined

the extraordinary events that were fast approaching. Let me close

by saying that I believe it is always an honor to serve in government. However, I think it is a distinct privilege to be nominated

by the President and to be considered by the Senate to serve at this

time in our Nation’s history. If confirmed, relying in no small measure upon the support of my wife, Nanette, and my family, I will

do my utmost to successfully meet the responsibilities of the Office

of Controller.

Thank you.

Chairman LIEBERMAN. Thanks, Mr. Everson, for an excellent

statement. I am going to start by asking you certain questions that

we ask of all nominees. First, is there anything you are aware of

in your background which might present a conflict of interest with

the duties of the office to which you have been nominated?

Mr. EVERSON. No, sir.

Chairman LIEBERMAN. Do you know of anything personal or otherwise which would in any way prevent you from fully and honorably discharging the responsibilities of Controller of OMB?

Mr. EVERSON. No, sir.

Chairman LIEBERMAN. Do you agree to respond to any reasonable summons to appear and testify before any duly-constituted

Committee of Congress if you are confirmed?

Mr. EVERSON. I do.

Chairman LIEBERMAN. Thank you. Let me just ask a couple of

questions. In my brief opening statement I mentioned that the financial management systems in four agencies have been designated as high-risk by GAO because of severe problems they face.

These difficulties are probably most acute at the Department of Defense, given the department’s vast size and resources, but those at

the Forest Service, FAA and IRS are also significant.

I wonder what do you think as you approach the new responsibilities it will take to remove these agencies from the high-risk list,

and what role you see for yourself as controller in bringing that

about?

Mr. EVERSON. Obviously, you have to attack these issues generically, across the government, and set high standards, and then you

do have to work with targeted agencies. The list would go, I would

suggest, beyond the four that you have mentioned, because as you

6

delve into this area, and you mentioned systems particularly, there

are other agencies that have acute problems in those areas.

I think that what OMB has tried to do is to move forward to articulate firmer and clearer standards in the area of systems development. There is something you may be familiar with called the

JFMIP, the Joint Financial Management Improvement Program.

That is a joint operation established by GAO, Treasury, OMB and

OPM. That is a group that has started to set standards for all

these systems, so that the vendors know what they have to meet.

As those newer systems come into operation, I think things will improve.

As to individual agencies, obviously the controller and OMB must

intervene directly with the ones that have the greatest problems.

You can set standards, and I believe in setting a high standard,

and most organizations will attempt to meet those standards. Remedial or repair work requires personal intervention, and I will

have to do that.

Chairman LIEBERMAN. I appreciate the answer. Another issue

that has been of concern to the Committee involves the amount of

improper payments made each year by Federal agencies to beneficiaries, grant recipients or vendors. These can be the result of

fraud or a mistake or mismanagement. GAO reported that for fiscal

year 1999, 12 of the largest agencies in the government estimated

making over $20 billion in improper payments. You may know that

Senator Thompson and I sent letters to these largest agencies and

to their IGs earlier this year, asking them what they were doing

to address this problem.

OMB recently issued guidance to agencies directing them to estimate and report the amount of their improper payments, but did

not specifically offer suggestions on how they should do this. So I

wanted to give you a chance to talk to us just a bit about what you

might do if confirmed as controller to help agencies fill in these

gaps, and if you would consider reporting to Congress on the

amount of improper payments reported by the agencies and the extent to which they are meeting their targets to reduce them, so we

can make incentives here as specific as possible.

Mr. EVERSON. Yes, and, of course, we will report on how we do

in this area. As I think you also know, improved financial management, as you mentioned, is one of the five government-wide objectives that the President has established as part of his management

agenda, and embedded within the improve financial management

initiation is a very clear component to address erroneous payments.

What OMB has done as part of the spring instructions for the preparation of the budget, as you indicated, was to request an estimate

by a series of agencies that cover a total of about $1.2 trillion of

the programmatic funds of the government we asked them to estimate what they believe is a baseline rate on erroneous payments,

to develop plans to attack this, and to basically work with us to get

going on it.

Those submissions are just coming in now. They will be analyzed

by the Office of Federal Financial Management. One of the questions that the Committee directed to me in the pre-hearing process

was, as you just indicated, would you be more specific perhaps

after you have received those responses—of course we will. If we

7

see trends or common problems or more importantly, common solutions, we will issue appropriate guidance. I would suspect that this

also would be a topic of the Chief Financial Officers Council, so

that we can make sure there is a sharing of information and that

what works one place is put into effect somewhere else.

Chairman LIEBERMAN.: Good. Well, we look forward to working

with you on that important matter and being able to support in

any way we can. Thanks.

Senator Thompson.

Senator THOMPSON. Thank you very much, Mr. Chairman. Mr.

Chairman, I think you touched on the major concerns that I have.

This figure you mentioned of $20 billion, as you point out, is just

12 agencies, so we have no idea how large the total figure of improper payments is in the government. But that is really mind-boggling in some respects to know that in relatively few agencies there

are $20 billion of improper payments going out at a time when we

are obviously going to be very concerned about spending our surpluses and whether or not we are going to have a surplus anymore.

Improper payments alone in government might make the difference. I was surprised to learn that we do not even require agencies to make reports as to their improper payments.

Mr. EVERSON. Yes.

Senator THOMPSON. We criticize these agencies for their improper payments, but at least they are reporting it, and they are

not even required to do that, as I understand it. I understand that

the OMB has put into place some methods that hopefully will be

used to better estimate erroneous payment rates, but what about

from a big picture standpoint? Do you think that either OMB or

Congress, through legislation should require all agencies to keep up

with it and make these estimates and determinations as to what

the payments are, as a basis for trying to figure out a way to reduce the numbers?

Mr. EVERSON. Well, Senator, I think that, in essence, that is

what we are moving toward with this request that we made as part

of the 2003 budget submission, and certainly we are not going to

let go of it. We are going to embed that as part of the ongoing reporting. To attack this, though, I would suggest that true progress

will come when you have addressed a lot of the broader issues that

you and your colleagues have already discussed, in terms of systems, overall internal controls.

You cannot attack this area to the exclusion of others. So we will

work to improve the overall controls, and this will be, I would suggest to you, a leading indicator if we are making progress.

Senator THOMPSON. That makes a certain amount of sense. I

guess it is difficult for me to see which is the best way to even

begin to approach it. You could make a lot of progress in terms of

your overall systems, but we would still have billions of dollars

going out the door that should not, and we would still be in a situation where we would not really know how much was being improperly spent. But, along those lines of your systems, one of the things

that, we have been concerned about is, as the Chairman mentioned, the inability for agencies to get clean opinions. We are making some progress on that; 18 of 24 now are able to get clean opinions, but according to the GAO, at least 19 of 24 have in place such

8

poor financial systems that they are unable to provide managers

with information to guide their decision-making.

There is a reason for this, other than to just have a hearing or

an assessment. It is designed to give managers a tool to use and

to see how they are doing. What we are seeing now is that when

we ask them for clean financial statements, they come up with

them. I guess they figure that we will never be happy, but we are

learning that even though more and more are coming up with clean

financial statements, they are doing it by heroic efforts at the end

of the year crunching a bunch of numbers after the fact. They are

still late many times, and they finally come up with a so-called

clean statement. But it has provided them with no management

tool during that year to use as they try to manage these agencies.

Is that a correct assessment? How do we move from focusing on

just getting clean opinions to ensuring that agencies have systems

in place that a manager can use?

Mr. EVERSON. I agree entirely with that assessment, and I know

that Director Daniels does, as well, and the Comptroller General.

We have had discussions on just this very challenge. I think what

has happened over the last 4 years, as the government has issued

statements and they have been audited by GAO, is that a great

deal of progress has been made through that understandable flag

of a go, no-go audit. But, as you point out, the audit timing is

much-delayed. It is five or 6 months after the fact.

The only way you can get to where you have useful, timely information that supports decision-making is if you reform the business

processes and the management. Our answer to that, if you will, is

to set a more ambitious standard for accelerating those dates of

when reporting is due, putting in interim reporting and, if you will,

forcing the agencies to address those underlying business process

and systems issues, because you will not meet accelerated deadlines through heroic efforts. You will have to reform the way you

work, and when you reform the way you work, you will add in performance reporting and just what you are talking about, Senator,

in terms of supporting the policy makers.

Senator THOMPSON. Thank you very much. I have talked to you

and others at OMB about this, and I must say I am greatly encouraged by what I hear. It seems to me that it gets down to a pretty

simple formula, and that is leadership, accountability and flexibility. You have to have somebody at the top saying this is important, and you have to have some response when it does not work

and people do not get the job done, and within that, you have to

have the ability to do what you need to do in order to get the job

done. You need to come to us and tell us what you need in terms

of the flexibility to accomplish that. But I think that your thinking

is on the right track on all those things, and I appreciate it. Thank

you very much.

Mr. EVERSON. Thank you.

Chairman LIEBERMAN. Thanks, Senator Thompson. Senator

Bunning.

Senator BUNNING. Thank you. I do not have a lot of questions.

It seems to me if my Senate office or Senator Thompson’s or Senator Lieberman’s offices get a budget, X amount of dollars to spend

over fiscal year 2001, 2002, to keep track of that money is not comVerDate 11-MAY-2000 08:36 Mar 08, 2002 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 76805.TXT SAFFAIRS PsN: SAFFAIRS
9

plicated. If we can figure out how much we can pay our staffs and

how many dollars we can use for travel, it seems to me that each

agency of the Federal Government ought to be able to do that.

It is mind-boggling to me that—we are just talking about 1999

now—that 12 agencies cannot account for overpayments of $20 billion. What was that in the year 2000? What was that in the year

2001? If you come back to me in the year 2002 or 2003 and say,

‘‘Oh, by the way, we cannot account for $40 billion,’’ I am going to

be very upset, along with, I am sure, the Chairman and the ranking member. So I would suggest that all the systems and all the

things that you can control, and know up front so that the managers of those agencies know exactly what they are dealing with,

that seems to me the most important thing that we could do as a

Congress, and your job as the chief financial officer of OMB. So I

am going to hold your feet to the fire.

Mr. EVERSON. I welcome that, sir.

Senator BUNNING. If you come back and tell us that, ‘‘By the

way, in 2000 and 2001, it not only was 20, but it went to 30 and

40,’’ and now, when your watch comes, I want to see that go the

other way and shrink. You have the wherewithal, you have the

knowledge, you have the background, education, and everything

you need to do it. It is just a question of making sure that you do

it, and I wish you godspeed.

Mr. EVERSON. Thank you, sir.

Senator BUNNING. Thank you.

Chairman LIEBERMAN. Thanks, Senator Bunning.

Mr. Everson, I do not know how well you know Senator Bunning.

He is a very good Senator. He is a very good man. In my experience with him, I would say he is a man you do not want to upset,

and I am sure you will try your best not to. [Laughter.]

Senator THOMPSON. Batters in the National League came to that

conclusion.

Chairman LIEBERMAN. Right.

Thanks so much for your testimony. Your daughter has one of

the most captivating, adorable smiles that I have seen in recent

memory, so she will carry you through a lot of the tough days in

this job.

This completes the hearing. The record is going to remain open

for the rest of today for the submission of written questions for the

nominee and any written statements for the record. We will try

real hard to try to move your nomination out of Committee and to

the Senate floor and through confirmation as soon as we possibly

can. I thank you very much.

The Committee stands in recess.

[Whereupon, at 10:05 a.m., the Committee was adjourned.]

(11)

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