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20–879 PDF 2005

IMPROVING INTERNAL CONTROLS: A REVIEW OF

CHANGES TO OMB CIRCULAR A–123

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

FINANCE, AND ACCOUNTABILITY

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

FEBRUARY 16, 2005

Serial No. 109–16

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

CHRISTOPHER SHAYS, Connecticut

DAN BURTON, Indiana

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

CANDICE S. MILLER, Michigan

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

GINNY BROWN-WAITE, Florida

JON C. PORTER, Nevada

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

CHARLES W. DENT, Pennsylvania

VIRGINIA FOXX, North Carolina

——— ———

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. DUTCH RUPPERSBERGER, Maryland

BRIAN HIGGINS, New York

ELEANOR HOLMES NORTON, District of

Columbia

———

BERNARD SANDERS, Vermont

(Independent)

MELISSA WOJCIAK, Staff Director

DAVID MARIN, Deputy Staff Director

ROB BORDEN, Parliamentarian

TERESA AUSTIN, Chief Clerk

PHIL BARNETT, Minority Chief of Staff/Chief Counsel

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, FINANCE, AND ACCOUNTABILITY

TODD RUSSELL PLATTS, Pennsylvania, Chairman

VIRGINIA FOXX, North Carolina

TOM DAVIS, Virginia

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

JOHN J. DUNCAN, JR., Tennessee

EDOLPHUS TOWNS, New York

MAJOR R. OWENS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

EX OFFICIO

HENRY A. WAXMAN, CALIFORNIA

MIKE HETTINGER, Staff Director

TABETHA MUELLER, Professional Staff Member

NATHANIEL BERRY, Clerk

ADAM BORDES, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on February 16, 2005 ....................................................................... 1

Statement of:

Higgins, John P., Jr., Inspector General of the Department of Education .. 29

Steinhoff, Jeffrey C., Managing Director, Financial Management and Assurance, U.S. Government Accountability Office ....................................... 38

Wolff, Otto J., Chief Financial Officer and Assistant Secretary for Administration, U.S. Department of Commerce; Christopher B. Burnham,

Acting Under Secretary for Management, Assistant Secretary for Resource Management and Chief Financial Officer, U.S. Department of

State; John P. Higgins, Jr., Inspector General, U.S. Department of

Education; and Jeffrey C. Steinhoff, Managing Director of Financial

Management and Assurance, U.S. Government Accountability Office .... 4

Burnham, Christopher B. ......................................................................... 12

Wolff, Otto J. ............................................................................................. 4

Letters, statements, etc., submitted for the record by:

Burnham, Christopher B., Acting Under Secretary for Management, Assistant Secretary for Resource Management and Chief Financial Officer, U.S. Department of State, prepared statement of .............................. 14

Higgins, John P., Jr., Inspector General of the Department of Education,

prepared statement of ................................................................................... 32

Steinhoff, Jeffrey C., Managing Director, Financial Management and Assurance, U.S. Government Accountability Office, prepared statement

of ..................................................................................................................... 41

Wolff, Otto J., Chief Financial Officer and Assistant Secretary for Administration, U.S. Department of Commerce, prepared statement of ............ 7

(1)

IMPROVING INTERNAL CONTROLS: A REVIEW

OF CHANGES TO OMB CIRCULAR A–123

WEDNESDAY, FEBRUARY 16, 2005

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, FINANCE, AND ACCOUNTABILITY, COMMITTEE ON GOVERNMENT REFORM, Washington, DC.

The subcommittee met, pursuant to notice, at 2 p.m., in room

2247, Rayburn House Office Building, Hon. Todd Russell Platts

(chairman of the committee) presiding.

Present: Representatives Platts, Foxx, Towns, and Maloney.

Staff present: Mike Hettinger, staff director; Dan Daly, counsel;

Tabetha Mueller, professional staff member; Jessica Friedman, legislative assistant; Nathaniel Berry, clerk; Adam Bordes, minority

professional staff member; and Jean Gosa, minority assistant clerk.

Mr. PLATTS. A quorum being present, this hearing of the Government Reform Subcommittee on Government Management, Finance

and Accountability will come to order.

When accounting scandals shook the U.S. economy earlier this

decade, Congress responded by placing stringent new accounting

requirements on publicly traded companies. The legislation known

as Sarbanes-Oxley put responsibility for financial information

squarely in the hands of managers. To ensure that investors could

rely on financial reports, Sarbanes-Oxley required companies to

document the safeguards they have in place to prevent errors or

fraud, commonly known as internal controls.

Internal controls are the checks and balances that help managers

detect and prevent problems. They can be as simple as computer

passwords or having a manager sign off on a time sheet or as complex as installing software to track spending and detect spikes that

signal trouble. Internal controls provide a foundation for accountability, and while they are important in the private sector, sound

internal controls are imperative in Government. Public trust depends on nothing less.

Glaring internal control problems in the Federal Government

have made headlines recently from the Office of Management and

Budget’s reporting of $45 billion in mistaken payments throughout

Government to soldiers being paid incorrectly while serving in

harm’s way. When audits revealed egregious internal control problems at the Department of Homeland Security, this subcommittee

proposed and enacted legislation to require the Department to take

responsibility for improving internal controls and to have an auditor attest to those improvements.

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In light of this legislation and the standards for the private sector under Sarbanes-Oxley, OMB reexamined controls for Federal

agencies. I want to applaud this administration for this forward

looking action and for employing a collaborative approach using information gleaned from a committee of agency chief financial officers and inspector generals and working with the Government Accountability Office.

As a result of this collaboration, the new guidance was issued in

December of last year. Like Sarbanes-Oxley and the requirements

at DHS, the revised guidance puts responsibility on agency management and clearly defines the steps that need to be taken and

documented to ensure that internal controls are sound. This hearing will look at what prompted these changes and how they will

impact agency management.

We are pleased to have a distinguished panel of witnesses with

us here today who have played an instrumental role in developing

these new guidelines. We have the Honorable Otto Wolff, CFO and

Assistant Secretary for Administration at the Department of Commerce and a member of the CFO Council; the Honorable Chris

Burnham, Acting Under Secretary for Management, Assistant Secretary for Resource Management and CFO at the U.S. Department

of State and a member of the CFO Council; and the Honorable

Jack Higgins, Inspector General at the U.S. Department of Education and a member of the President’s Council on Integrity and

Efficiency.

Mr. Jeff Steinhoff, Managing Director of Financial Management

and Assurance at the U.S. Government Accountability Office, also

joins these administration witnesses. We are grateful for your appearance here today and know you’ve done a lot of legwork leading

up to this hearing and look forward to hearing your testimonies as

well.

I would now like to recognize our ranking member, the gentleman from New York, Mr. Towns, for the purpose of an opening

statement.

Mr. TOWNS. Thank you very much, Mr. Chairman. Let me thank

you for holding this hearing on OMB’s recent amendments to its

guidance on agency internal controls.

Following last week’s insightful hearing on the state of our Government’s financial position, I believe it is timely for our subcommittee to address the issue of internal controls as they relate

to improving efficiency and accountability throughout the Federal

Government. The need for adequate internal controls in governing

the financial and operational components of our agencies has never

been greater as the burden of both Federal budget deficits and improper payments diminish the success of many programs. Such concepts are not foreign to us, as recent private sector accounting

scandals have forced Congress to reexamine issues of accountability

and transparency in the name of protecting consumers and investors.

From this perspective, it is only logical to pursue policies that

make the Federal Government more accountable to Congress and

taxpayers, just as the private sector must be more accountable to

its shareholders and consumers. Today we are reviewing what appears to be the first step in the process as we hear from our panel

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about recent amendments made to Circular A–123. In conformity

with the Federal Managers Financial Integrity Act, the new guidelines bring clarity to areas of confusion in defining what are effective management practices for assessing internal controls for all

agencies. This will ensure uniformity throughout agencies as they

seek to establish an internal control structure that adequately

meets appropriate levels of risk and program complexity.

In addition, the changes spell out requirements for agencies to

report on and address deficiencies in their internal control structure. This is an improvement over previous practices, and will

allow OMB to require an external opinion on agency internal controls when warranted. Our committee is well familiar with this

practice, thanks to legislation enacted last session that was authored by the chairman of the subcommittee, my good friend, Congressman Platts from Pennsylvania, which required an independent review for internal control practices at the Department of

Homeland Security.

With many agencies now in the process of implementing new financial management systems, I believe these requirements are

timely and necessary. As I have said before, our failure to adequately implement appropriate business practices will have an adverse impact on operations for programs that so many of my constituents depend on for their well-being. Hopefully, the aforementioned changes will ensure that all of our agency programs will be

efficient and effective.

Thanks again, Mr. Chairman, for holding this hearing, and on

that note, I yield back.

Mr. PLATTS. Thank you, Mr. Towns.

We will proceed to our testimonies. If we could ask all of our witnesses to stand and take the oath. Any individuals who will be advising you as part of your testimony today should also stand and

raise their right hand as well.

[Witnesses sworn.]

Mr. PLATTS. Thank you. Please be seated. The clerk will note

that all witnesses affirmed the oath. Again, we appreciate the written testimony you have submitted. As I say to my kids, it is my

homework that I bring home with me in my daily commute, and

it allows me to be better prepared for our good dialog here today.

With your oral testimonies here today, if we can try to stay

roughly in that 8 minute range in summarizing your written statements as best you see fit to do, then we will get into questions. Secretary Wolff, we are going to begin with you, please.

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STATEMENTS OF OTTO J. WOLFF, CHIEF FINANCIAL OFFICER

AND ASSISTANT SECRETARY FOR ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE; CHRISTOPHER B. BURNHAM,

ACTING UNDER SECRETARY FOR MANAGEMENT, ASSISTANT

SECRETARY FOR RESOURCE MANAGEMENT AND CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT OF STATE; JOHN P.

HIGGINS, JR., INSPECTOR GENERAL, U.S. DEPARTMENT OF

EDUCATION; AND JEFFREY C. STEINHOFF, MANAGING DIRECTOR OF FINANCIAL MANAGEMENT AND ASSURANCE,

U.S. GOVERNMENT ACCOUNTABILITY OFFICE

STATEMENT OF OTTO J. WOLFF

Mr. WOLFF. Mr. Chairman, Mr. Towns, thank you for the opportunity to appear before you today to discuss how my colleagues in

the Federal financial management and audit communities have

come together in concert with the Office of Management and Budget to strengthen the internal control requirements over financial reporting within the Federal Government.

As a result of our efforts, we have substantially improved the accountability and oversight of internal controls in all the Federal departments and agencies. These changes were the result of the administration taking a proactive and collaborative approach to improving financial management in the Federal Government and a

direct result of President Bush’s insistence on accountability at all

levels of this administration. They are embodied in the revised

OMB Circular A–123, Management’s Responsibility for Internal

Controls, which was signed in December by OMB Director Bolten.

The revised circular will help managers assure proper controls are

in place, documented and tested.

These changes will also strengthen the existing internal control

assessment process in a cost effective manner. Additionally, these

improvements will further support the goals of the President’s

management agenda by promoting a foundation of good controls

from which timely and reliable financial information can be developed.

We are all too aware of highly publicized corporate failures and

accounting scandals in recent years which reveal the lack of accountability and proper controls over financial reporting in publicly

held companies, prompting the passage of the Sarbanes-Oxley Act

of 2002. This legislation included for the first time ever the requirement that publicly held firms undertake significant efforts to provide assurance on the effectiveness of their financial reporting processes and to obtain audit opinion on internal controls, in addition

to the traditional financial statement audits.

With the passage of Sarbanes-Oxley and the Department of

Homeland Security Financial Accountability Act of 2004, the executive branch took the opportunity of reexamining our A–123 requirements. Linda Springer, back in November 2003, initiated a joint

committee of both the CFOs and the IG community, the PCIE, to

survey Federal agencies and identify differences in how current requirements are being implemented, to review requirements of publicly traded companies as laid out by Sarbanes-Oxley and to report

on how these requirements may or may not apply to the Federal

Government. The joint committee first examined the fundamental

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differences between the public and private sectors. Federal entities

operate in environments steeped in regulation, policies and procedures intended to ensure that all fiscal and budgetary actions are

legal and comply with regulation and standard accounting practice.

Because the goals and motivation of Federal entities differ fundamentally from our private sector counterparts, they are much

less vulnerable to the risk of manipulation of financial reporting to

achieve personal gain. Also, the actions of Federal entities are open

to public scrutiny and subject to multiple levels of oversight by the

Congress, OMB, the Government Accountability Office and the

independent inspectors general.

Unlike the private sector, the actions of the Federal entities are

subject to a myriad of laws and regulations designed specifically to

promote prudence and accountability. The list is long, the FMFIA,

the FISMA, the Inspector General Act, the Chief Financial Officers

Act, the Government Management Reform Act, the FFMIA, Improper Payments Act and others.

At the center of these requirements is the FMFIA, which establishes the overall internal control requirements. The act encompasses controls and programs, operational and administrative areas

and accounting and financial management. It also requires the

agency head to evaluate and report on the controls and financial

systems that protect the integrity of Federal programs.

The joint committee reviewed the existing internal control requirements in A–123, and recommended OMB strengthen its guidance for assessing the effectiveness of internal controls. We developed a revised A–123, which would adopt the standards of the internal controls commonly used by private sector and developed by

the COSO and published in its document. These standards were

adopted previously by the GAO in its Green Book. Key points of

definition of the financial audit were included in its amendments.

As you can see, we did not reinvent the wheel amending A–123, we

adopted private sector standards that were tailored to be more specific and responsive to the Federal environment.

The most significant change to Circular A–123 is the requirement for agency management to follow a more comprehensive and

coordinated approach when assessing the effectiveness of internal

control over financial reporting, and to document its assessment.

Management must identify tests of documents and internal control

effectiveness. A–123 defines the scope of reporting to include financial statements, significant other financial reports and compliance

with laws and regulations that pertain to financial reporting.

The outcome of the assessment process requires a separate assurance statement from management to be included in the agency’s

performance and accountability report on the effectiveness of internal controls and financial reporting. The circular also provides for

OMB to require an agency to have an internal control opinion level

audit if that agency fails to meet expectations regarding correction

of its internal control deficiencies.

The CFO Council plans to develop an implementation guide for

A–123 which will complement the policy document and provide a

more hands-on approach to the assessment of internal controls.

And we will be sponsoring training for our Federal agencies to

meet the new requirements.

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In addition, the internal control improvements are being tracked

through the quarterly scorecard process for improved financial performance initiative of the President’s management agenda. This

initiative emphasizes the need for effective internal control and

getting to a green score on the score card requires that agencies

eliminate all material control weaknesses. Ultimately, the goal is

to assure managers are making more timely and informed decisions on operations and costs at both program and agency levels.

Yet this objective cannot be achieved without a foundation of effective internal controls from which financial information can routinely be generated and used for management decisions. I am

pleased to report that Commerce just attained green status for improved financial performance in the first quarter of the current fiscal year. We are proud of our success and that of our seven other

sister agencies who have also achieved green status.

The efforts involved at Cabinet level agencies to overcome obstacles to obtain clean audit opinions, to integrate financial management systems, and to eliminate material weaknesses cannot be

overstated. With a higher bar now set by A–123 we realize that the

implementation will require a serious and focused effort.

As part of the joint committee’s review, agencies were polled to

better understand the costs associated with conducting internal

control assessments and audits. Unfortunately, the majority of

agencies did not have sufficient experience with the process envisioned in the revised A–123 to be able to estimate the costs with

any degree of certainty. Other agencies who have been performing

the internal controls work for so long lacked solid data on costs because it is hard to identify separately. We will continue to work

with the agencies to identify more specific cost data and we will let

you know.

In closing, I would like to acknowledge the excellent collaboration

and support in addressing this issue on the part of the PCIE, OMB

and the whole CFO community. We received helpful suggestions as

well, sir, from your committee staff and the GAO in our discussions

with them. The approach presented here should be a model for how

we can work together to ensure that Federal programs operate effectively and efficiently as possible. It is incumbent upon all of us

to keep the Federal financial community focused on its stewardship

responsibility.

Thank you again, Mr. Chairman, for the opportunity to appear

before you today. I would of course be happy to answer any questions you may have.

[The prepared statement of Mr. Wolff follows:]

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Mr. PLATTS. Thank you, Secretary Wolff.

Secretary Burnham.

STATEMENT OF CHRISTOPHER B. BURNHAM

Mr. BURNHAM. Mr. Chairman, thank you very much, Mr. Towns.

It’s called editing on the go here, so we don’t repeat too much.

I would request on behalf of all of us that our full written statements might appear in the record, Mr. Chairman.

Mr. PLATTS. Without objection.

Mr. BURNHAM. Thank you.

It is a great honor and opportunity to be here. This is a terribly

important event. Although it is not always looked upon as the sexiest thing within our agencies, particularly at the State Department, nevertheless it is a terribly important aspect of how we run

and conduct ourselves as stewards of the public trust.

I am here today not only as Chief Financial Officer of the State

Department, but also as a member of the CFO Council. The CFO

Council and Department of State fully support the revisions to Circular A–123. We commend this subcommittee for its efforts to promote and strengthen internal controls.

Sarbanes-Oxley was a necessary reaction to the heinous abuses

of certain members of the corporate community and the need to restore broad investor confidence. No less important is the need to

build taxpayer confidence in how their money is spent in Washington. The President’s management agenda is the premier effort to

accomplish this. Circular A–123 is and will be an essential part of

that effort.

Under the direction of OMB in 2003 the CFO Council and the

PCIE formed a joint committee, as my colleague Otto Wolff has

said. The recommendations resulting from this joint effort formed

the basis of the policy changes that we have seen today in A–123.

The CFO Council also plans to work to develop an implementation

and training guide, as my colleague also mentioned.

Mr. Chairman, I believe this Joint committee effort between the

PCIE and the CFO Council is an excellent example of how both

these communities, as well as the IG community, have worked together to advance the public good. We are grateful to our colleagues in the IG community for their professionalism and their

dedication and their help in this effort.

For all Federal agencies implementing the revised Circular, it

provides a valuable opportunity to reassess the effectiveness of our

overall internal control structure. The level of effort required depends on, in large part, the degree to which an agency fully implements the previous version of Circular A–123, which was written

in 1995. Today the implementation of FMFIA varies amongst Federal agencies. Some have rigorous FMFIA programs that allow

their agency heads to provide unqualified annual assurances about

their controls, while others do not. These mixed results will directly

impact the level of effort and resources required to successfully implement the overall internal control requirements of the revised

Circular across the Federal Government.

Some agencies, such as the State Department, will only need to

modify slightly their existing management control programs. Others will need to overhaul their programs, particularly in the docuVerDate 11-MAY-2000 09:44 May 25, 2005 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 D:\DOCS\20879.TXT HGOVREF1 PsN: HGOVREF1
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ment and management control area. It is too soon to reasonably determine the impact across the agencies of implementing Appendix

A. Since the requirement of Appendix A is more rigorous and prescriptive than the preexisting requirements, it is uncertain how

many agencies would meet the new requirement today.

Most agencies, including mine, will need to expand documentation and enhance assessments of internal controls over financial reporting. While we can and will learn from the private sector experience implementing Section 404 of Sarbanes-Oxley, it will take additional time to understand the impact of implementing Appendix A

in the Federal agencies.

If I can, Mr. Chairman, let me just highlight a few things that

State has done as an example of what you have in the executive

branch and how we are dedicated to meeting these goals. Over the

last 4 years, we are down from 10 weaknesses to zero. This gave

the Secretary, in this case Secretary Powell 2 years ago, the first

opportunity to issue a clean assurance statement.

The President’s management agenda score card, something we

all now live and perhaps die by, were double green, in both improved financial management as well as budget and performance

integration. The President’s quality award, the Malcolm Baldridge

Award of Government, and I might also add, a fine Connecticut

resident, the State Department won this year, one of seven agencies to win, recognizing our efforts to integrate the performance assessment rating to the PART system that OMB runs.

As many agencies did, we were able to meet the accelerated reporting timeframe that OMB mandated of November 15th. This

has led to huge reforms within the CFO community and has helped

us and will continue to help us not only to get to green but also

to meet the particulars of Circular A–123.

We have a clean, timely financial opinion for the 8th year in a

row, Mr. Chairman. And finally, our annual report, our performance and accountability report, has won the CEAR award, the Certificate of Excellence in Accountability Reporting for 4 years in a

row. I might also add that compared with financial reports, annual

reports in the private sector, 2 years ago we were fourth in the Nation, and this last year we were first in all of Government.

None of the successes would have been possible without a sound

management control structure that permeates our entire organization. That starts from the top down. I met with Secretary Rice this

morning. She emphasized again her support of this effort and the

effort of what you’re trying to lead, Mr. Chairman. We stand fully

behind this effort and ready to implement in any way necessary,

as I might add, does the CFO community.

With that sir, I will be happy to answer any questions from you

or of the committee.

[The prepared statement of Mr. Burnham follows:]

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Mr. PLATTS. Thank you, Secretary Burnham.

Before we move on, I do want to recognize our vice chairwoman

for the subcommittee, the gentlelady from North Carolina Ms. Foxx

has joined us. Thanks for being with us.

Inspector General Higgins.

STATEMENT OF JOHN P. HIGGINS, JR., INSPECTOR GENERAL

OF THE DEPARTMENT OF EDUCATION

Mr. HIGGINS. Mr. Chairman and members of the subcommittee,

on behalf of the President’s Council on Integrity and Efficiency,

thank you for the opportunity to discuss our perspectives on the

changes made to OMB Circular A–123, Management’s Responsibility for Internal Control. I would also like to thank the committee

for its dedication to the goal of improving financial management

Government-wide, as well as its interest in legislation that would

enhance the independence of the Inspectors General.

The Federal Managers Financial Integrity Act of 1982 and

OMB’s implementing guidance contained in A–123 defined management’s responsibility for internal control in Federal agencies, and

are the center of the existing Federal requirements to improve internal control. Other significant legislation passed since the passage of the Integrity Act continued to highlight the importance of

efficient and effective internal controls.

My testimony will focus on four points: first, the importance of

effective internal controls; second, how the audit community can coordinate its efforts with those of agency management; third, our

perspectives on how the recent changes to A–123 may affect Federal financial management in general; and fourth, our views on future legislative action on Federal financial management.

Internal control is important because it is the first line of defense

in safeguarding assets and preventing and detecting errors and

fraud. Effective internal controls help ensure accountability for resources, achievement of organizational objectives and availability of

improved information for external reporting and internal management decisions.

In short, internal control is a key factor in helping agencies

achieve effective and efficient operations, reliable financial reporting and compliance with applicable laws and regulations. It is a

fundamental and statutory responsibility of management to institute effective internal controls, assess them periodically and make

course corrections as needed. Events of high profile fraud and mismanagement in the private sector and the Federal Government’s

own financial reporting problems have resulted in the increased

focus on management’s responsibility for internal control and dispelled the myth that internal control is but a mere academic exercise or it is of interest only to auditors and accountants.

We must realize, however, that having effective internal control

is not a guarantee that agencies will achieve the objectives of internal control. Effective internal control is designed to provide reasonable, not absolute, assurance of achieving those objectives. Establishment of specific controls is subject to cost benefit considerations, availability of resources to implement the controls, and any

limitations or restrictions imposed by legislation. Effective internal

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controls also may be overridden by management and circumvented

through collusion.

My second point is how the audit community and agency management coordinate on internal control issues. This occurs at both

the agency and Government-wide levels. There is ongoing coordination between agencies and their OIGs that can be helpful to agencies as they work to implement new guidance. Coordination between the audit community and agency management on internal

control matters is inherent in the OIG’s mission. The resolution of

audit fundings provides a primary avenue for OIGs and agency

management to discuss control assessments and propose corrective

actions.

At the Government-wide level, the type of cooperation that occurred between the CFO Council and the PCIE on the revisions to

A–123 is not uncommon. The audit community, under the PCIE,

periodically works with the CFO Council on internal control and

management issues. An example is the joint CFO Council and

PCIE Working Group on Improper Payments. This collaborative

work group’s mission is to facilitate the reduction of improper payments throughout the Federal Government.

These ongoing efforts to address internal control issues are a natural outgrowth of the responsibilities and relationships that OIGs

have with their agencies. While the work of the OIGs can be helpful to agencies as management makes its own assessments, it cannot replace management’s own assessment efforts, which is contemplated under the new guidance. In addition, the OIG must

guard against consulting type arrangements that might impair our

independence for performing future audits.

Third, I would like to turn our attention to major changes in A–

123 and their potential impact on Federal financial management.

In the past, the implementation of the Integrity Act has been inconsistent. The impact of the recent changes to A–123 depends on

how aggressively an agency assessed its controls under the old

guidance and how it will implement the new guidance.

The most significant change is the new requirement for management to assess and document internal control over financial reporting and to provide a corresponding assurance statement annually

that asserts the effectiveness of internal control over financial reporting.

Another significant change is the more specific and strengthened

requirement for management to have a clear, organized strategy

with well-defined documentation processes that contain an audit

trail, verifiable results, and specify document retention periods.

This would enable someone not connected with the procedures to

understand the assessment process. The documentation standard

pertains to all internal control assessments management performs,

not just those related to controls over financial reporting.

Another significant change is OMB’s inclusion of the provision

requiring an opinion on internal controls over financial reporting,

if an agency continually misses agreed upon deadlines for correcting material weaknesses. This was a prudent, cost-effective way to

provide flexibility to address serious, longstanding problems without forcing a one size fits all approach Government-wide.

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In the end, the effectiveness of the Integrity Act depends on

management’s commitment to the intent of the legislation and implementing guidance. If aggressively implemented in a cost-effective manner, the resulting improvements to internal control should

assist Government program managers in achieving desired results

through effective stewardship of public resources.

Finally, let me turn to my fourth point on future legislative action. Effective internal controls and financial management are core

concerns of the PCIE community. We appreciate the opportunity to

communicate with you and the CFO Council on these issues today.

As your subcommittee moves forward to consolidate laws affecting

these areas, we in the IG community welcome the opportunity to

continue the dialog and provide assistance. The reassessment of financial management requirements of Federal agencies should be

conducted in a cautious and deliberate manner, carefully considering the costs and the anticipated benefits of the changes.

This concludes my statement, and I would be happy to answer

any questions.

[The prepared statement of Mr. Higgins follows:]

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Mr. PLATTS. Thank you. Mr. Steinhoff.

STATEMENT OF JEFFREY C. STEINHOFF, MANAGING DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

Mr. STEINHOFF. Mr. Chairman, members of the subcommittee,

I’m very pleased to be here today to talk about internal control and

OMB’s recent changes to Circular A–123. Internal control gets to

the heart of accountability. The subcommittee’s focus on this topic

is very timely and most important. Your continuing leadership has

been a catalyst to the broad accountability improvements we see

across the Government today.

The Congress has long recognized the importance of internal control. Over five decades ago, the Budget and Accounting Act of 1950

placed the responsibility for internal control squarely on the shoulders of management. Management was told that they were responsible for maintaining sound systems of internal control. That was

made very, very clear.

In 1982, when faced with a series of major internal control

breakdowns, the Congress responded with the Federal Managers’

Financial Integrity Act. In many respects, this action by the Congress put us two decades ahead of the private sector, which is now

in some cases grappling for the first time with documenting controls and doing some of the things that Federal agencies have been

doing for many years.

This straightforward, two-page law reaffirms that sound internal

control is a fundamental responsibility of management, and requires that agency heads sign their name on the dotted line each

year as to whether their internal control systems meet the requirements established by the Comptroller General. This is where Circular A–123 comes in. It represents OMB’s guidance for assessing

and reporting on internal control under the act.

In short, we support the recent changes to A–123 and view them

as a welcome step forward. We applaud the efforts of the administration to what I call revitalize this important act.

I want to spend a few minutes highlighting what I think will be

six issues critical to effectively implementing these changes, and in

doing so speaking to some of the lessons learned from the early

years of FMFIA. First, we support OMB’s plans to provide further

implementation guidance. These materials should demand an appropriate rigor to whatever assessment and reporting process management adopts. Management should have flexibility to do what

makes sense in their environment.

But at the same time, whatever guidance is issued, everyone

must make sure that this does not become a paperwork exercise.

In the initial years of FMFIA, agencies almost drowned in paper.

Sometimes it seemed that the assessment and reporting process

had become the end game. That’s why in 1995, OMB relaxed the

assessment and reporting requirements. But the pendulum, I

think, swung too far then and you saw very mixed implementation

of the act. That required the recent recalibration or the changes to

Circular A–123, to put this important accountability component

fully back on the radar screen. So again, as I mentioned before,

this is very, very welcome and very, very timely.

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Second, while the revised Circular focuses on internal control

over financial reporting, which is very appropriate, agencies must

also remain vigilant to the broader range of internal controls that

cover program operations, which are exemplified by the 25 areas on

GAO’s high risk list and are clearly the focus of FMFIA.

Third, there will need to be strong support for managers

throughout an agency, both because of the broader nature of

FMFIA, about which I just spoke, but also because the CFO typically does not control all the systems and processes needed for financial reporting. For example, at DOD about 80 percent of the information needed for financial reporting comes from non-financial

systems, such as logistics, procurement, or personnel systems.

These systems are not under the purview of the Comptroller.

Fourth, assessments will have to be risk-based, and the appropriate balance reached between the costs and benefits of controls.

In focusing on controls, you need to have the right controls at the

right time and the right place, and to guard against both under

and over control. I’m speaking not only about having cost-effective

processes for assessment but assuring cost-effective controls as

well. Because while the Government certainly has serious weaknesses in areas where controls must be strengthened, I think there

are many opportunities to streamline and simplify controls as well.

Fifth, management testing of controls in operation will be important to knowing what is working well and what is not. The auditor

can be a help here; but this job is a basic ongoing management responsibility and should not be just shifted to the auditor. This is

something you’ve got to be doing day to day, every day.

Sixth, management has to be held accountable for doing the right

thing. If there are serious internal control breakdowns and it is determined that management has not been vigilant in implementing

FMFIA and following the concepts that are in the OMB circular,

there should be some consequence for this. People do react and do

act if they see there are incentives and disincentives. I think that

was oftentimes lacking in the past.

Annual oversight hearings, combined with linkage to the appropriations process for agencies that are not doing the job, and are

valuable tools. And I don’t mean that just because an agency has

a weakness, that they are not doing the job. They might have inherited some deeply rooted problems they are still working on. So

one must make both a qualitative and quantitative decision there.

But oversight hearings and the appropriations process are two

ways that Congress can make its voice heard and hold managers

accountable.

Let me touch on one final matter: auditor opinions on internal

control over financial reporting, a concept we have long supported

and continue to support. At GAO we practice what we preach. Not

only do we render opinions of internal control over financial reporting for the entities that we audit, the Bureau of the Public Debt,

IRS, the FDIC, and soon to be SEC, but we also have our independent auditor render an opinion on our internal control over financial reporting.

We believe that the joint GAO-PCIE financial audit manual

holds the key to getting this important job done at a reasonable

cost. We look forward to working with the CFOs and the IGs as

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they conduct the mandated cost benefit study. We want to do this

right, and to roll it out in a way that makes sense. I think it should

not be a matter of ‘‘if’’ this is ultimately done. It’s ‘‘when’’ it’s done

and if it’s done in a way that adds value.

Also as he discussed with you last week in his testimony on the

audit of the 2004 consolidated financial statements of the U.S. Government, the Comptroller General has been discussing this issue

with the JFMIP principals.

Mr. Chairman, this concludes my summary remarks. I want to

again thank you and the members of the subcommittee for your important leadership. I would be pleased to answer any questions

that you may have.

[The prepared statement of Mr. Steinhoff follows:]

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Mr. PLATTS. Thank you, Mr. Steinhoff.

Before we continue, I would like to recognize that we have been

joined by the gentlelady from New York, Mrs. Maloney. Thank you.

We will go right into questions, and we will do 5 minutes or so

for each Member and have various rounds. Mr. Steinhoff, I want

to first comment on your work and sitting here with two CFOs, and

as one who played an integral role in the CFO Act back in 1990,

and now partnering with our CFOs and our IGs in this collaborative effort, what important work it is. Your comment about the

A–123 Circular revision revitalizing FMFIA is, a very important

note. And that’s really what this subcommittee, through our work

on the DHS bill last session and now continuing with our oversight

responsibilities on the Circular, is seeking to do.

Mr. STEINHOFF. Mr. Chairman, I would like to add another point

to that. When you mentioned the CFO Act, at the time of FMFIA,

agencies really weren’t in the same position as they are today. You

didn’t have, for the most part, what I would call professional CFOs.

And you have a much different set of dynamics today. You have

that act and that structure in place to carry a lot of this out.

Mr. PLATTS. That evolution, 50 years ago, when as you referenced the legislation back in 1950 and now through to this day,

combined with everything in between, has put, I believe, the Federal Government in a great position to really work hard at truly

getting its financial house in order. And that’s what each of you is

seeking to do in your individual agencies or in a collaborative effort

as members of the PCIE or CFO Council and with GAO. So we’re

delighted to have your efforts out there and have you here today.

What I thought, maybe for each of our CFOs and IGs, if all or

one of you would want to give, just in laymen’s terms, an example

of an internal control in your department, just to kind of set the

stage for what we are talking about, the kinds of things that

should be occurring to protect taxpayer funds in each of your departments.

Mr. WOLFF. I’d be happy to try and answer that, Mr. Chairman.

I think internal controls come at all levels, at the macro level and

a micro level. Where we start in our department is leadership at

the top. We have a new Secretary of our Department, Carlos

Guittierez, who was previously the head of Kellogg Corp. He

turned that corporation around, and he has been here a week. He

had his first meeting with the senior staff early this weekend. One

of the first things he emphasized was accountability, by his managers sitting around the table, by his senior staff and throughout

the organization.

It starts at the top. It’s our responsibility to inculcate the culture

from the top all the way down to the bottom. Concurrent with that,

I meet with the CFOs in all our bureaus on a monthly basis. So

those are the macro kinds of controls. The other kinds of things,

the reviews you do of travel reports and those kinds of things.

Those would be examples of micro level of internal controls.

Mr. PLATTS. OK. Mr. Burnham.

Mr. BURNHAM. Thank you, Mr. Chairman.

Like the Department of Commerce, we have a new Secretary as

well. I think it is indicative of her, of the emphasis she places on

management, that her first briefing while she was going through

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the confirmation process was from the management bureaus of the

State Department and the Under Secretary for Management. So

clearly, we have top down support and focus on this effort. We have

a best practice that is held up by OMB as a best practice. It’s also

at the macro level. And of course, we know that it flows downhill,

so it has to start there.

We have a management control steering committee. This is the

most important thing that agencies can implement. This is chaired

by me as the Assistant Secretary and Chief Financial Officer. It

also consists of nine other assistant secretaries and the IG as a

non-voting member. This is the group that comes together on a regular basis to determine whether or not we have material weaknesses, reportable conditions. We receive a report from the auditor.

Government is a hybrid. We have no board of directors. You are

our board of directors. But yet, unlike a board of directors, we don’t

have an audit committee. We do have an IG, but we do not have

yet an internal audit capability, but we certainly plan to as part

of our process of seeking and attaining an outside audit of our internal controls.

But it starts there at that senior level committee that is going

to provide the top down guidance, the macro guidance, that’s going

to go all the way down.

Let me just also mention too at the micro level. It’s supervisory

oversight as well, and you mentioned one of these in your example.

But it’s also peer review, peer review in terms of making sure that

it doesn’t always have to be a supervisor, it can also be a colleagues

in a voucher examiner capacity also doing a peer review on someone else. These are the kinds of things we have to do at the State

Department.

Mr. PLATTS. Thank you.

Before I yield to the ranking member, we are going to get into

the A–123 Circular. One aspect of that implementation is with the

CFO Council developing a training program or guidance for the effective implementation. Could you give us an update where that

process is and what kind of timeframe we’re looking at to have that

information, that assistance out there, so that all the departments

and agencies can go forward in a positive way with the new Circular?

Mr. BURNHAM. We are fleshing that out right now, Mr. Chairman. We anticipate that we will be able to, that OMB will be able

to issue guidance on that some time in the spring, that’s as close

as I can get it right now, sir.

And we have established a separate subcommittee of the CFO

Council that is dealing exclusively with this issue, the SarbanesOxley, with A–123 issues.

Mr. PLATTS. When you flesh that out and you have some of your

training programs for your managers, will that training be crossagency, cross-department, to allow that give and take as the CFO

Council does at the senior level, or will it be more within each department or agency?

Mr. BURNHAM. No, as a matter of fact, I also chair the Best Practices of the CFO Council. Just yesterday we had our monthly meeting, in fact, this was brought up. We plan to have a couple of different ways, not only in terms of written guidance, in terms of

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training sessions across agency, inter-agency, not just for CFOs,

but also for our colleagues within the community.

We also are looking at building a panel so that during our regular monthly meeting we would bring a panel of outside experts that

would come in and tell us how they have implemented this in the

corporate world. We are also seeking a panel, sir, of public policy

experts, those of you who visit this on a daily basis. You, perhaps

Congressman Oxley and others, sir, we would love to have come before the Council and give us your impression.

Finally, we are looking to do a retreat. We get bombarded with

e-mails for all kinds of retreats. I’m sure you do as well. We can

go to Harvard, we can go to all these kinds of places for 3, 4, 5

days, they cost thousands of dollars. We’re looking actually to build

possibly in conjunction with the Association of Government Accountants a retreat where from the assistant secretary level and

below we can send numerous people, come there and really have

an intense two, three in-depth training session on this.

Mr. PLATTS. I commend your efforts in chairing the Best Practices subcommittee in that learning, benefiting from each other.

That’s great.

Mr. Towns.

Mr. TOWNS. Thank you very much, Mr. Chairman.

Mr. Steinhoff, let me start with you. How can an agency like

NASA, with the vast majority of the budget being allocated to private contractors and vendors, ever improve their internal control

functions without streamlining their procurement activities? Have

issues concerning the lack of control over property, plant and

equipment been addressed by the agency?

Mr. STEINHOFF. Congressman Towns, those are areas on GAO’s

high risk list. NASA procurement and that whole array you were

just speaking about are high risk areas. NASA faces contract management challenges. They face challenges in the financial management as well. NASA has had problems bringing up financial systems that operate effectively and is trying to grapple with those

now.

You are really putting your finger on some high risk areas, that

really affect the ability of NASA to carry out its mission, because

NASA is dependent on the contract community. And when contracting, procurement, and all that oversight is a high risk area,

it makes it difficult. My understanding is that at one time NASA

built the platforms and all that itself. It had most of the scientific

community. Today, as you stated, they are largely dependent on

contractors. So getting on top of contract management is very, very

important.

Mr. TOWNS. Thank you.

I am not going to be able to stay throughout, so let me ask this

question just in case the chairman doesn’t ask it, let me ask it.

Since the enactment of Chairman Platts’ legislation that requires

an independent opinion of DHS’ internal controls, can you update

us on any progress the agency may have made for developing and

implementing improvements to their internal control structure?

Have the efforts of DHS been hampered because of the distinct nature of its legacy agencies, or are they similar to internal control

deficiencies at other Federal departments?

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Mr. STEINHOFF. I have some knowledge on this. DHS is another

area on our high risk list. Certainly when you put a new department together, 1 day they don’t exist, the next day they do, and

you throw together a bunch of groups, that makes it hard. Many

of those units that were merged into DHS had internal control

issues coming in. Some had serious control problems coming in. So

you had to face having to be up and running from day one without

a clear infrastructure at the department level. Again, our high risk

designation focuses on that problem.

With respect to what they are doing to really address the mandate that the chairman had placed in the DHS bill, I can’t speak

to the progress they have made today, other than the fact that they

had a conference, the Comptroller General spoke at it, and they

made a presentation on their plans for implementing FMFIA and

OMB Circular A–123.

It seemed to me they had a good grasp for how to approach this.

It seemed to me they were involving all the entities, all the activities. They had various levels of steering committees that involved

their various components, and involved people at sufficiently high

levels that things should in fact be achieved. So they seemed earnest, they seemed to want to proceed ahead, they seemed to want

to get on top of their problems.

But they do face what anyone would say are high risk challenges.

It would be again very challenging for them.

Mr. TOWNS. Thank you very much.

Secretary Burnham, it recently came to our attention that billions of dollars allocated by Congress toward the international efforts in Iraq and elsewhere are unaccounted for. While I understand that your agency’s mission is distinct from that of DOD can

you offer us any assurance that our appropriations in support of

our international efforts within the State Department are being

well managed and controlled? Are there any allocation discrepancies within your agency that we should be made aware of?

Mr. BURNHAM. Mr. Towns, thank you for that question. Let me

address just post-turnover, when Ambassador Negroponte arrived

in Baghdad. Let me just say that most of the programs that we are

implementing through foreign assistance programs and through

the Iraqi Relief and Reconstruction Fund are being executed by either DOD, which I will not comment on, although I have complete

faith in, and USAID. USAID has a legacy of exceptional controls

that they place through their comptroller’s office, through independent audits, not just only in Iraq, but in every country where

AID operates. They have very strong oversight programs. I have

complete faith in what AID is doing, particularly under the leadership of Administrator Andrew Natsios.

So, sir, if you would accept my assurance that I have full faith

as an American taxpayer in what we’re doing there and what our

State Department is doing there, and what AID is doing there,

then if you’ll accept that, sir, I’ll leave it at that.

Mr. TOWNS. Thank you very much. We’re going to have to go into

recess, Jim had to leave to vote, and I must leave to go somewhere.

We will just have a 5-minute recess.

[Recess.]

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Mr. PLATTS. We will reconvene the hearing. My apologies for the

delay. Unfortunately, I may need to run out again. We have a

markup in the Education Committee downstairs. I’m getting my

exercise today. Hopefully the next vote will be a little while before

they call it.

I want to continue on a number of issues here. One important

aspect of the A–123 Circular, is not requiring every department

and agency to have an audit opinion on their internal controls, as

we are doing with DHS. We are going to look at the cost benefit

of doing that in a broader sense. As written, it gives OMB that discretion. I would like each of you, if you could touch on what type

of threshold you envision for when OMB should invoke that discretion and require an audit. Is it a dollar amount, is it a persistent

number of years? What in your opinion would warrant an audit

opinion on the internal controls?

Mr. WOLFF. I suppose I should let the Government Accountability Office go first on this one, sir, but I will take a stab at it. It

seems to me you can’t put a dollar threshold on implementing this

provision of A–123. I think it is more a subjective call on how an

agency is doing. Are they properly identifying their internal controls? Are they carrying out the plans that they have set in place

to correct those internal controls, and are they doing it in a timely

way?

I think that is the bottom line on the call at OMB. You can’t just

set a dollar threshold, because what might be material at the Department of Defense may not be in one of our sub-bureaus, for example. There is a great debate going on at each agency right now

about this materiality issue. It is one that is fairly well

parochialized because of the difference in programs across Government.

That’s the short answer, I think, sir, to what you are asking.

Mr. BURNHAM. Mr. Chairman, stewardship has no price. I think

we all agree on that in the room. It doesn’t mean that we spend

a nickel to account for a nickel. But it does mean that we have to

eventually get to a point where we have required audits of our internal controls.

For the State Department, that means $4.5 million is our best

guess at this point, 2 to 3 years. It has to do with testing. It has

to do with documentation. And finally, it has to do with building

what we call a senior review committee, otherwise known in the

outside world as an internal audit capability. We want to be very

respectful of our IG, but the reality is that we should all have an

internal audit capability or internal senior review committee.

When those three things are well on their way, when using the

balance score card, OMB can say that most agencies are at yellow,

if not green for progress, yellow for status, then I think it’s time

for OMB or the Congress to act. I don’t think it’s 2 years, but I

think certainly within the next 5, sir.

Mr. PLATTS. Thank you.

Mr. HIGGINS. I think that one of the things you have to take into

consideration initially is the cost benefit of this opinion. Certainly

it would be a concern from my perspective if you had repeat findings that continued year after year without being corrected.

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But I do think the first thing you have to do is look at the cost

benefit of this, how much it is going to cost you and what you are

going to get out of it.

Mr. STEINHOFF. A couple of thoughts on this, since we have been

pretty vocal for many years on this matter. Not only do we do it,

but really in a strict technical sense, we’re not required to follow

FMFIA. The law doesn’t really apply to GAO per se. But we follow

that law.

I agree with what Mr. Burnham said. I think the agency has to

see where they are on this. I believe it can be done in a cost-effective manner. It should be a by-product of doing a financial audit

using the joint GAO/PCIE Financial Audit Manual, which I think

has taken us to the level that we are doing first rate financial audits. I would put the Federal financial audits ahead of what was

being done in the private sector in terms of quality. It gives the

auditor the ability to render an opinion on controls. We do it right

now by following the GAO/PCIE methodology.

I think you have to look at the value in terms of that, it’s an

independent set of eyes. When agencies were first required to prepare financial statements, there was a lot of the same thinking

that it was not cost effective to audit the financial statements you

know, let’s just send in the reports. So what an audit opinion provides is a second, independent set of eyes. And it is providing an

assurance.

If you look at SSA, which I really think is the role model, they

voluntarily prepared financial statements and had them audited in

the mid-1980’s. They took their lumps long before there was any

glimmer that this thing was ever going to become law. And they

are now one of the first to be up front and get an opinion on controls. I believe this year was the first year they got a clean opinion

on controls because they were able to get past the computer security hurdle, which is a difficult hurdle. That’s a tough hurdle, even

if you get by it once.

SSA should be most proud of the fact that on their own volition

they have had that tone at the top and have pushed ahead, as Mr.

Burnham explained was his goal at State, and have voluntarily

done so. But I think it is really a cost of doing business in Government. I think we can do it in a cost-effective manner. I think it can

add value. If management does have the kind of internal control

program in place that is envisioned in A–123, it makes the auditor’s job a lot easier, because management has tested its controls.

Management has a basis for its assurance, and management can

say to you that yes, we do meet the standard and this is what we

base that on.

If you have an entity that has lots and lots of problems and they

can’t provide that assurance, I could see the auditor’s job being

very easy, they don’t have assurance. It shouldn’t cost the auditor

anything. Take DOD, I could give that opinion in just the time it

would take me to write it up.

So I think moving through in an orderly manner, whether it’s 2,

3, 4, 5 years, it would differ by agency, makes a lot of sense.

Mr. PLATTS. Secretary Burnham, your statement was that you

envision State being at that point in 2 to 3 years, right?

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Mr. BURNHAM. Yes. I would anticipate regardless that we will

have an internal audit of our internal controls within the next 2

to 3 years. I think as I said, it will cost $4 million to $5 million

to get there because of the three steps that we have to take. Then

I think beyond that it’s fairly de minimis. It’s perhaps a 25 to 50

percent increase in our overall independent outside audit, which

right now stands just below $1 million.

Mr. PLATTS. Secretary Wolff.

Mr. WOLFF. May I just add, Mr. Chairman, the comments of my

friends, notwithstanding, I don’t think we can underestimate the

cost. I think we run the risk of underestimating the true costs of

the audit part of this provision. There is no question in my mind

that the exercise is beneficial. No one is arguing that.

But when you do audits of the Social Security Administration’s

internal controls, it is quite different, they are a single focus agency. As important as they are, it’s a single focus. They pay folks

checks.

When you have an agency as diverse as ours, where you’ve got

everything from counting all the people in the country every 10

years with 500,000 employees to running weather satellites to controlling radio spectrum, the costs start going up considerably. That,

coupled with the open source news reports in the Wall Street Journal, the Financial Times and others in which the cost of the additional burden in the private sector ranges anywhere upward to 100

percent over current audit costs, we need to very closely look at

that before we start mandating these things absent additional

funding from the Congress.

Mr. PLATTS. Secretary Wolff, is it fair to say, though, that given

the complexity of Commerce or State or Education that because

you are not single focused, really, as Social Security is, it’s all the

more important that we ensure that your internal controls are up

to the challenge before you? It would make the argument why you

should be doing them because of the complexity of your mission.

Mr. WOLFF. Sir, we are already hard at work documenting our

internal controls. I am not arguing with that. I think it is a very

worthwhile exercise.

As far as annual audit opinions, though, of the management’s assertions and internal controls, it’s quite a different story. I think

we need to look at it very closely. This interagency review that’s

being undertaken jointly with the PCIE and the CFO Council will

hopefully lead us to a satisfactory conclusion.

Mr. PLATTS. Actually, you led into my next question, which was,

under my DHS legislation, the requirement for this joint study,

cost benefit study, I was wondering, between CFOs and our Inspector General where we are in that review, that study, at this point.

Are we still kind of early on?

Mr. WOLFF. Yes, sir, pretty early on.

Mr. PLATTS. OK. Great.

Mr. BURNHAM. Mr. Chairman, can I just add one thing to my colleague, Secretary Wolff? He did bring up a very important point.

From my own legislation days, I know how objectionable we found

it when we had to vote on something which was an unfunded mandate. The importance, of course, of understanding that, finding $4.5

million in the State Department budget, is going to be a difficult

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task. So unless we do have support across the board, both from our

own colleagues as well as from the Congress, it is going to be very

tough to implement this. So we certainly would urge you, sir, to

work with the appropriators in full support.

Mr. PLATTS. That leads nicely into the next question I have, but

I have to run downstairs and put a vote in. I apologize, but if you

are patient, I will be right back and we will continue the dialog.

We stand in recess for a few minutes.

[Recess.]

Mr. PLATTS. The subcommittee will reconvene.

The Federal Managers Financial Integrity Act, having been in

place for 23 years now, an aspect of that was to focus on the internal controls. Is it that what we are requiring now is so much greater that we have this infrastructure buildup, that we need to expend

these dollars to get up to where we can do internal audits or is it

that over those 20 years there wasn’t the level of focus and commitment on internal controls as Congress intended when FMFIA was

passed that we’re now kind of all on the same page, finally, with

the new Circular and really making the investment?

Mr. WOLFF. Sir, I think Mr. Steinhoff touched on that a little bit

in his testimony. Back in the 1980’s, there was a great deal of attention, as you probably know, given to internal controls. It became

as he said, a paper intensive process. The documentation of the

process became an end unto itself.

So the internal control weaknesses remained while the process

was fine. So that’s what led the administration, back in 1995, apparently, to make the judgment that they should back off on the

requirement for the reporting part of it. I think the pendulum, as

he said, did swing too much the other way and now we’re back, and

with a different focus. The documentation requirement is there, but

it’s more an inculcation of the culture rather than a paper process.

So there’s a huge difference.

Mr. PLATTS. Maybe we can explore in that difference, because a

big part of the audit is compliance with all the laws and regulations of each department and agency. Would it be logical to require

your Department’s auditor to get an opinion on compliance with

FMFIA and how would that opinion differ from an actual opinion

on your internal controls?

Mr. STEINHOFF. Yes, FMFIA requires management to have an

evaluation process that meets the guidelines that are established

by OMB. If you are going to give an opinion on that, you would basically say whether or not management was assessing its controls

in some orderly manner that made sense, was in a position to put

its assurance statement together, and had in fact rendered the report that the law required it to render. You wouldn’t, though, be

giving an opinion on the controls themselves. You would be giving

an opinion on the process they followed.

Going back, and I apologize for being back here a minute late.

Mr. PLATTS. I was quick.

Mr. STEINHOFF. You were very quick. In looking at the 1982 act,

you really had such a steep learning curve that agencies didn’t

know what to do. But they had to immediately be doing something.

There was this tremendous cry for a lot of specific guidance. So

what you had was in-depth guidance that would be used by an

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auditor to do a vulnerability assessment or internal control review,

massive training and a lot of very specific things.

It really drove people to just generate lots of paper to be trying

to comply with a very rigorous evaluation process for which they

did not understand the principles undergirding it. You had entities

that might have 30,000 or 40,000 assessable units and each unit

would apply an assessment guide. Then they would roll it up at all

these levels. It just became a blizzard of paper.

My job for about 10 years was overseeing all this. It got worse

and worse as people became more sophisticated in the process. It

really took hold. They worked very hard. I would give them an A

for effort. But we ended up with too much paper, and finally that

pendulum swung and OMB basically said, forget the whole thing.

I think it fell off the radar screen around 1995. Now it’s back on,

which I think is very positive.

Mr. PLATTS. Secretary Burnham, did you have something you

wanted to say?

Mr. BURNHAM. No, I just, while you left the room, I got into a

little bit of hot water with my colleagues. They said I was jumping

the gun.

Mr. PLATTS. On the 2 to 3 years? [Laughter.]

Mr. BURNHAM. They didn’t use the word showboat, but—[laughter]—we have a great team at State that was there long before I

got there. But we have priorities. Our No. 1 priority is building a

global financial platform and integrating six legacy data bases into

one legacy data base and building that across 171 different countries and 150 different currencies. That’s our premier goal, building

a global financial management system.

Getting an independent audit of our internal controls is something we certainly want to do, certainly want to work toward,

whether or not in a scarce resource environment like the one we’re

heading toward, and with the responsibility that you and other

members of this committee and Congress hold to get the deficit cut

in half for the next few years and then eliminated.

If we can do all of this, these are certainly things we want to do.

So that’s certainly the direction we’re trying to head.

Mr. PLATTS. With all due respect, I know at least one or more

of your fellow witnesses here are military veterans as well. I think

that’s the can-do attitude of the Marine in you coming out, that

we’re just going to get it done. And that’s a good thing.

I think the point you just made about the scarce resource environment in which we’re in is all the more why making sure we get

it right on internal controls needs to be a priority. We talked last

week with the Comptroller General about the $45 billion, OMB’s

estimate, best possible, which doesn’t include all departments and

agencies, of the improper payments. As we get ready in January

2006 to begin the new Medicare prescription drug plan that is

going to cost somewhere in the $50 billion or $60 billion a year

range, we can fix our internal controls, especially at DOD and some

of the larger agencies, Medicare itself. It goes a long way to paying

that commitment on prescription drugs without new money, but

just with the money we have, but better accounting and use of it.

So even in scarce resources, I know it’s going to be challenging

to come up with these dollars for the additional cost. But it’s all

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the more why we need to do it. But your message is still well

heard. I have said many times, I’m not an appropriator. All of us

wish we were. If I could wear my oversight hat and my appropriation hat, it would be a perfect match, although that would not be

a good internal control probably. [Laughter.]

So I need somebody watching me.

I want to actually take up where I got off track here. With

FMFIA, from the management attestation requirement there, is

that in your opinion, both from the Department and GAO, fulfill

the new Circular requirement of attestation on your internal controls, if you do go through what’s required under FMFIA?

Mr. STEINHOFF. Yes.

Mr. PLATTS. So is there a belief that we need to do anything from

a statutory standpoint with the act itself to strengthen it, to kind

of dovetail with what OMB has done through the administrative

process?

Mr. STEINHOFF. No, because the act envisioned that OMB would

issue the guidance and would lay out how to assess and report.

Mr. PLATTS. So to maintain that discretion?

Mr. STEINHOFF. Yes.

Mr. PLATTS. OK. I’m always an optimist, that when we lay out

our plans we are going to move forward and achieve them and

strive to our best ability to do so. But given that 20 year history,

Mr. Steinhoff, you have recounted it well in your testimony, both

written and here today, of FMFIA from 1982 through the 1980’s

and mid-1990’s and basically kind of like, it’s not working. Well intended, but we didn’t get the results.

Why would you believe that we should be more optimistic this

time, that we are really going to get it right and do what we’re all

setting out to do, and wy shouldn’t we be? Is there a reason we

should not be optimistic?

Mr. HIGGINS. I think 20 years ago there was a lack of appreciation for the importance of internal control. Since that time, there

has been a lot of emphasis given to financial reporting, financial

statement audits. There is a better understanding of the need for

that. Plus, we have had some terrible situations in the private sector that brings it to everybody’s mind.

I think the revisions to the new A–123 would do a lot. It lays out

management’s responsibility, it gives specific guidance into what

they should do for the financial statement part of the reporting. So

I think that we should wait and see.

Mr. PLATTS. Kind of the silver lining in some of the bad occurrences of ENRON and WorldCom is that it’s raised the level of

scrutiny and the priority of this issue?

Mr. HIGGINS. Absolutely. I mean, in my department alone, there

has been a tremendous amount of improvement in the last 4 or 5

years. The Student Financial Aid Office just got taken off the high

risk list.

Mr. STEINHOFF. And I think in looking at it, there were some

very positive by-products of FMFIA in the early years. It did drive

internal control down to the lowest level. There were literally thousands and thousands of small control tweaks at those lower levels.

And agencies did a lot, some maintained it, some perhaps did not.

But they did a lot to document their underlying systems. There has

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been a lot done with the passage of the CFO Act to document the

underlying accounting systems and those operations, which really

is a great jump start to revitalize FMFIA.

So I think in some respects, as I mentioned before, we are ahead

of the private sector going in. We have some tremendous challenges. We have a different level of accountability, and our accountability is much more visual to the average person when they don’t

get their benefit check or the Government does something wrong.

But I think there is that appreciation. I also believe you have a different type of manager in Government today and you have a set

of, a cadre of highly qualified CFOs, which you did not have back

in 1982. That was kind of an afterthought that was added to someone’s title, and they really didn’t focus on internal control.

Mr. PLATTS. I share that belief as well, in the CFO Act. It’s one

of the reasons we pushed for Senate confirmation of the DHS CFO,

was to ensure we didn’t regress. We have established a high standard for our CFOs, and to ensure that scrutiny does occur, because

we do want that mind set that’s changed to continue and not go

the other way.

Mr. WOLFF. Sir, I fully concur with what my colleagues have

said. Certainly the financial environment today is substantially different in many ways from the way it was back in the 1980’s. I was

around back in those days, too. It is a totally different way of doing

things. There is far more emphasis on doing things the way the

private sector does them and lifting best practices from the private

sector and applying them appropriately in Government.

But probably more important than that is, for reasons I’m not

quite certain I understand, the folks that are doing all the hard

work on this internal controls review and documentation are seeing

the value of doing it. So you are institutionalizing something that

is essential to begin with. I think that is going to be the key to the

success of this, that people are actually seeing the benefit of what

they are doing.

Mr. PLATTS. I think when I caught my breath I remembered the

question I wanted to followup with when we were talking about the

cost of doing it. This kind of relates to Secretary Wolff, the value

of doing it.

Now at State, Secretary Burnham, you’re looking at, say, $4.5

million extra to get your Department in place to do the internal

audit and move forward from there, which is going to be out of, in

essence, your portion of State’s money that you are given. Is there

any discussions, dialog at the senior level in State, or Commerce

or Education, that there is an incentive to do it? I’ll give you an

example, with Homeland Security. Last year, as we were pushing

for my legislation, there was a report about within the Transportation Security Administration, I forget how many tens of millions

of dollars of overruns regarding, I think it was screening equipment or something, because of lack of good internal controls.

So even if they had spent $10 million in making sure their internal controls were up to par, they would have come out way ahead

as a Department whole. But to the IG or financial management

sector of DHS, they spent more money. In other words, if by doing

this audit you are able to identify savings that those savings accrue

71

to your office within the Department to help pay for the cost, are

there any discussions of that nature?

Mr. BURNHAM. We do have discussions of that nature, although

I think long term, the State Department is going to get savings

from other areas, such as the 21st century technology platform,

such as fulfilling the President’s vision of competitive sourcing, the

PMA agenda item on competitive sourcing. I think this is going to

be far more beneficial to the State Department and to the American taxpayer, at least in our case.

And as of now, I would certainly say we are going to have to find

the money to get us to a level of testing and documentation. Although I would not say that the goal of getting to a place where

we can receive and be comfortable that we are going to receive a

clean opinion on an independent audit of our internal controls is

anything different from what we had planned to do before Circular

A–123 Appendix A. In other words, I think that, as my colleagues

today have outlined, it’s a new environment than it was 20 years

ago. It’s a new environment than it was 4 years ago. And reflecting

that, we have changed our focus and are trying to grow with it.

Mr. PLATTS. And with the suggestion in my question about sharing of the benefits, there is a little bit of caution there, because

there would be a little bit of a gotcha, if one part of State finds

wrongdoing by another part, you get the benefit of that savings,

which could create some internal battles or tension. But it’s something that when we are looking to how to pay for this renewed effort, there are going to be benefits reaped.

The example my staff shared with me in my memory is, the total

contract was $18 million, and the question here of which $9 million

was not able to be accounted for by the Department. And originally

it was only a $4 million score to begin with. So it escalated dramatically and then couldn’t be accounted for in the end, half of

what that escalation was. So obviously it would have been a Department-wide benefit to having better controls in place. So something to perhaps look at as you are looking for money. Because you

rightfully acknowledge it’s going to be hard getting additional dollars from Congress, given the fiscal challenges we are facing as a

Nation.

Mr. BURNHAM. Mr. Chairman, I believe you are referring to the

Iraqi money, not the IRRF money.

Mr. PLATTS. This is in TSA here, stateside.

Mr. BURNHAM. OK.

Mr. PLATTS. Yes, not within State, but within Homeland Security.

Mr. HIGGINS. From the IG’s perspective, the community certainly

thinks this is like apple pie. But the highest people in the Department of Education clearly recognize that we bring back through our

recommendations and work more than we cost the Government.

But these unfunded mandates are killing us. In my office alone, in

1996, we were at 368 people. Today we are at 285. That’s almost

an 80 person FTE reduction because of the cost of the financial

statement audit, and the cost of doing business. So we’re getting

fewer people and more responsibility. So it is a concern of the IG

community.

Mr. PLATTS. As we demand more, we give you less.

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Mr. HIGGINS. Well, you actually give us more, but it doesn’t cover

the bill. It’s sort of like my home budget. [Laughter.]

Mr. WOLFF. May I comment, Mr. Chairman?

Mr. PLATTS. Yes, Secretary Wolff.

Mr. WOLFF. I would just like to make sure that my record is

clear here. I strongly support this review. We are eating internally

in each of our bureaus the costs of doing the reviews and the documentation. My concern is that the annual audit opinions are going

to increase costs considerably. That’s quite different from doing the

work that we are doing under A–123. We are going to be doing the

work, and monitoring the progress. The IG is going to be watching

what we are doing as are GAO and your committee and a host of

other folks.

It’s rendering the audit opinion by one of the big four where we

run the risk of giving them a blank check, quite frankly.

Mr. PLATTS. Point well made. It is something that we need to be

smart about how we do this and not create a new problem as we

try to fix an old one.

Mr. STEINHOFF. Mr. Chairman, I would say that I agree that the

process has to be well managed and expectations should be well

managed. It has to be done in a very smart manner. That’s why

we see some kind of phased approach to opinions on internal control, when it makes sense for an agency.

I want to add another perspective on control which I think benefits from really exploring one’s controls. In some areas, frankly,

there’s too much control. I’ll give you an example. We did a review

a few years ago where we benchmarked what were the travel policies for best practice companies. And they would have anywhere

from 8 to 15 pages of rules. They would enforce those rules. If you

broke the rule, you were no longer employed there.

We compared that to DOD; we worked with DOD on this in a collaborative effort. They had 1,357 pages of travel rules at that time.

They were accounting for every nickel and dime. They had to have

people there to help people fill out the vouchers. And they went

through a major process to streamline and knock out pages and

pages of rules. There were unnecessary controls. Probably every

time something went wrong over 50 years, they added another requirement. They went through and they just simplified it. They got

some legislation and no longer do you have to have a cab receipt

for $5. You have to trust the person if it’s less than $75.00, and

just change the whole accountability approach.

We did another review where we found horrendous controls over

property, but at the same time, we found millions of accounting

transactions that Defense was processing, thinking they were providing more accountability. Those accounting transactions actually

were dropping the items from visibility. So there was a tremendous

expense to process all those transactions. And those transactions

were worsening control.

So when someone gets down there and starts kicking the tires,

and gets down there in the weeds, I think they will find as a byproduct there are ways to streamline and simplify. Agencies should

be allowed to look at things in a cost beneficial manner, not spend

$1.10 to save $1.

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Mr. PLATTS. That’s something that, this committee, we share

that perspective, with those 1,357 pages of travel rules, they probably had about 100 different systems to monitor compliance with

them, too, given the number of systems over there at DOD.

Mr. STEINHOFF. Yes.

Mr. PLATTS. But that point is something that, will be something

we are going to pursue as a committee on the financial management laws, is that we have added over the last 20 plus years numerous laws. And part of our efforts, we have stated as a subcommittee this session, is to try to streamline all those laws to

make them more efficient, that you can comply, as our Federal financial managers out there, a little easier on the financial management community to know that you are in full compliance with what

Congress is expecting of you.

So as we said last week, and will say again today, we will be

looking for great insights from CFO Council, from the PCIE, from

GAO as we move forward in that streamlining process.

I want to just maybe touch on one last issue here from the auditing process. Inspector General Higgins, we had your colleague, the

CFO at Education, here last week, we talked about the continuous

auditing process, and how, because of Sarbanes-Oxley and the private sector more of a year-round engagement rather than end of

the year run, or sprint, I would be interested in each of your Department’s perspective. My understanding is at Education that is

kind of more the norm, where you are starting in February or so,

leading up to the end of the year, rather than waiting for the last

couple of months.

Where is Commerce, State? I want to make sure I’m accurate

with Education. And then Jeff, from a broad perspective, your familiarity with others. What is the norm out there now and is this

a good idea that we see in the private sector, that it is more a yearround process, hand in hand with your auditors?

Mr. WOLFF. We are getting close to having a year-round auditor

presence. They left in December and they are going to be back next

week for their in-brief for the current fiscal year. I think it’s beneficial. I think it’s beneficial to have them there, quite frankly. The

earlier they start, the easier it is to get all the problems that they

may encounter out of the way by the end of the year.

So that’s where we are, and I anticipate that we will be eventually getting them regular office space.

Mr. BURNHAM. Similar to State, thanks to the leadership of OMB

that required quarterly statements, of course. We now are around

the clock, around the year producing the kinds of financials that

are necessary to achieve OMB’s requirement. By the way, that’s

also part of the PMA. So just getting to green in fulfilling the

President’s vision is also part of that.

Our own audit started last month. We will continue to press on

to November 15th of this calendar year.

Mr. PLATTS. OK. Thank you.

Mr. HIGGINS. You are correct about Education. I do think it is

a benefit. I mean, as issues come up during the year, they are

there and they know about them in advance. So they are able to

give more information while it is going on. I think it is a benefit.

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Mr. STEINHOFF. I think it is the norm for large entities. These

are large entities, when you talk about the CFO Act agencies.

That’s the norm. It’s got benefits on both sides. This is a real key

to audit quality. This morning I participated in a forum that the

Public Company Accounting Oversight Board held where there was

lots of talk that the key to a good audit of a private sector corporation, publicly traded company, is the auditor’s knowledge of the

business. If you’re auditing Proctor and Gamble, you have to understand the business. You have to understand their competitors.

You have to be looking at things in that context and have a complete understanding of the business and how they operate.

To successfully audit these large Federal entities, you have to

have an understanding of the Federal Government, of the Federal

environment and of the missions and programs and operations of

that Department. So having auditors there full time year-round, is

very beneficial to the auditor. For the financial audits that we conduct, we are there year-round. We never leave IRS. That’s a huge,

complex operation. We are there 12 months a year.

Also, we work very hard to have continuity on that audit. We

don’t put a new bunch of people on every year, when we rotate

someone off, we bring them along and we have experienced people

doing that work. They have to understand those processes, how

those systems work over there, the complexity of the tax systems.

Year-round is the only way to go. Small entity, that’s a different

story. You can come in and out.

Mr. PLATTS. The fact that we are more and more the norm being

year-round I think is another reflection of that change in mind set

and focus on these issues. I have had the benefit, as a new subcommittee chairman, last term, coming in following Steve Horn,

who really took his responsibilities very seriously for this subcommittee’s oversight role and focusing on financial management.

And I came into the Congress in 2000 with a President who has

made good management a cornerstone of his administration

through the President’s management agenda, which I’m trying to

help keep pushing the ball in the right direction down the field as

a newer chairman.

One last thing, and for our two CFOs, kind of a little bit off the

issue of internal controls. But it’s just a structural question, and

I think Secretary Burnham, you mentioned earlier internally your

work with CFOs of different offices, programs within the Department that you work with that are specific to one part of the Department. I was curious, within both your Departments structurally your oversight of those subordinate CFOs from a hiring review standpoint relates to another agency we are looking at and

how you in the end are the one who is going to be responsible for

the entire Department’s information. But what really direct interaction do you have or oversight do you have of those subordinate

CFOs?

Mr. WOLFF. Yes, sir, I can’t speak for Secretary Burnham, but

I will say that at the Commerce Department, I personally interview

each major bureau CFO before he or she is hired. My statutory

deputy CFO also interviews them. My statutory deputy, Jim Taylor, who is sitting behind me here, also has 25 percent of their perVerDate 11-MAY-2000 09:44 May 25, 2005 Jkt 000000 PO 00000 Frm 00078 Fmt 6633 Sfmt 6633 D:\DOCS\20879.TXT HGOVREF1 PsN: HGOVREF1
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formance evaluations each performance cycle, in consultation with

me.

Mr. PLATTS. Great.

Mr. BURNHAM. I believe it was Secretary Wolff who mentioned

that he had the CFOs in other parts of the Department of Commerce. We don’t have CFOs, actually, elsewhere. I have a deputy

CFO. But what we do have is financial management officers at our

posts overseas. These are incredible men and women, the quality

of these individuals, many of them certified public accountants that

are now coming in, many of them in second careers that have come

in from the private sector who want to join the Department, who

want to go overseas and are fulfilling the role of Chief Financial

Officer of an embassy. Some of these embassies are absolutely

enormous. In Cairo, we have over 3,000 individuals, in Berlin, certainly Baghdad is also going to be quite large.

So just because we don’t call them a CFO does not mean that

they are not. It is that individual embassy’s assurance statement

that Ambassador must submit to my office annually. That is the

backbone of the Secretary’s assurance statement and part of our

overall review and existing internal control process, leading of

course not only to mine, to the Secretary, but ultimately to the Secretary as reported in the Performance and Accountability report.

Mr. PLATTS. You don’t have the same direct interaction on the

interview process and review, given the number of posts out there,

it sounds, as at Commerce?

Mr. BURNHAM. Because of the uniqueness of the State Department, they are Foreign Service officers, thus they go through the

hiring process of the Foreign Service. Then they do not report to

me, they report to the Ambassador, who is the chief executive officer, and as we know, the chief American in country, except when

the President visits.

Mr. PLATTS. OK. Inspector General Higgins, are you familiar

with that structural oversight within Education? I didn’t think to

ask Mr. Martin last week.

Mr. HIGGINS. Actually, he was just here a little while ago. Jack

reports directly to the Under Secretary or Deputy Secretary in the

Department. I think that’s the appropriate line of reporting.

Mr. PLATTS. As far as other subordinate CFOs, you’re not sure

what——

Mr. HIGGINS. There are no other—well, there is a CFO at FSA—

the PBO, at the Department of Education—but she reports to the

COO of FSA. But there is a reporting relationship down at the

CFO level to Jack’s office. It’s not real clear, actually.

Mr. PLATTS. OK. Something I think that as we look at promoting

greater internal controls, including in the management standpoint,

because ultimately as we say, at Commerce you are responsible for

those final or overall department financial management and having

input, reviews and hiring input to who is running those operations

at the subordinate level is, I think, very important.

Mr. WOLFF. Yes, sir. I just want to make sure I clarify, my colleague mentioned the PBO over there. We also have a PBO, which

is the Patent and Trademark Office. I do not have 25 percent of

their performance evaluation, nor do I interview their selectees for

their financial positions over there, by law.

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Mr. PLATTS. OK. Thank you.

I think we touched on the issues we wanted to cover. I want to

thank you again for your patience with me running in and out. As

we go forward, we touched on two very important issues that both

the Council and the President’s PCIE and CFO Council are going

to play a role in that implementation of the new Circular and in

that cost benefit, that joint study. We will look forward, as a subcommittee, working with all of you on that, as well as with GAO

on this issue.

I want to commend each of you for your efforts. I said as we had

a staff briefing in anticipation of today’s hearing, one of the things,

in reading your bios and your experience and the successor efforts

at your respective departments or at GAO is, we want you to kind

of finish that 2 or 3 year focus at State, do your work, and then

we want to move you en masse over to DOD. [Laughter.]

We’re going to put you to the next challenge. Because that certainly is, as we heard last week, ultimately for the Federal Government as a whole, we can do great work, but eventually we have to

take on that 600 pound gorilla that’s sitting out there. You are getting great experience and doing great work that we want to at

some point have benefit that Department as well.

So thank you for your testimony and your time today. We will

keep the record open for 2 weeks for any additional information

and submissions that you may have. This hearing stands adjourned.

[Whereupon, the subcommittee was adjourned.]

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