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H. HRG. 108–29

H.R. 2886, DEPARTMENT OF HOMELAND SECURITY

FINANCIAL ACCOUNTABILITY ACT

HEARING

OF THE

SELECT COMMITTEE ON HOMELAND 

SECURITY 

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

OCTOBER 8, 2003

Serial No. 108–29

Printed for the use of the Select Committee on Homeland Security

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house
SELECT COMMITTEE ON HOMELAND SECURITY 

CHRISTOPHER COX, California, Chairman 

JENNIFER DUNN, Washington 

C.W. BILL YOUNG, Florida 

DON YOUNG, Alaska 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

W.J. (BILLY) TAUZIN, Louisiana 

DAVID DREIER, California 

DUNCAN HUNTER, California 

HAROLD ROGERS, Kentucky 

SHERWOOD BOEHLERT, New York 

LAMAR S. SMITH, Texas 

CURT WELDON, Pennsylvania 

CHRISTOPHER SHAYS, Connecticut 

PORTER J. GOSS, Florida 

DAVE CAMP, Michigan 

LINCOLN DIAZ-BALART, Florida 

BOB GOODLATTE, Virginia 

ERNEST J. ISTOOK, Jr., Oklahoma 

PETER T. KING, New York 

JOHN LINDER, Georgia 

JOHN B. SHADEGG, Arizona 

MARK E. SOUDER, Indiana 

MAC THORNBERRY, Texas 

JIM GIBBONS, Nevada 

KAY GRANGER, Texas 

PETE SESSIONS, Texas 

JOHN E. SWEENEY, New York 

JIM TURNER, Texas, Ranking Member 

BENNIE G. THOMPSON, Mississippi 

LORETTA SANCHEZ, California 

EDWARD J. MARKEY, Massachusetts 

NORMAN D. DICKS, Washington 

BARNEY FRANK, Massachusetts 

JANE HARMAN, California 

BENJAMIN L. CARDIN, Maryland 

LOUISE MCINTOSH SLAUGHTER, 

New York 

PETER A. DEFAZIO, Oregon 

NITA M. LOWEY, New York 

ROBERT E. ANDREWS, New Jersey 

ELEANOR HOLMES NORTON, 

District of Columbia 

ZOE LOFGREN, California 

KAREN MCCARTHY, Missouri 

SHEILA JACKSON-LEE, Texas 

BILL PASCRELL, JR., New Jersey 

DONNA M. CHRISTENSEN, 

U.S. Virgin Islands 

BOB ETHERIDGE, North Carolina 

CHARLES GONZALEZ, Texas 

KEN LUCAS, Kentucky 

JAMES R. LANGEVIN, Rhode Island 

KENDRICK B. MEEK, Florida 

JOHN GANNON, Chief of Staff 

UTTAM DHILLON, Chief Counsel and Deputy Staff Director 

DAVID H. SCHANZER, Democrat Staff Director 

MICHAEL S. TWINCHEK, Chief Clerk

(II) 
(III)

C O N T E N T S 

STATEMENTS 

The Honorable Christopher Cox, a Representative in Congress from the State 

of California, an Chairman, Select Committee on Homeland Security 

Oral Statement ..................................................................................................... 1

Prepared Statement ............................................................................................. 3

The Honorable Turner, a Representative in Congress from the State of Texas, 

and Ranking Member, Select Committee on Homeland Security .................... 3

The Honorable Donna Christensen, a Delegate in Congress from the U.S. 

Virgin Islands ....................................................................................................... 38 

The Honorable Bob Etheridge, a Representative in Congress from the State 

of North Carolina ................................................................................................. 5

The Honorable Jim Gibbons, a Representative in Congress from the State 

of Nevada .............................................................................................................. 5

The Honorable James R. Langevin, a Representative in Congress from the 

of State Rhode Island ........................................................................................... 38

The Honorable Sheila Jackson-Lee, a Representative in Congress from the 

of State Texas ....................................................................................................... 45 

The Honorable John Linder, a Representative in Congress from the State 

of Georgia .............................................................................................................. 38

The Honorable Pascrell, a Representative in Congress from the State of 

New Jersey ........................................................................................................... 33

The Honorable Shadegg, a Representative in Congress from the State of 

Arizona .................................................................................................................. 46

The Honorable Sweeney, a Representative in Congress from the State of 

New York .............................................................................................................. 35

WITNESSES 

Mr. J. Richard Berman, Assistant Inspector General for Audits, Department 

of Homeland Security 

Oral Statement ..................................................................................................... 10

Prepared Statement ............................................................................................. 12

Dr. Bruce Carnes, Chief Financial Officer, Department of Homeland Security 

Oral Statement ..................................................................................................... 5

Prepared Statement ............................................................................................. 7

Ms. Miche`le Flournoy, Senior Adviser, International Security Program, Center for Strategic and International Studies 

Oral Statement ..................................................................................................... 25

Prepared Statement ............................................................................................. 27

The Honorable Linda Springer, Comptroller Office of Federal Financial Management, Office of Management and Budget 

Oral Statement ..................................................................................................... 19

Prepared Statement ............................................................................................. 22

APPENDIX 

MATERIAL SUBMITTED FOR THE RECORD

Dr. Bruce Carnes Responses to Questions ............................................................ 51

Mr Richard Berman Reponse to Question ............................................................. 52 

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H.R. 2886, DEPARTMENT OF 

HOMELAND SECURITY FINANCIAL 

ACCOUNTABILITY ACT 

Wednesday, October 8, 2003

HOUSE OF REPRESENTATIVES, 

SELECT COMMITTEE ON HOMELAND SECURITY, 

Washington, DC. 

The committee met, pursuant to call, at 1:05 p.m., in Room 2318, 

Rayburn House Office Building, Hon. Christopher Cox [chairman of 

the committee] presiding. 

Present: Representatives Cox, Camp, Linder, Shadegg, Gibbons, 

Sweeney, Turner, Norton, McCarthy, Jackson-Lee, Pascrell, 

Christensen, Etheridge, Lucas, Langevin, and Meek. 

Chairman COX. Good afternoon. A quorum being present, the 

committee will come to order. The committee is meeting today to 

consider the management and financial accounting controls at the 

Department of Homeland Security and legislation to bring the Department within the coverage of the CFO Act. 

It was only 5 months ago this year that the Department opened 

its doors. The establishment of the Department of Homeland Security marks the largest reorganization of the Federal Government in 

history. It is a merger of 22 separate Federal agencies with more 

than $50 billion in assets, $36 billion in liabilities—although the 

accounting certitude of that figure is questionable—and roughly 

180,000 employees. 

The President created the new department not to achieve a new 

M&A standard, but rather to enhance our capabilities to prevent 

terrorism. It is this core mission to make our country safer that requires us to examine how the financial systems of 22 separate 

agencies will be consolidated in order to achieve our objective. 

In conducting oversight of DHS, this committee must make financial accountability a top priority. This is necessary not only to 

ensure that taxpayer dollars are fully and accurately accounted for 

and spent prudently to achieve well defined and measurable objectives, and to prevent waste, fraud and abuse, but even more importantly, it is necessary so that the Department succeeds in its overall mission. That mission is of course protecting Americans. 

Today, in keeping with other oversight mandates, we will examine the financial policies, processes and systems being utilized and 

being proposed for use at the Department. Our analysis is being 

conducted within the context of legislation now pending before this 

committee, H.R. 2886, the Homeland Security Financial Accountability Act. 
2

In addition, we will explore the Department’s steps towards a 

framework for strategic planning and program evaluation. Questions that we are interested in addressing today include how DHS 

will ensure that the appropriate amount of funds are requested for 

specific programs and how those programs will be held to performance standards. 

H.R. 2886, the Department of Homeland Security Financial Accountability Act, contains a number of financial management provisions. It includes measures subjecting the Department to the statutory framework and reporting mandates of the CFO Act. It imposes 

additional financial audit opinion requirements. 

I am interested to hear the views of our witnesses today—we 

have an outstanding panel—about the impact of the various provisions of the bill. It is my estimation that the Department is making 

solid progress in financial management. 

Consolidating 22 separate agencies is no mean feat. But there is 

a broad plan to streamline and integrate financial systems and promote interoperability across the Department. I look forward to 

hearing your views on the panel about the progress of those initiatives today. 

It is imperative, I believe, that the objectives of individual programs be firmly linked with the strategic plans of the Department. 

Budgetary requests must reflect the priorities of these strategic 

plans so that money is spent appropriately and with minimal, if 

any, redundancy. And, finally, the performance of department programs must be examined regularly by this committee to assist in 

implementation, to assess progress, and to best allocate future resources. 

We already have laws in effect to promote the responsible use of 

scarce resources in the Federal Government. I think we need to use 

these laws to much greater effect. In 1993, Congress enacted the 

Government Performance and Results Act, which requires that 

every major Federal agency report their plans for future years and 

give an assessment of performance for previous years. 

These reports provide the basis for Congress to assess how each 

agency is performing. Ensuring that these statutory requirements 

are fulfilled in the Department of Homeland Security is critical to 

allowing this committee to provide effective oversight in partnership with the Department. I am pleased the Department has established the Office of Program Analysis and Evaluation, under the 

CFO, Dr. Carnes, with the responsibility for integrating strategy, 

performance, management and budget for the entire Department. 

The Department will need to rely on the best practices of established departments within the Federal Government as well as in 

the private sector while adapting these policies to meet the unique 

domestic security mission of the Department of Homeland Security. 

I dare say that back when we first wrote the CFO Act, and I was 

one of the original authors of the CFO Act, and I am a strong proponent of it, calling a hearing on the topic of financial accounting 

controls would likely not attract a good deal of attention. 

I think in the post-Enron world that is not so. I think nonaccountants now understand the importance of management control, or the purposes of achieving the objectives of an organization, 
3

and also recognize the down side of not having a good system of 

financial controls in place in a large organization. 

We want to make sure that we take every opportunity to improve 

the work of the Department of Homeland Security, to perfect it in 

its achievement of its mission, and we want to use financial controls to that end. 

I thank the witnesses with us here today for providing us with 

your testimony in advance. I look forward to hearing the summary 

of your testimony in a moment and engaging in a colloquy with 

you. I now recognize the ranking member, Mr. Turner, for any 

opening statements that he may have.

PREPARED STATEMENT OF THE HONORABLE CHRISTOPHER COX, CHAIRMAN, SELECT

COMMITTEE ON HOMELAND SECURITY

On March 1 of this year, we witnessed the standing up of the Department of 

Homeland Security, the largest reorganization of the federal government in history. 

The restructuring brought under one roof 22 separate federal agencies, more than 

$50 billion in assets, $36 billion in liabilities and roughly 180,000 employees. The 

President created the new Department, to enhance our capabilities to prevent terrorism, to protect our infrastructure against it, and to respond to any attack that 

might occur. 

In conducting oversight of the Department of Homeland Security, this Committee 

must make financial accountability a top priority. We must insist that taxpayer dollars are fully and accurately accounted for. And we must ensure that every precaution is taken to prevent fraud, waste, and abuse. 

It is imperative that the objectives of individual programs be firmly linked with 

the strategic plans of the Department. Budgetary requests must reflect the priorities 

of these strategic plans, so that money is spent appropriately and with minimal redundancy. 

At one time these issues may have been considered dry, but in our post Enron 

debacle environment no one can discount their importance. Both the Executive 

branch and the Legislative branch of the federal government must fulfill our obligation to protect the taxpayer’s bottom line.

Mr. TURNER. Thank you, Mr. Chairman. I appreciate you calling 

this hearing for the purpose of examining the financial planning 

and management practices of the Department of Homeland Security, and, specifically, to have a hearing on H.R. 2886, the Department of Homeland Security Financial Accountability Act. 

Over the course of this fiscal year, the Department will spend around $30 billion on a wide range of programs and activities designed to keep this country safe from terrorism. It is important, I 

think, that the Department have all of the tools and the practices 

necessary to ensure that taxpayer dollars are spent efficiently and 

effectively. Also, I think it is important that these tools allow the 

Department to provide the Congress with all of the information 

that we need to carry out our responsibilities. 

I am encouraged by several steps that I have seen the Department take recently in laying the groundwork for sound fiscal management. Among these are the establishing of a planning and programming and budgeting system similar to what has existed within the Department of Defense for many years to help in developing 

its 5-year budget plan, the creation of a Program Analysis and 

Evaluation Office to review program and budget requirements and 

analyze them in the context of an assessment of key threats and 

vulnerabilities; also, setting up an investment review board and a 

joint requirements review process to monitor the Department’s 

progress in developing major programs and making related acquisition decisions. Each of these are good first steps. 
4

Mr. Chairman, I think we all agree, however, that there is much 

more that must be done to be sure that we make the right choices 

regarding the security of our nation. The most important task I 

think that the Department has yet to accomplish is the development of a comprehensive threat and vulnerability assessment. 

It seems that from testimony that we have had from Assistant 

Secretary Liscouski that such an assessment is some years away. 

I believe he estimated perhaps 5 years away. This, in my judgment, 

is unacceptable. Without a threat and vulnerability assessment, we 

cannot possibly decide how to allocate valuable funding between a 

variety of options such as cargo screening, improving the electrical 

grid, increasing bioterrorism protection, or tending to some other 

vulnerability. 

At the Department of Defense, each installation assesses its 

vulnerabilities every year so security changes can be based on a 

current assessment of risk. But with the Homeland Security Department right now, we are in essence driving down the road without a road map to tell us where to go. Indeed, without a true threat 

and vulnerability assessment, we run the risk of trying to protect 

everything equally, which means we protect nothing effectively, or, 

worse yet, we end up funding programs based on current events or 

media attention rather than on rational evaluation of risk. 

A threat and vulnerability assessment should be part of an updated annual Homeland Security strategy. An updated strategy 

could serve, in turn, to articulate the administration’s goals across 

the government, better define our capabilities and needs and provide clear guidance to the budget planning process. 

We all know that the threats we face are real, and the decisions 

we make today will decide our security tomorrow. Right now we 

are making our decisions without a good road map. 

Mr. Chairman, I think we also need to ensure that the Department has a robust financial management system in place as provided for, in part, by the legislation that we are looking at today. 

Such financial systems can also assist the Department in developing specific performance goals and benchmarks that can be used 

to evaluate whether it is in fact achieving the high goals that we 

have set for it. 

And finally, Mr. Chairman, we must insist in the coming years 

that the Congress be provided with accurate, detailed budget information that it needs to carry out its oversight work. The Department’s fiscal year 2005 request, which will arrive on our door step 

only about 4 months from now, must be sufficiently comprehensive 

to allow us to fully understand the required costs of homeland security. Such materials were not provided with last year’s request. 

If we believe that information is lacking, we should ask the hard 

questions and take the necessary steps to ensure that we have 

what we need. 

Finally, Mr. Chairman, while great progress I think is being 

made, we know the task ahead will be difficult and much work remains to be done. 

I appreciate each of the witnesses who are with us today. I appreciate your commitment to the security of our country, and I 

thank you for being with us today. 

Thank you, Mr. Chairman. 
5

Chairman COX. Mr. Gibbons, do you wish to be recognized for an 

opening statement? 

Mr. GIBBONS. Mr. Chairman, in view of the importance of our 

witnesses’ testimony today and the significance of which this committee views its interest in this subject, I am going to waive my 

opportunity to make an opening remark. I will submit them for the 

record at a later date. I want to thank you for your leadership on 

this issue and look forward to the testimony of the witnesses. 

Thank you. 

Chairman COX. Does any member on the minority side wish to 

be recognized for purpose of an opening statement? 

Mr. ETHRIDGE. Mr. Chairman, I will submit mine for the record 

and waive. 

Chairman COX. Thank you. If not, we can jump right into the 

testimony of our witnesses. I will recognize you in turn. We will 

begin with Dr. Bruce M. Carnes, the Chief Financial Officer for the 

Department of Homeland Security. As we mentioned, we have your 

written submission, and you are free to summarize your testimony 

as you see fit. 

STATEMENT OF DR. BRUCE CARNES, CHIEF FINANCIAL 

OFFICER, DEPARTMENT OF HOMELAND SECURITY 

Mr. CARNES. Thank you, Mr. Chairman. I will summarize my 

statement. Mr. Chairman, Mr. Turner, members of the select committee, I am delighted to be here to discuss our progress and the 

challenges in building financial management business and program 

evaluation processes at DHS. 

As the CFO at the Department of Homeland Security, I am committed to building financial policies, processes and systems that are 

a model for the Federal Government. Much has already been done 

in the few months that we have been in existence to bring the financial policies, processes and systems of 22 disparate organizations into one department. 

In March, we successfully transferred more than $50 billion in 

assets, $36 billion in liabilities and 180,000 employees to the Department. Within a few weeks we created the financial structures 

and support systems necessary to support these transfers. We have 

also launched a consolidated bankcard program that will reduce 

the number of programs within the Department from 27 to 3, created an investment review board to evaluate acquisitions above $5 

million. 

We are requiring certified project managers. We have development a joint requirements council. We have created an investment 

review board. We have initiated a 5-year budget and planning program; established a budget process modeled after DOD’s POM process, program objectives memorandum process; launched a consolidated business and financial management systems program; and 

created a program analysis and evaluation organization. 

We are developing a future years homeland security program and 

a strategic plan. All of these activities have been accomplished by 

a handful of outstanding and dedicated staff that I am very fortunate to be in charge of, and my task is to get out of their way and 

let them do their jobs. They are doing them spectacularly. 
6

When we stood up, we inherited 22 disparate financial processes. 

We have consolidated them to nine, primarily by terminating 

memos of understanding with legacy agencies and shifting the 

workload to in-house financial support units. We are studying ways 

to streamline the financial processes used by DHS, with a goal of 

enhancing efficiency, reducing costs, and improving the quality of 

financial data. 

We have 83 financial management systems, few of which are integrated. Some are outdated, lack functionality and are expensive 

to operate and maintain. To tackle this problem, we have launched 

an aggressive problem to transform DHS’s business and financial 

management policies, processes and systems. 

As part of this, we will develop and implement a departmental 

business and financial enterprise solution that results in a single 

suite of financial management systems for the Department. The objective of this program is to provide the business equivalent of a 

global positioning system for our operators and to provide CFO 

compliance and information for the Congress, the Treasury, and 

OMB and auditors. 

We are launching a comprehensive review of the finance and accounting operations of all DHS components. This will include an 

assessment of performance standards, business processes, workload 

requirements, systems capabilities, staffing requirements and productivity levels. It will provide recommendations for establishing 

department-wide performance standards, improved business processes, possible consolidations of operations and systems improvements. Action plans will be developed to implement those recommendations. 

Another challenge we face is preparing consolidated financial 

statements within the time frame established by OMB. This is a 

formidable challenge, but early on we decided that we needed to 

move aggressively to comply. We have submitted our interim statements to OMB on time, and we expect to have our fiscal year 2003 

statements completed ahead of schedule. 

Part of the challenge that we face in preparing our statements 

is mitigating the impact of 18 inherited material weaknesses that 

were identified in audits of the agencies that became the Department of Homeland Security. I have directed the Department’s components to establish corrective action plans for each of these material weaknesses. We have established a system to monitor the implementation of those action plans. And these components report to 

me on a quarterly basis on their progress against them. 

In addition, I am creating a unit within my organization to conduct internal audits, some of which will be focused on any material 

weakness that is not being corrected on schedule. 

A word, if my might, about H.R. 2886. As the CFO of DHS, I applaud the spirit with which H.R. 2886 was introduced. I agree that 

increased accountability is important and necessary, as demonstrated by the continuing rash of corporate accounting scandals. 

But I want to assure the committee that as the Department’s CFO, 

I have the same duties and responsibilities as CFOs in other agencies, and I am held accountable for ensuring the Department’s financial integrity in the same manner. 
7

The proposed legislation will not change the way I perform my 

job, nor will it give me any authority that I do not already have. 

Similarly the legislation will not change the requirements that the 

Department must comply with in accounting for its finances. 

Section 3 of the bill requires that the Department submit a performance and accountability report that incorporates a program 

performance report. We will include program performance information in our fiscal year 2003 performance and accountability report. 

But that section also requires that the Department’s report include 

an audit opinion of our internal controls, beginning in fiscal year 

2005. 

The bill mandates that the CFO Council and the President’s 

Council on Integrity and Efficiency jointly conduct a study. An 

audit of internal controls could be costly and possibly redundant. 

The Department believes that the proposed study is necessary and 

that any decision to require DHS to audit its system of internal 

controls should await the outcome of that study. 

One of the principal things I did when I went to DHS was to create a PA&E organization. I spent a number of years in DOD. And 

when I went from DOD to Energy, I created such an organization. 

I have created one at DHS. 

We can get into its functions if you would like later on in the 

hearing, but it is one of the organizations within my shop of which 

I am most proud, and which is most essential to the development 

of our strategic plan and our future years homeland security program. 

Thank you, Mr. Chairman. I will be happy to take your questions. 

[The statement of Mr. Carnes follows:]

PREPARED STATEMENT OF BRUCE M. CARNES, CHIEF FINANCIAL OFFICER, DEPARTMENT OF HOMELAND SECURITY

Mr. Chairman, members of the Select Committee, I am pleased to be here to discuss our progress and challenges in building financial management, business and 

program evaluation processes at the Department of Homeland Security. 

DHS Financial Management and Program Evaluation Accomplishments and Goals 

The Department of Homeland Security was created to protect the American people 

by preventing terrorist attacks, reducing our vulnerability to attack, and minimizing 

the loss of life and speeding recovery should one occur. At the same time, the Administration saw the creation of the Department as an opportunity to build a model 

for management excellence by efficiently and effectively managing resources to deliver measurable results. 

As the Chief Financial Officer at the Department of Homeland Security, I am 

committed to fulfilling this vision by building financial policies, process and systems 

that are a model for the Federal government. Just as we have consolidated border 

and transportation security functions, merged response activities, integrated terrorist threat intelligence, and coordinated homeland security research and development efforts, I believe we must with equal vigor transform our business practices 

and systems. 

Since the Department was established, much has already been done to bring the 

financial policies, processes, and systems of 22 disparate organizations into one Department. In March 2003, we successfully transferred more than $50 billion in assets, $36 billion in liabilities, and more than 180,000 employees to the Department. 

Within a few weeks, we created the financial structures and support systems necessary to support these transfers. This was accomplished with only handful of 

staff—a remarkable achievement of which we are proud. 

We have also launched a consolidated bankcard program that will reduce the 

number of programs within the Department from 27 to three, created an investment 

review board to evaluate acquisitions above $5 million, initiated a five-year budget 

and planning program, established a budget process modeled after the Department 
8

of Defense’s Program Objectives Memorandum process, launched a consolidated 

business and financial management systems program, and created a Program Analysis and Evaluation organization charged with leading the Department’s program 

evaluation effort and ensuring compliance with performance and accountability requirements. 

Our success in these areas has laid a solid foundation for our efforts to become 

a model of excellence in Federal financial management; however, much remains to 

be done. As we move forward, using the President’s Management Agenda as our 

guide, we seek to: 

• increase efficiency and effectiveness by producing financial data that is timely, reliable, and useful to decision makers; 

• strengthen accountability by ensuring that internal controls are in place 

across the Department and appropriate oversight reviews are conducted; 

• significantly reduce costs by consolidating functions, systems, and processes 

and by instituting best business practices; and . 

• achieve results through the use of rigorous planning, measurement and evaluation processes. 

These goals are ambitious and we face significant challenges in achieving them.

DHS Financial Management Challenges and Solutions 

Consolidating the Department’s 22 Financial Processes. Currently, the Department 

has 22 disparate financial processes. Several of these were established through 

memorandums of understanding with the Department’s legacy agencies. Using these 

processes helped ensure sufficient financial support services were available when 

the Department was first established. However, they are labor-intensive and cumbersome to manage. Beginning October 1, 2003, we consolidated the number of processes from 22 to 10—primarily by terminating the memorandums of understanding 

with legacy agencies and by shifting the workload to in-house financial support service units. 

This is only a good start. In FY 2004, we will consider options to further streamline the financial processes used by the Department with the goal of enhancing efficiency, reducing costs, and improving the quality of financial data.

Multiple and Redundant Financial Systems. The Department has 83 financial 

management systems, few of which are integrated. Some are outdated, lack 

functionality, and are expensive to operate and maintain. To tackle this problem, 

we have launched an aggressive program to transform the Department’s business 

and financial management policies, processes, and systems. 

As part of this initiative, we will develop and implement a departmental business 

and financial enterprise solution that results in a single suite of financial management systems for the Department. The objective of the program is to provide the 

business equivalent of a Global Position System that will: 

• Provide decision-makers with the business information (e.g., budget, accounting, 

personnel, procurement, travel) they need in near real-time; 

• Improve data quality and timeliness; 

• Provide required information to our stakeholders, including the Office of Management and Budget, the Congress, the General Accounting Office, our Inspector 

General, and the public; and 

• Help the Department obtain a clean opinion on our financial statements. 

This program will have a major impact on the way the Department manages its 

business and financial operations and will result in the Department’s becoming 

more efficient and effective by eliminating redundant systems and consolidating 

functions. Developing and implementing the envisioned suite of systems will require 

a substantial up-front investment; however, once implemented, we anticipate that 

this program will produce significant cost savings.

Lack of Standard Business Practices. Just as the Department has multiple financial systems and processes, we have multiple business practices for managing our 

financial operations. While some diversity is desirable to ensure that innovation 

thrives and best practices emerge, some standardization is also necessary. 

Thus, we are launching a comprehensive review of the finance and accounting operations of all Department of Homeland Security components. The review will include an assessment of performance standards, business processes, workload requirements, systems capabilities, staffing requirements, and productivity levels. The 

review will also provide recommendations for establishing department-wide performance standards, improved business process, possible consolidations, and systems improvements. Action plans will be developed to implement recommendations. We anticipate that the Department will begin to realize cost savings from implementing 

the recommendations as early as FY 2005.
9

Challenges Relating to Coordination and Communication. In any organization as 

large as the Department of Homeland Security, communication and coordination can 

be a challenge. To tackle this problem, early in my tenure I established a departmental Chief Financial Officer’s Council, which I chair, and whose members include 

the budget and finance directors from the Department’s components. The Council 

has been instrumental in sharing information and priorities and for discussing the 

problems confronting the components. 

While the Council has been effective in providing direction to the budget and finance officers, the fact remains that they are part of a different command structure. 

While this has not been detrimental to accomplishing the initiatives that we have 

pursued thus far, as we begin to make the sweeping changes needed to become a 

model for financial management excellence, working within the current structure 

could become a greater challenge.

Preparing Consolidated Financial Statements. Another challenge we face is preparing consolidated financial statements within the timeframe established by the 

Office of Management and Budget. Although this is a formidable challenge, we decided early on that the Department needed to move aggressively to meet the requirements of OMB Bulletin-01–09, as amended, which requires agencies to prepare 

financial statements. We have submitted our interim statements to OMB on time 

and expect to meet OMB’s due date for the final audited statement. 

Part of the challenge that we face in preparing our statements is mitigating the 

impact of 18 inherited material weaknesses that were identified in prior-year audits 

at the Department’s legacy agencies. To tackle this problem, I directed the Department’s components to establish corrective action plans for each material weakness. 

I also established a system to monitor implementation in which the components report to me on a quarterly basis on their progress in correcting their material weaknesses. In addition, I am creating a unit within my organization to conduct internal 

audits, some of which will be focused on any material weaknesses that are not being 

corrected on schedule. Through these processes, I believe that we will make significant progress in reducing the number of material weaknesses and ultimately eliminate them.

H.R. 2886 ‘‘Department of Homeland Security Financial Accountability Act’’ 

As the CFO of the Department of Homeland Security, I applaud the spirit with 

which H.R. 2886, ‘‘Department of Homeland Security Financial Accountability Act’’, 

was introduced. I agree with the bill’s sponsor, Congressman Platts, that increased 

accountability is important and necessary as demonstrated by the continuing rash 

of corporate accounting scandals. 

While I agree with the overarching goal that H.R. 2886 seeks to accomplish, I believe that legislation may not be necessary. Section 2 of the bill proposes to subject 

the Department to the same financial management and accountability requirements 

as all other cabinet-level departments. It also proposes to change the status of the 

Chief Financial Officer from a presidential appointee reporting to an under secretary to a presidential appointee subject to Senate confirmation reporting to the 

Secretary. 

As the Department’s CFO, I have the same duties and responsibilities as CFOs 

in other agencies and am held accountable for ensuring the Department’s financial 

integrity in the same manner. The proposed legislation will not change the way I 

perform my job nor will it give me any authority that I do not already have. Similarly, the legislation will not change the requirements the Department must comply 

with in accounting for its finances. The Department complies with the provisions 

of the Chief Financial Officers Act of 1990 and will continue to do so. 

Section 3 of the bill requires that the Department submit a performance and accountability report that incorporates a program performance report. The Department will include program performance information in its FY 2003 performance and 

accountability report. 

Also included in Section 3 is a provision that would require that the Department’s 

performance and accountability report to include an audit opinion of the Department’s internal controls over its financial reporting beginning in FY 2005. In addition, the bill mandates that the Chief Financial Officers Council and President’s 

Council on Integrity and Efficiency jointly conduct a study of the potential costs and 

benefits of requiring agencies to obtain audit opinions of their internal controls over 

their financial reporting. 

An audit of internal controls would be costly and very possibly redundant. The 

Department believes that the proposed study is necessary and that any decision to 

require the Department to audit its system of internal controls should await the results of the study. 
10

Again, I support the intent of the proposed legislation. Should H.R. 2886 ultimately be enacted, the Department would look forward to working closely with the 

Congress on this important Issue.

Program Analysis and Evaluation 

One of the first actions I took as the Department’s Chief Financial Officer was 

to establish a Program Analysis and Evaluation (PA&E) Office and to recruit a 

highly experienced director to the lead organization. PA&E’s primary responsibilities include: 

• designing and managing the Department’s Planning, Programming and Budgeting System; 

• managing the development of the Future Years Homeland Security Program; 

• coordinating the development of the Department’s strategic plan; 

• ensuring the Department meets performance-based budgeting requirements; 

• managing the Department’s Investment Review Process; and 

• preparing the Department’s Annual Performance Plan and the program and 

performance section of the annual Performance and Accountability Report. 

The Department has made significant progress in each of these areas. We expect 

to issue a directive on the Department’s new Planning, Programming and Budgeting 

System (PPBS) within the next month. The PPBS is being modeled after the Department of Defense’s system and will include as an integral component guidance 

for establishing goals and performance measures which reflect program missions 

and assess desired outcomes. The PPBS will be the basis for developing the Department’s first Future Years Homeland Security Program, which will be submitted to 

Congress in accordance with the provisions of the Homeland Security Act. We have 

made substantial progress on the Department’s first strategic plan and expect to 

transmit a draft to Congress for review in early November. In the area of investment review, since May 2003, our Investment Review Board has evaluated approximately ten percent of the Department’s major acquisitions (over $50 million) and 

will increase its efforts over the coming months. Under the leadership of the Deputy 

Secretary, the Department launched a comprehensive effort to develop measures of 

effectiveness to help assess performance and make more informed resource allocation and budget decisions. Finally, we are on track to issue on time the Department’s first Annual Performance Plan, which will include rigorous performance 

measures for each of the Department’s organizational elements. We will also publish 

the Department’s first Performance and Accountability Report in January 2004. 

We believe that through these initiatives we are taking the steps necessary to 

help improve performance, increase accountability and achieve the Department’s 

mission.

Closing 

In closing, I want to assure this committee that the Department of Homeland Security is advancing as rapidly yet judiciously toward our goal of becoming a model 

for management excellence. In the coming months, we will move aggressively to implement the plans that I have described for consolidation, streamlining, and increasing accountability. We will also announce further plans to help us reach these goals. 

We look forward to working with the Congress as we progress with our plans and 

will seek your continued support as we move forward.

Chairman COX. Thank you. Our next witness is J. Richard Berman, Assistant Inspector General for Audits at the Department of 

Homeland Security. 

STATEMENT OF J. RICHARD BERMAN, ASSISTANT INSPECTOR 

GENERAL FOR AUDITS, DEPARTMENT OF HOMELAND 

SECURITY 

Mr. BERMAN. Chairman Cox, Ranking Member Turner, and 

members of the committee. Thank you for the opportunity to be 

here today to discuss financial management and program evaluation at the Department of Homeland Security and H.R. 2886. 

On March 1, 2003, DHS was created by consolidating 22 domestic agencies to better protect the Nation against threats to the 

homeland. Each of the component agencies brought to DHS its distinct business processes as well as financial weaknesses. This presents DHS with significant challenges in integrating financial oper-
11

ations, creating a common infrastructure and developing goals, objectives and meaningful performance measures to guide and track 

progress. 

Measures of effectiveness are critical to the process of evaluating 

the degree of success of department programs and operations, and 

making more informed resource allocation and budget decisions. 

OIG will use the Department’s goals and performance measures, 

as well as the President’s management agenda in shaping its own 

work plans and priorities and will verify and validate program performance data as part of its audits and inspections. 

In the area of financial systems and reporting, DHS must integrate and establish effective controls over the financial systems and 

operations of the incoming components, including correcting the 

weaknesses that it has inherited. 

While some components, such as INS, have received unqualified 

audit opinions on their financial statements, they expended significant human resources and costs to prepare financial statements because of their inadequate financial systems and weaknesses in control. 

DHS inherited a total of 18 material weaknesses identified in 

prior year financial statement audits at the legacy agencies, and 

we will be assessing these material weaknesses as part of our 2003 

financial statement audit. 

Information systems are another key area that DHS must address in order to establish sound financial management and business processes. This is an area in which opportunities abound to 

achieve greater economy and efficiency. 

To meet these challenges DHS will need to build a unified financial management structure capable of supporting both efficient financial statement preparation and reliable, timely financial information for managing DHS’s current operations, including information to support performance-based budgeting. 

Grants and contracts management are also major areas of con- cern. DHS awards over $7 billion annually in grants under its 

emergency preparedness and disaster assistance grant programs, 

which were absorbed primarily from FEMA and the Department of 

Justice. 

Previous FEMA and Justice OIG reports identified significant 

shortcomings in the preaward process, cash management, monitoring and grant closeout processes in the emergency preparedness 

programs. 

Further, these programs have redundant or similar features, 

such as emergency planning, training, and equipment purchases 

and upgrades for State and local emergency personnel, and meaningful performance measures are desperately needed in these 

areas. 

Additionally, FEMA’s OIG found that FEMA had ineffective performance and financial oversight over disaster assistance grants. 

This, in turn, enabled grant recipients and subgrantees to misuse 

millions of dollars in Federal funds. In the 7 months since our office was created, we have reported about $40 million in questioned 

grant expenditures. A sound grants management program is needed, one that complies with Federal requirements and that includes 

effective monitoring of and assistance to States and other grantees. 
12

Similarly, DHS absorbed billions of dollars in contracts from the 

component agencies that were awarded under differing procedures 

and circumstances. DHS must integrate the procurement functions 

of the legacy agencies, some lacking important management controls. For example, at TSA, where contracts totaled $8.5 billion at 

the end of 2002, the Department of transportation OIG found that 

procurements were made in an environment where there was no 

preexisting infrastructure for overseeing contracts. TSA had to rely 

extensively on contractors to support its mission, leading to tremendous growth in contract costs. We are continuing to examine 

these contracts. 

Other DHS components also have complex, high cost procurement programs underway that we are or will be examining. 

Early attention by DHS to strong systems controls for acquisition 

and related business processes will be critical, both to ensuring 

success of the programs and to maintaining integrity and accountability. 

With regard to H.R. 2886, OIG has several comments. First, the 

bill waives the financial statement audit requirement for fiscal year 

2003. The amended version offered by the House Subcommittee on 

Government Efficiency and Financial Management dropped this 

provision and we support that change. With respect to the proposed 

requirement for an opinion on DHS’s internal controls in fiscal year 

2004, the OIG believes such a requirement will be beneficial, but 

that it is not practical to perform such an audit of internal controls 

in that year. 

The amended version extends the deadline to fiscal year 2005, 

and OIG supports that change for the reasons outlined in my prepared statement. The amended version also includes a requirement 

to study the costs and benefits of issuing an opinion on internal 

controls. We support this requirement as well. 

We believe the cost for such an opinion could be substantial—by 

one estimate, a 35 percent increase in total audit costs. And funds 

have yet to be provided for even the overall financial statement 

audit, which we estimate will cost about $11 million, and that is 

without an opinion on internal controls. 

Mr. Chairman, this concludes my remarks. I would be happy to 

answer any questions you may have. 

[The statement of Mr. Berman follows:]

PREPARED STATEMENT OF J. RICHARD BERMAN

Mr. Chairman and Members of the Committee: 

Thank you for the opportunity to be here today to discuss financial management 

and program evaluation at the Department of Homeland Security (DHS). 

On March 1,2003, DHS was created by consolidating 22 disparate domestic agencies to better protect the nation against threats to the homeland. In order for DHS 

to accomplish its multiple missions, it has organized most of these 22 agencies into 

four major directorates. The Border and Transportation Security Directorate, which 

maintains the security of our nations’ borders and transportation systems, is the 

largest and consists of several legacy agencies, including the Transportation Security Administration (TSA), the U.S. Customs Service, the Office of Domestic Preparedness (ODP), and law enforcement functions, such as the Border Patrol, of the 

Immigration and Naturalization Service (INS). The Emergency Preparedness and 

Response Directorate is primarily the former Federal Emergency and Management 

Agency (FEMA), and ensures that our nation is able to recover from terrorist attacks and natural disasters. 
13

1Within DHS, INS has been broken apart and joined with the Bureau of Customs and Border 

Protection and the Bureau of Immigration and Customs Enforcement. Another part formed the 

Bureau for Citizenship and Immigration Services. 

Smaller agencies were incorporated into the above directorates as well as into the 

Science and Technology and Information Analysis and Infrastructure Protection Directorates. Additionally, the Coast Guard and Secret Service retained their distinct 

identities within DHS. The newly created Bureau of Citizenship and Immigration 

Services will assume the responsibility for immigration services from the former 

INS. Providing the infrastructure to hold the department together is the Management Directorate, which is responsible for budget, management, and personnel activities. 

Each of the component agencies brought to DHS its distinct business processes, 

which presents DHS with challenges in integrating operations, creating a common 

infrastructure, and developing goals, objectives and meaningful performance measures to guide and track progress. All of these challenges impact financial management at DHS. 

Financial management in the federal government revolves around requirements 

found in several laws, including the Federal Managers Financial Integrity Act, the 

Chief Financial Officers Act, the Federal Financial Management Improvement Act 

(FMFIA), and the Government Performance and Results Act. Agencies must ensure 

that: (1) government obligations and costs are lawful; (2) funds, property, and other 

assets are safeguarded; (3) reliable, timely, and useful information is available to 

make fully informed decisions and to provide accountability; and (4) performance is 

measured. 

Following is an overview of the major financial management challenges facing 

DHS, along with the steps we believe are needed to address these challenges and 

establish sound financial management and business processes at DHS. We also provide substantive comments on H.R. 2886, The Department of Homeland Security Financial Accountability Act, including the amended version offered by the Subcommittee on Government Efficiency and Financial Management.

OVERVIEW OF FINANCIAL MANAGEMENT CHALLENGES AND SOLUTIONS

Financial Systems and Reporting 

DHS must integrate and establish effective controls over the financial systems 

and operations of the incoming components, many of which bring with them longstanding weaknesses in need of correction. DHS inherited a total of 18 material 

weaknesses identified in prior year financial statement audits at the legacy agencies. I have included a list and brief description of these weaknesses as an appendix 

to my statement. We will be assessing these material weaknesses, and the need to 

retain or add to them, as part of our FY 2003 financial statement audit. 

Correcting such weaknesses presents a major challenge. For example, some components, such as INS,1 have received unqualified audit opinions on their financial 

statements, but expended tremendous human resources and costs to prepare their 

financial statements, and weaknesses existed in financial systems and controls. In 

the past, INS has halted normal business operations for up to two weeks each year 

in order to conduct manual counts of millions of applications in order to calculate 

earned revenue figures for its annual financial statements. Poor systems were a 

major cause of these costly efforts. 

While combining the 22 entities and their myriad financial systems and processes 

pose complex challenges, opportunities abound to achieve greater economy and efficiency. Information systems are a key issue that DHS must address in order to establish sound financial management and business processes. Many of the smaller 

agencies that came into DHS are still supported by their legacy agency systems and 

will need to migrate to a DHS platform. The larger agencies brought their own processing capability, but several of these systems have material weaknesses involving 

system functionality and security. Overall, DHS reports over 80 financial management systems, few of which are integrated. 

To meet these challenges, DHS will need to build a unified financial management 

structure, including integrated and compliant systems as well as consistent policies 

and procedures. These systems must support not only efficient financial statement 

preparation; they must provide reliable and timely financial information for managing DHS’ current operations, too. A key factor will be the sustained commitment 

of top DHS leadership, which the Chief Financial Officer (CFO) already has demonstrated. The CFO meets regularly with financial officers and staff from DHS components and legacy agencies that still provide accounting support to discuss the continuing transition and current DHS-wide financial management issues. Further, the 
14

CFO has formed a group to develop financial system requirements for the agency 

in coordination with the Office of the Chief Information Officer.

Grants Management DHS awards over $7 billion annually in grants under its emergency preparedness 

and disaster assistance grants programs. 

DHS absorbed three major emergency preparedness grant programs from FEMA and the Department of Justice (DOJ): the First Responder Program—$3.2 billion; 

the Assistance to Firefighters Grant Program—$750 million; and the Emergency 

Management Performance Grant Program—$165 million. DHS also absorbed about 

$450 million in miscellaneous emergency preparedness grant programs. Previous 

FEMA and DOJ Office of Inspector General (OIG) reports identified significant 

shortcomings in the pre-award process, cash management, monitoring, and grant 

closeout processes. Each of these programs has redundant or similar features such 

as emergency planning, training, and equipment purchases and upgrades for state 

and local emergency personnel. Furthermore, program managers need to develop 

meaningful performance measures related to the degree to which the DHS grant 

programs have enhanced state and local capabilities to respond to terrorist attacks 

and natural disasters. 

Another complication is that these programs have been divided between two separate DHS directorates. Preparedness for terrorism was placed in the Border and 

Transportation Security Directorate, while other preparedness efforts are located in 

the Emergency Preparedness and Response Directorate. This bifurcation creates additional challenges related to interdepartmental coordination, performance accountability, and fiscal accountability. On September 2, however, DHS Secretary Ridge 

announced that soon he will be sending to Congress a plan centralizing these programs within a single office. Additionally, DHS absorbed about $2.8 billion in disaster assistance grant programs from FEMA. FEMA’s OIG found that it had ineffective performance and financial oversight for these grants, which in turn enabled grant recipients and subgrantees to misuse millions of dollars in federal funds. Grant recipients’ problems 

with financial management, procurement, and sub grant monitoring are long standing. Between 1993 and 2000, for example, auditors questioned the use of funds totaling nearly $900 million dollars. An assessment of mitigation grants awarded between 1989 and 1998 disclosed that half of the $2.6 billion in grant awards was 

never spent. FEMA’s OIG found recurring grant management problems at the state 

level, too. Often states did not monitor or accurately report on sub grant financial 

and performance activities. They did not always make payments or close out 

projects in a timely manner. Their financial status reports to FEMA were often incorrect or past due. And, they did not always maintain adequate documentation supporting their share of disaster costs and other financial requirements. The OIG 

found that FEMA seldom used its enforcement power to compel grantees to fix problems, even when the grantees had long histories of noncompliance. Finally, the DIG 

cited FEMA’s debris removal program for its susceptibility to serious fraud, waste, 

and abuse. 

A sound grants management program to remedy these concerns must include: 

• A comprehensive grants management system that complies with grant financial systems requirements issued by the Joint Financial Management Improvement Program. In addition, DHS must ensure compliance with the Federal Financial Assistance Management Improvement Act of 1999, which requires use 

of electronic application and reporting by grantees via the Internet. 

• Effective monitoring of and assistance to states and other grantees in all 

phases of the grants management life cycle from award to closeout. Grant closeouts and required audits should be within established time periods, and extensions must be adequately justified, approved, and documented. 

• Adequate training and supervision of the grants management workforce. 

• Meaningful performance goals and measures of effectiveness.

Contract Management 

DHS also absorbed billions of dollars in contracts from the component agencies 

that were awarded under differing procedures and circumstances. DHS must integrate the procurement functions of several legacy agencies, some lacking important 

management controls. The General Accounting Office (GAD), for example, reported 

that Customs had not established process controls for determining whether acquired 

software products and services satisfied contract requirements before acceptance, 

nor established related controls for effective and efficient transfer of acquired software products to the support organization responsible for software maintenance. At 

TSA, where contracts totaled $8.5 billion at the end of calendar year 2002, the Department of Transportation OIG found that procurements were made in an environ-
15

ment where there was no pre-existing infrastructure for overseeing contracts. TSA 

had to rely extensively on contractors to support its mission, leading to tremendous 

growth in contract costs. A review by TSA of one subcontractor involved with hiring 

airport screeners found that, out of $18 million in expenses, between $6 million and 

$9 million appeared to be attributed to wasteful and abusive spending practices. 

Our office is currently reviewing several of the TSA contracts including a detailed 

audit of the screener contract, in conjunction with the Defense Contract Audit Agency. 

Also, some DHS components have large, complex, high-cost procurement programs 

under way that need to be closely managed. For example, Customs’ Automated 

Commercial Environment project will cost $5 billion, and Coast Guard’s Deepwater 

Capability Replacement Project will cost $17 billion and take more than twenty 

years to complete. Further, some contracts, regardless of their earlier merits, may 

need to be revised or may no longer be necessary to accomplish DHS’s mission. 

Early attention to strong systems and controls for acquisition and related business 

processes will be critical both to ensuring success and maintaining integrity and accountability. Steps would include: 

• Establishing an overall acquisition strategy for modernization of legacy program and financial systems. 

• Reviewing all contracts transferring to DHS to ensure they are relevant to 

the agency’s mission and—particularly for systems development contracts—will 

not be affected by, or conflict with, DHS system integration efforts. 

• Ensuring that contracting officers and their representatives are properly warranted, trained, and supervised, and that they maintain proper documentation 

in contract files. 

• Establishing a robust and effective contract management and oversight function. 

• Establishing effective systems and controls for managing purchase and travel 

cards.

Improper Payments 

The Improper Payments Information Act of 2002 requires agencies to review all 

programs and activities they administer annually and identify those that may be 

susceptible to significant erroneous payments. Where the risk of erroneous payments is significant, agencies are to estimate the annual amount of erroneous payments and report the estimates to the President and Congress with a progress report on actions to reduce erroneous payments. 

Since DHS must comply with this Act in FY 2004, we will be performing limited 

procedures during the FY 2003 financial statement audit to assess the agency’s 

readiness to meet the reporting requirement.

Performance Reporting/Program Analysis and Evaluation 

Appropriate plans (including workforce plans), goals, objectives and meaningful 

performance measures must be established as soon as possible, and is a challenge 

for any agency. DHS has implemented a comprehensive Measures of Effectiveness 

project under which such measures will be established through a top-down process 

based on the DHS strategic goals. We commend the agency for this effort. 

Measures of effectiveness are critical to the process of evaluating the degree of 

success of department programs and operations, and making more informed resource allocations and budget decisions. DIG will use the department’s goals, as well 

as the President’s management initiatives, in shaping its own work plans and priorities, and will verify and validate the department’s performance data as part of its 

audits and inspections. 

COMMENTS ON H.R. 2886

Presidential Appointment and Senate Confirmation of DHS CFO 

H.R. 2886 would amend U.S.C. 31 to include DHS as one of the cabinet level 

agencies required to have CFOs appointed by the president and confirmed by the 

Senate. As a result of this amendment, the DHS CFO would also report directly to 

the Secretary of DHS rather than to the Under Secretary for Management, as is 

now the case. 

The OIG has no position on this change. As a general rule, we believe that making high-level presidential appointees subject to Senate confirmation is conducive to 

making such an official fully accountable to the Administration and the Congress. 

On the other hand, the absence of such confirmation does not necessarily mean that 

the CFO can-not be held accountable. Our primary interest is that the CFO commit 

to full compliance with the CFO Act, the Federal Financial Management Improve-
16

2The PCOAB has jurisdiction over auditing standards for public companies covered by Sarbanes-Oxley. 

ment Act, and all other applicable statutory requirements and general good business 

practices, and this CFO has done that.

Financial Statement Waiver 

H.R. 2886 waived the requirement for a financial statement audit of DHS until 

FY 2004. The amended version deleted this language, a change that the OIG supported. Completion of a FY 2003 financial statement audit for DHS is important for 

several reasons. Effective in FY 2004, OMB accelerated the reporting deadlines for 

Performance and Accountability reports, including audited financial statements, to 

November 15, 2004. It is unlikely that our office could complete its FY 2004 audit 

of DHS’ financial statements by that date, without at least one year’s prior experience, given the short history of DHS and the scale and complexity of its programs 

and operations. Further, the lack of an audit this year and possible audit timing 

problems next year could negatively affect GAO’s government-wide financial statement audit by increasing the risk of DHS receiving a disclaimer or a qualified opinion. 

We believe emphatically that financial accountability for DHS should not be postponed. Its newness, size, and complexity strongly argue for more oversight, not less. 

GAD has designated the establishment and operation of DHS as a ‘‘high-risk’’ area. 

An audit of DHS’ financial statements is a key oversight mechanism. Not only do 

audited financial statements provide insight into the reliability of financial reporting, the audit report itself provides details on internal control weaknesses and noncompliance that put financial reporting and safekeeping of assets at risk. We strongly believe that this information should be reported sooner rather than later so that 

no time is lost in charting and implementing corrective actions. 

The CFO of DHS is working diligently to have auditable financial statements for 

FY 2003 by November 15. Our audit is well underway and we plan to complete the 

audit by January 31, 2004.

Opinion on Internal Controls over Financial Reporting 

H.R. 2886 required that beginning in FY 2004 DHS include in its performance 

and accountability report an audit opinion on the department’s internal controls 

over its financial reporting. The amended version requires DHS to include management’s assertion on internal controls in the FY 2004 report but defers the audit 

opinion on internal controls until FY 2005. 

The OIG believes that a requirement for an opinion on internal controls would 

be beneficial in concept, but it is not practical to render an opinion on internal controls in FY 2004 for several reasons. Deferral of this requirement to FY 2005 would 

allow time for the related auditing standards and procedures, and the related costs, 

to be more properly considered. 

Fundamental to rendering an opinion on internal control, under attestation standards currently proposed by the American Institute of Certified Public Accountants 

(AICPA), is ‘‘management’s assertion’’ on controls over financial reporting. Management must provide the auditor an assertion that significant controls over financial 

reporting exist and are designed and operating effectively during the period under 

review. In order for management to reasonably make this assertion, it must make 

an assessment of those controls including an evaluation of control effectiveness 

using suitable criteria, such as the GAO’s Standards for Internal Control in the Federal Government, and support the evaluation with sufficient evidence such as testing.Management’s assessment of internal controls under the AICPA guidelines 

would be an extensive, time consuming process requiring sufficient lead time to institute. The need for management to first assess and test controls contributed to a 

one year deferral of the requirement for publicly held companies to have an independent audit of internal control, pursuant to the Sarbanes-Oxley Act of 2002. 

Further, DHS’s situation is significantly more complex, with its inception occurring this year, compared to that of a publicly held company that has established 

processes, financial systems, and the general infrastructure to support the extensive 

effort required before an audit of internal controls can be performed. 

Finally, with the advent of Sarbanes-Oxley, changes are occurring in the auditing 

profession. Although Sarbanes-Oxley applies only to public companies, it could have 

an impact on auditing standards for other entities too, including government agencies. The Auditing Standards Board (ASB) of the AICPA in June 2003 submitted 

to the new Public Company Accounting Oversight Board (PCOAB) 2 its recommended new, significantly expanded attestation standard for reporting on internal control over financial reporting. In the submission letter, the AICP A said it be-
17

lieved the proposed standard should apply to all engagements and not just to public 

companies. 

It should be noted that the intent behind the requirement to opine on internal 

controls over financial reporting is similar to the intent behind FMFIA, although 

FMFIA has involved a far less rigorous process. Consideration should be given to 

combining these requirements when deliberating the proposed internal control reporting requirements. 

Even without an opinion on internal controls, our financial statement audit report 

will identify material weaknesses and other reportable conditions related to financial reporting. For example, DHS financial statement auditors for FY 2003 will consider internal controls related to financial reporting for grants, procurement, property and equipment, inventory, budgetary reporting, liabilities, and many other categories. 

We believe there would be significant additional cost to render an opinion on internal controls. The size of this increment would depend on the extent of evaluation 

and testing performed by DHS and the audit approach for the financial statements. 

In the private sector, one survey found that the cost of complying with the internal 

control reporting requirements of Sarbanes-Oxley would increase the average audit 

cost by 35 percent. This might be on the low-end for DHS because of its newness 

and complexity. Further, there will likely be significant costs associated with management’s assessment of internal controls, which, as explained above, would be a 

prerequisite for the audit. 

We believe that rendering opinions on internal controls over financial reporting 

at agencies could be beneficial by identifying additional weaknesses, and focusing 

attention on the state of financial management in the government. The terminology 

of a clean opinion versus a qualified opinion or disclaimer provides a ranking system 

that is easy to grasp. The downside is the additional cost to fund agency preparations and the audit itself.

Study of Potential Costs and Benefits of Audit Opinions on Internal Control 

The amended version of H.R. 2886 requires that the CFO Council and the President’s Council on Integrity and Efficiency jointly conduct a study of the potential 

costs and benefits of requiring agencies to obtain audit opinions of internal controls 

over their financial reporting. We endorse this provision. 

We believe the costs, as discussed above, could be substantial. Therefore, it is 

worth examining the issue to ensure that the most efficient and effective audit procedures can be adopted and that the costs are in line with the benefits. We assume 

the study will include such an examination.

CONCLUSION 

Mr. Chairman, this concludes my prepared statement. I have tried to limit my remarks to the areas of greatest concern and your specific questions. Please be assured that our office will continue to place a high priority on these issues. Again, 

I appreciate your time and attention and welcome any questions you or members 

of the Committee might have. 

APPENDIX

TO THE STATEMENT OF J. RICHARD BERMAN ASSISTANT INSPECTOR GENERAL FOR

AUDITS U.S. DEPARTMENT OF HOMELAND SECURITY

SUMMARY OF MATERIAL WEAKNESSES

RELATED TO FY 2002 FINANCIAL STATEMENT AUDITS

FEDERAL EMERGENCY MANAGEMENT AGENCY

1. Information security controls for FEMA’s financial systems environment need improvement. 

Deficiencies existed in the areas of security program planning, training and 

awareness, background investigations, system certification and accreditation, 

technical vulnerabilities, terminations, service providers, and wireless communications.

2. FEMA’s financial system functionality needs significant improvement. 

Functionality deficiencies included: (1) inadequate accounting functionality in 

the property management system, (2) inefficient payroll processing, (3) no managerial cost accounting system, (4) interface problems with the HHS’ funds disbursement system, and (5) inaccurate vendor table data leading to inefficiencies.
18

3. FEMA must improve its financial reporting process. 

Deficiencies in FEMA’s financial reporting process included: (1) significant 

delays in preparing financial statements, (2) unfinalized standard operating 

procedures for statement preparation, (3) lack of an integrated financial reporting process, (4) untimely close-outs for interagency agreements, (5) notable adjustments related to de-obligations, expense accruals, and the recording of disbursements as advances, and (6) inconsistent treatment of three unusual contingent appropriations.

4. FEMA must improve its real and personal property system processes. 

FEMA lacked a property management system that met its accounting needs. 

The system only tracked equipment, not other types of property. The system 

changed acquisition dates for equipment upon transfer and did not link the location of equipment to the accounting records. FEMA did not have procedures 

to ensure proper property inventories or to ensure the consistent recording of 

equipment on either a system or component basis. Processes to identify, value, 

and track construction in progress and deferred maintenance were not fully implemented.

5. FEMA must improve its account reconciliation processes. 

Reconciliation deficiencies were noted in the areas of accounts payable, unliquidated obligations, fund balance with Treasury, the suspense fund, reimbursable 

activity, and intragovernmental balances. Deficiencies were related to timeliness, procedures, documentation, or consistency.

6. FEMA must improve its accounts receivable processes. 

FEMA needed to improve its billing timeliness for certain accounts, although 

it had made progress during the year.

Immigration and Naturalization Service 

1. INS’ information system controls need improvement. 

Deficiencies existed in the areas of access controls, audit trails, back-up procedures, change controls, and system software controls.

2. INS’ existing systems are not adequate to record revenue transactions in accordance with federal standards. 

The INS did not have a reliable system that could provide regular, timely data 

on the number and value of immigration applications and petitions received, 

completed, and pending. This information was necessary to support general 

ledger entries required for recording fee revenues that were earned when the 

related applications were completed. Instead, the INS recorded earned revenue 

in its general ledger when the fees were received.

3. INS’ processes for financial accounting and reporting need improvement. 

Due to limitations in the design and operation of its legacy financial accounting 

system, INS did not maintain integrated perpetual general ledger records for 

many key accrual balances. Instead, the INS used stand-alone systems and performed limited general ledger updates, or it obtained the required balances 

through manual processes and data calls and recorded ‘‘on-top’’ adjustments as 

part of the financial statement preparation process. Additionally, the INS did 

not perform monthly, or at a minimum, quarterly reconciliations of certain 

major account balances.

Transportation Security Administration 

1. Hiring qualified personnel 

TSA had not hired sufficient accounting personnel for the Financial Reporting 

office. At the end of fieldwork, the vacancy rate in the CFO’s financial management structure was 50 percent.

2. Financial reporting and systems 

Personnel separations from TSA were not processed on a timely basis in the 

personnel system. Other deficiencies existed in the areas of access controls, security plans, and risk assessments.

3. Property accounting and financial reporting 

TSA did not maintain complete and accurate records of its passenger and baggage screening equipment, and an adjustment of approximately $149 million 

was required to properly record construction in progress.

4. Policies and procedures 

TSA did not have written accounting policies and procedures to support TSA’s 

financial management and budgeting functions. Such policies and procedures 

might have prevented the following deficiencies: 
19

a. An adjustment of approximately $1.0 billion to accrue accounts payable properly for year-end. 

b. An approximate backlog of $322 million in purchase orders/obligating documents that were not entered into the accounting system at year-end, often because of incomplete and erroneous accounting information. 

c. Adjustments of $309 million and $101 million to correct for improper expensing of equipment meeting TSA’s capitalization criteria. 

d. Untimely recording of accounts receivable for air carrier and passenger security fees. 

e. Lack of a process to develop appropriate disclosure information related to 

leasing arrangements when initially drafting financial statements. 

f. An adjustment of approximately $45 million to correct the expensing of a 

grant advance payment. 

TSA also did not have a process in place to monitor and evaluate its accounting 

and internal control systems to meet FMFIA reporting requirements.

5. Administration of screener contracts 

TSA did not have policies and procedures to provide an effective span of control 

to monitor contractor costs and performance. Contractors did not always provide 

evidence to support rates or specific cost and pricing data, nor did they always 

definitize their contracts, as required. These deficiencies left TSA vulnerable to 

inflated labor rates and other inappropriate charges.

United States Customs Service 

1. Customs did not adequately monitor the effectiveness of its internal controls over 

the entry duties and taxes in 2002. 

After the events of September 11, 2001, Customs suspended its Compliance 

Management program. This program evaluated Customs’ risk-based approach to 

trade compliance by assessing whether revenue collections reasonably approximated those actually due. Without the CM program, Customs lacked an important internal control related to revenue collection during FY 2002.

2. Drawback controls need to be strengthened. 

Customs’ Automated Commercial System (ACS) could not perform certain processes that would have facilitated monitoring of the drawback program. To monitor the program, Customs used a risk management process to select claims for 

review. Although the process was supposed to allow for statistical projection of 

the results, personnel were allowed to reduce the random sample to a baseline 

number, thus impeding the statistical projection of results. Reconciliation procedures for related drawback claims also were not sufficiently comprehensive.

3. Customs IT system logical access and software maintenance security controls 

need improvement. 

Deficiencies existed in the areas of network and host-based system configuration, password management practices, logical access controls, application programs, computer-related facilities and equipment, and software patches. These 

weaknesses put Customs at risk of unauthorized system access, modification, 

disclosure, loss, or impairment.

4. Core financial systems need to be improved and integrated. 

Customs’ core financial systems did not provide certain financial information 

necessary for managing operations. Also, they did not capture all transactions 

as they occurred during the year, did not record all transactions properly, and 

were not fully integrated. Additionally, the systems did not always provide for 

essential controls with respect to override capabilities.As a result, extensive 

manual procedures and analyses were required to process certain routine transactions and prepare year-end financial statements.

Chairman COX. Thank you. Our next witness is Linda M. Springer, Comptroller of the Office of Federal Financial Management at 

the Office of Management and Budget. Welcome. 

STATEMENT OF LINDA SPRINGER, COMPTROLLER, OFFICE OF 

FEDERAL FINANCIAL MANAGEMENT, OFFICE OF 

MANAGEMENT AND BUDGET 

Ms. SPRINGER. Thank you, Mr. Chairman. Appreciate the opportunity to appear before you and the Members today to testify on 
20

accounting and financial controls at the Department of Homeland 

Security. 

In the face of many challenges involved with its creation, the Department has demonstrated a very strong commitment to financial 

excellence and should be recognized for its efforts during this past 

year. Although the creation of the Department began just 7 months 

ago, it is off to a good start with regard to its financial management. The Department has shown commitment to preparing audited financial statements in the first year of its existence and to 

demonstrate accountability to both the Congress and to the American people. 

It could have waived, asked for a waiver of that requirement 

under the Accountability of Tax Dollars Act of 2002, but the Department instead elected to not only prepare statements, but do 

them on the accelerated time frame to which we are holding other 

agencies accountable. 

This commitment, coupled with the preparation of quarterly financial statements, shows the Department’s determination to be 

fiscally responsible from its inception. 

Many issues have been raised regarding the proper accounting 

treatment of the new Department’s financial activity and its presentation in the financial statements that must be addressed. OMB 

has worked and continues to work with the Department of Homeland Security to resolve these issues in a timely manner. 

Undoubtedly there will be new issues that will surface, but we 

look forward to working with the Department to address them together, in the Department as well. Both the Office of the CFO and 

the Office of the Inspector General have partnered very effectively 

with OMB in that regard. 

The Department must also begin to address longstanding weaknesses inherited from its components, as you have heard earlier, 

such as weak financial accounting and reporting processes, inadequate information technology systems, ineffective real and personal property processes and other internal control issues. 

The Department has inventoried these weaknesses and is developing corrective action plans. And it will take time, obviously, to 

implement those, and some of those weaknesses are still in existence. 

With regard to performance and information for management 

purposes, it is necessary for financial managers at the Department 

to provide management, administration and the Congress with 

quality, timely information and analysis that better informs about 

its financial implications of program decisions as well as the impact 

of those decisions on agency performance goals and objectives. 

It is the responsibility of the Department’s management to put 

a process in place that sets performance measures consistent with 

its strategies, as well as sets goals for achieving its missions and 

objectives. 

You may be familiar with OMB’s PART process, that was put 

into place for the fiscal 2004 budget season, and the PART process 

attempts to marry up performance measurement with the budget 

process, and that applies to the Department of Homeland Security 

as it does for every other agency. 
21

For fiscal 2004, last year’s budget process, eight programs at the 

Department of Homeland Security were PARTed. We have a verb 

to go with that process. And this year an additional nine programs 

will be added to the PART process from the Department. 

The PART process leads to recommendations that will enhance 

program performance and will also support GPRA implementation. 

The PART is a very comprehensive process, and an additional 20 

percent of programs in each agency are added each year to the purview of the PART program at OMB. 

We believe that this is an important complement to the work 

that the Department is doing, that the Chief Financial Officer described to you earlier. 

With respect to H.R. 2886, there are a few comments that We 

would offer with respect to the amended version. We are pleased 

that the amended version does not include the fiscal 2003 requirement for reporting. Obviously, we commend DHS for its recognition 

of the value associated with going through an audit in its initial 

year. 

With respect to the internal control audit opinion, the amended 

bill contains a requirement for the Department to have that opinion level audit of internal controls, beginning with fiscal 2005. Additionally the amended bill would also require a study, jointly performed by the CFO Council, the President’s Council on Integrity 

and Efficiency, which is the IG group, and analyzed by GAO. 

The administration acknowledges that obtaining an audit opinion 

on internal controls is potentially useful, yet it is a very significant 

undertaking. We believe that the insights of a study would be very 

beneficial across the board, inclusive of the Department of Homeland Security. So we believe that—while we applaud the amendments, we also believe it would be helpful to go further and let the 

Department benefit from the results of the study in the event that 

that is not done in time for the 2005 fiscal year. 

It is important to note a recent event. You are aware that the 

SEC had promulgated rules regarding company executives assessing the adequacy of their internal controls. The Public Company 

Accounting Oversight Board just yesterday met and issued requirements for auditors, the actual audit guidance for assessing these 

internal controls. So there is clearly a lot of activity in the public—

or in the private sector that sets a precedent that we will be considering as we review this requirement, potential requirement. 

With regard to the CFO Act piece of H.R. 2886, it is OMB’s position that the substantive provisions of the CFO Act should and do 

apply to the Department of Homeland Security as they do for every 

other major department and agency of the government. The CFO 

Act specifies a very specific organizational structure that is inconsistent with the structure that Congress approved when it passed 

the Homeland Security Act of 2002. 

The administration believes that the current construct within the 

Department is, with a strong and competent leader in two position 

of Under Secretary for Management, supports not only the CFO office, but provides value in the overall comprehensive view of coordinating not only financial functions but procurement and IT functions. We think that that does add great value, that particular construct. 
22

In every other respect, though, the Department is very much in 

conformance with the Act from a financial accountability standpoint. 

In conclusion, Mr. Chairman, we believe that the Homeland Security Department in its short lifetime has demonstrated a very 

strong commitment to financial management practices of the highest order, and we have a strong interest, as you do, in preventing 

potential waste, fraud and abuse, and OMB will be very diligent 

in working with the Department. 

With that, I would close and be happy to take your questions. 

[The statement of Ms. Springer follows:]

PREPARED STATEMENT OF THE HONORABLE LINDA M. SPRINGER

Thank you, Mr. Chairman, for the opportunity to appear before you today to testify on accounting and financial controls system at the Department of Homeland Security (DHS). 

As you know, the enactment of the Homeland Security Act of 2002 (P.L. 107–296) 

represents an historic moment of almost unprecedented action by the Federal Government to fundamentally transform how the nation will protect itself from terrorism. Rarely in our country’s past has such a large and complex reorganization 

of government entities occurred with such a singular and urgent purpose. 

The government is undertaking a unique effort to transform a distinct group of 

agencies with multiple missions, values, and cultures into a strong and effective cabinet department. This unique opportunity comes with many challenges, including 

those related to the new department’s stewardship obligation to use tax dollars appropriately and to ensure accountability to the President, the Congress, and the 

American people. However, with great challenge comes great opportunity-both the 

opportunity to reengineer and develop seamless systems and processes that support 

day-to-day operations and the opportunity to provide analysis and insight about the 

financial implications of program decisions that will ultimately assist this Administration, the Congress, and other decision-makers in evaluating the value and cost 

of federal programs.

Overview of DHS Financial Management 

The creation of the Department of Homeland Security marks one of the largest 

and most complex mergers ever undertaken by the Federal Government. As with 

any merger, some of the new Department’s efforts must focus on the most immediate challenges. Other efforts, however, by their nature will take several years to 

successfully develop and implement. For instance, cost control and asset management, coupled with the need to successfully blend individuals from departments and 

agencies with different cultures, values, and missions, are critical to its effectiveness 

and efficiency. In the face of the many challenges involved with its creation, DHS 

has demonstrated a strong commitment to financial excellence and should be recognized for its efforts during the past year. Although the creation of DHS began just 

seven months ago, it is off to a good start with regard to its financial management. 

DHS has shown commitment to preparing audited financial statements in its first 

year of existence to demonstrate accountability to the Congress and the American 

people, even though the Accountability of Tax Dollars Act of 2002 allows the Department to request a waiver from this requirement. This commitment, coupled with the 

preparation of quarterly financial statements, shows the Department’s determination to be fiscally responsible from its inception, accounting for all transferred assets, liabilities, and operations. DHS’ goal is to obtain an unqualified (clean) opinion 

for fiscal year 2003 and, if events permit, to issue its performance and accountability report on an accelerated timeframe. 

An early challenge DHS must overcome is to obtain a clean audit opinion on its 

financial statements, which will demonstrate tangible evidence of its efforts to create a premier financial management organization. Reaching that goal, however, will 

require a cooperative effort among the 22 entities that were transferred to the Department mid-year. 

Many issues have been raised regarding the proper accounting treatment of the 

new Department’s financial activity and its presentation in the financial statements 

that must be addressed. OMB has worked, and continues to work, with DHS to resolve these issues in a timely manner. Undoubtedly, new issues will surface, but we 

look forward to working with DHS to address them together. 
23

DHS must also begin to address the longstanding weaknesses inherited from its 

components, such as weak financial accounting and reporting processes, inadequate 

information technology (IT) systems functionality and security controls, ineffective 

real and personal property processes, and insufficient internal controls over duties 

and taxes. The Department has inventoried these weaknesses and developed corrective action plans, although these weaknesses are not yet resolved. 

DHS has already taken steps to integrate the diverse financial and performance 

information systems. It has identified the financial management systems to which 

the smaller component agencies may migrate beginning October 1. However, this 

step is just the first of many in a long process to streamline the Department’s systems. The Chief Financial Officer (CFO) must also identify the Department’s IT assets and then, in conjunction with each program, determine what IT assets are 

needed to meet mission requirements. The CFO must work with the Chief Information Officer (CIO) to identify a financial management system or systems to meet 

user needs, whether it be commercial-off-the-shelf, internally developed, or a hybrid 

of the two.

Establishing Sound Financial Management and Business Processes 

The push to create a citizen-centered, results-oriented government has been exacerbated by the demands on available resources. It is necessary for financial managers to provide its management, this Administration, the Congress and other decision-makers with quality, timely information and analysis that better informs about 

the financial implications of program decisions and the impact of those decisions on 

agency performance goals and objectives. 

It is the responsibility of DHS management to put a process in place that sets 

performance measures consistent with its strategies, as well as sets goals for achieving its missions and objectives. OMB’s PART assessment supplements the Department’s performance reviews in the context of the budget process. In addition, DHS 

management must hold the agency fully accountable in order to attain sound financial management. OMB, along with the Office of the Inspector General (OIG), has 

the role of overseeing this process. OMB looks forward to continuing to work with 

the Department to ensure that DHS works to achieve sound financial management 

practices.

OMB believes that DHS must focus its attention on four critical areas: 

• Ensuring top leadership drives the transformation to a single agency, single 

vision/goal 

• Creating the financial organization that adds value and supports the Department’s mission 

• Establishing seamless financial systems and businesses processes 

• Providing meaningful information to decision-makers by routinely generating 

reliable cost and performance information analysis

Ensuring Top Leadership. Leadership is critical to establishing sound financial management within the Department. The merger of 22 disparate entities into a single 

financial organization must begin with a clear vision of performance and expectations that is communicated throughout the organization at all levels. To be successful, DHS’ top leadership must make attaining that vision a priority, and the message must be reinforced in both words and actions.

Creating the Financial Organization. A premier financial organization must recognize that it exists to provide quality, timely and relevant information about the financial implications of program decisions and the impact of those decisions on agency performance goals and objectives. To accomplish this purpose, leading financial 

organizations must serve their customers both internally and externally, aligning 

their mission and organizational structure to better support the entity’s mission and 

objectives. DHS should take all necessary steps toward creating a financial team 

that supports the overall missions, goals, and objectives of the Department.

Seamless Financial Systems and Business Processes. Building a premier financial organization will also require DHS to establish seamless financial systems and business processes to enable it to successfully fulfill its mission and achieve its goals 

and objectives. At the earliest opportunity, DHS must determine the essential system and process infrastructure that it requires throughout the organization. This infrastructure must also be flexible enough to support information needs at the detailed program level.

Providing Meaningful Information. In seeking to create a premier financial organization, DHS must also pursue means that will permit it to routinely generate reliable cost and performance information analysis. Such analytics combined with other 

value-added activities will support the agency’s mission and goals. This capability 

is a requirement for ‘‘getting to green’’ on the Improved Financial Performance ini-
24

tiative of the President’s Management Agenda, and it gets to the heart of first-class 

financial management. 

The creation of DHS provides an opportunity to reengineer much of the management reporting formats produced by its components to meet the needs of its users. 

As DHS looks to develop a new strategic plan that will outline its goals and objectives, its financial organization should design reporting formats that are aligned to 

measure performance in executing its strategy.

H.R. 2886, ′′Department of Homeland Security Financial Accountability Act′′

OMB has high expectations of solid financial management practices for this new 

Department, especially in light of its unique role and function within the Federal 

Government. To that end, OMB appreciates your consideration of H.R. 2886, the 

‘‘Department of Homeland Security Financial Accountability Act,’’ and we look forward to discussing several issues of this legislation with you.

Fiscal Year 2003 Financial Reporting and Audit. The original version of H.R. 2886 

contained a provision that lifted the requirement of DHS to prepare and submit audited financial statements for any fiscal year before fiscal year 2004. However, much 

work has been done, and continues to be done, toward the completion of the fiscal 

year 2003 financial statement process at DHS. Thus, OMB is pleased that the 

amended H.R. 2886 does not include this provision, and we commend DHS for its 

recognition of the value that is provided in this initial year by preparing and undergoing an audit of financial statements.

Internal Control Audit Opinion. The amended H.R. 2886 contains a requirement for 

DHS to ‘‘include in each performance and accountability report an audit opinion of 

the Department’s internal controls over its financial reporting,’’ beginning with its 

fiscal year 2005 report. Additionally, the amended H.R. 2886 would also require that 

a study regarding the potential costs and benefits of requiring this audit opinion be 

jointly performed and submitted by the CFO Council (CFOC) and the President’s 

Council on Integrity and Efficiency (PCIE), as well as analyzed by the Comptroller 

General of the General Accounting Office (GAO). 

The Administration acknowledges that obtaining an audit opinion on internal control is a potentially useful, yet very significant, undertaking. While we agree that 

an opinion level internal control audit could have merit, a review of this magnitude 

will require the allocation of additional resources and sufficient time to coordinate 

among agency Chief Financial Officers, Inspectors General, and independent public 

auditors. Additionally, this provision, if enacted, has the potential of imposing a 

more stringent requirement on DHS than other Federal departments and agencies. 

It is our understanding that this internal control audit opinion requirement is 

partly intended to hold Federal agencies to the same standards for financial accountability as the private sector. At the present time, however, no other sectors are 

required to obtain an audit opinion on internal control. While SEC registrants will 

be subjected in the future to such a requirement under Section 404 of the SarbanesOxley Act (enacted July 2002), the effective date has been delayed as a result of 

public comments. This deferral recognized several different concerns, which would 

also apply to federal agencies. 

OMB is pleased that the amended version of H.R. 2886 includes a provision requiring a cost benefit study. However, we are concerned that the internal control 

audit opinion requirement for DHS would take effect with the fiscal year 2005 report, despite any potential determinations by the joint CFOC/PCIE study and the 

subsequent GAO analysis that such a requirement is not beneficial. Thus, OMB supports delaying the requirement of an internal control audit opinion until after the 

results of the cost-benefit study can be carefully analyzed. 

Applying the CFO Act to DHS. It is OMB’s position that the substantive provisions of the CFO Act should apply to the new Department of Homeland Security 

as they do every other major Department and agency of the Federal Government. 

However, the CFO Act specifies an organizational structure—direct reporting of the 

CFO to the agency head—that is inconsistent with the structure Congress endorsed 

when it passed the Homeland Security Act of 2002. The Homeland Security Act enacted the President’s proposal to consolidate management responsibilities at the 

new Department under the Under Secretary for Management. The Administration 

believes that with a strong and competent leader in the position of Under Secretary 

for Management, sound management policies and practices receive maximum standing within the agency. 

I hope we can work together to apply the substantive provisions of the CFO Act 

to the new Department of Homeland Security, while remaining faithful to the President’s original proposal to create the new Department, as well as the Homeland Security Act of 2002.
25

Conclusion 

OMB believes that DHS, in its short life, has demonstrated a commitment to 

sound financial management. Similar to the Committee, OMB has a strong interest 

in preventing potential waste, fraud, and abuse at DHS and at all federal agencies, 

and we look forward to working with the Department to ensure that its accounting 

and financial controls system are as effective and efficient as possible. 

Thank you, Mr. Chairman. I look forward to answering your questions.

Chairman COX. Thank you. Our finance witness is Miche`le 

Flournoy, who is a Senior Advisor at the Center for Strategic and 

International Studies, in the International Security Program. Welcome. 

STATEMENT OF MICHE` LE FLOURNOY, SENIOR ADVISER, 

INTERNATIONAL SECURITY PROGRAM, CENTER FOR 

STRATEGIC AND INTERNATIONAL STUDIES 

Ms. FLOURNOY. Thank you, Mr. Chairman, Mr. Turner, and 

other members of the committee. Thank you for inviting me to testify this afternoon. I have been asked to address a slightly different 

issue, as an outsider, the issue of what a strategic planning system 

might look like for the Department of Homeland Security, based on 

my own experience in strategy and planning at the Pentagon. 

The Department of Homeland Security faces several challenges 

that really emphasize the need for and importance of strategic 

planning. Its mission is vital to the welfare of the Nation. It is facing very real day-to-day terrorist threats. It is trying to integrate 

this very diverse array of organizations with their own cultures 

and traditions and ways of doing business. 

It is responsible for spending billions of taxpayer dollars, and it 

is trying to balance the very near term with the long term. It needs 

a unifying vision, a strategy for achieving its objectives, and a clear 

set of priorities to guide resource allocation and risk management. 

It is difficult, if not impossible, to do these things absent an effective strategic planning process. So what should that planning process look like? 

I think there are five critical elements. The first and what I 

would call the foundation is a comprehensive and integrated assessment of homeland security threats and vulnerabilities. Such an 

assessment is absolutely critical to setting priorities, to making the 

hard choices about where to place emphasis and where to accept 

or manage risk, to reconciling competing interests and to allocating 

resources effectively. 

The second key element is the development and refinement of 

the President’s homeland security strategy. This is a strategy that 

should define our national objectives in homeland security, as well 

as the strategies and capabilities and processes necessary to 

achieve those objectives. It should clarify an interagency division of 

labor. It should also clearly articulate priorities for resource allocation across the Nation’s portfolio. 

Unfortunately, the current iteration of that strategy falls short of 

meeting these criteria. I believe it needs to be revised. I would urge 

you to consider tying this document to the budget and performance 

review cycle and calling on the administration to actually update 

and submit it to Congress on an annual basis as a foundation for 

not only the Department’s planning, but for interagency planning 

and homeland security. 
26

The third key element of strategic planning is, as has been mentioned, a 5-year plan for the Department of Homeland Security, 

and I applaud DHS’s efforts in embarking on this exercise. This is 

something that should provide the Department with a blueprint for 

developing its budget, identify and prioritize capability shortfalls 

that need to be addressed, specify short-term actions that deserve 

to be taken on a priority basis as well as highlight longer term investments that need to be made. 

It should be, in my view, an internal classified document that 

provides front-end authoritative guidance to the various components of the Department for their budget submissions. It should be 

a living document that is reviewed and revised on an annual basis, 

though it ideally could form the basis for multi-year appropriations. 

The fourth key element is an annual program and budget review 

process. And, here again, I would applaud the formation of a PA&E 

office in the Department. This is critical to ensuring that the program and the budget of the Department actually reflects the Secretary’s priorities and the President’s priorities for homeland security. It is really the key process that ensures that the components 

are building their budgets according to the Secretary’s guidance. It 

is a key element that allows the Secretary to enforce his vision, his 

priorities across the rest of the Department. 

It is also key to making hard choices, key trade-offs that need to 

be made early in the budget making progress as opposed to late 

when it is more difficult to deal with them. 

The final key component I would highlight for you is an annual 

execution or performance review. That is a retrospective look that 

looks at the Department’s previous year of performance and tries 

to identify where resources were not spent according to plan, flag 

programs that are no longer a priority, highlight priorities that 

weren’t foreseen before. This is a critical tool for the Secretary to 

identify key issues for the next program and budget cycle, and to 

enforce accountability within the Department. 

In addition to these elements, there are a lot of intangibles that 

will be critical to making this a success: Ownership by the Secretary of the process, making sure the process includes all relevant 

internal and external stakeholders, making sure that there is appropriate interaction across the interagency spectrum. 

I think this approach has a number of organizational implications for the new department, and I believe that these could be implemented with a relatively few number of personnel, but would 

give the Secretary disproportionately large leverage in making 

these organizational changes. The first is to establish a strategic 

planning office whose mission expressly is to define and prioritize 

objectives of the Department and to develop the 5-year plan. This, 

in my view, should also include a threat assessment unit that is 

charged with thinking like a terrorist, not dealing with the day-today threat assessment but the long term. How is this threat evolving? How do we stay ahead of it as we plan for the future? 

The second key element is a Program Analysis and Evaluation 

Office that is charged with undertaking homeland security mission 

area assessments and program assessments to identify priorities 

for resource allocation and to orchestrate the program and budget 

review process. 
27

The third is an office that is focused on program performance 

and execution, again an office that would look retrospectively at 

the previous year’s execution and try to enforce a degree of accountability within the Department for upholding the Secretary’s 

priorities. 

Finally, as you all consider changes, I would urge you to keep in 

mind the need for flexibility and adaptability. This is a department 

that is dealing with a dynamic threat that needs unprecedented 

flexibility to be able to respond to that threat in a timely manner. 

Overall, let me just sum up by saying that I think there is no 

other department of the Federal Government where a coherent and 

effective strategic planning process is more important. 

Thank you very much. 

[The statement of Ms. Flournoy follows:]

PREPARED STATEMENT OF MICHE`LE A. FLOURNOY SENIOR ADVISOR FOR

INTERNATIONAL SECURITY CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES

Mr. Chairman, members of the Committee, thank you for inviting me to testify 

this afternoon before this distinguished body. I have been asked to address the issue 

of what a strategic planning system for the Department of Homeland Security might 

look like, based on my strategy and planning experience in the Pentagon. 

Although the Department of Defense and the Department of Homeland Security 

are different in many ways, they do share some common challenges - challenges 

that underscore the need for and importance of strategic planning in each case. Both 

are: 

• charged with missions that are vital to the health and welfare of the nation—

protecting the American people and our way of life is a mission in which we cannot 

fail; 

• facing persistent and resourceful enemies; 

• large, complex bureaucracies comprised of a number of diverse and (in some 

cases, previously independent) organizations with their own cultures, traditions, and 

ways of doing business; 

• responsible for spending billions of taxpayer dollars as efficiently and effectively 

as possible; 

• perennially in the position of having more program than budget; and . 

• trying to balance near-term demands against long-term investments. 

These challenges make it that much more important for each Department to have 

a unifying vision, a strategy for achieving its objectives, and a clear set of priorities 

to guide resource allocation and risk management. It is difficult, if not impossible, 

to create these absent an effective strategic planning process. 

Strategic planning is even more crucial for a brand new department that is bringing together diverse cultures and personnel systems, finding its place in the interagency process, and dealing with very real and immediate threats and operational 

responsibilities while still trying to get its telephone and computer systems to work. 

Without a clear strategic planning process, directed from the top, and a cadre of professionals for whom this is their only responsibility, the immediate will always 

crowd out the long-term planning that is so critical to the Department’s ultimate 

success and to the nation’s security.

Strategic Planning in the Department of Homeland Security: Elements of 

Success 

In my view, strategic planning for homeland security must include five critical elements: 

• A comprehensive, integrated assessment of homeland security threats and 

vulnerabilities: Such an assessment is critical to setting priorities, reconciling competing interests, and allocating resources effectively. If we try to protect equally 

against all possible threats, we will protect adequately against none. Although there 

has been significant discussion of threats and vulnerabilities, no one in government 

has yet conducted the kind of creative, integrated analysis that is necessary to determine which should be accorded the highest priority - and which should be accorded the least. Without a regular, disciplined, and comprehensive threat and vulnerability assessment process that considers both the probability of various types 

of attacks and the severity of their consequences, decision makers will have little 

analytic basis for making tough strategy choices about where to place emphasis, 
28

where to accept or manage a degree of risk, and how best to allocate resources to 

improve America’s security. • Development and refinement of the President’s Homeland Security Strategy: This 

strategy should define our homeland security objectives as well as the strategies, 

capabilities and processes necessary to achieve those objectives. It should also define 

a clear division of labor among all of the actors at the federal level, clearly identifying which agencies have lead responsibility in which areas, and which should be 

prepared to provide support. In short, the strategy should point the way toward 

well-defined roles and responsibilities, coordination processes, and operational procedures for enhancing the accountability and performance of the U.S. government 

across the homeland security domain. Based on the integrated threat vulnerability 

assessment described above, the strategy should also clearly articulate priorities to 

guide resource allocation for homeland security across the nation’s investment portfolio—creating a foundation for unifying the efforts of the federal government and 

establishing the conditions for effective cooperation and coordination with state and 

local governments and the private sector. Unfortunately, the administration’s current Homeland Security Strategy falls short on a number of these counts and needs 

to be revised. In order to ensure that it remains a living and relevant document, 

the Homeland Security Strategy should be tied to the budget and performance review processes and reviewed, updated and submitted to Congress on an annual 

basis. The Department of Homeland Security should play a critical role in assisting 

the Office of Homeland Security in drafting this document for the President. • Development of a Five-Year Plan for the Department of Homeland Security: Keying off the integrated threat-vulnerability assessment and the President’s Homeland 

Security Strategy, the Secretary of Homeland Security should develop a five-year 

plan to guide the Department’s activities and investments. Such a plan should clarify the Department’s roles and responsibilities in supporting the Homeland Security 

Strategy, articulate the Department’s objectives in its areas of responsibility, and 

develop strategies for achieving these objectives. It should provide the blueprint for 

developing the Department’s budget, identifying and prioritizing capability shortfalls that need to be addressed, specifying short-term actions to be taken on a priority basis, and highlighting long-term investments to be made to enhance performance in critical areas. This plan should be a classified document issued by the Secretary to provide authoritative front-end planning and programming guidance to the 

Department’s various components in developing their budget submissions. It should 

also be a living document that is reviewed and revised on an annual basis, though 

it could ideally form the basis for multi-year appropriations for the Department. The 

process of developing this plan should include all stakeholders within the Department, as well as close consultations with the White House Office of Homeland Security, relevant Congressional committees like this one, and key state, local and private sector partners. The development of such a strategy-based, integrated, multiyear action plan will be critical to ensuring that the new Department - and the USG 

more broadly—gets the highest possible return on what is likely to be tens, if not 

hundreds, of billions of dollars invested in homeland security over the next several 

years. 

• An Annual Program and Budget Review Process: In order to ensure that the Department’s resources are being spent according to its priorities, the Secretary of 

Homeland Security should establish a rigorous program and budget review process 

whereby the activities and expenditures of the Department are reviewed annually 

in light of the Five-Year Plan’s objectives and priorities. This review process would 

provide a mechanism for ensuring that the actions of various components accord 

with the Secretary’s guidance, and would provide the Secretary with a critical mechanism for monitoring and enforcing implementation of his priorities and those of the 

President. It also would ensure that the most difficult and important resource decisions and trade-offs come to the Secretary’s attention early rather than late in the 

budgeting process. 

• An Annual Execution Review: The purpose of this review would be to examine 

how the Department’s monies were actually spent in the previous year, particularly 

in the Secretary’s highest priority areas in the Five-Year Plan, in order to identify 

areas in which resources were not allocated according to plan. This retrospective exercise is also an opportunity to identify gaps in previous planning, flag programs 

that are no longer a priority due to changing circumstances, and highlight new opportunities for investment that were not previously foreseen. This is a critical tool 

for the Secretary to identify issues and lessons learned for next program/budget 

cycle and to enforce accountability within the Department. 

In order to be effective, a strategic planning process for the Department of Homeland Security would require several additional elements. First, it must be ‘‘owned’’ 

by the Secretary. That is, he must be engaged personally in leading the process and 
29

must communicate to the Department that this is the process he will use to set his 

priorities and make critical resource allocation decisions. Second, the process must 

include all internal stakeholders. Any office responsible for implementing an element of the Secretary’s Five-Year Plan should be consulted during its formulation. 

Third, the process must be resource constrained. A strategic planning process that 

does not take resources into account will fail to help decision makers to make tough 

choices about where to place emphasis and where to accept or manage risk. In order 

to be useful and relevant, the strategic planning process must consider the fiscal 

guidance as a critical input. Fourth, outside stakeholders, ranging from key committees and members of Congress to key partners in state and local government, should 

be engaged in regular and substantive consultations as the strategic planning process unfolds. Although parts of the Department’s Five-Year Plan may need to be classified, the process should not be conducted in secret. DHS will need to create unclassified fora and documents to enable public scrutiny and debate. Your views, as the 

committee of jurisdiction, should provide critical input to the Secretary as he devises 

and revises his Five-Year Plan. Finally, the Department’s strategic planning effort 

should obviously take into account broader interagency efforts to enhance homeland 

security in order to create greater unity of effort across the U.S. government. Ideally, the White House should conduct an annual review of all homeland security programs across the federal government.

Organizational Implications 

Putting such a strategic planning process in place would require empowering the 

Secretary of Homeland Security’s office by creating a cadre of 50–75 professionals 

dedicated to and trained for this function. This small investment of resources would 

significantly leverage the Secretary’s ability to fulfill his mandate. 

First, the Secretary’s office should include a strategic planning office whose mission would be to define and prioritize objectives for the Department and develop the 

Secretary’s Five-Year Plan to meet those objectives. This office would also interact 

with the White House in the development of the President’s Homeland Security 

Strategy. This office should include a small threat assessment unit specifically 

charged with ′′thinking like a terrorist′′ and researching likely ways in which the 

security of the United States could be breached in the future. In contrast to the 

near-term, operational focus of the more substantial information analysis directorate, this small analytical staff would focus on the mid- to longer- term, and would 

undertake disciplined reviews of evolving terrorist objectives, doctrine, and techniques in an effort to inform the development of longer-term strategy and investment priorities for the Department. This office should draw widely on the intelligence and research communities in both the United States and other countries. 

Second, the Secretary’s office should include a program analysis and evaluation

office charged with undertaking assessments of homeland security mission areas 

and programs to identify priorities for resource allocation as well as orchestrating 

the Department’s annual program and budget review process. This office could also 

participate in the annual cross-cutting interagency review of homeland security programs proposed above. 

Third, the Secretary’s office should include an office responsible for reviewing program performance or execution within the Department, as described above. Putting 

this office under the Chief Financial Officer, who controls the dollars, would likely 

enhance its effectiveness in being able to hold other parts of the Department accountable and enforce implementation of the Secretary’s guidance. 

Finally, the administration and Congress should strive to make the new Department as flexible and adaptive as possible. Given the dynamic nature of threats, the 

homeland security mission will require an ongoing reevaluation of strategy and possibly some rapid changes in programs and resource allocation to respond to new 

threats that emerge. That is why it is important to make the new Department more 

adaptive, flexible, and able to work across organizations than those of the past. 

More specifically, it is imperative that the new Secretary of Homeland Security be 

given the authorities to reprogram substantial monies in response to new threats, 

facilitate more rapid acquisition of high priority goods and services, and reform and 

reorganize offices within the Department with appropriate notice to Congress. This 

will obviously require an unusually close working relationship with this committee.

Conclusion 

Given the importance of its mission, the size of its budget, and the enormity of 

the challenges it faces, the Department of Homeland Security is in dire need of an 

effective strategic planning process.Based on lessons learned in the Department of 

Defense, the relatively minor process and organizational changes recommended here 

could have a substantial impact on the new Department’s effectiveness. Absent such 

reforms, the Department is unlikely to be able to fulfill its mandate of making 
30

meaningful improvements in our homeland security. Concrete steps should be taken 

on an urgent basis to empower the Secretary of Homeland Security to establish an 

effective strategic planning process in the new Department.

Strategic Planning in the Department of Homeland Security

Strategic planning for homeland security must include five critical elements: • A comprehensive assessment of homeland security threats and vulnerabilities • Development and refinement of a Homeland Security Strategy • Development of a Five-Year Plan for the Department of Homeland Security • An Annual Program and Budget Review Process within DHS • An Annual Execution Review within DHS

In order to be effective, the strategic planning process must also: • Be ‘‘owned’’ by the Secretary • Include all internal stakeholders • Be resource constrained • Engage outside stakeholders, such as key members of Congress, in regular and 

substantive consultations • Take into account broader interagency efforts to enhance homeland security. 

Putting such a strategic planning process in place requires empowering the Secretary of Homeland Security’s office. These changes would likely require identifying 

and training 50–75 people to fulfill these functions—a small investment of resources 

that would significantly leverage the Secretary’s ability to fulfill his mandate. 

• Establishing a strategic planning office to define and prioritize objectives for the 

Department and develop the Secretary’s Five-Year Plan to meet those objectives. 

This office would also represent the Department in the drafting of the President’s 

Homeland Security Strategy. It should include a small threat assessment unit specifically charged with ’’thinking like a terrorist’’ and researching likely ways in 

which U.S. security could be breached in the future. 

• Creating a program analysis and evaluation office. This office would undertake 

its own assessments of mission areas and individual programs as well as orchestrating the Department’s annual program and budget review. 

• Tasking part of the CFO’s office with reviewing program execution within the 

Department on an annual basis to ensure implementation of the Secretary’s guidance. 

• Giving the Secretary authorities to make the new Department as adaptive and 

flexible as possible in the face of changing threats and opportunities.

Chairman COX. All of the members except the chairman and the 

ranking member will be recognized for 8 minutes, who will be recognized for 5 minutes of questions. 

Does any Member on our side wish to proceed? Mr. Gibbons. 

Mr. GIBBONS. I will yield to Mr. Linder. 

Mr. LINDER. I just have one question for Ms. Flournoy. You said 

something that got my attention, that we should have some group 

of people in this Department trying to think like terrorists. 

If you were thinking like a terrorist, would you be thinking suicide bombings at large events? 

Ms. FLOURNOY. I don’t think like a terrorist every day. I do think 

that is something we need to assess. But I am not in a position to 

give you a credible assessment of likelihood and severity of consequences and so forth. 

My point in raising it is I know the Department has a directorate 

that is responsible for information analysis. But they rightly have 

a very near-term day-to-day focus and responsibility. I think you 

need a separate group of people who are focused on the long term 

and who can inform the strategic thinking of the Department while 

looking at the long term, and they should be separate from the 

other directorate and part of the strategic planning organization. 

Mr. LINDER. Thank you. 

Chairman COX. Mr. Gibbons. 

Mr. GIBBONS. Thank you, Mr. Chairman. I had a couple of questions for Dr. Carnes and perhaps Mr. Berman. The view that we 
31

have consolidated 20 plus organizations into one with disparate financial and accounting methods is not uncommon, either in government or in the private sector, especially in the day and age of 

massive corporate mergers. 

Has there been any consultation sought from the private sector 

with regard to how individuals or entities within this new agency 

are coping with or dealing with the experiences of mergers of financial accountability? 

Mr. CARNES. Yes, sir. A couple of points, if I could. First off, before I came into the administration, I spent 8 years in Defense in 

the finance and accounting arena, and I was the Deputy Director 

of DFAS. When I went to DFAS, we had 328 finance and accounting systems in DOD. When I left we were down to 30 systems. We 

consolidated systems and we consolidated operations. 

So I am blessed, I guess you could say, with having had a fair 

amount of experience in that area myself. I have brought some people in who I knew at DOD who have also been involved in that, 

and they are applying their skills and knowledge to the problems 

that we have in consolidation and integration at Homeland Security. 

In addition, we have consulted with private sector companies. I 

will just give you an example. The Hewlett-Packard-Compaq merger, for instance, is one that we recently met with. And they came 

in and met with the Secretary, and they have briefed the senior 

leadership on how integration of disparate systems and business 

processes worked in their case. 

I have also visited a number of companies who have engaged in 

this process, too. So, yes, we do have some familiarity with that. 

Mr. GIBBONS. Let me say that in my experience in life change is 

not inevitable, but the most difficult thing about change is not accepting the new, but letting go of the old way that you have done 

things. When you change from 22 separate accounting systems to 

10, primarily through terminating memorandums of understanding 

with legacy agencies that are out there, as you report in your testimony, what has been your experience? What comments, what pushback have you received from those individuals who are reluctant to 

accept changes to their accounting? 

Are you able to convince them, cajole them, persuade them in 

some way to change the accounting methods, even though they are 

used to the old way that they have done things in the past? 

Mr. CARNES. Yes, sir, if you will allow this little anecdote. When 

I was in DOD, my early years there, we used to try to persuade 

the military services to change their accounting and finance systems and practices by saying they would be CFO compliant. And 

I would say to my masters that you show me a CINC who cares 

about CFO compliance and I will show you a CINC who doesn’t deserve his job. His job is to fight war. Our job is to do that as well. 

And what we are doing is, we are selling our initiative, because 

we are going to provide to our operators at the pointy end of the 

spear the information they need to know and business processes 

that tell them where they are. 

So they are going to get something themselves that is useful 

here, and they are looking at it. They are involved in the requirements definition process. 
32

Mr. GIBBONS. So this is an incentive basis which you have encouraged them to adopt to the new consolidated procedures of accounting? 

Mr. CARNES. Yes, sir. 

Mr. GIBBONS. Mr. Berman, of the 80 reports that are out there, 

financial reports I would imagine, financial management reports, 

there is an absolute need for consolidation throughout this process. 

What are you doing to assure Congress that we are getting the 

right information as reported to us in this process while you look 

at the consolidation of these various financial management systems 

so that we have the confidence to know that what is needed for our 

oversight is actually what is being reported to us? 

Mr. BERMAN. Yes, sir. One thing that we have done, similar to 

what Dr. Carnes was describing, we have in fact adopted a model 

for the financial statement audit that is used by large, complex corporations. 

In order not to miss major issues inherent in the individual components, we actually have six separate teams, each headed by a 

partner of our CPA firm, that are looking at the underlying systems, controls and accounting processes at those separate components, and then merging all of that information into one consolidated opinion. 

This, we believe, will flesh out all of the weaknesses that need 

to be fixed, including the 18 we have inherited, and possibly some 

additional ones, so that appropriate attention can be placed on 

those issues. 

I would point out also that for the kind of incentives discussed 

by Dr. Carnes, we are still talking about the future. The individual 

components are still largely run using their own systems, which 

again has largely complicated the audit, and presented some major 

challenges. 

But in the end, I think we will have a comprehensive road map 

of those issues that need to be addressed. 

Mr. GIBBONS. Let me ask a question with regard to the grant 

system, because out there is an enormous amount of financial aid, 

financial grants that are being submitted to States at their request. 

How are we matching up all of the information we are getting back 

to see whether or not those grants are effective? Are we achieving 

what we intend to achieve; in other words, a greater measure of 

security for this country through those grants? 

How are you looking at the follow up of those grants? 

Mr. BERMAN. We inherited a sizable sum from—in terms of grant 

programs—from FEMA. And, again, there was—there is quite a 

history there. We also inherited the entire staff of the IG at FEMA. 

So, we basically inherited quite a body of knowledge on how those 

programs are run. 

One of the common findings there is the fact that greater attention needed to be placed on overseeing the work of the States. Typically, those grants were made to the States, and the States in turn 

subgranted to local governments, and that is where a lot of the 

breakdowns occurred. 

We are beginning to focus a lot of our attention on the actual accomplishments of those grants and working with FEMA and the 
33

States to perhaps address some of these systemic problems up 

front. 

One of the areas where we did not inherit a lot of staff is from 

the Department of Justice. So, one of the first things we did was 

initiate some work looking at the Office of Justice Programs’ mechanisms for awarding and controlling their grants. We are looking 

into why it has taken so long for ODP to issue grants and for the 

States and localities to spend the money that they received in 2002. 

So, we have a sizable amount of work underway that will help 

us identify and fix substantive problems in that whole process. 

Mr. GIBBONS. Thank you, Mr. Chairman. My time has expired. 

Chairman COX. Well, it is good of you to say that for a change. 

The chairman usually has to point that out. 

Mr. Pascrell is next on this side. 

Mr. PASCRELL. Thank you, Mr. Chairman. Mr. Chairman, before 

I get to the questions just an observation, particularly in view of 

what we are discussing today. All of us up here are, as you are, 

concerned about developing a Homeland Security Department that 

is effective as well as being efficient. 

But in our hesitancy, excuse me, in our rush to communicate to 

the American people that we are actually doing something to defend our neighborhoods, I think we should send up a very strong 

cautionary note about spending. 

Because, somehow and in some way, we will jointly defend the 

Nation at home. But we can’t overreact. And I think that is a pretty strong word and I want to use that word. We cannot overreact 

and simply spend money on what we think we need. 

And that leads me to my first question. I was going to ask it to 

Mr. Carnes, but I would rather ask it first to Ms. Flournoy, and 

here is the question. Would a comprehensive threat and vulnerability assessment aid the Department’s program and budget review process? 

Ms. FLOURNOY. I believe, sir, that it would not only aid it, but 

it is difficult to do an effective strategy development and program 

review process without it. You know, in the DOD context we always started with a threat assessment. You have to start with an 

assessment of the environment in which you are working and, 

make judgments about where you are going to place emphasis, 

where are you going to accept or manage risk. That is the basis for 

making choices and strategies, setting priorities, deciding on programs and so forth. 

So I think it is exceedingly difficult to undertake that whole strategic planning process without that as a starting point. 

Mr. PASCRELL. That is the way it is supposed to work? 

Ms. FLOURNOY. That is the way it is supposed to work, and in 

other departments it does work. 

Mr. PASCRELL. We have not included that, though, in this legislation, unless I have missed something, Dr. Carnes. 

Mr. CARNES. It is not in the legislation, sir, but we begin with 

a threat assessment. 

Mr. PASCRELL. What do you mean we begin? 

Mr. CARNES. When we begin at the Homeland Security Department to do our program and planning, we draw a picture, a threat 

picture, if you will, with the best information we have available at 
34

the time, to develop that threat assessment so we can guide the development of our programs. 

Mr. PASCRELL. Has that been shared with the Government Reform Committee or this committee? 

Mr. CARNES. Sir, Mr. Cox referred to—Mr. Turner referred to 

Mr. Liscouski’s testimony. I am not familiar with that testimony. 

So I don’t know what they have provided to the committee. But I 

can find out for you and get back to you. 

Mr. PASCRELL. But I think we would all agree then that in orderbefore we should spend money—before we have to spend money—

there should be this assessment, and it should be very clearly defined so that we are going in a specific direction and we are not 

spending money before we think or plan. We all agree on that? 

Mr. CARNES. As a general matter, I agree with you. 

Ms. FLOURNOY. Absolutely. 

Mr. PASCRELL. Should this be included in this legislation, do you 

think? 

Mr. CARNES. No, I don’t think so because I think that the habits 

that you are talking about are basic institutional behaviors that 

DHS is adopting and following. If I might add one point, Ms. 

Flournoy’s comments on what the five key elements are of developing this plan, I could not agree more with her. These are five key 

elements. We support them and we are doing them. 

Mr. PASCRELL. Do we have that, Chairman Cox? The assessment, 

upon which we are going to base the budget, look at the budget, 

review the budget, have oversight over this budget? 

Mr. CARNES. I was going to say, Mr. Chairman, if I might—pardon me for interrupting—we will publish in the very near future 

our strategic plan which derives from our assessment of the threat 

at the time, and that will guide the development of our programming guidance and our budgeting guidance and then our program 

and budget as it is proposed to the Congress. 

Mr. PASCRELL. You know the situation we are in with regard to 

the budget process. We are heading for the perfect storm and we 

are looking at, all of us, both sides of the aisle, at what is being 

spent, and I think we are trying to do that in a respectful and responsible way. 

Just a few weeks ago, the Comptroller General of the United 

States said in a very, what I think is—we all should read the 

speech he gave before the National Press Club—the Federal Government’s current financial statements and annual reports do not 

give policymakers-I guess that is us-and the American people an 

adequate picture of our government’s overall performance and true 

financial condition. 

Would you agree with that, Dr. Carnes? 

Mr. CARNES. Yes. 

Mr. PASCRELL. Would you agree with that, Mr. Berman? 

Mr. BERMAN. I would. 

Mr. PASCRELL. And would you agree with that, Ms. Springer? 

Ms. SPRINGER. I would within the context that he was describing 

it. 

Mr. PASCRELL. What about Ms. Flournoy? 

Ms. FLOURNOY. I would from a lay person’s perspective. 
35

Mr. PASCRELL. This is a pretty serious issue. The recent accountability failures in the private sector served to reinforce the importance of proper accounting and proper reporting practices and I’m 

very concerned about those practices so that we do not duplicate 

the error within the private sector, particularly in a new department where we are trying to organize it and we are not clear yet 

as to what direction it is going in and we are not even clear as to 

who has oversight over that department. 

I mean the fact that something like this has to go to two committees, that it has to go to the Committee on Government Reform and 

then it has to go to the Homeland Security Committee—and God 

knows maybe it won’t have to go next year because maybe we won’t 

be here—says to me the significance of this committee, which I 

think is always a question. But one wonders whether we really 

want to get to the objective, and that is to have a true assessment 

before we spend the people’s money. 

Chairman COX. Will the gentleman yield? Obviously Dr. Carnes 

is not going to comment on our House committee organization but 

I would point out to the gentleman that the CFO Act has been 

within the jurisdiction of the Government Reform Committee, 

which was previously the Government Operations Committee, since 

its inception, since we originally wrote the legislation. I was very 

actively involved in that as a member of the committee. And the 

CFO Act applies to everybody single Cabinet department in the 

Federal Government. As a result, that committee, the Committee 

on Government Reform has jurisdiction over its reach to the extent 

that it applies to all of these different departments and there are 

always at least two committees, as a result, that will have jurisdiction over this. And it is completely normal that that is the case. 

Mr. PASCRELL. Well, Mr. Chairman, if I may. 

Chairman COX. As the authorizing committee, we would maintain our jurisdiction over the Homeland Security Act. 

Mr. PASCRELL. Chairman, this is the debate we have all the time, 

and we know who the authorizing committees are. And the problem 

is that the members—the chairmen and ranking members of all 

those authorizing committees are on our committee and the question is jurisdiction and I think it is a very valid question as to 

whether we want to move forward or whether we want to get stuck 

in the bureaucracy. We need answers and we need action. That is 

why I asked the question. That is why I brought emphasis to the 

point. 

Thank you. 

Chairman COX. The gentleman makes a very good point, and I 

think as you know our Rules Subcommittee is working diligently 

on this. My own view, and I think the view of most of the members 

of this committee, is that it is vitally important that there be one 

authorizer for this department if we are going to have success, if 

we are as a Congress going to participate in an effort that is going 

to be successful. 

Mr. Sweeney is recognized for 8 minutes. 

Mr. SWEENEY. Thank you, Mr. Chairman. I am probably not 

going to take the full 8 minutes. I have some simple questions and 

really a statement, and it is consistent with some of the questions 

that have been asked. Certainly, I think it is consistent with what 
36

Mr. Pascrell was just talking about, but it is a perspective that I 

don’t think has been stated by too many Members of Congress. 

All of you have given testimony that—and all of you have endorsed the notion of establishing a process of developing better 

strategic planning or some strategic planning in this instance. But 

haven’t we in Congress set you up for a fall? And that is from my 

point of view we have established a system of formulization 

throughout ODP grants and the grant process that is fundamentally so flawed you cannot do strategic planning because you are 

locked into some arbitrary formulizations that from where I come 

from do not make a lot of sense. They are counterintuitive or counterproductive to the idea that we establish a stream of funding that 

is threat-based. We sort of treated it like Congress kind of treats 

everything, and that is, ‘‘I have got to make sure I bring something 

home.’’ 

And so this committee I think is going to, in a broad bill, address 

some of the formulization issues. I have a bill of my own that bases 

the ODP portion—and I hope it serves as a precedent—on threat, 

vulnerability and consequences and, therefore, I think directs from 

Congress to the agency itself the kind of focus that you need to be 

able to create the strategic planning and the management style 

that you need. 

I would like to hear from Mr. Carnes and Mr. Berman on this. 

And then I want to talk about the back end of it because I think 

what we need to do is give you the tools to be able to focus the dollars where they need to go and then we need to be assured—I 

agree, Ms. Flournoy, that there needs to be flexibility here, but we 

need to have the confidence that within that flexibility we are 

going to be able to quantify the results. 

Dr. Carnes, please tell me how much an impediment is the current formulization process? 

Mr. CARNES. The Secretary in the fiscal year 2004 appropriations 

process talked about this issue at great length in a variety of different forums, and I will just say that we are very pleased in the 

way the appropriation came out with the flexibilities that we can 

get in the ODP grants because those flexibilities do provide some 

discretion to respond to where we see an increased threat and vulnerability and risk. 

Mr. SWEENEY. If I could interrupt, if there is a requirement that 

you send 40 percent based on some per capita notion, seemingly 

grabbed out of the sky in our rush to make sure we get something 

established, which is understandable, how effective can you be at 

getting dollars to where real risk exists and how flexible can you 

be to adjust that? I don’t see how it works. 

Mr. CARNES. I guess I would answer it this way. Obviously, in 

a world—in one kind of world you would have complete flexibility 

to deploy your assets as you deem appropriate. There are, however, 

other concerns that those involved in this process have and bring 

to bear, and that is what gets enacted. 

Mr. SWEENEY. We cannot get it passed—I understand, we can’t 

pass it unless someone feels like they are bringing something together. Is it an impediment? Rate it: High, medium, low. 

Mr. CARNES. I think I am going to leave that to the Secretary. 

Thank you, Mr. Sweeney. 
37

Mr. SWEENEY. Well, Dr. Carnes, how are not going to answer 

that if you are the person in the position best able to offer us that 

advice? I am trying to help you here. 

Mr. CARNES. I am going to say at least medium. 

Mr. SWEENEY. Mr. Berman? 

Mr. BERMAN. First of all, I would agree with Dr. Carnes’ characterization as medium. Our office certainly endorses and would endorse any move to apply some sort of threat analysis before distributing those funds. 

One of the things we found in our recent assessments, interestingly enough, is that one of the reasons why it has taken some 

States and localities so long to spend the money they received in 

2002 is that they are really trying to do it right. They have slowed 

down the process, in some cases, in order to try to make the equipment being purchased at the local level interoperable and to ensure 

that local plans are somehow integrated with State plans. This is 

not necessarily across the board, but we have seen a lot of that discipline at the State level already, and we are encouraged to see 

that. 

But again, I think in the final analysis there deserves to be a 

heavy emphasis on risk assessment. 

Mr. SWEENEY. Right. The other two witnesses want to comment 

at all? Okay. Let me ask this question as a follow-up. 

I believe we have to restructure the methodology to get the funds 

out. But then we need to have the confidence that once that happens, we have tangible and appropriate measurements. So what 

are the metrics that would be needed to be developed in an audit 

process and how confident should we be that this mega agency now 

would be able to develop it so it could be implemented agencywide? 

DOD—Ms. Flournoy, I agree with everything that you said, except DOD has had problems with its own audit processes. So 

maybe we could have that discussion about the audit metrics. 

Mr. BERMAN. I think the basic thrust of the IG’s work is to assure that funds are invested wisely and that those investments 

produce measurable improvements in security. 

Which is where risk-based assessment comes in. First, there 

needs to be an agreement as to what is it exactly we are trying to 

accomplish with those grants? What are we trying to protect? What 

is the baseline today and how much do we expect that baseline to 

improve based on the investments we make? 

Mr. SWEENEY. Dr. Carnes, have your offices begun that kind of 

focused attention and developed that kind of product? 

Mr. CARNES. Yes. Yes, we have. I have got right here, this is a 

draft list of performance metrics that we are going to—we are running through a clearance process in the Department right now that 

will accompany the budget when it comes up. This will be the 

grade card. When we do our budget review, the thing we want to 

know is what is the thing you are buying, why are you buying it, 

and what are we getting for it? 

Now, those are—your question was a great question because 

those are rock bottom, the very toughest issues to decide. I am not 

so much interested in process as I am in product. I want to know 

what the thing is. But the real trick is to figure out does it make 
38

a difference? That is a very tough one to assess. Is that the thing 

that prevents terrorism? How do you know? That requires good 

intel. You have to know where to aim. 

Mr. SWEENEY. As I see my time has run out, let me give you a 

little bit of advice. The more interactive you are with this committee in particular, but with Congress in general on the establishment of those metrics, the more successful you are going to be. And 

believe me, we all want you to be very successful. Thank you. 

My time has expired, Mr. Chairman. 

Chairman COX. Dr. Christensen is recognized. 

Mrs. CHRISTENSEN. Thank you. Mr. Chairman, I do not have any 

questions at this time. 

Chairman COX. Mr. Langevin is recognized. 

Mr. LANGEVIN. Thank you, Mr. Chairman. If I could just follow 

up on a question Mr. Pascrell touched on and the previous question 

also for Mr. Carnes. In your testimony, you said that DHS has initiated a 5-year budget and planning program, and I am certainly 

pleased to hear that. But I am curious to know a little bit more 

about how this plan is being developed, whose input you are seeking in setting it up. Specifically, I want to know if the Information 

Analysis and Infrastructure Protection Directorate has had any 

role in this planning process and what information you are basing 

that plan on, given the fact that DHS has really yet to develop a 

comprehensive threat and vulnerability assessment, because it 

seems to me that this is obviously a critical precursor to a significant long-term budget decision. Likewise, how is your programming 

and budgeting system being developed in the absence of an overarching set of goals and priorities based on threats and 

vulnerabilities? I certainly appreciate the fact that you are seeking 

to follow DOD’s successful program, but as you know, DOD already 

has in place comprehensive multi-year strategic plans, the QDR, 

Quadrennial Defense Review Plan and others that are continually 

updated and used throughout the Department as a reliable statement of priorities. So if you could elaborate on that, I would appreciate it. 

Mr. CARNES. Thank you for that question. It is a big question. 

We were going to do, when we went over to Homeland Security, a 

5-year program and planning exercise whether it was required by 

law or not and we were pleased to see that it was required by law 

and that it referenced the DOD model in statute as the one that 

we should follow. 

The first year, in developing our fiscal year 2005 budget proposals, obviously we started in the spring and had to do lots of 

things simultaneously that normally we would do sequentially. We 

took our guidance from the President’s National Strategy for 

Homeland Security. The Secretary issued guidance based on the 

President’s strategy and his refinements of that strategy and 

issued guidance to the components to develop budget proposals in 

response to that. In the meantime—to that guidance. In the meantime, we began the development of our strategy and our POM process to lead to the 5-year program. So all of these are going simultaneously, as I say. Beginning with the next one we do, these will 

all be sequential and one will flow to the next and one drives the 

next. 
39

But we do not, absent—we do not have information on which to 

build a program. What we are talking about now is the refinement 

and a fine-tuning, a calibration of the strategic plan and of the program guidance to implement that strategic plan. But the principles 

that guided our program and budget for 2005 and the 2004 budget 

that was just passed were pretty clear principles and laid out very 

directly and succinctly, and those are what guided our program and 

what are guiding our program now. 

As to a threat picture, yes, we do have to have a threat picture. 

Is IAIP at the state that it wants to be? I don’t think that it is. 

It is still evolving but that does not mean it is not doing anything. 

It is doing quite a lot of intel work. Quite a lot of threat assessment. And it is lashed up in the TTIC with FBI and CIA. And the 

Intelligence Community, working together, is providing this threat 

picture. That is what shapes our programmatic response. 

Mr. LANGEVIN. So how are IAIP and others—. 

Mr. CARNES. We are doing what we call an environmental scan 

before we issue what the programming guidance would be, and the 

IAIP is the source of that information. They are the ones who inform the process with a threat picture. 

Mr. LANGEVIN. And then they and others are communicating 

that and that is the way you are going to form a comprehensive 

5-year plan? 

Mr. CARNES. Every major component in the Department is a 

major player in the development of a 5-year plan. When we have 

a threat picture and when we refine the threat picture, then programmatically we develop guidance that the Secretary sends out to 

respond to that threat, to address that threat. The programs then 

develop their program proposals which come in and get reviewed 

by the senior officers of the Department. That leads to budget guidance. That goes to a budget review board of all senior officers of 

the Department trading off this against that and then in responding coherently to the whole thing, to the whole threat. 

So we try to make our decisions corporately as a corporation of 

senior leaders in the Department, but wearing two hats if you will. 

They are also proponents for their own particular organizations, 

but they are asked to make corporate decisions. The guidance 

comes from on top, the response comes from below. It filters up to 

the top and then the programmatic response is adjusted to fit that 

threat. 

Mr. LANGEVIN. Now, have you brought in consultants that help 

the DOD prepare its QDR to help you in this planning process as 

well? Not consultants, but people from DOD? 

Mr. CARNES. Oh, yes, this guy right here I stole from Energy and 

previously they stole him from DOD. He is Dick Williams, the head 

of PA&E for me, and he has a long experience in program analysis 

and evaluation and he is doing a first rate job. And he has brought 

on his staff people from DOD and we have people throughout the 

organization with a DOD background. 

Mr. LANGEVIN. I hope to follow up on this further. 

If I still have time, Mr. Berman, I appreciate your comments 

about the need for a grants management program and I certainly 

agree wholeheartedly. I was, though, very surprised to find recently 

that there is not even a simple database in place to track the 
40

money that flows to each State from DHS. My staff recently called 

the Department to find out more information just, for example, 

about a DHS grant being announced in Rhode Island which we had 

not received any notice of. And there was apparently no easy way 

for DHS to look up the list of grants that Rhode Island had received. Instead we had to speak to at least three different legislative liaisons in separate offices before we could even take an educated guess as to where the money was coming from. 

Let me say for the record that the staff there was very helpful, 

but I just found it amazing that no comprehensive database exists 

in order to help them access such basic information. 

So my question is would you comment on that and would your 

grants management program offer solutions to this problem? 

Mr. BERMAN. Absolutely. We have the same frustrations with the 

lack of such a system and we rely heavily on our—at least three 

of our regional offices to track the grants going into those areas. 

But certainly such a system would be at the heart of any system 

that would allow DHS to manage the flow of those grants and the 

status of those grants. 

We are somewhat hopeful with some of the developments at 

ODP—or what was ODP—in developing Internet-based systems to 

make it at least easier for applicants to request grants and then 

subsequently to track those. But we are still a long way away from 

the system that you are describing. 

Mr. LANGEVIN. My time has expired. Thank you. 

Chairman COX. I thank the gentleman. The chairman recognizes 

himself for purposes of questions. 

Dr. Carnes, my understanding is that the Department expects to 

have auditable fiscal year 2003 financial statements by November 

15th? 

Mr. CARNES. Yes, sir. 

Chairman COX. And you are on track to have an audit completed 

in January; is that right? 

Mr. BERMAN. That is correct, sir. 

Chairman COX. January 31st? 

Mr. BERMAN. That is correct. 

Chairman COX. Do you expect, Dr. Carnes, that that will be accompanied with a clean opinion? 

Mr. CARNES. Yes, I expect that it will. There are a couple of hurdles we have got to get over and I think we are going to get over 

them, but I think we will get a clean opinion. 

Chairman COX. You were clear in your testimony, I believe, that 

it is the view of the Department that the CFO should not report 

to the Secretary and not be confirmed by the Senate; I am correct? 

Mr. CARNES. Yes, sir. 

Chairman COX. And that is OMB’s view as well? 

Ms. SPRINGER. Yes, it is. 

Chairman COX. Mr. Berman, you stated that OIG has no position 

on this change? 

Mr. BERMAN. That is correct. We have certainly seen it work 

both ways. Our primary concern is that the Department does, in 

fact, follow all of the requirements that fall under the CFO Act, 

and the Department, and Dr. Carnes has pledged to do that. 
41

Chairman COX. Ms. Flournoy, you worked at DOD. At the Department of Defense, the CFO reports to the Secretary; is that correct? 

Ms. FLOURNOY. Yes, and it requires Senate confirmation. 

Chairman COX. Did that work in your view? 

Ms. FLOURNOY. It did. 

Chairman COX. Is there a reason that you can imagine that DHS 

should be unique among Cabinet level agencies and not have that 

requirement apply to it? 

Ms. FLOURNOY. Sir, I am not expert in that area so I really can’t 

offer you a judgment. 

Chairman COX. I am going to give Ms. Springer an opportunity 

to convince me that DHS should be the unique cabinet department 

in this case. 

Ms. SPRINGER. I don’t know if I will be convincing to you, Mr. 

Chairman, but I will give you a few points of information that may 

be helpful. 

My observation since I have been here over the past year is that 

while the act does require the reporting line to be drawn between 

the CFO and the Secretary, that in practice most of those CFOs are 

working connected to either the Deputy or some other Under Secretary, for Management in some cases. 

Chairman COX. In fact that is right and that reporting requirement is as much an imposition of responsibility on the Secretary 

as it is a guarantee of a reporting line to the CFO. 

Ms. SPRINGER. Right. And so I think that what has motivated 

that is to make sure that the Secretary is well plugged into financial accountability issues, that he or she takes them seriously. 

Chairman COX. So in a word that the Secretary is accountable? 

Ms. SPRINGER. Right. And I think that what we have found at 

the Department in our observation of Dr. Carnes and his interaction with Secretary Ridge and that there is that continuity or 

connection, that the Under Secretary facilitates that in this case, 

that the Under Secretary actually is able to coordinate the message 

that gets to the Secretary so he receives it in its fullest context. 

So its relationship to IT and procurement and other financial 

issues—. 

Chairman COX. Given the way the other agencies are functioning 

under the CFO Act, is there any reason to think that that could 

occur in DHS in the way that you are describing? 

Ms. SPRINGER. It could occur. We have seen the product coming 

out of the Department on par and with the same seriousness that 

we see in other areas. I would say it both could work but it was 

more a sense of the coordination that this structure would provide. 

Chairman COX. Dr. Carnes, are you planning to use outside auditors for any purposes? 

Mr. CARNES. The IG is using outside auditors in auditing our financial statements as well as doing some of the work with his own 

folks. I could conceivably—I can envision a circumstance in which 

I would hire a team from such an outfit to come in and look at an 

issue that I was concerned about if I did not have the staff to be 

able to do it. 

Chairman COX. Mr. Berman, do you want to describe your plans 

in this regard? 
42

Mr. BERMAN. Yes, sir. Again, Dr. Carnes is correct. We are using 

a firm—we have engaged a firm to do both the audit—

Chairman COX. Which firm is that? 

Mr. BERMAN. KPMG. They have been engaged to do the audit for 

both 2003 and 2004 since in effect you almost need to start planning 2004 because of the accelerated time frames. 

Chairman COX. Can you describe the scope of the engagement? 

What are their responsibilities in connection with the audit? 

Mr. BERMAN. They are responsible for arriving at an opinion on 

the financial statements presented as a whole. I would also clarify 

for the record OIG’s position on the issue that you addressed with 

Dr. Carnes regarding a clean opinion. I appreciate Dr. Carnes’ optimism that we will have a clean opinion. I think from the IG’s 

standpoint we see the road ahead a little bit steeper than that. The 

obstacles are quite formidable and I would not want people to at 

this point expect a clean opinion. It will be a real challenge. 

Chairman COX. Apart from the significant work involved in 

KPMG’s engagement to audit the Department’s financial statements, have we asked KPMG or any other outside firm to consult 

on the subject of the consolidation of financial controls within the 

Department with the 22 legacy agencies? 

Mr. BERMAN. One of the reasons that we chose KPMG, and in 

fact this case we went sole source for those 2 years because KPMG 

has already done substantive audit work at many, if not most, of 

the big components and we felt that KPMG could bring to the process a depth of knowledge about the specific operations of those individual components that we could not gain anywhere else. 

So now KPMG itself essentially is relying on its own staff in 

areas where perhaps some other IGs—or other CPA firms might 

bring in additional experts, such as in the area of penetration tests. 

They are using their own specialized staff, for example, to attempt 

to penetrate some of the financial systems or the networks that 

those systems are connected to. So essentially at this point we are 

relying primarily on KPMG. 

Chairman COX. My specific question was are we asking them, in 

addition to their audit work, or are we asking any other firm, to 

offer assistance to the design of financial controls in the Department of Homeland Security, which after all is a merge of 22 legacy 

agencies? 

Mr. BERMAN. At this point, no, sir. 

Mr. CARNES. Actually, sir, that is my job and we have met with 

many of the firms already, and they have wasted no time in actually coming to see me because they know that is the business that 

we are going to be in. And we on our staff had a lot of familiarity 

with these firms, having worked with them on these kinds of 

projects in the past. We will be offering an RFP for contractor support and it will be substantial. We will probably have 350 people 

involved in this initiative, most who will be contractors or subcontractors from one of the major firms. Probably one of the major 

firms, but anyway whoever does the best job in the contract. But 

we will be having a lot of outside support. 

Chairman COX. And this RFP that you have in mind is going to 

cover what? 
43

Mr. CARNES. It is going to cover the integration of finance, accounting, and budget systems across the Department and procurement systems, and it is going to develop the plan for integrating 

them and then deploying the solution within 2 to 3 years. 

Chairman COX. And when do you expect to issue your RFP? 

Mr. CARNES. In the late winter, early spring. We are engaged in 

a requirements definition process working with the components of 

the Department. 

Chairman COX. Is it going to be the aim of that undertaking to 

redesign the financial controls of the Department? 

Mr. CARNES. We are not going to throw out anything that works 

but anything that does not work we are going to shoot in the head 

and redesign it. 

Chairman COX. One of the things that I admire about your background is that before you entered government service you were an 

English professor and we need such people in this business who 

can speak English. But I want to be very clear what we are talking 

about here. We have got 22 separate agencies all with their legacy 

systems, 18 material weaknesses identified in the most recent audits. A lot of problems. And a great opportunity—

Mr. CARNES. Right. 

Chairman COX.—to throw out all the trash and do it right in a 

way that works for homeland security, which in fairness to all of 

these agencies was not even their design in the first place. 

Mr. CARNES. Right. Right. 

Chairman COX. That is an ambitious opportunity but it is a great 

opportunity. And my question is, is that what we are doing? And 

is that work that is going to commence essentially with the 

issuance of this RFP next spring? 

Mr. CARNES. Basically, that is what we are doing. We will shrink 

the number of systems way down. We will have solid internal controls. It will be JFMIP compliant and it will be instantaneous realtime information for our managers, decision makers and operators, 

and we will strangle things that are not working. 

Chairman COX. How do we—when we hire a firm to do this, how 

do we ensure that this is not just a financial exercise? Let’s take 

the One Face at the Border initiative of the Department. we are 

putting together APHIS and Customs and INS, each of which has 

separate accounting systems. The way that you pick and choose 

among those or redesign them has a great deal of influence on the 

way people do their work. If we pick the INS approach as opposed 

to the Customs approach, that probably makes people at Customs 

unhappy. How do we make sure we are infusing management objectives into this process? 

Mr. CARNES. That is the essence of the requirements definition 

process. We are going to meet—the people who are involved here 

are not just or even financial geeks. We want operators who are 

folks—you cannot manage an organization with a financial statement, in response to somebody’s question a moment ago. You cannot run an organization that way. You have to be accountable and 

produce the financial statements so that people know what you did 

with your money, but you cannot run an organization that way. 

You have to have a financial system that has the capability of 

giving you meaningful information. The essence of that is the in-
44

volvement of our senior people throughout the Department. It is 

our expectation that the Secretary will shortly launch that initiative and call upon them to be involved from the get go. 

Chairman COX. On the subject of getting useful management 

control information, let me dive immediately into what we learned 

about INS at the end of last year. 

The INS, which Congress abolished and is no more and is reconstituted within DHS in two principal parts, was on the way in the 

door unable to provide data on the number of immigration applications it received. It could not tell us how many of those applications 

were a work in process and how many of those applications were 

complete. This showed up in an audit because there are fees that 

are paid in conjunction with this, and in a flourish of Enron style 

accounting the Federal Government was booking the revenue before it did the work and then lost track of the work as a result. 

The proper way to do this, it is my understanding, is to book the 

fee as revenue to the government when you process the application 

and not before. This is something that has been identified as a 

problem. But it is not just a financial problem, it is a Homeland 

Security problem because if we cannot track our work flow, there 

are human beings behind these applications and they are the 

human beings that we are interested in putting into our watch lists 

and tracking in a U.S. visit program and in all other aspects. 

So the breakdown of a system that is supposed to keep track of 

the most basic thing, which is I applied, I have an immigration application and petition, I sent you a check, and we do not even know 

those figures that is pretty frightening, isn’t it? 

Mr. BERMAN. Yes, sir, you are absolutely correct in your description of that problem. We are hopeful that the problem will be fixed 

this year. 

The DHS has implemented, the component (CIS) has implemented, a new system which is now being tested. To the extent 

that the system has been operating this year, we are comparing the 

results in that system to the actual results in selected offices. And 

hopefully, that will get us over this problem. 

Chairman COX. I am sorry; I was just having someone whisper 

in my ear and I missed your last sentence. 

Mr. BERMAN. If those tests are successful which the auditors are 

conducting now—comparing the actual applications in selected offices with what the numbers are in the new system that they have 

developed—hopefully we will be over this particular problem. But 

this has yet to be seen. Those tests are still under way. 

Chairman COX. We got the same bleak report when it came to 

grants. The amount of money that was missing was rather significant over the period between 1993 and 2000 and grant programs 

that are now the responsibility of DHA. $900 million just went 

missing. 

Mr. BERMAN. Sir, it is not that the funds were missing, but basically what happens is these grants are related to particular disasters. For some of these disasters, like the Northridge earthquake, 

there is still an office, a FEMA office on the West Coast, trying to 

resolve those issues almost a decade after the actual event. Unfortunately, what happens is some of these individual grants do not 

get closed out until years after the event. When the auditors arrive, 
45

they find that some of the funds were not spent in accordance with 

the actual grant agreement, and that is what results in much of 

those questioned costs. 

Chairman COX. In fact, the $900 million to which you refer in 

your testimony and to which I just referred as well is not money 

that went missing. That is money that was spent for questionable 

purposes? 

Mr. BERMAN. That is correct, sir. 

Chairman COX. But there was another $2.6 billion, half of which 

was not apparently spent at all, and that is the money that in my 

mind is missing. What is happening to money that is not spent? It 

is granted, but it is not spent? 

Mr. BERMAN. Yes, sir, this is basically no-year money. And, the 

reasons are quite varied. In some cases, the States and/or the localities simply are slow to develop specific plans to meet the State’s 

requirements. 

Chairman COX. No-year money is the same accounting device 

that we used this year when we created the BioShield program. 

And my understanding of this accounting and this legal authority 

that we are granting in this fashion is that it is indefinite so it 

mimics a permanent indefinite appropriation. Are you telling me 

that there is money that is out there from 1993 and we are going 

to get a drawdown on that at some point? 

Mr. BERMAN. Yes. As far as the money that was cited by the 

former FEMA IG, I don’t know the exact status of that. I am hopeful that by this time the bulk of that, if not all of that money has 

been spent. 

On the other hand—. 

Chairman COX. I am not sure. If the grant was made way back 

then and people are just coming up with a reason to spend it now, 

maybe it would be best to jump in with legislation and take that 

money back. 

Mr. BERMAN. Sir, we are currently looking at the money that was 

awarded by ODP in 2002 to get a more recent understanding of 

how that money is being spent. And similarly, we found most of 

that money has not actually been spent. Now, a lot may have been 

obligated, but as much as 90 percent may still be unspent. 

Chairman COX. I had intended to go last and wait until all the 

other members asked their questions, but I know that Ms. JacksonLee was here and wishes to ask questions. Mr. Shadegg, I don’t 

know if you wished to ask questions, so I will yield to my colleagues. 

Ms. JACKSON-LEE. Thank you, Mr. Chairman. I will not have 

time to ask my questions, but I simply would like to indicate that 

my interest is to ensure that there is fiscal accountability, and as 

well I have always been concerned about ensuring that grants that 

are rendered by the Department have the opportunity to be directly 

rendered or given to local communities. The process that you have 

now is that it is directed through the States. And so any time we 

have that opportunity to refine that, I know that may be legislative, but I would hope that we would be able to take that into consideration in terms of the funding. Right now the funding is 

through the States and I believe that is a delaying tactic that is 

not warranted. 
46

Ms. Flournoy, I think you have talked about threat assessment 

and the necessity of that. Do you have a quick response as to the 

need for having a strategy—Homeland Security strategy that 

would then direct the CFO as to how to budget priorities? If you 

could just give me a quick answer on that. 

Ms. FLOURNOY. Sure. I think developing a comprehensive strategy is one of the critical elements of a strategic planning process. 

I think it needs to happen at the interagency level, signed by the 

President, and then within the Department of Homeland Security 

they need to develop their own strategy in concert with the President’s strategy to go forward. 

Ms. JACKSON-LEE. Would that also include local communities and 

States as well, that they do a far-reaching effort in terms of input? 

Ms. FLOURNOY. The focus of the strategy would probably be on 

how the Department is going to use its resources. But to be effective they would have to include representatives from local and 

State government and communities as stakeholders in helping 

them define their vision. 

Ms. JACKSON-LEE. Thank you for your leadership. I yield back. 

I ask unanimous consent to put my statement in the record. 

Chairman COX. Without objection. 

The gentleman from Arizona is recognized. 

Mr. SHADEGG. Thank you, Mr. Chairman. I want to begin, Ms. 

Flournoy, by thanking you. I thank all the witnesses for your testimony and for your efforts on behalf of the Department. I particularly want to say, Ms. Flournoy, that I agree with you and your testimony on the importance of threat-based or vulnerability-based assessment. It seems to me any other prioritization of the agency’s 

resources or of our Nation’s resources to protect us against a terrorist attack, other than one based on threat, is a mistake. When 

we do it based on population or based on some other type of formula, I think we are making a mistake. And this is my own personal bias. 

I strongly believe that the American people expect us to be very 

forward-looking in our approach to homeland security. And by that, 

I mean that I think they want us to be looking at the threat before 

it occurs, doing all of the intelligence we can, all of the assessment 

and evaluation we can, and everything humanly possible to preclude those attacks before they occur. Now, that is not to diminish 

the importance of first responders. God forbid a future attack is 

successful in inflicting harm on Americans on American soil. But 

I think the Department’s focus has to be very aggressively on 

reaching out and looking at where is it that we are threatened? 

Where is the next attack going to come from, where are we vulnerable, and how can we prevent that attack if that is at all possible. 

So I encourage you for that testimony and strongly concur in it. 

I want to turn next to Ms. Springer. You put out, I guess, a report OMB does each year called performance and management assessments. I want to ask a couple of questions out of the section 

of that report on Homeland Security. Apparently what you do is 

you go through program by program. This particular program that 

caught my attention is Disaster Relief Fund Public Assistance. As 

I understand the format, you evaluate the purpose of the program, 

its purpose, its management, its results and accountability. On 
47

page 43, if you happen to have this report, you say that the purpose is very high. You rate that as a 90. But then you say the results and accountability are very low. And you say for example: 

‘‘The program’’—now this is the disaster relief fund which goes in 

after a hurricane—‘‘the program has no long-term outcome measures, it cannot meaningfully track operations with annual performance measures and the program fails to adequately screen requests 

for assistance to determine whether Federal help is needed.’’ 

On a program as important as disaster relief, I think that is a 

very, very telling analysis. And you come back and say rating results not demonstrated, meaning they have not demonstrated results from their program. The question I want to ask is not specifically about that but as a general proposition, doing this year over 

year, do you see departments then improve programs of this type? 

Can we expect that as a result of this evaluation, the Disaster Relief Fund Public Assistance Program will improve and have you 

had discussions on that topic with DHS? 

Ms. SPRINGER. Okay. It is an excellent set of questions. Let me 

just first say there is someone at OMB who is charged with overseeing this Budget and Performance Integration Initiative. It is one 

of the President’s management initiatives that all the agencies are 

rated on. I am not that person, but—so I will provide you with 

what information I do have and would be glad to give you a more 

detailed answer. 

That program was one of eight programs that was measured last 

year. The whole process of evaluating those programs had its inaugural year with that fiscal 2004 budget process and the objective 

was that in rating it, not only the purpose but its effectiveness and 

its results and accountability and all the things that you mentioned, would continue from year to year, with that being the first 

year. It will be reviewed again in this year’s process as well as another nine programs that will be added and we will look for improvement obviously. 

The theory behind this whole process is that if the results are 

not demonstrated, it may mean that there is more funding required 

to get it to that threshold. On the other hand, it may mean that 

the funding is not being properly utilized. There are a number of 

conclusions you can draw and it will be reviewed again each year 

after that first inaugural baseline year where the results were not 

demonstrated. And we found that in a number of programs, but 

this process complements and supplements what the Department is 

doing itself. 

Mr. SHADEGG. I want to ask the Department about that in a moment. This is a flyer explaining that FEMA is funding a series of 

programs, $13.4 million in FEMA money. And albeit some of the 

programs on the list may be important programs to be done, I am 

not certain they should be being done by FEMA. Of the $13.4 million they are going to have a year-long celebration of trees, gardens 

and other healing spaces called gardens and healing spaces, multicultural dialogue that includes a greater discussion of who we are, 

where we are from, why we are here and how we are doing. Theater workshops, building trust during war workshop, peace workshop and anger management workshop. And I don’t know if that 

comes out of that program or elsewhere, and I am not necessarily 
48

saying that some of these things are not good, but I think my constituents back home in Arizona think of FEMA dollars as going in 

after a disaster and doing more specific. 

Chairman COX. Will the gentleman yield? 

Mr. SHADEGG. Yes. 

Chairman COX. If they are good, they certainly need to be renamed at a minimum. And if those are accurate descriptions I am 

skeptical that they are worthwhile. 

Mr. SHADEGG. There may have been times that my wife would 

have liked me to have had an anger management class. I am not 

sure FEMA should have been paying for it, and I don’t know how 

I feel about a peace workshop and I am not against peace. 

In any event, Dr. Carnes, do you have a comment on either the 

evaluation done by OMB or on this program? 

Mr. CARNES. As the guy who is on the receiving end of the grades 

that OMB hands out, it is a very effective club. I take them seriously because OMB then tortures us with the results and slashes 

our budget. 

Mr. SHADEGG. I don’t want to slash your budget. I want you 

budgeted to do what you need to do. 

Mr. CARNES. It is incumbent upon us to do this right. And as 

much as any—half the time I would say the problem is we cannot 

say what it is we are doing. I said in response to an earlier question I want to know what the thing is that we are buying. Too often 

grant folks tend to talk about the process they are using. I am interested in the thing, then I can measure it. So sometimes it is just 

that the program cannot define what it is about very well or how 

it is going to do its job. 

Sometimes it is because they just do a poor job of executing, then 

you have to either fix—you have to fix it. As to that project, it is 

an interesting project. 

Mr. SHADEGG. Maybe I should give you this flyer and you could 

get back to us on those specific projects. 

Mr. BERMAN. The IG would be interested in the flyer as well. 

Chairman COX. Did that come from OMB? 

Mr. SHADEGG. No, it came from a Northern Virginia community 

resilience project that was funded by a FEMA grant. I yield back 

the balance of my time. 

[Information follows:]
49
50

Chairman COX. Does any other member wish to be recognized for 

questions? I have one last question and that concerns again the 

grants. 

Since 1999, Federal law has required that applications for these 

grants be made electronically and that the reporting also be accomplished electronically. Is that actually happening, Mr. Berman? 

Mr. BERMAN. It is with regard to the ODP grants, basically the 

emergency preparedness grants. It is not happening with regard to 

the FEMA grants, the disaster assistance. Again—. 

Chairman COX. That legal requirement does apply to FEMA, 

does it not? 

Mr. BERMAN. I believe so, sir. 

Chairman COX. Maybe, Ms. Springer, you could shed some light 

on why we are not in compliance. 

Ms. SPRINGER. I may be able to help a little. As part of that 

grants modernization, that is law, P.L. 106–107, perhaps. 

Chairman COX. The Federal Financial Assistance Management 

Improvement Act of 1999. 

Ms. SPRINGER. That is right. As part of that the grants.gov is 

going on line with an E-find capability which in effect will be like 

a yellow book on-line for anyone to go on and find grants that may 

be applicable. First responder grants for localities. And secondly, 

there will be an E-apply capability that will be going live this fall, 

and under that capability an applicant who finds a grant will be 

able to apply on-line one time entering a set of information that 

could be utilized for any grants that may be plugged into that system in effect. So the applicant does not need to repeatedly enter 

the same information. 

It is just a start. It is not in its full-fledged capability. But that 

is the Government-wide answer to making that applicable. 

Chairman COX. What about the E-comply program since we have 

testimony that, quote, FEMA seldom used its enforcement power to 

compel grantees to fix problems even when the grantees had long 

histories of noncompliance? And FEMA was specifically cited in one 

category for serious fraud, waste and abuse. 

Compliance is also, is it not, the subject of this same 1999 law? 

Ms. SPRINGER. Yes, it is. And another thing that goes with that 

is the Single Audit Act, which requires audits of grantees. So that 

is another piece of this overall grants review to make sure that the 

money is going to the purpose for which it is intended. 

Chairman COX. Dr. Carnes, do you want to comment on this? Because it is good to hear that we are aiming for legal compliance 

sometime in the indefinite future. But given that the noncompliance is so directly related to fraud, waste and abuse, this seems 

like something we want to leap on. 

Mr. CARNES. It is a problem and we have got to fix it and fix it 

right away. 

Chairman COX. I appreciate it. The committee will work with you 

on this and stay interested, because the creation of the Department 

is really an opportunity to fix these problems. These are problems 

that DHS inherited. DHS has been around only for month, not 

years, and so I look at this as an opportunity to fix the long-standing problems in the legacy agencies that you have acquired, to re-
51

configure them for the Homeland Security objectives and to do so 

with alacrity. 

In that vein, Dr. Carnes, for what it is worth from the committee’s standpoint, if the time for the issuance of the RFP that you 

described for the audit is either late winter or early spring, it 

would be very pleasing if it were late winter and not early spring. 

The faster the better. My concern is this: that very soon it will be 

the way we have always done it. So we have this opportunity now 

with the creation of this new department to change things that otherwise might be impossible in government to change. But if we let 

a year or two slip under our noses, then there is not only going to 

be the old INS way, there is going to be the DHS way and people 

that work at DHS will say this is the way we have always done 

it at DHS. 

This is a golden opportunity. We will only get it once. Never 

again in the history of this cabinet department, which will probably 

live indefinitely, will this golden moment occur again. The faster 

the better. 

Mr. CARNES. Yes, sir. 

Chairman COX. Thank you for being outstanding witnesses. The 

hearing is adjourned. 

[Whereupon, at 3:00 p.m., the committee was adjourned.] 

(53)

A P P E N D I X 

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MATERIAL SUBMITTED FOR THE RECORD

DR. BRUCE CARNES RESPONSES TO QUESTIONS FROM THE HON. JIM TURNER

Question: 1. Would your office benefit from a capability within the Department involving the ability to carry out long-range strategic assessments 

concerning the nature of the terrorist threat facing the country? 

a. To your knowledge, does the Department possess, or plan to establish, such a specific capability, either in your office, the Under Secretariat for Information Analysis and Infrastructure Protection, or elsewhere? 

Answer: The Under Secretary for Information Analysis and Infrastructure Protection (IAIP) will provide this capability. Actionable intelligence, including long-range 

strategic threat assessments, which can lead to stopping or apprehending terrorists, 

is essential to the primary mission of DHS. IAIP will fuse and analyze information 

from multiple sources pertaining to terrorist threats. This information includes foreign intelligence, law enforcement information, private sector data, and publicly 

available information. The Department will be a full partner and consumer of all 

intelligence generating agencies, such as the National Security Agency, the CIA and 

the FBI. 

Timely and thorough analysis of projected terrorists threats and the projected 

threat environment is critical to the Department’s ability to prioritize program and 

resource requirements to safeguard our homeland. IAIP will provide long-term vulnerability and threat assessments as input in preparing long-range planning guidance to support preparation of the Future Years Homeland Security Program 

(FYHSP). Program and resource requirements within the Department will be 

prioritized to counter projected terrorist threats.

Question: 2. Would an annual National Homeland Security Strategy document, which could include a comprehensive threat and vulnerability assessment, aid the Department’s program and budget review process? 

a. In particular, would it assist you in developing internal budget guidance for the Department’s components, which could result in an articulation of program and budget priorities over the five year span of the 

Future Years Homeland Security Program? 

Answer: Yes, an annual National Strategy for Homeland Security would be valuable in helping develop program planning guidance, and for that reason the Department is developing an annual DHS Strategy. From that, the Department is building 

a long-term comprehensive planning programming and budgeting system to support 

the Future Years Homeland Security Program (FYHSP). The system will align resources to programs that support the Department’s objectives, demonstrate accountability, are performance driven, have identified long term benefits, and meet the Department’s priorities. As part of this system, the Department will issue an annual 

program planning guidance, based on the Under Secretary for Information Analysis 

and Infrastructure Protection’s long-term threat and vulnerability assessment, the 

National Strategy for Homeland Security and the Department’s strategic plan. The 

program planning guidance will: 

• Provide guidance to the agencies in preparing their input to the FYHSP. 

• Define the projected homeland security operating environment based upon 

threat assessments regarding the security of the homeland. 

• Define the national homeland security priorities necessary to help achieve 

and maintain homeland security goals and objectives; and 

• Ensure the necessary framework (including priorities) to manage Department 

resources effectively for successful mission accomplishment consistent with the 

National Strategy for Homeland Security.
54

Question: 3. What is the current status of the Department’s initiative to consolidate the 83 separate financial systems, few of which are integrated, that 

it inherited from its legacy agencies earlier this year? 

a. What integration goals have been established, when will such goals 

be achieved, and how many financial systems is the Department planning to operate when consolidation effectors are complete? 

Answer: The Resource Management Transformation Office (RMTO) working under 

the DHS Chief Financial Officer (CFO) has initiated the eMerge2 Program to transform the business and financial management policies, processes, and systems of 

DHS into a single solution that addresses the financial management, acquisition, 

and asset management requirements for the Department. eMerge2 is a business-focused program partnering the CFO, Chief Information Officer, Chief Procurement 

Officer, and Chief Administrative Officer to deliver a consolidated enterprise solution to DHS operators, policy-makers, and decision-makers.

Status 

The RMTO has defined the strategic goals and developed the detailed program management plans and strategies (e.g., Risk Mitigation, Configuration Management) 

necessary to execute the program. The eMerge2 acquisition strategy will integrate 

requirements development with alignment to the DHS enterprise architecture, while 

building in quality and program audit. 

The eMerge2 Program was reviewed and approved by the DHS Investment Review Board (IRB). (The IRB selects all major DHS programs that are to go forward, 

then controls and evaluates their progress. It is composed of top DHS Leadership, 

chaired by the Deputy Secretary of DHS and includes the Under Secretaries of Management, EPR, BTS, S&T and IAIP. The IRB provides approved programs with strategic guidance and ensures alignment with DHS missions, strategies and goals.) The 

approval of this program on September 24th designated eMerge2 as a DHS program 

operating under the DHS CFO.

Plans 

The program is divided into two major phases. Phase I addresses the core requirements that are common for all agencies in acquisition and procurement, budget formulation and execution, civilian pay and travel settlements, accounts payable, asset 

management, funds control, general ledger and reporting, and accounts receivable. 

The requirements definition will be complete by April 2004. Phase II, which will include delivery of a consolidated enterprise solution, will begin with implementation 

at one site in early FY 2005 and implementation at additional sites from March 

2005 through FY 2006. 

MR. RICHARD BERMAN RESPONSE TO QUESTION FROM THE HON. JIM TURNER

Question: If the Department was formally made a part of the 1990 Chief Financial Officer’s Act, would that make it easier for the Office of the Inspector General to monitor compliance with it, and, thus, assist in ensuring 

that federal resources are managed appropriately? 

Answer: As I mentioned in my testimony, even though DHS is not presently subject 

to the CFO Act, the current DHS CFO, to his credit, has pledged to comply with 

all of its requirements as if he were legally bound to do so. We applaud his position, 

and we will monitor and report on whether he adheres to it through our regular 

audits of department programs and operations. 

While the current DHS CFO agrees to comply with the provisions of this law even 

though he is not obliged to do so, his successor may not take that position. If a future CFO were not to follow this law, we believe that it would be harder for OIG 

to obtain management’s agreement to take any corrective actions we might recommend to address any deficiencies we might find in the area of financial management.

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