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21–942 PDF 2005

FINANCIAL MANAGEMENT CHALLENGES AT THE

DEPARTMENT OF JUSTICE

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

FINANCE, AND ACCOUNTABILITY

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

MAY 4, 2005

Serial No. 109–33

Printed for the use of the Committee on Government Reform

(

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

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

CHRISTOPHER SHAYS, Connecticut

DAN BURTON, Indiana

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

CANDICE S. MILLER, Michigan

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

GINNY BROWN-WAITE, Florida

JON C. PORTER, Nevada

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

CHARLES W. DENT, Pennsylvania

VIRGINIA FOXX, North Carolina

——— ———

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. DUTCH RUPPERSBERGER, Maryland

BRIAN HIGGINS, New York

ELEANOR HOLMES NORTON, District of

Columbia

———

BERNARD SANDERS, Vermont

(Independent)

MELISSA WOJCIAK, Staff Director

DAVID MARIN, Deputy Staff Director

ROB BORDEN, Parliamentarian

TERESA AUSTIN, Chief Clerk

PHIL BARNETT, Minority Chief of Staff/Chief Counsel

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, FINANCE, AND ACCOUNTABILITY

TODD RUSSELL PLATTS, Pennsylvania, Chairman

VIRGINIA FOXX, North Carolina

TOM DAVIS, Virginia

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

JOHN J. DUNCAN, JR., Tennessee

EDOLPHUS TOWNS, New York

MAJOR R. OWENS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

EX OFFICIO

HENRY A. WAXMAN, CALIFORNIA

MIKE HETTINGER, Staff Director

TABETHA MUELLER, Professional Staff Member

NATHANIEL BERRY, Clerk

ADAM BORDES, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on May 4, 2005 ................................................................................. 1

Statement of:

Corts, Paul R., Assistant Attorney General for Administration and Chief

Financial Officer, U.S. Department of Justice; and Glenn A. Fine, Inspector General, U.S. Department of Justice, accompanied by Marilyn

Kessinger, Director, Financial Statement Audit Office, Office of Inspector General .................................................................................................... 13

Corts, Paul R. ............................................................................................ 13

Fine, Glenn A. ........................................................................................... 28

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

Corts, Paul R., Assistant Attorney General for Administration and Chief

Financial Officer, U.S. Department of Justice, prepared statement of .... 16

Fine, Glenn A., Inspector General, U.S. Department of Justice, prepared

statement of ................................................................................................... 31

Platts, Hon. Todd, a Representative in Congress from the State of Pennsylvania, prepared statement of .................................................................. 3

Towns, Hon. Edolphus E., a Representative in Congress from the State

of New York, prepared statement of ........................................................... 10

(1)

FINANCIAL MANAGEMENT CHALLENGES AT

THE DEPARTMENT OF JUSTICE

WEDNESDAY, MAY 4, 2005

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

The subcommittee met, pursuant to notice, at 2:15 p.m., in room

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

(chairman of the subcommittee) presiding.

Present: Representatives Platts, Gutknecht and Duncan.

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

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

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

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

and Accountability will come to order.

The programs of the Department of Justice impact the lives of

millions of Americans on a daily basis. From overseeing the Federal prison system and enforcing the Nation’s laws and providing

grants to State and local governments, management at DOJ affects

law enforcement at every level of society. Since the terrorist attacks of September 11, 2001, Federal law enforcement continues to

divert resources away from traditional crime fighting to strengthen

counterterrorism capabilities, leaving a void that only State and

local law enforcement are positioned to fill. To help meet this need,

DOJ administers nearly $5 billion in grants annually.

In times of tightening budgets, accountability and efficiency are

imperative. It becomes increasingly important to account for every

dollar in the most effective manner possible, whether an agency is

managing grants or investing in information technology. Without

accurate financial information and appropriate controls, it becomes

nearly impossible to manage programs effectively and responsibly.

The latest financial audit revealed serious accounting problems

that have impacted the Department of Justice’s ability to achieve

its mission. The most serious problems occurred in areas of grants

management.

Proper accounting and management controls could prevent these

problems. Recognizing the importance of sound financial management, Congress passed the Chief Financial Officers Act of 1990 to

require Federal agencies to submit audited financial statements.

For fiscal year 2004, DOJ’s auditors were unable to express an

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opinion as to the reliability of the financial statements and rescinded the unqualified opinion rendered on the 2003 statements.

It is important to recognize the seriousness of this audit: In the private sector, anything other than an unqualified or ‘‘clean’’ audit

opinion is unacceptable, and any restatement of a prior year’s audit

is front-page news.

The subcommittee is meeting today to hear about efforts to address the challenges identified in the audit and how best to support

these efforts by ensuring that the Department has the appropriate

resources to correct them. We are pleased to have the Honorable

Paul Corts, the Chief Financial Officer at the Department of Justice, and the Honorable Glenn Fine, Inspector General for the Department. We thank both of you for being here today.

We appreciate the written testimonies you have provided, and we

also appreciate your efforts day in and day out. We know you have

a challenge before you, but we appreciate you throwing yourselves

and your colleagues into the challenge and addressing the financial

issues before the Department. We know, working together, you will

fulfill those challenges; and we are glad to have you here today to

see how we can better understand the challenges as well as to assist you as you go forward.

[The prepared statement of Hon. Todd Russell Platts follows:]

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Mr. PLATTS. I now yield to Congressman Duncan from Tennessee

for purposes of an opening statement.

Mr. DUNCAN. Thank you very much, Mr. Chairman; and I thank

you for calling this hearing. This is a very important topic, and it

is a continuation of other hearings you have held.

I want to, first of all, commend you, because you are trying to

do as much as you possibly can to see that the Federal Government

operates in a fiscally conservative manner. I can tell you that if we

don’t have all of us on both sides of the aisle working on that, helping this government to watch its money more closely and become

much more fiscally conservative, we are not going to be able to pay

the military pensions, Civil Service pensions, Social Security, Medicare, Medicaid along with the guaranteed 44 million private pensions under the Pension Benefit Guaranty Corporation. And I can

tell you, from talking to members on both sides, nobody on either

side up here will seriously tell you we are going to be able to meet

all those obligations in the very near future. So this is good.

I remember a few years ago when people all over the Nation got

upset about the Federal Government spending $500,000 on the

Lawrence Welk home in South Dakota. And I remember a few

years ago when they got upset—and they should have—over the

National Park Service spending I think it was $260,000—it was

well over $200,000 to build a fancy outhouse in your State.

Mr. PLATTS. Not in my district.

Mr. DUNCAN. People got upset about those things, because they

can comprehend figures like that. But when we hear these billion

dollar figures today—we are dealing with $277 million misspent,

and nobody really is upset about that, but they should be. They

should be shocked. And people in charge of this should be ashamed,

embarrassed; and we should be bending over backward to do everything possible to make sure that this type of misspending or misappropriation of funds or this scandalous waste doesn’t happen

again. But because it’s not coming out of anybody’s pocket except

the poor taxpayers, nobody is really going to get upset about it.

But I commend you for holding this hearing, and I hope we can

hear something about how we can keep this from happening in the

future.

Thank you very much, Mr. Chairman.

Mr. PLATTS. Thank you, Mr. Duncan.

Your emphasis on the challenges for us fiscally, we hear most

often about the challenges of how we address the mandatory spending and how it impacts discretionary. And one of the things that

is important for us to emphasize when we use the term discretionary, that includes the Department of Justice law enforcement

spending. So it is described as discretionary, but it’s obviously critically important to the well-being of our citizens’ quality of life.

Mr. DUNCAN. A few years down the road, that mandatory spending is going to become discretionary spending, because we’re not

going to be able to have enough money to cover all the mandatory

spending, and then we are going to have to make—our future Congresses are going to have to make some very painful choices at that

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time.

Mr. PLATTS. I know our ranking member, Mr. Towns, is on his

way; and we’ll come back to him for an opening statement.

[The prepared statement of Hon. Edolphus E. Towns follows:]

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Mr. PLATTS. We will proceed to our witnesses and opening statements. So if I could ask the two of you to be sworn in; and any

staff who will be advising you in your testimony here today, if they

would join you in taking the oath.

[Witnesses sworn.]

Mr. PLATTS. The clerk would note that all witnesses affirmed the

oath.

Again, we appreciate your written testimony. If we can, we will

try to keep your opening statements to roughly 5 minutes so we

can get to a good give and take, but we’re not going to be real strict

on that if you need a few extra minutes as you begin. And then

we will go to questions from the Members here.

Dr. Corts, we are going to begin with you.

STATEMENTS OF PAUL R. CORTS, ASSISTANT ATTORNEY GENERAL FOR ADMINISTRATION AND CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT OF JUSTICE; AND GLENN A. FINE,

INSPECTOR GENERAL, U.S. DEPARTMENT OF JUSTICE, ACCOMPANIED BY MARILYN KESSINGER, DIRECTOR, FINANCIAL STATEMENT AUDIT OFFICE, OFFICE OF INSPECTOR

GENERAL

STATEMENT OF PAUL R. CORTS

Mr. CORTS. Thank you, Mr. Chairman and Congressman Duncan.

I am very pleased to appear before you today to discuss the 2004

financial statement and audit results of the Department of Justice.

As the Department’s Chief Financial Officer, I am fully committed

to ensuring our financial information and controls are of the highest reliability and that they meet or exceed the Federal accounting

standards. The Attorney General and I are committed to restoring

the Department’s unqualified audit opinion, eliminating our control

weaknesses and ensuring that our program managers have timely,

accurate and meaningful information for decisionmaking.

The Department has made significant strides in improving its financial operations in the past 4 years, but, as last year’s results

demonstrate, we still face major challenges. Certain operations still

lack the internal controls and fundamental reliability that enable

us to routinely produce accurate financial reports. We are still at

risk where our operations remain dependent on manual practices

and outdated, overtaxed systems. We have gained valuable insights

from the Inspector General and the independent auditors, and we

are committed to providing a full and accurate accounting for all

of the funds we receive.

This afternoon, I am pleased to discuss our efforts in three areas:

the weaknesses from last year’s audits, our corrective actions to restore the Department’s unqualified financial opinion, and our efforts to improve our critical financial systems infrastructure.

When fiscal year 2004 began, the Department, like other executive branch agencies, was faced with the challenge of preparing its

financial statements and completing the audit by November 15.

This accelerated date cut nearly 10 weeks from the previous audit

time. While we met the accelerated date, we were unable to obtain

an unqualified audit opinion as we had done in the past. Last year,

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because of problems accurately reporting certain grant balances

and weaknesses in grant systems, the Office of Justice Programs

[OJP], received a disclaimed audit opinion. The balances at OJP

are so large—so ‘‘material’’ to use the accountants’ and auditors’

terms—that the DOJ statements were disclaimed once the OJP

statements were disclaimed. The problems were extensive enough

that the auditors from fiscal year 2003 ultimately rescinded the

qualified opinions they had previously issued to OJP and to the Department for fiscal year 2003.

I think it’s important to mention that despite the disclaimed

DOJ-wide opinion, 8 of our 10 components received unqualified

opinions from the auditors. I was pleased to see that the Bureau

of Prisons, Drug Enforcement Administration, Federal Prison Industries, the Offices, Boards, and Divisions, the Working Capital

Fund and Assets Forfeiture all earned unqualified opinions and

had no material weaknesses reported in their internal controls.

Nonetheless, fiscal year 2004 fell far short of our goals. I have

already discussed the grant and accounting systems issues at OJP.

While we do not see evidence that OJP’s overall grant programs

were compromised, DOJ and OJP management are dedicated to

correcting those OJP weaknesses. We also have material weaknesses at the FBI, the U.S. Marshals Service, and the Bureau of

Alcohol, Tobacco, Firearms and Explosives, and ATF’s weaknesses

in determining accurate amounts owed on vendor obligations

caused it to receive a qualified opinion.

Now, our corrective actions efforts in fiscal year 2005 started actually last summer as soon as we realized the severity of the difficulties in OJP. While corrective action at OJP is clearly the key

to restoration of the Department’s unqualified opinion, I want to

assure the committee that we have plans in action at every component to address the weaknesses from last year’s audit report. DOJ

and OJP teams are working closely to correct the OJP accounting

and system weaknesses and are making good progress.

The final area I would like to discuss is the precarious state of

our financial systems. On a personal note, Mr. Chairman, I want

to thank you for your request that my testimony address ways that

you could be helpful and supportive for our efforts to provide highquality financial management support. We currently have to assemble our financial data from seven different core accounting systems in order to manage our budget and our finances. Additionally,

the independent auditors have noted that the FBI’s legacy financial

system is over 25 years old and was not designed for today’s accounting standards. The FBI has transformed—has really transformed itself to meet its critical counterterrorism mission, yet we

support the FBI financial backbone with an outdated system that

began use before personal computers became popular household

items. We devote extensive resources to provide Department-wide

reporting, and we have no Department-wide diagnostic reports

which would have given us the kind of early warning needed of the

type of problems that occurred in OJP last year.

We are seeking resources to implement a unified financial management system, a core single system that will give us coordinated

Department-wide information for managing our programs. Our

foundation work on this is near completion, but we do not have

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funding to launch the implementation efforts at our components.

We have requested next year’s unified system funds as a part of

the President’s 2006 budget, and we urge Congress to support that

request.

In closing, I would like to assure the committee that improved

financial management and reliable financial reporting are two of

the Attorney General’s and my highest priorities. The Department

has proven in the past it can produce reliable financial statements,

and we are determined to regain that status this year.

Mr. Chairman, I will be happy to answer any questions from you

or members of the committee.

Mr. PLATTS. Thank you, Mr. Corts.

[The prepared statement of Mr. Corts follows:]

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Mr. PLATTS. Mr. Fine.

STATEMENT OF GLENN A. FINE

Mr. FINE. Mr. Chairman, Congressman Duncan, I appreciate the

opportunity to testify today about the Department of Justice’s financial statement audits and the State of the Department’s financial management systems.

I would like to introduce Marilyn Kessinger who is with me

today. She is the head of the OIG’s financial statement audit office,

which is responsible for overseeing the work of the independent

auditors who perform the financial statement audits of the Department’s 10 reporting components. Marilyn is right here with me.

2004 was a difficult year for the Department. It received a disclaimer of opinion on its consolidated financial statements and also

had its 2003 unqualified opinion withdrawn and reissued as a disclaimer. Prior to that withdrawal, the Department had earned 3

years of unqualified opinions on its consolidated statements.

These disclaimers were caused by problems in one component of

the Department, the Office of Justice Programs. A second component, the ATF, received a qualified opinion for 2004, but it had no

effect on the Department’s overall consolidated opinion.

On a positive note, the other eight Department components, including the FBI, the BOP, Marshals Service and DEA, continued

to earn unqualified opinions for fiscal year 2004. However, the total

number of material weaknesses and reportable conditions increased

from 19 in 2003 to 23 in 2004.

The OIG believes the Department’s financial controls are and

will continue to be a top management challenge for the foreseeable

future. In our opinion, for long-term success, the Department must

concentrate on standardizing financial processes and systems and

it must implement a unified financial management system to replace the multiple accounting systems currently used throughout

the Department. Now none of the Department’s accounting systems

are integrated with each other. The OIG strongly supports the Department’s implementation of a unified system, which we believe

would be a wise investment.

My written testimony addresses in more detail three main

issues. It discusses how the Department ended up with the disclaimers of opinion on its 2004 and 2003 financial statements. Second, it discusses the progress made by the Department and the

challenges it faces on its financial statement in 2005. Third, it offers observations on the long-term challenges faced by the Department and on the steps we believe are necessary for the Department

to improve its financial systems, financial reporting and, ultimately, its financial management.

I will not repeat my written statement here, but instead will

highlight for the committee a few key points and observations.

Because of the accelerated timeframes imposed by OMB, agencies no longer have time at fiscal year end to conduct extensive

manual cleanup or updating of financial data. Similarly, no time is

available to validate financial data if audit testing reveals problems

during the latter stages of an audit. Rather, the auditors must be

able to rely on the agency’s financial and information technology

controls throughout the year.

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As the Department’s primary grantmaking agency, OJP is particularly dependent on IT controls because its grant activities are

processed electronically, from applications to cash disbursement to

reporting of results. Unfortunately, in the 2004 audit, the auditors

determined that they were unable to rely on OJP’s financial and

IT controls. For example, the auditors cited the lack of effective internal controls over the computerized information systems used to

process grant transactions and the lack of sufficient documentation

and adequate responses from OJP to support its financial statements. To its credit, after receiving the disclaimer, the Department

decided that it wanted to go back to ensure the financial statements for 2003 and 2004 were accurate.

The OIG has worked closely with the Department’s CFO, Dr.

Corts, and his staff as they seek to accomplish this objective. He

and the Department’s senior financial managers also are regularly

conducting meetings with components on corrective action plans

and stressing the importance of improved financial management.

It is also fair to say that the Department has made some

progress in its financial management, but it must confront a variety of challenges and longstanding issues in order to obtain clean

opinions on its financial statements. These include improving data

quality and improving the ability to timely provide adequate support for transactions during testing. Over time, we have seen some

improvement in data quality and timeliness, but more improvement is needed.

Department components also have started conducting more frequent internal quality control reviews of financial data. We strongly encourage the use of these internal review functions, but we continue to have concerns about staffing problems at some Department components, including that they have sufficient, qualified financial management staff. This can also be a particular problem

overseeing the many contractors that are used to supplement the

Department’s own staff. Where contractors are used, component

staff must provide adequate oversight of them to ensure the work

is performed properly.

In sum, with less than 5 months remaining in fiscal year 2005,

I believe it is fair to say that the Department has made strides in

addressing some of the significant issues identified during the 2004

audits that resulted in the disclaimer of opinion. While it is too

early to predict the outcome of the Department’s 2005 audit, we believe the Department has taken an aggressive approach to resolving the significant challenges it faces. It will take a sustained effort

to move from a disclaimer to an unqualified opinion in 1 year. Most

importantly, the Department needs to improve, on a long-term

basis, its ability to provide timely, accurate and useful financial

data throughout the year. Implementation of a unified financial

management system is critical to meet this part of the challenge.

That concludes my prepared statement, and I will be glad to answer any questions.

Mr. PLATTS. Thank you, Mr. Fine.

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I appreciate Dr. Corts and your written statements. You touched

on it briefly here today, the issue of internal controls and how critical having strong internal controls is going to play into long-term

success at the Department and getting your hands around some of

the financial challenges that you have.

[The prepared statement of Mr. Fine follows:]

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Mr. PLATTS. We are going to proceed to questions; and I understand, Mr. Fine, that Marilyn Kessinger is going to join you at the

witness table now. Ms. Kessinger is Director of the Financial Statement Audit Office. We appreciate her joining us here as well and

being available for questions.

I would like to start—we are going to have, in essence, the 5-

minute rule for questions. We will not be real strict on that with

the number of members here but maybe just get some foundation

for our discussion today from a structural standpoint.

Dr. Corts, starting with the CFO office, what is your interaction

with or authority regarding the individual CFOs at each of the 10

entities within the Department? Do they answer directly to you?

Do you have say in who is in those positions? And what type of

interaction occurs there?

Mr. CORTS. The CFOs of the individual components are essentially employees of the individual components. They have a reporting relationship to the heads of those components. They coordinate

with my office in the sense it is more of a coordinative role. We

have a CFO Council where all of the CFOs get together on a regular basis where we talk about financial issues. There is a great deal

of interplay between my staff and their staff certainly as we work

on the audit but throughout the year in terms of the financial management issues. We, generally speaking, do broad policy guidelines

that give an outline of how we want the processes and procedures

to flow in the various components, but there is a great deal of autonomy and authority that they have and they exercise out in their

individual components.

Mr. PLATTS. Is that problematic in the sense that—if you are setting Department-wide policy and what you are looking for? Because, ultimately, you are responsible for that consolidated financial report for the Department, and having a uniform gathering

and collection is certainly critical to that mission. Is the structure

that exists, the fact that they don’t answer directly to you perhaps

as well as a superior within the individual entity, is that problematic, in your opinion?

Mr. CORTS. Well, I think the bigger problem for us is the unified

financial management system. My staff doesn’t have the ability in

many of the cases of the components to use their system, to go into

their system and do any checks within their system. We can’t get

reports out of their system without asking them for the report. We

have to go through them and ask for the report, and they put the

report together and give the report back to us. We are not able on

our own to go do additional digging or penetration into—we have

to go back to them and ask them to go a little deeper into it.

Now we do have—several of our components are on one system.

We do have several of them on our one system. But we have seven

different systems, and only one of those can my staff actually work

with in terms of generating reports and doing analysis and that

sort of thing.

So the big weakness for us is the inability to get the information

we need and to do it on our own. We can still get it on our own,

but we have to send a team out and do a quick audit. And we do

do that, send teams out for internal control reviews and things of

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that sort, but it is not like we can actually go into their system and

manipulate it, because we can’t do that.

Mr. PLATTS. So if we get that ultimate goal, that unified financial

management system, within the autonomy that exists in those individual components, you will have a better ability to go out and verify the accuracy of what you are getting on a regular basis because

of having a unified system?

Mr. CORTS. Correct.

Mr. PLATTS. You are, in essence, relying on what is handed to

you in compiling that consolidated financial report?

Mr. CORTS. The Department’s report is simply a roll-up of 10 individual audits, and that’s why it’s very important—I think it is

important for us to not lose track of the fact that, though we had

a problem in one component, one was completely clean and one

that was qualified with a particular issue and only one that really

was unqualified.

Mr. PLATTS. I think that is an important point, and we want to

focus and look at how we can bring that other one, especially the

one in particular, up to speed, but we do acknowledge the good

work in the other components.

A similar question, Mr. Fine, with the audits themselves. Does

your office, from a funding standpoint, pay for the costs out of your

central office or do each of the individual components cover the

costs of their audits for their individual components?

Mr. FINE. We don’t pay through our appropriation. The appropriation comes through the Department, and the Department’s

components have to pay. We have a staff to supervise and oversee

the independent auditors who do the actual audits themselves, and

we get funding for that as well. But the funding for the audits

themselves comes through the Department’s appropriation, not directly through our appropriation.

Mr. PLATTS. And the fact that we had—8 of the 10 components

have clean opinions and that is, in essence, a roll-up to this consolidated—from an efficiency standpoint, is there a reason to have the

consolidated versus doing what we are doing today, which is really

looking at the individual ones and see where we have the problems

and not going through that extra step?

Mr. CORTS. One of the great opportunities that we have with a

unified system will be the potential to reduce the number of audits

that we do. We have to do these number of audits because independent auditing firms don’t want to be getting one audit over multiple systems. One of the things we are looking forward to very

much is to be able to reduce the expense. Audits are expensive and

very time consuming. Just the hiring of these independent audit

firms is very expensive.

Mr. PLATTS. If we get the dollars you need to get to a consolidated unified system, then we can potentially have savings in that.

We can have one audit of all 10 as a truly united or consolidated

audit as opposed 10 individual efforts that are just wrapped into

one?

Mr. CORTS. That would be our hope, to be able to reduce the

number of audits.

Mr. PLATTS. Is that a possibility?

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Mr. FINE. I think we can possibly move toward that direction. I

think the unified financial management system would help in that

regard, but there has to be standardized processes and has to be

a standardized system. And if throughout the Department they are

operating in a unified way, then you have the potential for moving

toward less individual component testing and auditing but testing

on a Department-wide basis. But, currently, you have a decentralized system with a complex series of legacy systems that are operated in many different ways by many different people; and you

can’t have one overall audit and expect to get an understanding of

how the individual components operate. Moving toward the future

down the road can have some cost savings in that regard. But, for

many other reasons as well, I think it is very important to have

a unified system.

Mr. PLATTS. I certainly have other questions, and we will get into

the specifics of internal controls.

We have been joined by Congressman Gutknecht from Minnesota, and I now turn to Mr. Duncan for questions.

Mr. DUNCAN. Thank you, Mr. Chairman.

As critical as my opening statement was about the $277 million

being misspent, the situation is actually worse than what I said in

my statement because I did not mention the fact that the $277 million comes from an audit of only 3 percent of the programs, is that

correct, Mr. Fine?

Mr. FINE. We did audits of—what you are referring to are the

COPS grants. We have done a series of audits of COPS grants.

There are thousands of them. In total, that is probably correct. We

have done a small percentage of them and questioned costs of a significant nature in that 3 percent.

Mr. DUNCAN. We are also told in the papers we received, on top

of the $277 million there are 82 departments that haven’t given

you adequate information about $111 million?

Mr. FINE. I haven’t added up the exact amounts in that regard,

but clearly there are a significant amount with questionable costs

and lack of adequate documentation from many of the COPS grantees. That is exactly right.

Mr. DUNCAN. I have to leave here because I have to speak to a

group of Japanese parliament members before 3.

It’s amazing to me how many times in recent years that any time

a Federal agency fouls up they blame it on one of two things or

sometimes both. They always say they are underfunded and/or they

always say it’s the fault of the computers. They have an outdated

computer system. I mean, we hear that all the time.

I remember after September 11th and the fact that 15 of the 19

hijackers were here illegally and the INS said they were underfunded and our colleague, Congressman Gallegly was on 60 minutes saying we had given them a 250 percent increase in the previous 8 years, an average of 30 percent increase in funding every

year. But we always hear that.

I remember in the mid-1990’s I read a cover article in Forbes

magazine, which is a conservative, pro-business, very respected

magazine. They had an article saying that we had quadrupled the

funding for the Justice Department since 1980 and that there were

prosecutors out there all over the country falling over themselves

45

trying to find cases to prosecute. They didn’t have enough work to

do. We increased the funding so fast. And now the staff tells me

we have roughly doubled the funding for the Justice Department.

Since that time—we are so good to the Justice Department. Then

we come in here—and I was a criminal court judge for 71⁄2 years.

I believe in law enforcement, and I believe in being tough on criminals, but I don’t believe in throwing away money. I get sick and

tired of agencies when they foul up saying they are underfunded

when they are not. We are giving them barrels full of money; and

it gets sickening after awhile to hear these excuses, excuses, excuses when money is just being wasted, wasted, wasted or

misspent. And it is frustrating. People should be embarrassed

about this and should be ashamed, but they are not, and I understand that. And I know when they go back to the Justice Department, they will laugh about what I said here today, but I think it’s

shameful.

Thank you, Mr. Chairman.

Mr. PLATTS. Mr. Gutknecht, did you have questions?

Mr. GUTKNECHT. Thank you, Mr. Chairman.

I was only going to ask some questions, but I certainly share

some of the feelings that my colleague from Tennessee had.

Mr. Corts, did the accelerated deadline affect your ability to get

a clean opinion?

Mr. CORTS. As I mentioned in my opening testimony, before we

had several months or 3 to 4 months really to do clean-up work

after you are closing your books. That is the way it had been for

the years previous where we had received unqualified opinions.

I think it is safe to say that our ability to get unqualified opinions in those preceding years was helped by the fact that we had

a period of a number of weak spots after the close of the fiscal year

in which to gather the information and to go through the process

to get the information that the auditors need in order to get an unqualified opinion.

So the short answer is, yes, it affected us because we didn’t have

that time to do the work that, frankly, our staff at central Justice

in previous years—remember, we’re basically rolling up individual

independent component audits. So when the auditors would begin

their work with the individual components and they found a problem, we would have a team of folks from main Justice who would

go in and work to correct that problem as quickly as possible, try

to get that fixed in time to get the audit a clean opinion. We didn’t

have that kind of time to do that repair work this year; and, clearly, that greatly affected us.

Now whether we would have been able to do it this year, given

the circumstances that OJP was in, I can’t tell you for sure, but

I can tell you not having the extended period of time definitely

made an impact on us. Basically, we couldn’t even make a try at

it because you just didn’t have any time.

Mr. GUTKNECHT. When you said ‘‘get the problem fixed,’’ give us

an example of what you mean.

Mr. CORTS. Part of the issue, for example, with the OJP issue

this year was it was getting specific information out of the system,

working up the number of samples that they would take, getting

the information on the samples that they would take to do tests

46

against the system. And as they would run one test and then require additional information, you just—they eventually just kept

finding additional problems, and they ran out of time to do more

testing. In the former system when we had more time, you could

have continued to extend it, do the testing and go out and retrieve

more files and run more tests against them. We just didn’t have

that time this year.

Mr. GUTKNECHT. I’m still really not really clear, though. I mean,

as you do your investigation and you find more problems, that

doesn’t necessarily make it easier to solve those. That sounds to me

like the deeper you got into this, the more problems you found.

Mr. CORTS. That is often the case, and you have to work through

that in order to get to the solution. And, again, you need time to

do that, and we didn’t have the time this year.

Mr. GUTKNECHT. Mr. Fine, do you believe if we would have extended the deadline some of these issues would have been resolved

with more clarity?

Mr. FINE. I think some of the issues would have been resolved,

but I don’t believe that the time, if it had been extended, that the

problems of OJP would have been rectified. I think we would have

the same problems even if it was a longer period of time. Those

issues were too massive and too longstanding to be quickly resolved. They involved cross-cutting issues. They involved internal

controls. They involved grant accrual issues. They involved difficult

problems that, as we looked further and further and deeper and

deeper, we found more and more. And OJP needed to do a thorough review.

It’s not going to take weeks. It’s not going to take months. It’s

going to take a significant period of time for review of its financial

policy and procedures, of its financial control systems, of its reconciliations, of its grant accrual methodology. I don’t believe that

could have been resolved in a quick time period. And it has taken

a long time even now to go through and deal with those issues.

Having said that, the compressed timeframe did not allow a possibility of doing that, but I don’t think that is a cause of the problems. I think the cause of the problems are more deep seated and

longstanding.

Mr. GUTKNECHT. We in Congress and the American people have

been critical of corporate accounting problems and some of the

scandals we have seen, and I don’t know if this would rise to a

level of scandal. I think that’s a term that gets overused. But it is

fair to say that the American people expect that we be able to defend the money that we take from them to spend on this, and it

sounds to me there is a systemic problem inside the Department

of Justice.

Mr. FINE. I don’t believe there’s a problem—we have to be clear

about this—in the spending of the money. It has to do with the financial statements, the accounting and the balances.

Mr. GUTKNECHT. Most government agencies don’t have any trouble spending the money. That is never a problem around here.

Mr. FINE. I think that’s right. And it is important to recognize

that there is a longstanding problem, and the Department is committed I think to rectifying those problems. It wanted to go back

47

and to present accurate financial statements for 2003 and 2004

after they received the disclaimer of opinion. That’s to its credit.

It’s going to take a significant amount of time. It’s going to take

significant effort. And I’m not 100 percent confident that it will be

eventually resolved for 2005. The Department is doing its best to

do so. We are attempting to aid the Department in that regard, but

we’ll see what happens. I think that’s fair to say. But I think it’s

a critical issue that needs to be addressed, and this committee is

right to focus on this issue, as is the Department, to try and get

it right.

Mr. GUTKNECHT. I want to thank you for having this hearing. It

sounds to me like we may need to have a followup hearing in some

months after we get a chance to get our arms around what the

problem is.

Mr. PLATTS. Thank you, Mr. Gutknecht. And we do plan on continuing to work with the Department and continue the subcommittee’s oversight and appreciate your participation here today.

I have a couple of followups to Mr. Gutknecht’s questions on the

timeframe and accelerated deadline for the consolidated report.

Key to being able to have that consolidated report at the Department level is access to, in essence, real-time data, and I think is

what you mentioned earlier, getting the unified financial management system that would allow you at the Department CFO level

to have that data so you can, throughout the year, verify what you

are being told and then quickly at the end of the year consolidate

all the information. But what is the challenge at the component

level where they do have financial management systems—understandably, some of them are pretty outdated. But even the outdated ones should be able to give more timely information on a

daily basis, at least within the component, maybe not to the Department-wide level. Is that an incorrect assumption because of the

nature of the systems, are so outdated that they are not going to

be able to give us what we are looking for today, which is day-today good financial information? And that is to both of you.

Mr. CORTS. At the component level, they have a great deal of capability to do that for themselves. The problem when you get back

from trying to look at it from a departmental perspective is each

of them, because they have different systems, approach it in different ways. Even when you try to request a report that is as

standardized as you can get at across the various components, because they come at it in different ways, they have to, because of

the way—the nature of the way their systems are and definition of

terms and things like that, you don’t necessarily get exactly apples

to apples. So it’s still problematic for us at the departmental level.

It takes time and doesn’t give you the real-time ability to investigate situations that you would like to have and that we really

need.

Mr. FINE. I think I would respond that the systems within the

components, many of them are old systems, legacy systems. That

kind of a system doesn’t give you accurate, timely, reliable data on

a daily basis that you can use to manage the operation, and that

is what the goal is. Components are clearly not there. They’re not

at their goal because of these difficult systems.

48

And, quite honestly, I think that is one of the benefits of a unified financial management system. It’s one system. You can operate

it on a Department-wide basis and know how it’s working and

working appropriately; and, hopefully, the managers will be able to

use that system and extract information on a daily basis so they

can manage their operations.

Too much of it now is going on after the close of the quarter or

after the close of the month or at the end of the year, and they are

reconciling the systems and seeing if it’s accurate data, finding it’s

not accurate data and not being able to rely on that data. That’s

not what a financial management system should do, and it’s not

doing what it needs to do in the Department.

Mr. PLATTS. It gets to the issue that I want to come back to in

a few minutes which is the COPS program, the Community Oriented Policing Program, and some of the problems there. That dayto-day data is so important because in the past when we had several months to reconcile the audits and especially the individual

components there were heroic efforts that brought the information

together, but what real benefit was it throughout the year? They

told us, yeah, there were problems, but day to day we didn’t have

the benefit of what we should have from a good financial system.

Let me go to a couple of questions before we go into some internal control specifics. And that relates to—Dr. Corts, you reference

the A–123 requirements that OMB has put forth; and we are very

pleased with OMB. When we passed legislation last year regarding

the Department of Homeland Security that I sponsored requiring

an internal control audit for that Department because it inherited,

I want to say, 18 material weaknesses, if I remember correctly, of

22 different agencies—there was a clear need for it to go to the

bedrock of financial information and get a good understanding of

the internal controls and buildup. We did it for DHS and did not

require that level of—at all levels.

But OMB has come forward with the new regulations. Where

does Justice stand? Where are you as far as being able to go forward and prepare with the 123 control audit at the end of the

year?

Mr. CORTS. Well, I must say that I was surprised when I came

into government service in 2002 to find that there wasn’t a good

deal more of internal control going on; and it has been an issue of

concern to me. I think 123 is certainly the right way to be going.

We have already taken some internal steps to raise our activity

in that area; and I’m pleased to say that some of the components,

because they operate the way they do, they are beginning to do this

within the components. We are looking forward to actually probably doing a preprogramming to try to bring a more full-fledged operation to bear to do this within our organizational structure out

of the departmental CFO office.

Mr. PLATTS. And you envision being able to comply with the new

requirements?

Mr. CORTS. We are trying to get a head start on it, yes, sir, because it is something we need to do.

We got into this, as I said earlier, quickly as a part of reaction

to the OJP issue last summer. For example, in the OJP area, we

actually—basically, I took back the delegated authority to the OfVerDate 11-MAY-2000 13:42 Jul 18, 2005 Jkt 000000 PO 00000 Frm 00052 Fmt 6633 Sfmt 6633 D:\DOCS\21942.TXT HGOVREF1 PsN: HGOVREF1
49

fice of Justice Programs and brought that back to main Justice so

that the CFO at OJP now reports directly to my deputy CFO.

Many of the problems over there were IT related. IT is so crucial

to the financial systems these days that the two of those have to

be really married very well. We looked about pulling back the authorities on the IT, but because they installed a new CIO over at

OJP who had a good understanding of the issues and wanted to

work very well with us, our CIO at main Justice felt like we could

leave the CIO over at OJP but just have a real close working relationship.

We sent a team of folks over there as soon as we found the major

problem. They have remained there and remain today. We have an

audit manager from main Justice over at OJP that is running the

audit. We have taken a number of actions to try to get more independent eyes looking on that system and doing more checking of

the things along the way so—we have a little bit of an effort under

way to make sure that these corrective actions that we are trying

to take are accomplishing their intended purpose.

One of the challenges that you have when you are trying to do

corrective actions, a lot of times you don’t find out whether your

corrective actions are totally successful until the next audit is done.

If they weren’t successful, you might get nailed again. But you do

testing along the way to try to ensure that the corrective actions

are in fact accomplishing their purpose.

Mr. PLATTS. Mr. Fine, I imagine your office is involved in monitoring the progress in the A–123 compliance. What is your assessment of where the Department is and your ability to comply with

the new requirements?

Mr. FINE. Our Department is making strides. I’m not sure at this

stage we would be able to fully comply with the new requirements.

I think what Dr. Corts says is very important, though. The Department needs to and has taken steps to do internal quality testing prior to the data being turned over to the auditors to determine

whether it’s a fair and accurate representation. And I think it is

important what Dr. Corts and his staff are doing, that is, setting

up within the Justice Department an ability to test the controls

and test the operations and test the data of the components, so it

is not simply hopeful when it’s given to us that it is fair and accurate. I think that is the kind of initiative that can help the Department in meeting its challenges.

Mr. PLATTS. Is there any plans or consideration by any of the individual components of actually doing an audit of their internal

controls? I know there is extensive cost. I know that DHS is required to do it, and I think it was Department of State. They were

looking at doing it voluntarily as far as internal control. Is there

any consideration of that by any of the 10 components and specifically regarding the OJP expenditures?

Mr. FINE. I believe the answer is no. I could ask my assistant.

Ms. KESSINGER. No one has asked for an opinion. There is a lot

of work going on in internal controls. We do more work in internal

controls now than we ever did in the audits before, and I guess

there is maybe a perception what we are doing now is sufficient

without having to get an opinion.

50

Mr. PLATTS. I think that type of assessment, I think that’s what

OMB is after, and what we’re after is that we may not need that

and those internal changes you are making.

Dr. Corts, you mentioned when you came on in 2002 the fact

there wasn’t more emphasis on internal controls, that you are placing that emphasis. And something I guess Mr. Gutknecht referenced as following up of what we will be looking for as we get

to that compliance time period with the OMB regs, that—what you

did find. Are we getting to a point where perhaps in one of the

components or collectively an internal control audit would be necessary?

Let me get into some specifics on ICs because referenced earlier was the problems of the COPS program and $277 million that was

misspent. My understanding of the money that was misspent, it

was spent on law enforcement needs. But it was on equipment,

training or other things, but not actually on employment of the

new officers, which is what it was supposed to be spent on. Is that

an accurate understanding?

Mr. FINE. There is a whole series that go into that $277 million,

and it’s not as if it was fraudulently used. We found many of the

grantees did include some unallowable costs in their claims for reimbursements, but more of it had to do with that they could not

show that, for example, they had redeployed officers as a result of

technology grants. They could not show that they did not supplant

their own funding with the funding that the Federal Government

provided. They could not show that they had a good-faith plan to

retain the officers after the funding ran out. So those were some

of the findings that we had that went into the total of $277 million.

We did a series of individual audits and found various dollar

amounts in each of the individual audits. One of the key findings

in our audits was that the COPS program needed to do a better

job of monitoring those grants. And when they did have those findings that the funds were not—there was not adequate support for

the funding, that they take corrective action in a timely and effective way, we found in many cases that didn’t happen and still

hasn’t happened.

Mr. PLATTS. Is it fair to say from an internal control perspective—and this may be for all of you to feel free to answer on—that

it is not just a better job monitoring? But from an upfront internal

control that when the funds are provided there is a clear message

of what the requirements are in receiving it. Meaning that you do

need to be able to show it is a good-faith plan to keep the officer

on board, that you did not supplant, so that we are certain that

when they get the money they are also saying—getting the requirements that are going to be expected when that audit comes to be,

that they know what they’re going to have to show so they are

ready and first accept the money under those terms willingly and

are ready to provide the information—that would be an upfront internal control, as I would see it. What assessment of that type of

IC has been done?

I ask that because this program is so important and I’m a strong

supporter. There has been efforts to reduce this program. I don’t

support the reductions. I see the benefit of law enforcement receiving these funds but also know some of the recipients are smaller

51

departments and they are just glad to put officers on the street.

And when the red tape goes with it, maybe they are not focusing

on as much as they need to be, but I am not sure how much they

were told up front they were going to have to focus on it. That is

why I ask that. What are we telling them when they get the

money?

Mr. CORTS. Could I back up just a minute on the COPS issue

that has been raised here and clarify the issues about that does not

relate to the Department’s financial audit, nor does it relate to

COPS’ financial audit. COPS had a clean opinion this year as part

of the OBD.

Mr. PLATTS. So in the big picture we can technically say we have

a clean opinion, but if the Government Accountability Office said

but we identified this expenditure, it is clean from a financial audit

standpoint but from an appropriate use of taxpayer funds maybe

not.

Mr. CORTS. Absolutely, not saying that this is wonderful and not

anything to worry about, but I’m trying to separate these. And then

we are talking about other audits. And many, many other audits,

the Inspector General audits, just constantly is auditing items

around. And this is a programmatic audit and so that is—I want

to make that distinction.

Mr. PLATTS. The IC issue, internal control, that is part of the big

picture of the financial audits.

Mr. CORTS. The second thing I wanted to be sure that people are

clear about here is that the COPS office, as a part of its internal

control actually brought—probably in the one case that was reported in USA Today actually brought to the Inspector General a

large number of those issues as items that they had found. So just

that you have some sense of assurance that internal controls are

at work and are finding things.

And kind of a third general thing to keep in mind when you are

dealing with these grants is that these grants are made to people

all over America. They are everywhere, as you say, and they have

been very good for a lot of local areas. We make grants to entities

that have very sophisticated financial systems, very good reporting

systems; and they are very accustomed to handling grants and

know what to do and know how to respond to inquiries and know

how to account for the money. And we make grants to small entities, and maybe this is the first time they have gotten a grant, and

it requires a lot more on the part of the COPS staff to work with

them.

That being said, the responsibility for ensuring that the moneys

are accurately spent rests with us in the Federal Government because we are making the grants. We have to do a better job of having the internal controls to find these issues when they develop and

to resolve them and, of course, to try to keep them from happening.

And you do that through having agreements with people over what

they will do with the money that they are given, how they draw

the money down and whether they draw the money down and then

report or whether they have to do it first and then get a reimbursement. These are issues that are part of the grantmaking process

and a lot of the control issues, and it is done different ways.

52

Mr. FINE. I would like to address briefly your statement that

there should be awareness and knowledge given the grantees. I

think that’s right. I mean, I think it’s there in the documents but

sometimes people don’t read those documents. And you do need to

make sure that people understand the requirements of the program. The COPS program is not free money, and there are requirements that people have to go through. And some localities decided

that they couldn’t comply with it, and they didn’t accept the money.

Others looked at it as free money, we are going to do it, and

made no real effort to ensure there was a good-faith plan to retain

these officers, to make sure there was not a supplanting of their

own funds.

We have seen some small grants, as Dr. Corts said, some places

where they had 2 police officers before and they had 13 afterwards.

And it wasn’t clear whether they needed all that or whether they

could retain all of that and comply with the conditions of the grant.

So there is a need to make sure that everyone understands the

needs of the requirements of the program.

There is also a need to make sure that once the grant is given,

that it is adequately monitored, followed up on, the forms are sent

in. And when they aren’t sent in, when they aren’t complying with

the program, corrective action is taken in a timely and effective

way. We have not seen that in many, many instances when there

have been problems with those COPS grants.

Mr. PLATTS. And the word I have for the benefits, when the dollars have been well used, I think, are very important that we maintain and that we risk a good program because of some poor management at the Federal level and, in some instances, knowingly or

unknowingly, bad management or bad faith at the local level—but

that we don’t, in the end, kill a good program or an important program for safety in our communities because of how we are managing the program, as opposed to the mission of the program. That

is why I raise that under that broad issue of internal controls.

Then a second specific example would be regarding the Federal

Bureau of Investigation, the IT project. And it is similar to what

we saw DOD—with DOD, I think we had $130 million spent on a

new project, got to a certain point, realized it couldn’t do what

needed to be done, and we were starting over.

My understanding, we have a similar issue here where $170 million has been spent on an information technology program by the

FBI. And, that largely is going to be unusable or, again, starting

over, because of the way it was set up.

I would be interested, it’s a specific example, and again to me,

in an internal control breakdown, that we got so far along in a

process where we spent that sum of money—and I give a disclaimer, and I regularly do that. I am a guy who balances my

checkbook to the penny every month. So when I hear that we somehow spent $170 million and then realized it’s not going to do what

we needed to do, what broke down internally that we didn’t realize

that sooner, and, take corrective action? Because we certainly have

learned from the error. But for the taxpayers’ benefit, we need to

learn the error sooner. And I would be interested if you can enlighten me on that issue.

53

Mr. CORTS. There are a number of things that the FBI has done

to take very specific steps to try to approach these kinds of programs in a different manner here in the future.

This program was a part of a three-part program, and two parts

of it came off pretty effectively. It was the final part that didn’t

make it and is the part to which you are referring, the DCF part.

The program for that was really determined pre-September 11th.

It was a—basically a cost-plus kind of a program. It didn’t have a

lot of carefully identified benchmarks and timelines and checkpoints and so forth. So certainly one of the things that the FBI has

learned is to do programs that have very specific checkpoints, very

specific deliverables, and to do things in phases.

And so the phasing of these kinds of massive programs, to give

you an opportunity to ensure that you are getting something of

value before you keep on going down the road. I think one of the

things that happened here was that as things began to go bad, you

try all the harder to make them go well, and you keep going. And

then things don’t go well and you try harder again to make it go

well.

But when you have a specific ‘‘oh, stop place’’ when you say stop,

we either got this product, it got delivered, it’s successful, it does

what it is supposed to do or not. Before you go forward, it gives

you a real checkpoint. And that is one of the big changes that the

FBI has made.

Mr. PLATTS. Is that type of a—you say expensive lesson, $170

million—is that shared within Justice, with the other components.

Let’s not just have the FBI learn from the error of this, the lack

of metrics and things along the way; but, we all learn from that.

Because, unfortunately, DOD already had done that and had a

similar breakdown, and they may get it right the next time, and

hopefully will, but obviously that lesson at DOD wasn’t learned

across the Department, and we repeated it here. So internally

there’s a good sharing of that error in how to guard against it.

Mr. CORTS. One of the things, we had a new CIO come into the

Department in late 2002, again, well after this program was underway and had been started. And he began—as he got into the program and became familiar with the FBI’s program, began to raise

major concerns almost immediately. The FBI got a new CIO in

2003 and, likewise, very concerned about how that program had

been started, how it was coming along.

I think that the leadership of the CIO and the FBI, the leadership of the CIO within the Department of Justice now, the number

of programs that we have in place to check this kind of thing, just

tremendous compared to what it would have been when this program was initiated.

So we feel like we have learned a lot, and we have good leadership now that understands this. We have greatly strengthened our

program management capabilities, run a number of classes

throughout the whole Department, throughout the FBI. So a lot of

improvement in our ability to manage these kinds of very, very

complex programs. And we shouldn’t underestimate the complexity

of this program.

But I think that there are a number of things that have been

done. The FBI has, for example, a life-cycle management directive

54

now that requires the spelling out of these stop places and these

points where you show your successes or you don’t move forward.

The FBI has recently established an Enterprise Information Technology Governance Board. They have an earned value management

system.

As I said, the CIOs of FBI and DOJ are working very, very carefully together. I know we meet—I meet with the CIOs of both of

these entities, the CFO of the FBI, people from OMB. We meet

every month and talk about these issues as they relate to the FBI.

So there is a lot of attention being given to be sure we get this

thing right when we go forward with this investigative case management system.

Mr. PLATTS. Mr. Fine, did you want to add anything?

Mr. FINE. Briefly, I generally agree with what Dr. Corts said.

What you are referring to is the Trilogy FBI IT upgrade. We have

done a number of audits on this program. We have followed it

closely. It evolved from a 3-year $380 million project to a $581 million project, which is still not complete. The big problem is the

third phase of it, not the first two phases; which the first two

phases were hardware and software, and communications.

The third phase is the virtual case file to replace their antiquated case management system. It is absolutely right that the

FBI had problems in designing the requirements for the system,

setting milestones for the system, setting critical review points and

holding people accountable if they didn’t meet those milestones.

As a result the system went forward. They were so intent on

moving forward that they never got a defined set of requirements,

and it never came to fruition. I think that’s the main problem here.

I think there were contracting weaknesses with a cost-plus contract

that allowed the contractor to go without sufficient oversight.

And finally, I think there was a lack of management continuity.

The FBI had significant changes in their IT management throughout the course of the project. They must have had 15 different people responsible for phases of the project over a 3-year period, five

different CIOs. Without continuity, there is no way that the system

is going to be adequately managed.

I am hopeful that they have learned from their lessons. They

have a new CIO at the FBI who seems competent and professional.

And hopefully there will be continuity. They will move forward in

phases, as Dr. Corts says, and they will bring forward a system

that is urgently needed to help their case agents manage all the

information that they have in their case files.

Mr. PLATTS. If Mr. Duncan were still here, I know probably two

followups he would ask and I am going to ask for him; and that’s

consequences.

Are you aware of any, first, internal personnel consequences,

meaning someone who kept pushing the project forward without

making sure it was actually going to do what we were paying for

it to do? In other words, was anyone let go, anyone reprimanded,

demoted, internal consequences?

And then, second, the actual contractors. Was there any effort to

recoup funds for moneys paid for not providing apparently what

was necessarily what should have been provided to fulfill the

terms.

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Mr. FINE. I am not aware of any internal consequences. Part of

the reason is most of the people left already. I mean, I talked about

how 15 of them left, so the main people involved were moving on

quickly.

Mr. PLATTS. Left by choice?

Mr. FINE. Left by choice, exactly. In terms of recouping money,

Director Mueller has talked about attempting to recoup money

from the contractor, SAIC. I don’t know the exact status of that

and where that is. I know Dr. Corts does, but I do believe the Department is looking into that to see whether that is feasible.

Mr. PLATTS. Dr. Corts, are you aware of any efforts currently to

go forward to try to recoup?

Mr. CORTS. I do know that it has been investigated by legal staff

at the Department and at FBI.

Mr. PLATTS. Because, I think that’s one of the issues that, in previous hearings—and Mr. Duncan and I—that we are all human, errors get made, but we also have to be accountable for errors. But

we also want to learn what consequences occur. And I think taxpayers, when they say we spent how much, and we didn’t get anything in return—and so some contractors got paid even though we

didn’t get a product. Those are I think legitimate concerns, taxpayers paid.

My understanding is we have 10 or 15 minutes before the next

series of floor votes. I have a couple of issues I am trying to wrap

up before those votes because I think there will be a series, and

we don’t want to have you sitting here 30–45 minutes, waiting. So

we will try to get through a number of issues.

We talked about the unified financial management system. And

I hope—the way I took both of your statements when I asked about

that, is if done right, we will get to a system when we can get more

real-time data, day to day; data that we can throughout the year

to verify the accuracy, so that it’s not at the end of the year just

playing catch up, or, after the fact. Is that a fair assessment of

what you both said?

Mr. CORTS. Certainly our intent, yes.

Mr. FINE. Yes.

Mr. PLATTS. And as you go forward I know the funding, as far

as a hurdle, the funding is one of the, I guess, major hurdles you

have, is to be able to have the funds. I am comfortable with indicating support for the funding, because I think we need to be smart

and invest wisely up front, because we know we are going to save

long term by doing so. We will make that known to the Appropriations Committee. I, unfortunately, am not an appropriator, so I

cannot directly help. But I can voice support for your needs.

I think I already know the answer to this question, it may be

rhetorical. But given what happened with the FBI, and as you select and now purchase, that we have those benchmarks and those

kinds of verifications in place, that if the funding is provided, that

we are going to get a unified financial management system that

really does what your intent is, that we are doing due diligence to

make sure we are on the right track.

Mr. CORTS. Well, Mr. Chairman, that’s certainly our intent. We

have been working on this for a couple of years now. Most all of

this work that we have been doing has been the low-level kind of

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grunt work that isn’t glamorous but it’s so absolutely essential. Because when you are dealing with unifying these various systems,

you have to bring together people to agree on common processes

and procedures, common policies, common ways of defining things,

common sets of terms and ways of doing things; for people to figure

out how to do that within what they need to keep going on within

their component for all their other purposes, so that you don’t

tweak something over here that helps the financial side but does

something that is a problem for the law enforcement component

over here in terms of fulfilling their mission and all.

So working through that sort of thing, we have studied products

very diligently. There are commercial off-the-shelf COPS products

available. We studied all of those, and did very, very rigorous testing of that and selected a product. So we have our product identified.

We think we have done a lot of the good basic work to roll this

out. We plan to roll it out in phases. So that, again, if there is

something that isn’t working right, we have a chance to catch it as

we do it in phases. We do have some of our components that have

already worked with this particular software in earlier versions, so

they have some familiarity with it.

We were concerned about being sure that the software had the

capabilities to handle the size of the Department, with the tremendous diversity that the Department of Justice has. So we tried to

work hard on checking that out.

We have the FBI as one of our entities that we have to deal with.

And they have very special needs, given their intelligence portion

of their mission, the interaction of SDU, along with Secret and Top

Secret classified data bases and so forth. So we have a lot of issues

with other law enforcement entities that are kind of special.

We are going to have to work through a lot of those. But we have

done a lot of that good work already. I am sure there will be more

of it as we begin to roll this out. We think we have done the testing, and we are ready to go.

Mr. PLATTS. As you move forward, your checks and balances you

have in place there I assume are event-driven as far as what happens in the deployment versus a schedule-driven?

Mr. CORTS. Well, we do have a schedule. But the schedule is to

bring it—bring this out in phases so that if we have a problem, we

can call a stop till we get the problem corrected before we move forward with the next phase.

Mr. PLATTS. So we don’t repeat the errors, as with Trilogy, and

get too far down the path?

Mr. CORTS. That’s right.

Mr. PLATTS. Turning to the specific 2004 audit and then the rescission of the 2003, there were two specifics I wanted to touch on:

the block grants under the juvenile accountability incentive block

grants and the crime victim funds, and some specific errors that

just happened in the case with the juvenile accountability incentive

block grants—I guess 170 that were incorrectly coded as discretionary block grants for several years, I guess, since 2002.

Is that just human error or, again, was it something internal

that we just—in the technology, the way the technology program

was set up? How did that come to be?

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Mr. CORTS. That essentially was a data entry error, and it occurred in some transition that went on in personnel. And it points

to a weakness in the internal control issue. A point that the Inspector General has repeatedly referred to is that the internal control

issues in OJP really just were inadequate.

Mr. PLATTS. Did that happen in 2002 and 2003? And I think in

2004 is when it was found, right; and then went back and realized

it was multiple years?

Mr. CORTS. Go ahead.

Mr. FINE. I think one of the issues that it points up is the need

for adequate oversight over contractors. Much of these financial

statements are done by, coded by, handled by contractors. Contractors change. The contractors changed here; there was an error but

there wasn’t sufficient oversight over that. The most important

thing is to make sure there is adequate, savvy, financial staff in

the components that can adequately supervise the contractors and

tell them both what needs to be done and catch the mistakes before

they become big issues. I think that didn’t happen in the JAIBG

grants and it was eventually caught, but too late.

Mr. PLATTS. But is your finding at the component level a staffing

shortage or just how we are prioritizing the staff at the component

level? In other words, not dedicating staff to that appropriate oversight?

Mr. FINE. I think to some extent it’s a staffing shortage. It’s

stretching staff thin. It’s an absence of financially savvy staff in

many cases that we find there in the component. They are very

thin; but one person here, one person there, you lose that person

and the institutional knowledge leaves as well. So you need to have

both adequate staff and continuity of staff and adequate oversight

over contractors. And I think that’s a continuing challenge, both in

the Department and elsewhere.

Mr. PLATTS. Dr. Corts, in your testimony you talked about the

OJP findings had a psychological effect on the audits for the 2003,

the prior audits and the rescission.

Can you explain what you meant by that? And is it that you saw

the problems in the 2004 and 2003 audit; the auditor kind of overreacted to the 2004 results and went back to rescind the 2003 opinion? Or I would be interested in kind of exactly what you meant

by that psychological effect.

Mr. CORTS. I don’t recall using the word ‘‘psychological.’’

Mr. PLATTS. In your written——

Mr. CORTS. I’m sorry, if I—did I use ‘‘psychological?’’

Mr. PLATTS. I think in your written testimony, you did.

Mr. CORTS. OK.

Mr. PLATTS. I even forget the term. Do you think that there was

an overreaction by the 2003 auditor, based on the findings of 2004,

and that they really were technicalities versus serious problems

that were really existing in 2003?

Mr. CORTS. No. I don’t think I would have implied that or meant

that. I mean, you have to accept the facts as what they were. And

it wasn’t there.

Mr. PLATTS. Just so—the way you had it written was the problems had a ‘‘perverse psychological effect on statements issued in

prior years.’’ I took that as meaning that you thought that maybe

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they were overreacting, as opposed to really finding some substantive errors.

Mr. CORTS. It was an interesting set of circumstances that led to

going back to 2003. And you can have—as I think we have stated—

our intent, and I explained this to the Attorney General. He very

quickly wanted to have—be sure that we made a commitment that

we were going to go back and get these statements right, so that

they will be reliable financial statements that the American people

can rely upon, and we are committed to that.

We have run into the possibility that we could go back in 2003

and have 10 component audits that essentially are all clean audits,

but be unable to get a restatement of the 2003 DOJ consolidated

audit to be a clean audit. So we could end up—it could end up that

in 2003, we will be able to get a correction and a restatement of

the OJP 2003 audit, but not be able to get the departmental rollup

restated. That’s a possibility.

Obviously, to have that kind of circumstance occur is going to be

a very kind of demoralizing event for those who work with us and

take this very seriously and want to be able to clear up our proud

record that we had established of having clean audits. So we hope

we will be able to go back and get those corrected and be able to

move forward with clean audits this year and in the future.

Mr. PLATTS. And that really goes to maybe that broad issue, the

fact that all these individual component audits versus the Department-wide consolidated audit being kind of disjointed, versus if we

had a more uniform comprehensive review that we are all on the

same page. Is that fair to say?

Mr. CORTS. I think.

Mr. PLATTS. What about the—if we accept that the 2003 audit

was inaccurate and that the opinion shouldn’t have been issued, as

it was—and it was rescinded—is there any concern—I mean, my

understanding is that auditor is now hired for the 2005 OJP audit

as well as the consolidated financial statements audit.

Is there any concern there, or, given that we just had that same

auditor rescind their 2003 audit?

Mr. CORTS. Perhaps that’s a better one for the IG to speak to.

Mr. PLATTS. Sure.

Mr. FINE. I would be happy to address that. It is an important

question. It is the same audit firm. When we went to the 2005

audit for OJP, we put out a request for proposal. And of the four

major audit firms, only one was interested in bidding on it and

doing that work. That was the audit firm for 2003.

We recognized that might be an issue, so we took certain steps,

including ensuring that there was a different audit team and a

very aggressive—and we demanded one of their top teams and one

of their top auditors, because we wanted it to be an aggressive, farreaching audit, and they agreed to that.

The audit firm also is putting that audit under the spotlight.

Their Department of Professional Practice is making clear that

they are going to be watching everything that happens, as are we.

We are going to be watching it. We are going to be involved in the

decisions. We are going to be involved in the timeframe. We are

going to be involved in the working papers, because we want to

make sure that it is thorough and aggressive and appropriate and

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objective. And so with those steps in mind, we went forward with

that audit firm.

Mr. PLATTS. Right. I appreciate the insights to your being—you

are conscious of that, and how you sought to kind of address the

problems of the past and how you are going forward. I think that’s

commendable.

Again that’s part of that we all learn from the past and hopefully

do better as we go forward.

I am going to need to wrap up, because we do have bells going

off as votes are going on the floor. A couple maybe closing comments.

One is, in a broad sense, both of your inputs here today is much

appreciated as an oversight committee. We take our responsibilities

very seriously. And, as I said to you up front, when we—before we

started the hearing, as I see the work of this subcommittee and my

chairmanship is to work with each of you, as we do with IGs and

CFOs across the Federal Government, as partners; and that we can

help advance what our shared and ultimate goal is, which is good

financial management across the Federal Government, so that the

taxpayer funds are spent in an efficient and responsible way and

ultimately a good outcome is achieved.

And I know that’s what you are both doing, and I thank you and

your staffs who—I know day in and day out are trying to fulfill

that effort and mission at the Department of Justice. And especially, maybe because of the importance of the work of DOJ, reference FBI and the lead agency here at home on counterterrorism,

and given the events of 2001 and the ongoing global war on terror—there’s no more important mission out there than protecting

our citizens here at home—extend that to the local level, and the

COPS program, which you know GAO has identified some challenges there.

But the bottom line is homeland security in many developing

communities is that officer walking the beat or in the cruiser or in

the neighborhood. It’s that local law enforcement, and that’s DOJ.

You are helping facilitate that law enforcement at the local level

as well.

So, my thought is that the more we fulfill our responsibilities,

you on the front lines and in this committee as an oversight committee, the more effective COPS and FBI can be, because they are

dollars; that $170 million that we lost on the Trilogy could better

be going into more agents in the field for FBI or officers on the beat

for local police, because we are being more effective and efficient

with the management. While we are not the frontline law enforcement, our role is playing a critical role in allowing law enforcement

to do their job.

So we look forward to working with you. Then in a broader sense

our subcommittee has undertaken the charge here of trying to collectively rewrite our financial management legislation from the last

20 years. We have CFO, we have every acronym—my staff knows

them a lot better than I do, I just know what the laws do—but all

those acronyms out there.

But you know we are looking over the next year and a half of

trying to bring together all of these pieces of legislation so that we

have the ability to kind of, as I said, the recipients of a COPS

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grant, they know what is expected. But rather than having it

spread over 20 years in a disjointed fashion, we bring it together

in a consolidated form. So if you are a new financial manager anywhere in the Federal Government, you know what is required of

you in a very concise format. And we get rid of requirements that

are saying put a report on the shelf and no one looks at it. That’s

not an efficient use of tax funds either.

Your respective positions throughout the Federal Government,

CFOs and IGs, your input will be very helpful to us as we move

forward. And we will welcome that in the months and year to come

as we try to have some success in that consolidation effort.

Again, I appreciate your being here today and look forward to

continuing to work with you and your staff.

We will keep the record open for 2 weeks. If there’s any additional information to be submitted—but, we will conclude the hearing, and thank you for your participation. This hearing stands adjourned.

[Whereupon, at 3:43 p.m., the subcommittee was adjourned.]

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