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THE FEDERAL FINANCIAL MANAGEMENT IMPROVEMENT ACT OF 1996: ARE AGENCIES MEETING

THE CHALLENGE?

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY,

FINANCIAL MANAGEMENT AND

INTERGOVERNMENTAL RELATIONS

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

JUNE 6, 2002

Serial No. 107–199

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

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

BOB BARR, Georgia

DAN MILLER, Florida

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

DAVE WELDON, Florida

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

C.L. ‘‘BUTCH’’ OTTER, Idaho

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

JOHN SULLIVAN, Oklahoma

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

JANICE D. SCHAKOWSKY, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

JAMES C. WILSON, Chief Counsel

ROBERT A. BRIGGS, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY, FINANCIAL MANAGEMENT AND

INTERGOVERNMENTAL RELATIONS

STEPHEN HORN, California, Chairman

RON LEWIS, Kentucky

DAN MILLER, Florida

DOUG OSE, California

ADAM H. PUTNAM, Florida

JANICE D. SCHAKOWSKY, Illinois

MAJOR R. OWENS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

J. RUSSELL GEORGE, Staff Director and Chief Counsel

HENRY WRAY, Senior Counsel

JUSTIN PAULHAMUS, Clerk

DAVID MCMILLEN, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on June 6, 2002 ................................................................................. 1

Statement of:

Alderman, Karen Cleary, executive director, Joint Financial Management

Improvement Program .................................................................................. 41

Blanchard, Lloyd A., Ph.D., Chief Operating Officer, Small Business Administration ................................................................................................... 50

McLean, Donna, Assistant Secretary for Budget and Programs and Chief

Financial Officer, U.S. Department of Transportation .............................. 58

Thompson, Sally E., Director, accompanied by Thomas R. Broderick, Assistant Director, Financial Management and Assurance, U.S. General

Accounting Office .......................................................................................... 10

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

Alderman, Karen Cleary, executive director, Joint Financial Management

Improvement Program, prepared statement of .......................................... 43

Blanchard, Lloyd A., Ph.D., Chief Operating Officer, Small Business Administration, prepared statement of ........................................................... 52

Horn, Hon. Stephen, a Representative in Congress from the State of

California:

Federal Financial Management Act ........................................................ 2

Prepared statement of ............................................................................... 9

McLean, Donna, Assistant Secretary for Budget and Programs and Chief

Financial Officer, U.S. Department of Transportation, prepared statement of ........................................................................................................... 60

Schakowsky, Hon. Janice D., a Representative in Congress from the

State of Illinois, prepared statement of ...................................................... 78

Sullivan, Hon. John, a Representative in Congress from the State of

Oklahoma, prepared statement of ............................................................... 77

Thompson, Sally E., Director, Financial Management and Assurance,

U.S. General Accounting Office, prepared statement of ............................ 12

(1)

THE FEDERAL FINANCIAL MANAGEMENT IMPROVEMENT ACT OF 1996: ARE AGENCIES

MEETING THE CHALLENGE?

THURSDAY, JUNE 6, 2002

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON GOVERNMENT EFFICIENCY, FINANCIAL

MANAGEMENT AND INTERGOVERNMENTAL RELATIONS, COMMITTEE ON GOVERNMENT REFORM, Washington, DC.

The subcommittee met, pursuant to notice, at 10 a.m., in room

2247, Rayburn House Office Building, Hon. Stephen Horn (chairman of the subcommittee) presiding.

Present: Representative Horn.

Staff present: J. Russell George, staff director and chief counsel;

Bonnie Heald, deputy staff director; Henry Wray, senior counsel;

Rosa Harris, GAO detailee; Justin Paulhamus, clerk; Chris Barkley, new subcommittee staff; Michael Sazonov and Sterling Bentley, interns; David McMillen, minority professional staff member;

and Jean Gosa, minority clerk.

Mr. HORN. A quorum being present, the Subcommittee on Government Efficiency, Financial Management and Intergovernmental

Relations will come to order. I thank the panel for appearing. And

if you’ll stand and raise your right hand, and if you have any assistants behind you that will be also talking, the clerk will take all

of the names for the record.

[Witnesses sworn.]

Mr. HORN. The clerk will note that the oath has been taken.

The Federal Financial Management Improvement Act requires

the 24 major departments and agencies in the executive branch to

have systems that can produce timely, reliable, and useful information for managing their day-to-day operations.

[The information referred to follows:]

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Mr. HORN. The act requires the agencies to implement and maintain financial systems that comply with: Federal financial management system requirements; applicable Federal accounting standards; and the U.S. Government Standard General Ledger.

It has been nearly 6 years since the act became law. Yet, most

agencies still do not comply with these three basic accounting requirements. In fiscal year 2001, 20 of the 24 major departments

and agencies failed to comply with the act, compared to fiscal year

2000 in which 19 agencies failed to comply.

During the July 9th subcommittee hearing, the Comptroller General of the United States, Mr. David Walker, noted that ‘‘Noncompliance with the Federal Financial Management Improvement

Act is indicative of the overall continuing poor condition of many

financial management systems across government.’’

We recognize that there are long-standing problems with agency

financial management systems. We also recognize that correcting

these deficiencies will take time. However, the requirements of this

act must be taken seriously, and I don’t think they have been.

Today, we will discuss the challenges that are preventing many

agencies from having financial management systems that comply

with the act. The basic accounting requirements found in the Federal Financial Management Improvement Act can, and must, be

achieved. American taxpayers deserve no less from their government.

[The prepared statement of Hon. Stephen Horn follows:]

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Mr. HORN. We welcome each of our witnesses today and look forward to your testimony to see why things are not happening the

way they should be happening. We will begin with Sally Thompson,

the Director of Financial Management and Assurance, U.S. General Accounting Office. She reports to the Comptroller General of

the United States.

Ms. Thompson.

STATEMENT OF SALLY E. THOMPSON, DIRECTOR, ACCOMPANIED BY THOMAS R. BRODERICK, ASSISTANT DIRECTOR,

FINANCIAL MANAGEMENT AND ASSURANCE, U.S. GENERAL

ACCOUNTING OFFICE

Ms. THOMPSON. Thank you, Mr. Chairman. And I’m very pleased

to be here today to discuss with you and the other members of the

committee, if they come in, the challenges that most of the Federal

departments and agencies are still facing in meeting the basic expectations outlined in the Federal Financial Management Improvement Act of 1996. Many of those you just mentioned.

The primary purpose of FFMIA is to ensure that agency financial

management systems routinely—and I stress ‘‘routinely’’—produce

reliable, accurate, timely data for management decisionmaking.

Government leaders will be in a better position to invest resources,

reduce costs, oversee programs and, importantly, hold agency managers accountable for the way they manage programs.

I would like to emphasize this morning that FFMIA is not a compliance issue; it’s a management tool. And getting a clean opinion

does not mean that people have a management tool and comply

with FFMIA. We certainly have seen that to be the case when, over

the last 5 years, we still only have four Federal agencies whose IGs

say that they are compliant in FFMIA, and yet we have 18 clean

opinions and that has been increasing from about 13, 5 years ago.

So we’re continuing to get clean opinions, but we’re not getting success in FFMIA.

This decrease also means that agencies have been able to achieve

these clean opinions, first of all, 5 months after year-end, but with

an enormous amount of resources, as we see in the horrendous

numbers of adjustments made. Whenever you make adjustments to

numbers at the year-end or 5 months after year-end, that means

that you didn’t have information on a daily basis on which to make

management decisions.

We need to take FFMIA information from the back room and into

the board room where management decisions are being made.

What I mean by this is getting a management tool with management information is not just a CFO issue, it is more than an accounting issue. It’s not a CIO issue, which would be hardware/software, but it is a combination of the CIO, the CFO, and the program

managers working together.

It also includes integrating budget information with program information with performance results and accounting, and coming up

with what we call cost management information for decisionmaking.

This would provide the information that we need, that program

managers need to make allocation of resources and need to be able

to determine the outcomes of their programs.

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I look at systems as being much broader than just hardware/software. I look at it including the business processes and procedures

and controls and the type of information that’s needed to be able

to assess whether programs are meeting these intended results and

outcomes.

It will take a committed involvement from the Secretary’s level

all the way down to achieve success in FFMIA. It’s a multidisciplinary process of tackling systems modernization in order to reach

the success. And again I would say that it would include the chief

operating officer that could spearhead this, but it would include the

CFO, the CIO, the budget officer and, most importantly, program

managers. These officials are best positioned to determine what

kind of information needs to be captured in order to be able to

measure the outcomes and ensure the results by again combining

accounting, budget and program systems integrated together.

Probably one of the key elements of success in FFMIA is capturing what we’re calling the cost management information. It is critical to transforming how government manages the business of government.

We have several ongoing assignments in agencies that we hope

will result in executive guidance. What we found was a real lack

of guidance out there on how do you get to good cost management

information. Again, we have seen, and you’ve probably heard a lot

about, activity-based costing and now a new term, activity-based

budgeting. I would say, combining that with activity-based performance, all three of those together, will get you cost management

information.

The President’s Management Agenda has five areas that they’re

looking at, which includes human capital, competitive resources, egovernment, and budget and performance integration and also improved financial management. I would say to you that the implementation of FFMIA is the solid foundation to be able to get that

kind of information together. In other words, you cannot achieve

any of the five of the President’s Management Agenda items without a solid financial system. FFMIA success in systems and standards, and the policy area depend on this. If we look at the problems, they’ve been long and they haven’t really changed over the

last 5 years. And I’d be glad to answer any questions.

[The prepared statement of Ms. Thompson follows:]

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Mr. HORN. Well, thank you very much.

We have on the floor a motion, and we have to go over and answer to it. So we’re going into recess now. Relax.

[Recess.]

Mr. HORN. We were in recess and out of it. And I’m sure we’ve

saved the Nation much from taking that amendment that would

close us down. So we’re going to close them up.

But anyhow—so, we’ll go on with Karen Alderman, Executive Director, Joint Financial Management Improvement Program. We

look forward to your testimony.

STATEMENT OF KAREN CLEARY ALDERMAN, EXECUTIVE DIRECTOR, JOINT FINANCIAL MANAGEMENT IMPROVEMENT

PROGRAM

Ms. ALDERMAN. Thank you, Mr. Chairman. I’d like to submit my

statement for the record and provide brief remarks.

Mr. HORN. Your statements are automatically put in the record

when I call your name.

Ms. ALDERMAN. OK.

The President’s management goal to improve financial management requires quality systems, data and processes. Currently, most

Federal agencies use custom development—custom-developed financial systems that are antiquated and unable to support current

requirements of FFMIA.

Also, the Federal Government is moving to commercial off-theshelf software to meet their needs. In 1998, 40 percent of financial

applications under development that are being phased in were commercial off-the-shelf software. In 2001, 60 percent were.

JFMIP has focused its recent activities on functional requirements for financial systems, software qualification testing, the

intergovernmental transactions and elimination study, financial

management and human capital and information sharing and outreach.

Regarding financial system requirements, JFMIP’s role is to

identify and clearly describe those requirements in a series of documents so that they’re readily available to agencies, auditors, vendors and other stakeholders. The JFMIP Framework for Federal

Financial Management Systems, issued in 1995, identified 15 components of the Federal financial management system including core

managerial cost accounting and 13 subsidiary systems. At the time

the FFMIA was passed in 1996, the Core Financial System and six

of the subsidiary requirement documents had been issued one time

and many of those were out of date.

Starting in 1998, JFMIP began an intensive effort to update

these documents, 10 have been issued between 1998 and 2001, and

we’re currently working in partnership with the Procurement Executive Council to issue acquisition and financial system interface requirements. We have also worked to develop non-income tax revenue system requirements, and we have recently partnered with the

CIO Council to update the framework document for the incorporation of the Clinger-Cohen Act and produce the financial segment of

the Federal Enterprise Architecture.

In addition to the requirements, we have worked to test and

qualify Core Financial Systems. This process was initiated in 1999.

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The components are up-to-date Core Financial System Requirements, an open and comprehensive testing and qualification process, establishment of an open knowledge base for all to see what

those test requirements and outcomes are, and a change in OMB

policy that mandated that Federal agencies use qualified software

when acquiring new COTS systems for Core Financial Systems.

This process transition occurred October 1, 1999. Ten software

products offered by eight vendors and one government software

cross-service provider were qualified under the 1999 test and the

2000 incremental test. In 2002, about half the existing certificates

will expire, and the balance will expire in 2003.

JFMIP designed the test process to ensure that Federal requirements and vendor offerings remained aligned. We have a feedback

mechanism to update requirements, and in 2002 we will update

that test based on the requirements issued in November 2001. We

updated those requirements based on feedback from the agencies

about what was working, and what did not work as well and needed clarification. Areas like upward and downward adjustments and

better closing processes were identified, and also new requirements

were added to capture more information on full cost and revenue

to unique cost objectives, as well as daily internal reports.

In general, revisions will help ensure that core software has

functionality to support the financial aspects of performance reporting required under the President’s Management Agenda.

Our second round of testing, which will be finalized at the end

of this summer, will basically double the amount of test steps to

more thoroughly test existing requirements and new requirements.

In addition to these two agendas, I’d like to briefly mention intergovernmental elimination and financial management human capital. The intergovernmental elimination study undertaken in 2001

was to address problems identified that make it difficult for the

government to properly identify intergovernmental transactions

and balances and allow the U.S. Government a consolidated financial statement to achieve a clean opinion.

The study found that the quality of the financial data throughout

the Federal Government is poor. Agencies cannot identify their

true business partners and, consequently, reconcile the differences

that may exist. Common standards and business practices to support consistent recording of events are missing and technology

needs to be applied. OMB is undertaking efforts today to address

these issues.

Thank you very much.

Mr. HORN. Thank you.

[The prepared statement of Ms. Alderman follows:]

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Mr. HORN. And we now move to your colleague, Lloyd A. Blanchard, Ph.D., Chief Operating Officer, Small Business Administration.

Glad to have you here, Mr. Blanchard.

STATEMENT OF LLOYD A. BLANCHARD, Ph.D., CHIEF

OPERATING OFFICER, SMALL BUSINESS ADMINISTRATION

Mr. BLANCHARD. Thank you, Mr. Chairman, and good morning.

Thank you for inviting the Small Business Administration to offer

testimony today on the agency’s financial management program,

and specifically its efforts to comply with Federal Financial Management Improvement Act of 1996.

Let me start by saying that improving financial management is

one of the goals of the President’s Management Agenda and therefore is a top priority of SBA. With the active involvement of SBA’s

Administrator, Hector Baretto, the Agency has recently put into

place a top-flight management team to accomplish this goal. As one

of the 24 principal agents, he’s named in the Chief Financial Officers Act of 1990. SBA has a career CFO, Tom Dumaresq, who is

here with me today and reports directly to the Administrator to

oversee SBA’s financial management program.

As Chief of Operations, I work closely with the CFO to ensure

coordination and integration of all strategic management decisions

and general operations with SBA’s financial management program.

The Federal Financial Management Improvement Act requires

enhanced compliance in three specific areas: financial management

system requirements, Federal accounting standards, and the general ledger and the standard general ledger. These requirements

and the other budget and performance initiatives SBA has undertaken are part of the Agency’s comprehensive financial management program to provide the taxpayer and Congress full assurance

that SBA is acting as good stewards of its appropriated resources.

SBA has an aggressive internal control program, one that mitigates risk by ensuring a positive control environment. The best

written procedures in the world would not be effective without the

active involvement of senior management conveying the message

that integrity cannot be compromised. Moreover, SBA produces annual financial statements that are audited by an independent public accounting firm under contract with SBA’s Office of the Inspector General.

I am proud to report that SBA has been recognized as a leader

in its development of a cost information management system which

is based on an activity-based costing model allowing for full cost allocation on all SBA activities. SBA continues to fine tune this

model.

As required by the President’s Management Agenda, SBA is integrating this cost information into its planning and decision processes for the fiscal year 2003 and 2004 budget cycles. While President Bush has recognized the need for improvement in this area,

Federal financial management guidelines are extremely complex,

and SBA faces a difficult task to make the changes necessary for

improvement. Thus, in an effort to stay ahead of the curve on new

statement reporting requirements, SBA implemented OMB bulletin

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01–09 for its fiscal year 2001 reporting 1 year earlier than required.

In the attempt to understand and implement these substantial

changes, production of the fiscal year 2001 financial statements

was delayed in getting to the auditors and included some mathematical and classification errors. While these errors were corrected

in the final statements and the audit was completed on time, the

delay in the internal review process produced material weakness

on the timeliness and quality of information provided in SBA’s reporting process.

Mr. Chairman, although this was very disappointing, SBA believes it made the right decision at the time and will be in a better

position for the future because of it. More challenges still lie ahead

for us, and to be successful, SBA will need to place more attention

on improving its financial management, especially in replacing ineffective and outdated financial systems and processes.

In fiscal year 2000, SBA decided to purchase a financial management system using Oracle software and implement this system beginning in fiscal year 2002. As planned, SBA did bring the new system online at the beginning of the fiscal year. While the later versions—while the later versions have been implemented throughout

the government, their earlier Oracle system has not been widely

implemented in the Federal Government, and consequently, the

true results and cost of the system to SBA are still relatively unknown. To date, the system has had much less functionality and

produced much higher cost than we expected. SBA is still in the

process of working out these implementation bugs, Mr. Chairman.

Closing fiscal year 2002 under this system can still prove to be

a challenge to SBA at the end of the year as the end of the fiscal

year rapidly approaches. These difficulties have led SBA to review

contingency options, including moving to the latest release much

earlier than we had originally expected.

Mr. Chairman, let me conclude my statement by reiterating that

SBA is fully committed to continuing the improvements of its financial management processes and systems. While the Federal

guidelines and the President’s Management Agenda drive SBA toward accomplishing this end, it is simply the right thing to do. It

is only with modern systems, transparent reporting, sound and accurate financial information and accountability that the performance of SBA’s programs will be able to be accurately evaluated.

This will give SBA the opportunity to improve efficiency and effectiveness in services and programs. This is what the President and

Congress expect, the taxpayer demands, and SBA intends to deliver.

Thank you, Mr. Chairman. I’m happy to answer any questions

that you or other members of the subcommittee may have.

Mr. HORN. Thank you.

[The prepared statement of Mr. Blanchard follows:]

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Mr. HORN. Our last presenter is Donna R. McLean, Assistant

Secretary for Budget and Programs and Chief Financial Officer of

the Department of Transportation.

Give my regards to your Secretary. It doesn’t matter whether

he’s a Democrat or a Republican; he’s a great public servant.

STATEMENT OF DONNA McLEAN, ASSISTANT SECRETARY FOR

BUDGET AND PROGRAMS AND CHIEF FINANCIAL OFFICER,

U.S. DEPARTMENT OF TRANSPORTATION

Ms. MCLEAN. Thank you, sir.

Mr. Chairman, I appreciate the opportunity to discuss DOT’s

progress in achieving its goals for the Federal Financial Management Improvement Act of 1996. And today I will answer your questions regarding why DOT is not yet compliant with FFMIA, what

we are doing about it, and the challenges we are still facing in trying to become compliant with the FFMIA.

Within DOT, we take financial management very seriously and

put a significant amount of energy and effort into taking care of

the public’s money. Part of our stewardship role is to clearly show

DOT’s performance and what benefits have been provided by the

funds received.

Our performance report was selected as the ‘‘Best in Government’’ this year by the Mercatus Institute. We want our financial

management to reach this same level. The standards for success for

financial management, as outlined in the President’s Management

Agenda, lay a roadmap showing us the way, and clearly achieving

full compliance with the requirements of FFMIA is critical to our

success.

In our quest for success, DOT has faced a number of challenges

in reaching full compliance with FFMIA. First, we’ve been hampered by an old accounting system that does not use the Standard

General Ledger; second, our financial statements are not produced

directly by our core accounting system; third, our old accounting

system does not have the capability to provide cost accounting information in a timely manner; finally, our inspector general has reported that DOT has two material weaknesses, one in FAA’s property and another in DOT’s information security program.

The first question one might ask is, how did we get into this position? The legacy accounting system in DOT was developed in the

1980’s as a single agency accounting system. Over several years in

the mid-80’s we expanded the system to cover all of DOT. In 1997

we determined that this unique old system could not meet FFMIA

and was not cost effective, and we needed to find a new accounting

system to meet FFMIA requirements.

In 1998, we selected Oracle Financial—Federal Financials, a

commercial off-the-shelf package that has been identified by JFMIP

as meeting the Federal accounting requirements. Oracle Financials

meet the requirements of FFMIA by providing the ability to use

the Standard General Ledger, producing the financial statements

as part of the core system, providing the capability to give us cost

accounting system information in a timely manner, and having the

capability to account for property, plant, and equipment.

We are now about halfway through implementing Oracle department-wide. Within the DOT, we have called this system Delphi. We

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have about eight agencies up on Delphi right now, and the rest will

be completed over the next 11 months. Getting all agencies onto

this new financial system will provide a major step toward full

compliance with FFMIA. Oracle will largely solve the problems associated with the Standard General Ledger and financial statements. We still face the challenge of providing cost accounting data

to our managers.

Three DOT agencies are making good progress in the area of cost

accounting. FAA is leading the way in providing accounting data

to program officials. They have completed the installation of a cost

accounting system covering approximately 75 percent of its cost

and expect to have 100 percent of its cost covered by November

2002.

The Coast Guard is also making progress on moving toward cost

accounting. At this point, they’re able to identify the cost by activity on an annual basis. The newly created TSA, or the Transportation Security Administration, has the advantage of being set up

in Oracle with cost accounting from scratch. TSA’s cost accounting

structure has already been established and a pilot project is under

way to capture labor costs at the activity level. Our goal is, for all

of DOT agencies, to meet the cost accounting requirements within

the next 2 years, and I believe we are on track to accomplish that

goal.

We are also addressing the IG’s concerns from our 2001 audit.

FAA continues to have material weaknesses in its plant, property

and equipment. This weakness relates to the proper calculation of

the net book value of property held by FAA. The final solution requires that FAA’s property accounting system be integrated with

the core accounting system. This will occur when FAA moves to Oracle in November 2002.

The IG also noted material weaknesses in our information security program. Regarding our need to certify our financial feeder

systems, we have instituted a policy that requires the agencies to

have their feeder systems accredited and certified before they can

interface with the Oracle system.

Regarding the IG’s concerns on our network security and the

completion of a background check, this falls under the purview of

our Chief Information Officer, and we are actively working with

this office and the affected agencies to resolve these items within

the next year.

Achieving compliance has been and continues to be a challenge

for the Department. We have a plan and we are on track. Upgrading our accounting system addresses many of the system-related

issues that have caused us problems in the past.

Implementing changes in the accounting processes that will

allow us to take advantage of the cost accounting capabilities in the

new system is still a work in progress. I am committed to staying

on the path to reach compliance with FFMIA and improving the financial management at the Department of Transportation.

Again, Mr. Chairman I thank you for the opportunity to testify

before you, and I would be happy to answer any questions you

might have.

Mr. HORN. Thank you very much.

[The prepared statement of Ms. McLean follows:]

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Mr. HORN. And we’ll start on the various questions with Sally

Thompson of the General Accounting Office, and let’s start with the

simple ones.

In your opinion, what it will take for agencies to become compliant with the Federal Financial Management Improvement Act?

Ms. THOMPSON. I think it starts at the top, Mr. Chairman. The

Secretary must be committed to reaching success and compliance

of FFMIA. They also need to then hold people accountable.

We had thought that one way to do that would be to delegate to

their COO the responsibility for reaching success in financial management information. The COO could then pull together a team

made up of the CFO, the CIO, program managers, budget people,

and the IGs. They could put a master plan together, a roadmap,

a blueprint. If you don’t have a plan and don’t know where you’re

going, you don’t know how to get there. And then that plan could

have milestones, good project planning, holding people accountable;

then they could report back up to the Secretary, and then it goes

up to OMB and to the President.

And we do also feel there needs to be public reporting on this.

Mr. HORN. When you say ‘‘public reporting,’’ what do you mean?

Ms. THOMPSON. Well, I think that, again, to continue with the

type of oversight hearings that you’re having; you know, it’s one

thing to issue a report, it’s another thing to also have a hearing

on it and to raise the visibility of the importance.

I think here, over the years, we’ve been able to determine not

only the issues we have over there on the board that have continued, but what you heard today is the importance of cost management information. It’s not all about just systems; it’s about getting

the information—using the information to make decisions.

Mr. HORN. In your study of all this, do you think the person on

the level, let’s say, below the GS–12, if we’re still in that group, do

they really take it seriously? Or is this simply for the Assistant

Secretaries and the Under Secretaries?

Ms. THOMPSON. It has to be permeated through the agencies, I

think. And you know, my background, coming out of the agencies

when I was previously a CFO, is that it was a CFO problem. And

it was the CFO and maybe the deputy and maybe the person that

was head of systems under the CFO. It was never considered a program manager’s issue. And that is what I feel needs to—we didn’t

actively engage the program managers. They are the ones to tell

us what information needs to be captured, and then have the CFO

and the CIO get the hardware/software together to be able to capture that. I think we need to focus on performance management

outcomes and results, how are we going to measure it, where is the

data going to come from, how are we going to capture it, and then

how do you get it in the system and report it out.

Mr. HORN. In the General Accounting Office document, it’s expressed concern that auditors are not doing enough to determine

whether agencies really are complying with the Federal Financial

Management Improvement Act.

What’s the problem and what should be done to correct it?

Ms. THOMPSON. Well, we believe that the act says that both the

agency head, as well as the auditor, should report whether an

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agency is in compliance; and we believe that reporting will require

a yes or a no.

What is happening is that for agencies that are compliant, the

auditors are saying that nothing came to our attention, which in

the auditing standards is ‘‘negative assurance,’’ and that means

that they didn’t necessarily specifically test for all of the compliance of FFMIA.

To do ‘‘positive assurance’’ quite often requires significantly more

testing. And we believe that the act says reporting whether that is

a yes or a no is positive assurance. We are getting negative assurance.

Mr. HORN. What about OMB, do you—do you ensure any compliance with the FFMIA in your work? How helpful has OMB been?

Ms. THOMPSON. I think that they have put some guidance out

there. We do not feel that the processes are rigorous enough for it.

And we believe that the agencies and the auditors are interpreting

that to say that negative assurance is just fine, that nothing came

to our attention; and we believe that if there were positive—if it

were interpreted by positive insurance—there would be more rigorous testing on that.

It’s not been a big issue right now because, as you know, we only

have four agencies that the auditors say that they are complying.

But we’re hopeful, as the new systems come into place and get implemented, and more data is getting captured, we believe that the

auditors need to have a specific audit plan just to look for compliance with FFMIA.

Mr. HORN. The views of the Office of Management and Budget

on this issue are very important. Accordingly, the record will remain open for the purposes of including OMB’s testimony.

I note that Mark Everson, Comptroller at OMB, will testify before us on the Single Audit Act, and we will question him on this

issue as well. He was a breath of fresh air, as far as I was concerned. I hate to see him not have the chance to give us some perspective from a control agency such as OMB.

The few agencies that bother estimating their erroneous payments reported that they improperly spent about $20 billion last

year.

How does compliance with the Federal Financial Management

Improvement Act relate to improper payments? And is that an accurate figure of $20 billion?

Ms. THOMPSON. Let’s start, is that an accurate number.

I do not believe that we know that for sure. The work that the

General Accounting Office has done—and I have our Assistant Director, Tom Broderick, here today, who’s been in charge of a lot of

that work—would tell you that we suspect that it’s a lot larger

than that. And the reason we don’t know, again is because there

hasn’t been a rigorous process in place for the agencies to really determine what their improper payment total really is.

And we could certainly answer that: Is it a part of FFMIA? I believe it is. We talk about good management information in which

to make management decisions. Part of that decision should be to

minimize improper payments. So therefore I would consider it a

part of FFMIA, even though I think it needs a very specific focus

on it.

66

Mr. HORN. Now, to what degree are the improper payments relevant to the Federal Financial Management Improvement Act?

Ms. THOMPSON. Well, certainly $20 billion that we know, that

has been identified, could be very relevant to the Federal Government’s management of its resources. I think right there that makes

it incredibly important to FFMIA.

I think it goes back to then having the right kind of information

to manage from, to make resource allocation decisions. How are we

going to know whether a program is achieving results if we don’t

know that it’s going to the right people?

Mr. HORN. We’ll get into some of that later—but what should

agencies do to reduce these massive overpayments?

Ms. THOMPSON. Can I let our Assistant Director, Mr. Broderick,

answer that for you?

Mr. HORN. Certainly.

Mr. BRODERICK. I think there are several things that need to be

done to really address the improper payments problem. We issued

a report back in October that kind of provided a structure for that.

Essentially what we’re looking at is improving internal controls

over programs. There’s really five areas within that control structure that have to be addressed. We need to make sure that there

is a strong control environment over the whole area of improper

payments. When we’re talking about a control environment, we’re

talking about establishing a culture of accountability.

We have to make sure that the program managers and the assistant directors or the assistant secretaries and the secretaries

and even the people over at OMB understand that this is an important area, understand that we expect results, understand that we

expect improvements.

The agencies also have to go through a process which we refer

to as risk assessments. Essentially, it’s critically important for the

agencies to understand if they have problems in their programs,

what those problems are, and the extent of those problems. By

knowing that information, you can determine where you should

focus your efforts, what your high-risk areas are, and you could

have a much more logical approach to just focusing on those areas

where the problems are, as opposed to a shotgun approach and trying to look at everything in the world, when in fact a whole lot of

those efforts might then be useless.

Once you’ve identified where your problems are, then you have

to determine what is the most cost-beneficial or cost-effective way

to address those problems. You have to determine the actual actions that you’re going to take. And there’s a whole laundry list,

basically, of the kinds of things that agencies have used. As part

of the work that we did, we went to several foreign countries to see

what they were doing in some areas where they seemed to have

some success. That laundry list includes not only computer kinds

of applications and data sharing and different things along that

line, but it also gets down to educational activitie—making sure

that their people, the agency people, understand the programs, so

that when somebody comes in as a beneficiary and says, what do

I qualify for, that the agency people ask the right questions and

make the right determinations and collect the right information.

We have a lot of problems in some of those areas.

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Once the different activities are implemented, then it’s also critical that information be fed back to the program managers, the

agency management, OMB and the Congress so that they can

evaluate and judge what is going on, the progress that is being

made in those different areas, so they can establish performance

measures and set targets for what the expectations would be for future efforts and for improvement in the future.

In a capsule, those are the general areas where we think the

agencies need to focus attention if they are going to address their

improper payments problems.

Mr. HORN. I think the General Accounting Office has done a

wonderful job on risk assessments. They put out their pamphlets

to everybody in the Congress of the new Congress. I’d be curious

as to whether the IG, the Inspector General, or the Chief Financial

Officer or the Chief Information Officer, should they be the ones to

be the oversight within an agency; or how do you look at that?

Or is it—it obviously ought to be the budget—budget people

within an agency. Where is the best place to——

Mr. BRODERICK. I think something that Ms. Thompson said a few

minutes ago is appropriate here, just as appropriate as it was for

FFMIA.

Basically, what we have in the different agencies is, we have program managers, we have CIOs, we have CFOs, we have our IGs,

we have a lot of individuals with institutional knowledge, based on

the work they do about programs and different kinds of activities

and systems. Things that work and don’t work.

I think we need a coordinated effort within each of the agencies

to pull those people together to try to address the problem areas

and come up with solutions, so that you don’t just have one group

over there trying to figure out what has to be done and what fixes

are needed when, in fact, there might be other people who could

provide a lot of best-practice kinds of information that might be

useful in helping come up with best ways of addressing these problems.

Mr. HORN. Should agencies be required by law to estimate their

improper payments?

Mr. BRODERICK. How far do you want me to go on this, Sally?

I think that it’s critically important because of the magnitude of

improper payments that we’re looking at now—and that’s just what

we know about—that improper payments be reported in a public

manner. Certainly legislation is much more binding than any kind

of administrative activity or a circular or whatever from the Office

of Management and Budget. It would certainly raise the level of interest, I think, at the different agencies that this kind of thing has

to be done and that there is interest here.

I think it could certainly be a benefit to have it in legislation, as

opposed to possibly some of the other mechanisms that might be

put in place to require reporting.

Mr. HORN. Ms. Thompson, it looks like she wants to get her seat.

Mr. BRODERICK. I have no doubt.

Mr. HORN. You’re happy—or you can have two or three chairs

over there.

Ms. THOMPSON. I would definitely agree with everything Mr.

Broderick said, Chairman Horn.

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First of all, if you don’t measure it, you can’t fix it. If it doesn’t

get reported there, it doesn’t have the visibility that it needs to get

the problem solved.

Mr. HORN. And you would agree with his answer, I take it, in

terms of improper payments and this kind of thing?

Ms. THOMPSON. Absolutely.

Mr. HORN. Later today I will introduce a bill that will require all

departments and independent agencies in the executive branch to

estimate their erroneous payments. Congress and the administration must understand the scope of this problem before we can find

the appropriate means to correct it. We welcome your thoughts on

that.

Ms. THOMPSON. Thank you.

I believe that Mr. Broderick has been working with the staff on

some issues. I think he identified, first of all, it has to start at the

top. It has to create the environment that there is an awareness

there, that there is a process for measuring it and, more importantly, a commitment to correct it and to hold accountable people

that are going to be working on reducing what we know is the $20

billion and which may be significantly more.

Mr. HORN. Is it right to use ‘‘erroneous’’ or should we use ‘‘improper’’?

Ms. THOMPSON. We consider the two terms synonymous. OMB,

in the President’s Management Agenda, has used ‘‘erroneous payments.’’ We have used ‘‘improper payments’’ for a long time, so

we’ve continued to do that. But in any public reporting since the

President’s Management Agenda has come out, we have made it

clear that we consider those two terms synonymous. So if you’re

comfortable with using ‘‘erroneous payments,’’ which then ties into

the President’s Management Agenda, we’re fine with that.

Mr. HORN. What I’m thinking about is, if it’s really improper,

maybe it should be turned over to the U.S. attorney. That’s never

happened, to my knowledge, when somebody went beyond their

budget, I don’t think for 100 years anything’s been done about it.

But there might be such a tremendous amount for one area or one

agency or one department, and the question is, if we write into law

that’s going to be looked at very carefully, what do you mean by

that?

Ms. THOMPSON. I think when there’s been fraud identified in improper payments, from my background at the Ag Department,

those were turned over to the Justice Department. And so I think

in that respect, they——

Mr. HORN. Did they ever do anything, the Justice Department?

Ms. THOMPSON. I can’t answer that. I didn’t followup on it.

Mr. HORN. Did you send it over there to the Department of Justice?

Ms. THOMPSON. There was the starting of investigations when I

left.

Mr. HORN. So it’s still in, or what?

Ms. THOMPSON. I don’t know for sure. I’ve been gone for a while.

Mr. HORN. Well, they have a lot of big dark corridors and maybe

it’s passed away in one of those corridors. So, you know, that’s fascinating, and we’ll try to followup on that.

Ms. THOMPSON. OK.

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Mr. HORN. What’s the name of the improper activity on that.

Ms. THOMPSON. It would be——

Mr. HORN. Is it a particular case of people or something that

happened erroneously?

Ms. THOMPSON. It’s been a while, so for the record, I couldn’t

really state; but we’d be glad to followup on that and see where

things are.

Mr. HORN. Well, to quote Connie Chung, maybe ‘‘just whisper in

my ear.’’

OK, Karen Alderman, Joint Financial Management Improvement

Program. In your testimony, you stated that most financial management systems used by Federal agencies are internally developed

products, but that the agencies are rapidly moving to commercial

off-the-shelf software. What’s been the agency’s experience in implementing commercial off-the-shelf software?

Ms. ALDERMAN. I would say there’s been a history of change

within the software market. Basically, in the 1980’s, Core Financial

Systems started to be COTS, but they’re highly customized commercial off-the-shelf product. What has occurred in more recent history is that the Federal Government has tried to organize the market for COTS more systematically. The JFMIP testing and qualification process is an example of that. The goal is to create a set

of capabilities in the commercial off-the-shelf marketplace that

meets Federal requirements without customization.

The reason for that is to manage cost and risk. A fully custom

designed commercial Core Financial System would cost about $120

million and take 5 years to implement before the first transactions

ever pass through the system. A comparable noncustomized COTS

product or Core Financial System would take $28 million and 3

years to implement if you can successfully implement it without

customization.

We say we’re on a continuum.

Success is more than just the software. It’s senior leadership

commitment to the new system, it is trained staff and capabilities,

it is changed management, and it is training of the work force for

new systems. So it’s more than just software. So there’s been improved success, but it’s certainly not an easy process today.

Mr. HORN. Does the company that has the off-the-shelf software

also have training plans? They’ve put it all together. Do they provide you with that training or is there something unique here?

Ms. ALDERMAN. I don’t think it’s a unique process. I think that

there are different requirements, system to system; you know, each

company presents their products, some are easier to use than others.

But basically, aside from providing some training—the trainer

type of service, it is up to the agency to retrain its work force and

to implement the business process changes inherent in that product that are necessary to support that product. So it’s really an

agency responsibility to retrain the work force to support a new

system.

Mr. HORN. In my background and reincarnation as a university

president, I decided after numerous problems with software/hardware, everything else, that they would—I would always be at the

top to get something done, and that’s the alpha program. But,

70

frankly, I would never again, and it would be the zebra program,

because somebody else can easily try to deal with this problem.

And if we can copy what’s done in industry in some of this, we

ought to take advantage of it, see how it works.

Ms. ALDERMAN. I agree, sir.

But I would also comment that industry has had similar challenges for implementing new systems. Surveys of private industry

implementations of enterprise resource programs or large IT

projects, only 9 percent come in on time and budget on function.

So the government shares the challenge that industry shares with

new systems.

Mr. HORN. How many and which agencies currently use systems

that have been certified by the Joint Financial Management Improvement Program?

Ms. ALDERMAN. The Core Financial System, which is the only

area where we do qualification tests, between 1999 when we started this process and 2006, 20 of the 24 CFO agencies have indicated

plans to replace their Core Financial Systems, and virtually all

these replacements will be COTS and the COTS will be qualified

by the JFMIP functional testing process.

Mr. HORN. Could you elaborate on the system’s software qualification process and the impact this process could have on an agency’s ability to become compliant with the Joint Financial Management Improvement Program?

Ms. ALDERMAN. Our process includes requirements definition and

testing; and what it does is provided assurance at the point of acquisition of software that the software will meet the functional requirements—many of which are critical to FFMIA: That includes

general ledger management, funds management, payables management, receivables management, cost management, and reporting.

At the time we started this process, we were a follow-on process

to an earlier process which was called a ‘‘mandatory FFMS schedule.’’ About 25 percent of Core Financial System Requirements

were tested as part of that procurement process. This didn’t provide a lot of assurance to the agencies; plus the testing process

was—as part of the procurement process, and it wasn’t visible to

agencies how products were tested.

In 1999 and 2000 incremental tests, we tested about 95 percent

of requirements in part or in whole. We have subsequently reviewed all our tests and agency implementations for issues. We’ve

clarified requirements further, added cost requirements, enhanced

some areas where we found that the agencies were having difficulties. The follow-on test in 2002 will be even more robust.

So we have raised the bar over time, and all software vendors

in this market have had to improve their software. So it provides

a step-up, it provides a better tool. But there are still these other

issues in implementation that have to be done. Feeder system information, conversion success, training, leadership, all these types

of things to be successful in an agency.

Mr. HORN. Can an agency upgrade its certified software without

additional approval by the program?

Ms. ALDERMAN. What we do is, we qualify software by version.

OMB sets policies that the agency use qualified software. It’s our

71

process to just keep versions and agency requirements aligned, and

OMB sets the policy.

Mr. HORN. Does GSA have a role in this? They’re out there buying products for agencies all over town.

Ms. ALDERMAN. GSA is required to make sure if a vendor that’s

qualified requests to be on one of their schedules, they will place

it on their schedule for the normal process of procurement of schedules.

Mr. HORN. What impact does the poor condition of the financial

systems have on the goals of financial management reform legislation?

Ms. ALDERMAN. Which legislation?

Mr. HORN. What impact does the poor condition of financial systems, which seem to be—have on the goals of financial management reform legislation? Is there—is there an impact in that area?

Ms. ALDERMAN. Yes, there is. Basically, agencies have used manual processes to connect all the dots, and that’s where they are

today; and they will not be able to do that in the accelerated timeframe for financial reporting unless they change their business

processes, have more automated systems and less data reentry.

Modern tools are available. It’s just the challenge of getting them

implemented and supported in the agencies. So it’s a critical tool.

It’s not the whole answer; they’re a critical tool.

Mr. HORN. OK, we’ll move to one of the key agency members,

and that will be Dr. Blanchard, Chief Operating Officer for the

Small Business Administration. In your testimony you stated that

the Small Business Administration’s noncompliance with the Joint

Financial Management Improvement Program in fiscal year 2001

caused a slippage on the President’s Management Agenda score

card from a ‘‘yellow’’ to a ‘‘red.’’ What caused the noncompliance?

Mr. BLANCHARD. Yes, sir, we did slip in spite of the improvements in all of the other areas in the financial management arena.

We tried to implement new reporting requirements as per OMB

bulletin 01–09. What we wanted to do was try to implement that

1 year early so that we can get a handle on these new requirements. In that process, in trying to wrestle with some of those new

requirements. We fell short in terms of timely reporting.

The auditors caught a couple of errors, and they were ultimately

corrected. It was that lack of timeliness that created the material

weakness and, therefore, automatically downgraded our score in

the President’s Management Score Card.

Mr. HORN. Well, we all make those mistakes. In your testimony,

you stated the SBA has received a clean or unqualified opinion for

the past 6 years, yet the SBA did not comply with the Federal Financial Management Improvement Act until fiscal year 2000.

Mr. BLANCHARD. That is correct, sir. I guess the standards for

FFMIA compliance are quite a bit different from standards used by

the auditing community, and I would say that FFMIA probably has

more stringent standards, which are welcomed by this agency, but

still present a challenge for us in meeting.

Mr. HORN. The General Accounting Office stated that most agencies do not have timely, accurate, and useful information, including

cost data. How useful has the implementation of activity-based

costing been for your agency?

72

Mr. BLANCHARD. Well, it has been very useful. Activity-based

costing allows us to determine the full cost of a particular activity.

As you know, organizations—public agencies are organized with

overhead in support departments and then provide different programs through different program offices, and to determine what

the cost of one program is is quite a daunting task, because you

have to determine what proportion of the HR function was dedicated to that program and what proportion of the accounting function was dedicated to that program.

So the implementation of that model has helped us very clearly

identify the unit costs, so that we can make program cost comparisons and, therefore, measure our performance with that cost component included, and make judgments about budgetary allocations

based on those various cost differences and performance differences.

Mr. HORN. Do you believe that other agencies would benefit from

using this method of costing?

Mr. BLANCHARD. I do indeed, sir. We have been contacted by

other agencies, in fact, asking about how we have implemented and

how we have—you know, what type of model we use with regard

to the activity-based costing. So it does seem that other agencies

are interested.

Mr. HORN. What is the greatest challenge for SBA in becoming

compliant with the Federal Financial Management Improvement

Act?

Mr. BLANCHARD. I think the greatest challenge for us is really

making sure that the automated system, the COTS software, operates properly.

As I mentioned in my testimony, Mr. Chairman, we started

early, trying to move in this direction, and procured a software

package that predates the software package that is now used by

other agencies in the government. Our use of that earlier system

has caused us some problems, and we are working to change that.

I have learned, even just today, that some of my colleagues in

other agencies have found success with the later release from the

same company. So we are—we obviously have pause in going with

that related release because of our lack of success in the earlier release, but we are considering options, and they include moving to

that more recent package.

Apparently, our problems have been—it is the recent package

that is being supported; the earlier package, the support has

dropped off. So we are a little disturbed by that and are working

with that company to——

Mr. HORN. Join the club.

Mr. BLANCHARD. Well, thank you, sir.

Mr. HORN. It is a long club, starting with me.

Mr. BLANCHARD. But I think for us, the keys of compliance that

were mentioned by Ms. Thompson earlier, including senior management leadership with regard to delegating budgetary and financial responsibility to the chief operating officer are something we

have already achieved at SBA. I am the lead person on financial

matters at the agency, and of course we do engage in cost information management and the public reporting that Ms. Thompson also

73

referred to. So we feel like it is just the implementation of the

COTS package that prevents us from being compliant.

Mr. HORN. Well, Ms. McLean, I have a couple of questions for

you, and then I think we will move on.

What are the greatest challenges for the Department of Transportation in being compliant with the Federal Financial Management Improvement Act?

Ms. MCLEAN. Well, as Dr. Blanchard mentioned, just the transition to a new financial system has been a big challenge, and it will

be a 5-year effort, once we are finished. Again, even though we are

using the Oracle off-the-shelf package, these systems often were designed really for the private sector and then sort of forced into a

Federal package. And so when we are the first ones out of the box

trying to put it in place, you end up sort of spilling blood for the

folks who are going to come behind you. But that would have been

the case in any of the packages we would have taken.

So, luckily, I think with the new module we have, 11, which is

the Oracle package we are using, it is dealing with a lot of the

issues we had previously with Oracle.

I think the second challenge we are going to have is the cost accounting piece, and, in fact, not just creating and collecting the cost

accounting data, but training our managers so they actually use it

and make decisions on those—based on that information.

Mr. HORN. In your testimony, you stated the Department of

Transportation is expected to be in compliance with the Federal—

whatever that thing is, you know, I hate these initials; they drive

me nuts—Federal Financial Management Improvement Act, in the

next 2 years.

Ms. MCLEAN. Yes, sir.

Mr. HORN. How realistic is this 2-year timeframe?

Ms. MCLEAN. Well, I think it is quite realistic, because again, we

are in the last stretches of implementing Oracle for our financial—

our accounting system, and we should have that done in the next

11 months. And then the cost accounting systems, our biggest

agencies within the Department—FAA, Coast Guard, and the

Transportation Security Administration—are either finished or well

on their way to finishing their cost accounting system. So what we

have to finish in 2 years is actually our smaller agencies to comeup on cost accounting.

Mr. HORN. Now, has that program—has that been across the

whole department? Because I remember in the last 10 years with

the FAA, and it was chaos.

Ms. MCLEAN. For cost accounting?

Mr. HORN. I do not know if it was for cost accounting, but it was

just—I knew when I walked in the room, these people do not know

what they are doing, and I was right. It turns out that, first, it was

$4 billion, then it was $12 billion, then it was $40 billion, and finally, somebody had the guts to pull the plug.

So where are we with the FAA in relation to the Department of

Transportation?

Ms. MCLEAN. Well, regarding the FAA’s accounting systems, in

their cost accounting system, FAA had a—there was an aviation

law passed, I believe—in 1996, I think—that required FAA to have

a cost accounting system, and that was running ahead of when the

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Department was planning to implement an accounting system, the

new accounting system. So FAA actually has Peoplesoft for their

cost accounting system. They had to develop that at the same time

they were transitioning to a new accounting system.

So it has been a huge challenge for FAA, but I really think we

are coming to the end of that, because we do have FAA, right now,

using cost accounting information to make decisions.

I know you don’t have a lot of time, but I can give you some examples if you have some time.

Mr. HORN. That is fine. If you want to add some more, we will

put it at this point in the record.

Ms. MCLEAN. Certainly.

Mr. HORN. What is the Department of Transportation doing to

address computer security weaknesses, and do you have a lot of

hackers trying to get into your systems?

Ms. MCLEAN. Regarding our accounting systems, I know we have

not had—we are fortunate enough not to have had many attempts

to get into the system. But Oracle is an Internet-based system, so

we are taking a lot of precautions to make sure that the security

is in place and; as I mentioned, all of the feeder systems, we have

25 financial feeder systems that have to go into Oracle. They must

all be certified before we turn on the Oracle financials.

I think it is something we are going to have to just continually

watch.

Mr. HORN. It has been 6 years since the passage of the Federal

Financial Management Improvement Act. Is there any legislative

action—is there any legislative action that Congress should consider to refine or modify the requirements of the act? What do you

think?

Ms. MCLEAN. I think one of the things that—and this is a big

one, so I do not think necessarily this will be adopted. But one of,

I think, the problems with the time it takes the Department to, in

fact, implement a cost accounting system is because the appropriations that are passed for the agencies tend to be in buckets of people, capital, grants. You know, you have different accounts; that

money cannot be blended or moved between those accounts. So our

Appropriations Committee basically identifies money in these pots.

Of course, the philosophy——

Mr. HORN. Do you have reprogramming authority?

Ms. MCLEAN. We do not, not within those specific accounts. We

do within the accounts, but not between them.

So then you have the philosophy of cost accounting, which of

course is absolutely the opposite of this accounting approach, which

is, let’s see the fully loaded cost. So in the case of DOT, what is

the cost of providing search and rescue for the Coast Guard? We

have to pull the money out of the people account—I mean the appropriations account; you have to pull the capital money out from

the appropriations account, you have to pull the benefits out of that

account, and you have to have basically two systems, one system

to manage it because the law requires you to have your appropriations by these specific accounts, and then another system over top

that pulls the information for cost accounting purposes. So this is

a big one.

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But if we had accounting—or if our Appropriations Committee

had more service-based appropriations, I think we would have a

quicker leap from accounting system to cost accounting, and it

would cause, I think, managers to think more holistically of what

is my budget, not just my pieces.

Mr. HORN. Yes. Forty years ago, all they thought in House Appropriations, how many people do you have, etc. And we got

through that, and we have programmatic approaches. That was

helped by GAO, where until Mr. Rayburn died and Mr. Cannon,

Clarence Cannon, head of Appropriations, died; at last, they could

have what we had put on the books in 1946 to look at things in

a programmatic way. GAO has done a wonderful job of looking at

that.

Obviously, if there are problems here, we ought to—we would

welcome the—which we should deal with. You are the people that

have to do that every day, and you probably say, what idiot put

this in?

Ms. MCLEAN. No, sir, we do not say that.

Mr. HORN. I will not tell you that if I find the idiot, I will say

that you led me there. But just to give us some, either on plain

paper or anything else, but we will put it in the right place. We

ought to do that.

Do not be scared. In Congress, we are trying to get things done.

So I would like to know, do others have a feeling here that we

ought to modify the requirements of the act? Any thoughts on that?

Ms. ALDERMAN. I think that there is a big challenge just to get

to the current level. I think that the appropriations full cost visibility is a big challenge. It might be possible with technology, but

there is a mindSet that would have to be overcome. It is not just

technology, it is a mind set, and I think Congress does set that

mindset in the appropriations process.

Ms. THOMPSON. Culture.

Ms. ALDERMAN. Culture.

Mr. HORN. Dr. Blanchard.

Mr. BLANCHARD. I would agree with Ms. McLean and others. The

appropriations mechanism does create a challenge for the kinds of

accounting that are required of us today. There are ways to overcome that, but they are difficult, and many have yet to figure that

out.

We have been successful through developing crosswalks which

simply communicate between the two systems, in effect, building a

patch between the two systems. But it is an evolutionary process

as everything changes. So I would think that the requirements that

we face today would benefit from some change in the appropriations structure.

Mr. HORN. I think you are right. And when I testified 25 years

ago, I think we were moving ahead, and a lot of things have happened since those days.

I would like to thank each one of you, and I want to thank the

staff of both the majority and the minority behind me: Mr. Russell

George, the staff director and chief counsel; Bonnie Heald is the

deputy staff director; Henry Wray is here, who is the senior counsel; Rosa Harris to my left and your right is a General Accounting

Office detailee and is on loan to us, and she has done a tremendous

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job, and we thank her profusely; Justin Paulhamus is our majority

clerk; Chris Barkley, a new subcommittee staff member; Michael

Sazonov, subcommittee intern, Sterling Bentley, also a new subcommittee intern.

And the minority staff: David McMillen, a professional staff

member; and Jean Gosa, minority clerk. We thank you. And the

court reporters are Julie Thomas and Julie Bryan, and we thank

both of you.

With that, we are adjourned, and thank you.

[Whereupon, at 11:35 a.m., the subcommittee was adjourned.]

[The prepared statements of Hon. John Sullivan and Hon. Janice

D. Schakowsky follow:]

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