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29–762 PDF 2007

S. Hrg. 109–971

FINANCIAL MANAGEMENT AT THE DEPARTMENT

OF DEFENSE

HEARING

BEFORE THE

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, AND INTERNATIONAL 

SECURITY SUBCOMMITTEE

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

AUGUST 3, 2006

Available via http://www.access.gpo.gov/congress/senate

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs

(

(II)

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

MICHAEL L. ALEXANDER, Minority Staff Director 

TRINA DRIESSNACK TYRER, Chief Clerk 

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND 

INTERNATIONAL SECURITY SUBCOMMITTEE 

TOM COBURN, Oklahoma, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

THOMAS CARPER, Delaware 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

KATY FRENCH, Staff Director 

SHEILA MURPHY, Minority Staff Director 

JOHN KILVINGTON, Minority Deputy Staff Director 

LIZ SCRANTON, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Coburn ................................................................................................. 1

Senator Carper ................................................................................................. 6

WITNESSES 

THURSDAY, AUGUST 3, 2006

Hon. David M. Walker, Comptroller General, U.S. Government Accountability 

Office ..................................................................................................................... 7

J. David Patterson, Principal Deputy Under Secretary of Defense (Comptroller), U.S. Department of Defense .................................................................. 17

Teresa McKay, Deputy Chief Financial Officer, U.S. Department of Defense ... 19

Thomas F. Gimble, Acting Inspector General, Office of the Inspector General, 

U.S. Department of Defense ................................................................................ 21

ALPHABETICAL LIST OF WITNESSES

Gimble, Thomas F.: 

Testimony .......................................................................................................... 21

Prepared statement with an attachment ....................................................... 71

McKay, Teresa: 

Testimony .......................................................................................................... 19

Patterson, J. David: 

Testimony .......................................................................................................... 17

Prepared statement .......................................................................................... 59

Walker, Hon. David M.: 

Testimony .......................................................................................................... 7

Prepared statement .......................................................................................... 33

APPENDIX 

Questions and responses for the Record from: 

Mr. Patterson .................................................................................................... 83

Mr. Gimble ........................................................................................................ 115

(1)

FINANCIAL MANAGEMENT AT THE 

DEPARTMENT OF DEFENSE 

THURSDAY, AUGUST 3, 2006

U.S. SENATE, SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND INTERNATIONAL SECURITY, OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:30 p.m., in room 

SD–342, Dirksen Senate Office Building, Hon. Tom Coburn, Chairman of the Subcommittee, presiding. 

Present: Senators Coburn and Carper. 

OPENING STATEMENT OF CHAIRMAN COBURN 

Chairman COBURN. Today’s hearing of the Federal Financial 

Management, Government Information, and International Security 

Subcommittee of the Homeland Security and Governmental Affairs 

Committee will come to order. 

I want to thank all our witnesses for being here, the work you 

have put into it plus the work that you are doing in every area, 

whether it is at DOD or IG or with General Walker and his staff 

and the wonderful work they do to help us get things realigned. 

On September 10, 2001, the day before the terrorist attacks that 

shook our Nation, Secretary of Defense Donald Rumsfeld stated the 

following: ‘‘Financial management efforts at the Pentagon are not 

just about money or waste. In the end, it is really about a matter 

of life and death, ultimately, every American’s life and death. Our 

job is defending America, and if we cannot change the way we do 

business, then we cannot do our job well and we must.’’

I don’t think it could be said any better. The U.S. Department 

of Defense fiscal year 2006 budget was more than the combined defense spending of the rest of the world. We are currently debating 

the proposed $441.2 billion budget for DOD on the Senate floor 

right now, plus another $120 billion that will have come through 

supplementals and add-ons to total $513 billion in this next fiscal 

year. The baseline amount reflects a 7 percent increase over 2006, 

a 48 percent increase over 2001, without including war 

supplementals. 

It is difficult for most of us to wrap our hands around a budget 

that big. Our budget for defense will be higher than at any time 

in our history in real dollars, even including World War II. We 

must secure America—that is not negotiable—whatever it costs. 

But do we really know what it costs? When we don’t know how we 

2

are spending that money and we don’t know whether it is being 

managed well, we don’t know what areas of the budget are really 

necessary for the Nation’s defense and what areas aren’t. 

We had Secretary Rumsfeld this morning before the Armed Services Committee and he made a valid point, is the very things that 

the Defense Department wants to do, the Congress won’t let them, 

and the very things they don’t want to do in terms of earmarks, 

some $20 billion, the Congress is making them do. 

There is quite a bit of evidence that the amounts that are lost 

to payment errors, waste, fraud, abuse, and duplication could be in 

excess of tens of billions of dollars each year. When you consider 

that seven of nine advanced weapon programs today are over budget and behind schedule, something is very wrong. 

The most glaring problem has been the Department’s inability to 

produce auditable financial statements. In other words, they can’t 

undergo an audit, much less pass one. If DOD were a privatelyowned company, it would have been bankrupt long ago. There is 

good movement, I am proud to say, within the DOD in trying to 

address that. In 2004, the Department set the goal of undergoing 

a full audit by the year 2007. Unfortunately, that deadline has not 

been met, and in fact, it has been moved fairly far out, to 2016. 

That is 10 years from today. 

Americans are being asked to wait a full 10 years before their 

dollars are tracked well enough for the Department to hold an 

audit, and that seems to be the new objective of financial managers, is to get to a place where we can actually have an audit, and 

that is a laudable goal. Don’t get me wrong. Undergoing an audit 

is real and measurable progress. The President inherited a Department in financial disarray and many hard-working folks have been 

making slow but steady progress on the goals of having audited financial statements. 

I have had individual conversations with your Comptroller. I 

think the ideas and the plans and the institutional plans of change 

are ongoing. I am pleased that the Government Accountability Office (GAO) and Office of Management and Budget (OMB) believe 

that the goal is realistic and can be met. Just being able to get a 

financial audit of all the components of the Department will be a 

marked improvement over what we have today. 

Over the past 5 years, GAO has made a series of recommendations to DOD, which they are in the process of implementing, and 

I want to recognize them and thank them for that process. They 

deserve to be commended for their work. The financial audit and 

improvement readiness plan to incrementally move the Department to an auditable state by 2015 and the standard financial information structure to categorize DOD financial information are 

two key elements driving this plan for financial management improvement. They are both promising steps. They will require, however, vigorous oversight to see that these plans are on track and 

receiving the attention necessary within DOD and that these efforts yield the results that we want them to. 

This Subcommittee is going to be watching closely and asking for 

regular updates every 3 to 5 months. Quite frankly, 2016 is not 

good enough for the American taxpayer. When we call on the Defense Department to do things that we think are unimaginable and 

3

they do it in terms of defending this country, they demonstrate the 

leadership qualities and characteristics that make them as good as 

they are. We need to apply those same characteristics, those same 

leadership traits, to getting the Department’s financial management under control. 

This drive to improve the financial management controls in DOD 

will not happen without sustained leadership—every day, every 

week, every month. It is essential to obtaining the outlined results, 

the benchmarks, and meeting the goals the Department has set. 

GAO has recommended the position of a Chief Management Officer be established within the Department of Defense to keep the 

business transformation intact as a new administration is ushered 

in. I am interested to hear more about the role and function of such 

a position within DOD to see how this organizational change will 

help maintain continuity during times of administrative transition. 

GAO has also been reporting to Congress that DOD is at the top 

of its high-risk list for years. Of the 26 high-risk areas, 14 are at 

DOD. While sustained leadership at the agency is critical to achieving success with financial management improvement, continued 

oversight by Congress is just as important. 

And as the Secretary’s quote reminds us, none of this is trivial 

and none of it is optional. The financial management of the world’s 

largest and most competent military force affects not only the stewardship of taxpayer dollars, but the safety and well-being of the 

real men and women on the battlefield, the security of our civilian 

population at home and abroad, and indeed, the freedom and peace 

of the world. Beyond these life and death issues, there are fundamental issues of respect in how we treat our sons and daughters 

in harm’s way every day. 

During this time of war, GAO reported that our battle-wounded 

soldiers were hounded by debt collectors for debt they incurred on 

no fault of their own. In fact, GAO found as many as 73 percent 

of the reported debts were caused by overpayments of pay allowances, pay calculation errors, or erroneous leave payments. 

Every dollar wasted or misspent is a dollar we won’t spend preparing and equipping our warfighters. Recently, Lt. Gen. Steven 

Baum, the top National Guard General, said that two-thirds of the 

active Army brigades are not rated ready for war. Army officials, 

analysts, and some of my colleagues have complained that there 

just isn’t enough money to complete the personnel training and 

equipment repairs and replacement that must be done when units 

return home after deploying to Iraq and Afghanistan. And we 

heard this morning that, in fact, part of the problem with that is 

underfunding from the 302(b), earmarks that take away, and not 

allowing the Defense Department to do the things that they think 

will create efficiencies and economy of scale. 

If there is one agency in the government where corners can be 

cut, it is not the DOD, and we are not suggesting that with this 

hearing today. If there is one agency where we should ensure an 

abundance of resources, it is DOD. My colleagues know that, and 

perhaps that explains why so much money has rolled out the door 

to DOD with so little oversight. That same desire to give our armed 

forces whatever they need may be what has hampered us from following what we do give them. 

4

It is not enough just to write blank checks to DOD without effective oversight, call ourselves patriots, and go home. It is a perverse 

world when we can roll out the types of appropriations, both 

through regular order and emergency war supplementals, and still 

hear complaints of equipment and training for warfighters that the 

Department can’t afford. It is time for Congress to match the level 

of its abundant provision of resources of the American taxpayers’ 

money with an intensity and frequency of financial oversight. The 

safety and protection of our country should be our top priority. I 

have a hard time, however, justifying continued multiple emergency war supplementals for the Department when we don’t know 

exactly what that money is buying, and neither does the Department of Defense. 

I would like to stress that this hearing is not a policy debate 

about whether or not U.S. troops should be present in Afghanistan 

or Iraq. We are there and we must win. We must be prepared to 

win the next time, as well, and the time after that. The Department of Defense has adopted a motto, and it is a good one. ‘‘Check 

it. What gets checked, gets done.’’ 

Senator Carper and I are committed to Congressional checking. 

We thank each of our witnesses for appearing today before this 

Subcommittee. 

[The prepared statement of Chairman Coburn follows:]

PREPARED STATEMENT OF SENATOR COBURN 

On September 10, 2001—the day before the terrorist attacks that shook our Nation—Secretary of Defense Donald Rumsfeld stated that, ‘‘. . . financial management efforts at the Pentagon are not just about money or waste . . . in the end, 

it is really a matter of life and death—ultimately every American’s . . .’’ Secretary 

Rumsfeld continued: ‘‘Our job is defending America, and if we cannot change the 

way we do business, then we cannot do our job well, and we must.’’

The U.S. Department of Defense fiscal year 2006 budget was more than the combined defense spending of the rest of the world. We are currently debating a proposed $441.2 billion dollar budget for DOD on the Senate floor right now. This, of 

course, does not include money the Department receives through supplemental appropriations to pay for the Iraq war. This amount reflects a 7 percent increase over 

2006 and a 48 percent increase over 2001—again, and that doesn’t even include war 

expenses. 

It’s difficult for most of us to wrap our heads around a budget that big. Let’s put 

it in more tangible terms: U.S. defense spending will exceed $513 billion next year, 

the highest amount at any time since World War II. It also exceeds the rest of the 

world’s military spending—combined. 

We must secure America—that’s not negotiable—whatever it costs. But do we 

really know what it costs? When we don’t know how we’re spending that money, 

and if it’s being managed well, we have no idea what areas of the budget are really 

necessary for the Nation’s defense and what areas aren’t. And there’s quite a bit 

of evidence that the amounts lost to payment errors, waste, fraud, and abuse each 

year could be in the tens of billions. 

The most glaring problem has been the Department’s inability to produce 

auditable financial statements—in other words, they can’t undergo an audit, much 

less pass one. If DOD were a privately-owned company, it would have been bankrupt long ago. In 2004, the Department set the goal of undergoing a full audit by 

2007. That deadline has not been met, and in fact, has been moved to the year 2016. 

That’s 10 years from today. Americans are being asked to wait a full 10 years before 

their dollars are tracked well enough for the Department to fail an audit. And that 

seems to be the new objective of financial managers at DOD—to get to a place 

where DOD can actually fail an audit. Passing the audit is a pipedream for some 

future date beyond 2016. 

Don’t get me wrong. I understand that merely undergoing an audit is real and 

measurable progress. The President inherited a Department in financial disarray, 

and many hardworking folks have been making slow but steady progress. I am 

5

pleased that the Government Accountability Office and the Office of Management 

and Budget believe that goal is realistic and can be met. Just being able to get a 

financial audit of all components of the Department will be a measurable improvement. 

Over the past 5 years, GAO has made a series of recommendations to DOD, which 

they are in the process of implementing. They deserve to be commended for their 

work so far. The Financial Improvement and Audit Readiness (FIAR) Plan to incrementally move the Department to an auditable state by 2016 and the Standard Financial Information Structure (SFIS) to categorize DOD financial information are 

two key elements driving this plan for financial management improvement. These 

are both promising steps. We still need, however, rigorous oversight to see that 

these plans are on track and receiving the attention necessary within DOD, and 

that these efforts yield the intended results. This Subcommittee will be watching 

closely, and asking for regular updates every few months. 

DOD’s plans to improve the financial management of our defense system will not 

happen without sustained leadership. Leadership is essential to obtaining outlined 

results, benchmarks, and meeting the goals the Department has set. GAO has recommended the position of Chief Management Officer be established within the Department of Defense to keep the business transformation intact as a new Administration is ushered in. I am interested to hear more about the role and function of 

such a position within DOD to see how this organizational change could help maintain continuity during times of transition. 

GAO has been reporting to Congress that DOD is at the top of its ‘‘High-risk’’ list 

for years. Of the 26 ‘‘high-risk’’ areas, 14 are at DOD. While sustained leadership 

at the agency is critical to achieving success with financial management improvement at DOD, continued oversight by Congress is just as important. And as the Secretary’s quote reminds us, none of this is trivial or optional. The financial management of the world’s largest and most competent military force affects not only the 

stewardship of taxpayer dollars, but the safety and well being of real men and 

women on the battlefield, the security of our civilian population at home and 

abroad, and indeed the freedom and peace of the world. 

Beyond these life and death issues, there are fundamental issues of respect and 

how we treat our sons and daughters in harm’s way every day. During this time 

of war, GAO reported that our battle-wounded soldiers were hounded by debt collectors for debt they incurred by no fault of their own. In fact, GAO found that as 

many as 73 percent of the reported debts were caused by overpayments of pay allowances, pay calculation errors, and erroneous leave payments. 

Every dollar wasted or misspent is a dollar we don’t spend preparing and equipping our warfighters. Recently, Lt. Gen. H. Steven Blum, the top National Guard 

General, said that two-thirds of the active Army’s brigades are not rated ‘‘ready for 

war.’’ Army officials, analysts and some of my colleagues have complained that there 

just isn’t enough money to complete the personnel training and equipment repairs 

and replacement that must be done when units return home after deploying to Iraq 

or Afghanistan. 

If there is one agency in the government where corners can be cut, it is not DOD. 

If there is one agency where we should ensure an abundance of resources—it is 

DOD. My colleagues know this, and that perhaps explains why so much money has 

rolled out the door to DOD with so little oversight. That same desire to give our 

armed forces whatever they need may be what has hampered us from following 

what we do give them. It is not enough just to write blank checks to DOD without 

effective oversight, call ourselves patriots and go home. It is a perverse world when 

we can roll out the types of appropriations—both through regular order, and emergency war supplements—and still hear complaints of equipment and training of 

warfighters that the Department can’t afford. 

It is time for Congress to match the level of its abundant provision of resources 

with an intensity and frequency of financial oversight. The safety and protection of 

our country should be our top priority; however, I have a hard time justifying continued multiple emergency war supplementals for the Department when we don’t 

know exactly what that money is buying, and neither does the Department. 

I would like to stress that this hearing is not a policy debate about whether or 

not U.S. troops should be present in Afghanistan or Iraq: We’re there and we must 

win. We must be prepared to win next time, and the time after that. The Department of Defense has an adopted motto: ‘‘Check it. What gets checked, get done.’’

Senator Carper and I are committed to some Congressional ‘‘checking.’’ Thank you 

to each of our witnesses for appearing before the Subcommittee today.

Chairman COBURN. Senator Carper. 

6

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. Thanks, Mr. Chairman. Normally, I don’t say 

this about opening statements that other people give, but that was 

a good statement. 

Chairman COBURN. Thank you. 

Senator CARPER. I am delighted that we are here and I thank 

you for scheduling this hearing and our witnesses for joining us 

today at this time. 

I read not long ago that we spend more money in the Department of Defense on our military than all the other countries combined. I sort of come at this as a guy who has spent a lot of his 

life in the military, in the Navy as a Naval flight officer on active 

duty and later in the Reserves for many years, so having served 

in a war, hot war, cold war, and now having some idea and some 

real special personal feeling as to the importance of the Armed 

Forces. As governor, I got to be Commander in Chief of the Delaware National Guard, so I bring that experience to this table. This 

is a great affection for those who wear the uniform and great respect. 

I also know that we are spending a whole lot more money than 

we have in the government, and General Walker is going to probably share a little bit of that with us here today. We have to find 

ways to reduce the deficit. We had a real good hearing this week 

on the kind of abuses that are going on in terms of tax shelters. 

It was another Subcommittee of our Committee that held that 

hearing and hopefully can help us narrow that tax gap that the 

Chairman and I talked a fair amount about. There is no silver bullet here. Some of the money that we need to narrow the deficit is 

going to be in the tax gap and others from a wide variety of different kinds of programs, domestic and defense. 

But I want to talk a little bit today before we turn it over to General Walker, acknowledging that the Department of Defense is a 

very large organization, a very complex organization with a critical 

mission. Its success or its lack of success in carrying out that mission is a matter of life and death to the men and women who serve 

in our military today, and frankly, for all of us who are sitting here 

today. 

Unfortunately, the Department’s ability to effectively carry out 

its mission is threatened by a number of longstanding, ongoing 

management problems that the Chairman has alluded to. Eight of 

the 26 problem areas highlighted on GAO’s high-risk list are within 

the Department of Defense. Six others on the list are governmentwide problems that also apply to the Department of Defense. 

There have been hearings held in the past on a number of DOD 

problem areas. I am pleased that this Subcommittee will now be 

spending some time examining those basic financial management 

failures at the Department, failures that have kept DOD’s financial 

management on the high-risk list now for more than a decade. 

The Department of Defense and most of its components have essentially been deemed unauditable. The thousands of business systems scattered throughout the Department don’t talk to one another and simply can’t produce timely, accurate financial data. This 

has led to an unacceptable situation, a situation where decisionmakers within the Department and also here within Congress don’t 

7

1The prepared statement of Mr. Walker appears in the Appendix on page 33. 

have a clear picture of what the Department has, what it needs, 

and how it spends its money. 

The murky nature of the Department’s finances is, according to 

GAO, the single largest obstacle to achieving overall qualified audit 

opinions on the Federal Government’s consolidated financial statements. It also creates an environment that invites waste, fraud, 

and abuse, and abuse of the taxpayers’ trust. No Secretary of Defense, no matter how determined or how accomplished he or she 

might be, can be as effective as they need to be facing these kinds 

of problems. 

I understand that the Department of Defense has made some 

progress in recent months laying out a road map for how to address these problems and I hope we can continue to pay close attention to the Department’s efforts to ensure that the milestones 

are met and the goals remain in sight. Like you, Mr. Chairman, 

the idea of waiting until 2016 when we were hoping 2007, that is 

just not acceptable. I like to say, if it isn’t perfect, make it better. 

We also like to say in my office, we can do better than that. With 

respect to the timeline, we can do better than that. We need to do 

better than that. 

Thank you, Mr. Chairman. 

Chairman COBURN. Thank you, Senator Carper. 

Before us now is the Hon. David Walker. He is well known to 

this Subcommittee. I don’t know if he has testified before more 

Subcommittees than this one, but we are up in the running with 

him. We appreciate him being here. 

He became Comptroller General in 1998, a 15-year term. He dare 

not leave before that term is up. I will get you if you do. We will 

come back after you. We are very pleased you are here. We are 

very proud of the dedicated work that you and all the people who 

work with you give in assisting this Subcommittee and the rest of 

Congress an honest look at problems that we are facing. Please 

give us your statement. 

General WALKER. Do you want to swear me in? 

Chairman COBURN. I don’t think you need to be sworn in. 

General WALKER. Thank you very much. I would rather be sworn 

in than sworn at. 

Senator CARPER. Can we vote on that? 

Chairman COBURN. Do you want him sworn in? 

Senator CARPER. No. [Laughter.] 

TESTIMONY OF HON. DAVID M. WALKER,1 COMPTROLLER 

GENERAL, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. WALKER. Thank you very much. You can trust what I tell 

you, whether I am sworn in or not. Thank you for your kind comments about GAO and our staff. We have an outstanding staff. 

It is a pleasure to be back before this Subcommittee to talk about 

the Defense transformation efforts on the business side. I want to 

commend this Subcommittee, you, Mr. Chairman, and Senator Carper, for your dedication and commitment to oversight. Frankly, 

there are not enough committees and Subcommittees in Congress 

8

that are doing oversight and this Subcommittee is a clear exception. 

As has been mentioned by the Chairman as well as Senator Carper, 14 of GAO’s 26 high-risk areas relate directly or indirectly to 

the Department of Defense. We are No. 1 in the world in fighting 

and winning in armed conflicts. We do not deserve a passing grade 

on economy, efficiency, transparency, and accountability, and that 

needs to change. 

You are right, Mr. Chairman, that Secretary Rumsfeld basically 

noted the importance of business transformation on September 10, 

2001. We all know the tragic events of September 11, 2001, and as 

a result, not as much progress has been made in this area as everybody would like. But, we are seeing signs that things are starting 

to change. 

It is important to keep in mind that this is not about audited financial statements. I mean, clearly, in the end, DOD has a responsibility to achieve a clean opinion on its audited financial statements. That is an indicator, but it is not an end in and of itself. 

What is important that we have sound internal controls coupled 

with timely, accurate and useful financial and management information in order to make informed decisions on a day-to-day basis, 

and to make sure that we are maximizing economy, efficiency, and 

effectiveness and we are providing for appropriate transparency 

and accountability to the American people. 

The simple fact of the matter is, because of decades-old problems 

with internal controls, with financial management information systems, and selected other issues, the Defense Department wastes 

billions of dollars every year. That is money that we cannot afford 

to waste at any time, especially at a time when we are running 

large and imprudent budget deficits. These deficits are only going 

to get worse when the baby boomers start to retire in the next few 

years unless we end up changing our path. 

I will note that DOD has shown increased commitment to trying 

to take on some of these challenges within the last year and there 

are a number of steps that it has taken that are encouraging and 

they represent improvements over their past efforts. 

I would note for the record, however, that I have not heard that 

2016 date before. I can tell you that while I thought that the 2007 

date to achieve an audited financial statement for the DOD was ridiculously optimistic and not credible on its face, the 2016 date is 

likewise not credible on its face. I would suggest 2012 at the absolute latest. I would like to see their plan showing how they are 

going to try to get there. We ought to be able to get there. 

Quite frankly, in all fairness, one of the reasons I mentioned that 

date is that it is the last fiscal year in which I will be Comptroller 

General and have an opportunity to express an opinion on the consolidated financial statements of the U.S. Government. You can 

take it to the bank, there will not be an opinion on the consolidated 

financial statements of the U.S. Government until there is one at 

DOD. There won’t be, because DOD is just too big from the standpoint of the balance sheet and the statement of net cost of operations of the Federal Government. 

Some examples of some positive things that have happened of 

late are the issuance of the FIAR Plan, or the Financial ImproveVerDate 0ct 09 2002 14:00 Sep 18, 2007 Jkt 029762 PO 00000 Frm 00012 Fmt 6633 Sfmt 6601 C:\DOCS\29762.TXT SAFFAIRS PsN: PAT
9

ment and Audit Readiness Plan. The plan is clearly a much more 

logical and pragmatic approach to trying to look at different line 

items in different entities, which is what we have been suggesting 

for a while. Namely, that DOD try to hit some singles and doubles 

before they go for the fence, and I think the new plan is clearly an 

improvement in approach. 

In addition, the Standard Financial Information Structure, the 

SFIS, represents a more pragmatic approach with regard to financial management information, and the enterprise architecture is 

clearly superior to the prior approach that they were taking. 

The creation of the DBSMC, the Defense Business System Management Committee—there are more acronyms than you can count 

over at the Defense Department—as a means to oversee the overall 

business transformation effort was also a positive step. The creation of the Business Transformation Agency, otherwise known as 

BTA, in order to support that effort obviously is a positive step. 

There are a number of things that we think will be essential in 

order for the Department to achieve sustainable success in business transformation. I will mention two. One, they need a strategic 

and integrated business transformation plan. They don’t have it 

right now. 

Two, it is not a panacea, but it is essential. They will need a 

Chief Management Officer at the right level, for the right period 

of time, and doing the right things to provide continuity within administrations and between administrations to deal with these 

many challenges that are years in the making and will take years 

to successfully address. 

I am pleased to note that the Defense Business Board has recommended the creation of a Chief Management Official. I am also 

pleased to note that McKinsey, one of the world’s most respected 

global consulting firms, has also recommended it. I am hopeful that 

the FFRDC entity that is going to conduct an additional study that 

is going to come out later this year will also recommend it. As you 

know, GAO has recommended it for at least 2 years. 

Last thing, given the fact that we are in a real but undeclared 

global war on terrorism, it is time for us to declare war on waste. 

It is long overdue and the time to do it is now. 

Thank you, Mr. Chairman. 

Chairman COBURN. Thank you, General Walker. 

I think Senator Carper and I feel like we have declared the war 

on waste. That is what we have been doing the last 18 months up 

here, and we are on our 44th or 45th hearing. Most of it has to 

do with waste, fraud, abuse, and inefficiencies. 

You are uncomfortable with this 2016 because you think it can 

be achieved sooner, and——

Mr. WALKER. I haven’t seen the 2016 date. That was news to me. 

But I do think it can be achieved sooner. 

Chairman COBURN. Would you talk for a minute about the information systems problems that the Defense Department has in 

terms of even if they wanted to do it sooner, because they have, 

what, 70 or 80 different management information systems and all 

these different programs and different computers that don’t talk to 

one another, describe for us and also for the American public the 

size and extent of this problem. It would just seem to most people, 

10

if you just look at this, well, just put in new systems everywhere 

and make them all talk to each other and you can do this. Can you 

comment on that for me, if you would? 

Mr. WALKER. The Department of Defense, as you properly pointed out, is one of the largest, most complex, and arguably most important entities on the face of the earth. It has over 3,000 legacy 

and non-integrated financial and other management information 

systems that have accumulated over decades. 

In many cases, for a single transaction for a purchase or acquisition or other type of activity, there are multiple entries that have 

to be made into different systems in order to record that transaction rather than a single entry into an integrated information 

system. In some cases, there is a 16-digit code that has to go for 

each transaction, irrespective of the size of the transaction. 

We have a situation where you have thousands of outdated systems that don’t talk with each other that have accumulated over 

the years and trying to reconcile those numbers is a nightmare. We 

need to kill, discontinue, all non-essential, all non-stay-in-business 

information systems. We need to kill them. We need to free up that 

money and redeploy that money to create a more positive future, 

creating more modern and integrated information systems. It will 

take time. It will take money. But it clearly can be done before, in 

my view, 2016. 

Mr. Chairman, last week another event that occurred that is important was the kick-off of the Check It Campaign, which deals 

with internal controls. The Department recognizes the importance 

of sound controls as well as appropriate systems. I was there at 

that event, at the request of Deputy Secretary Gordon England, in 

order to show the importance and commitment to that. It is going 

to take years, but we can do it a lot quicker than 2016. 

Chairman COBURN. Let us talk for a minute about the CMO position. We had testimony yesterday in front of us in terms of Iraq 

and Special Investigative—SIGIR, I think it was——

Mr. WALKER. Stuart Bowen. 

Chairman COBURN. Yes, Stuart Bowen, who has done a wonderful job over there looking at things. The problem is he is looking 

at it after it happened. We have made several recommendations on 

Hurricane Katrina, Senator Carper and myself and Senator 

Obama, about having a Chief Financial Officer watch the store, 

and we have seen billions wasted because we didn’t have anybody 

watching the store. 

In your mind, is there progress being made at the Defense Department to look at this realistically, to put somebody in such a position and give them the authority as well as the position to make 

management decisions in terms of the organization? 

Mr. WALKER. Senator, as you probably know, the Congress required as a matter of law that the Department of Defense conduct 

two studies on the concept of a Chief Management Official and to 

report the results of those two independent studies by the end of 

this calendar year. 

Chairman COBURN. I would just note for the record that by law, 

they are supposed to be reporting improper payments throughout 

the Pentagon, as well, and they don’t. 

11

Mr. WALKER. The good news here, Senator, is that the first study 

has already been completed by the Defense Business Board and 

they did recommend the creation of a Chief Management Official 

at level two that would be a principal Under Secretary of Management to focus on the business transformation process, that would 

have statutory qualification requirements, a 5-year term appointment, and presumably a performance-based contract. So basically, 

their recommendation is very consistent with what GAO has recommended, minor differences, but intellectually very consistent. 

McKinsey within the last 2 weeks came out with a study noting 

the need for chief management officials or chief operating officers 

in a number of Federal departments and agencies around the government. 

It is my understanding that IDA is doing a study now. I met 

with representatives from IDA for about an hour and a half about 

10 days ago. They are doing their independent study. It is my understanding they are going to make some recommendations. They 

are also going to talk about a short-term versus long-term approach 

and they expect to meet their statutory deadline. 

Chairman COBURN. Why do we need another study? I mean, that 

sounds like what the government does usually. We study things to 

death, but we don’t get any action. Why do we need another study 

on whether or not we need a chief——

Mr. WALKER. I don’t think we need a study. I will tell you why 

I think we got a study. We were very clear that this was needed. 

The Department did not embrace that recommendation. Therefore, 

the Congress decided, well, let us get a couple more views, because 

the Department didn’t want to do it, we were recommending that 

it be done, and it was a way to try to get additional information. 

It shouldn’t have been necessary, but nonetheless, it is going to 

happen. I am cautiously optimistic that both will end up recommending this position. I continue to believe today, more than ever, 

that it is an essential element to sustainable progress in business 

transformation within DOD. 

Chairman COBURN. Thank you. Senator Carper. 

Senator CARPER. Thanks, Mr. Chairman. 

Mr. Walker, again, it is great to have you before our Subcommittee today. When you were testifying, during your statement, 

General Walker, I wrote down that 2007 is not achievable, and if 

2016 is not soon enough, what time line makes sense? You, reading 

my mind, responded no later than 2012. I think you said 2012 at 

the latest. 

Mr. WALKER. In fairness, I haven’t ended up independently going 

down and taking the building block approach to get there, but if 

this country can send a man to the moon and return them in less 

than 9 years, we ought to be able to get our act together in this 

area in at least 6 years. 

Senator CARPER. How do we make 2012 or 2011 or some other 

year a reality rather than just a target? How do we go about making it reality? And if you would, talk about what you can do, if you 

will, through GAO——

Mr. WALKER. Absolutely. 

12

Senator CARPER [continuing]. And what we can do through our 

oversight role. Later on, I am going to come back and say, what 

can the Administration do? What can the Executive Branch do? 

Mr. WALKER. Well, first, if you want to achieve a challenging and 

complex objective, you must have a plan. If you don’t have a plan, 

you will have no prayer. Or stated differently, that may be the only 

thing you have, is a prayer. 

There is an approach now to develop a plan, which I mentioned, 

which is good. The conceptual approach to it is much better. It is 

taking specific line items, specific entities, taking a building block 

approach, providing for accountability to specific parties as to what 

they need to be doing by when in order to achieve that objective. 

I will need to take a look at it to see how they got to 2016. As 

I said, that is a new date to me. It seems too far out. In my view, 

I would like to see how they got to it. 

You also need, to have accountability. Who is going to be responsible for what? You need to make sure that they are held accountable, that they are rewarded for meeting dates and that they are 

held accountable if they don’t end up meeting dates. 

The Congress needs to continue to provide for appropriate oversight. It needs to provide enough resources to get the job done, reasonable flexibility with appropriate transparency and accountability to make sure that people are doing what needs to be done 

within the time frame. 

With regard to us, we can continue to work with them on a constructive basis to give them our views as to what we think are the 

most important issues and what possibly might be the best way 

forward, but ultimately DOD management needs to make that 

judgment, if you will. 

I think OMB needs to hold DOD more accountable than they 

have in the past in these areas, and hopefully that will happen. I 

also think that it may be necessary, although I have not made a 

decision on this and I would want to coordinate this with the Department of Defense, with the Inspector General for the Department of Defense, and other appropriate parties, for us to have to 

assume more responsibility for the audit of the Department of Defense. 

Senator CARPER. So you are going to maybe——

Mr. WALKER. It may be possible that we, GAO, may have to directly assume more responsibility for the financial statement audit 

of the Department of Defense, and let me tell you what I mean by 

that. We have not made a decision, and I would need to consult 

with a variety of parties. It is too early to make that decision. 

Under law, we have the authority to audit any entity that we say 

we think it is appropriate that we audit because of either confidentiality, because of complexity, because of materiality or whatever. 

In the case of the Department of Defense, it is the last linchpin 

in order to achieve an opinion on the consolidated financial statements. We have to make sure that gets done and we have to make 

sure that it gets done the right way in order for us to be comfortable to express an opinion on the consolidated financial statements. 

Furthermore, whether the Inspector General does it or whether 

we do it, it is going to require a tremendous amount of resources 

13

across several organizations and it is going to require contractor resources, too, from independent public accounting firms. Unfortunately, it appears that most of the major independent public accounting firms are doing so much work in the Department of Defense that they themselves couldn’t assume responsibility for the 

audit and be deemed to be independent. 

Therefore, I think, we need to work out an approach, a coordinated approach as to who is going to be on the point. All three of 

us are going to have to be involved. By that, I mean the IG, us, 

and outside auditors. But, who is going to be on the point, who is 

going to do what, over what relative time frame, in order to achieve 

the end objective? That is something that we are going to need to 

begin conversations on, and that is obviously also relevant with regard to whatever a realistic date may or may not be for achieving 

an opinion on DOD’s financials. 

Senator CARPER. I was wondering, listening to you testify and 

the back-and-forth between you and our Chairman, if there are any 

models in this country, business models, government models in this 

country or around the world that we could look to to provide some 

road map, if you will, to getting our arms around the financial, 

really our business situation in the Department of Defense? 

Mr. WALKER. It is interesting that you ask that question, Senator 

Carper. I mean, you didn’t know I was going to say what I said and 

I didn’t know you were going to ask this question. 

Senator CARPER. This shows that he has been before the Subcommittee a whole lot of times. 

Mr. WALKER. Yes, that is right. We are familiar with each other, 

I guess. But one of the things we are doing with increasing frequency at GAO is recognizing the reality, that while the United 

States may be No. 1 in many things, we are not No. 1 in everything. We have things to teach others, but we also have things to 

learn from others. 

One of the things that I have been doing is working with my 

counterparts around the world. As you know, we are on the Board 

of Directors for auditor generals around the world and head of strategic planning. One of the things I have recently done is look at 

this financial management area and find out what other countries 

have done to try to address some similar challenges. 

Interestingly, the country of Brazil has a modern and integrated 

financial management system for their entire Federal Government. 

We are not talking about that. We are just talking about the Department of Defense, which is probably bigger than the entire Brazilian government if we looked at the numbers. If Brazil can do it, 

we can do it. 

Senator CARPER. You are not the first person who has said that 

in the last week or two. I have said, if Brazil can do it, we can do 

it, and that was with respect to declaring energy dependence and 

achieving the goal within 15 years. 

Mr. WALKER. If they can do it, we can do it. 

And second, with regard to the United Kingdom, I was recently 

in London meeting with officials of the Ministry of Defence, and 

within the last 5 years or so, they have gotten their financial management act together. I think for 3 years in a row, they have 

achieved a clean opinion on their financial statement audit. FurVerDate 0ct 09 2002 14:00 Sep 18, 2007 Jkt 029762 PO 00000 Frm 00017 Fmt 6633 Sfmt 6601 C:\DOCS\29762.TXT SAFFAIRS PsN: PAT
14

thermore, they have also made progress on reconciling program 

planning with budgeting, not just in the current year, but for the 

out years, which is something that we need to do, as well. 

Now, we are a lot larger. We are a lot more complex. We have 

a lot more important role in the world, arguably, but there are lessons to be learned from others and I think it is important that we 

learn them. 

Senator CARPER. Mr. Chairman, will there be another round of 

questions? 

Chairman COBURN. No, go on and I will wrap up. 

Senator CARPER. Go ahead. I want to just figure out one of these 

question that I want to ask. 

Chairman COBURN. In December of this last year, the Department of Defense issued the BEA and an ETP for modernizing their 

business processes and supporting information technology processes and assets. What it really is is a blueprint for modernizing 

the business operations, one, and their business information systems and their management information systems while ETP provides a road map and management tool that sequences the business systems, investments in the areas of personnel, logistics, real 

property, acquisition, purchasing, and financial management. Do 

you think the ETP goes far enough in achieving what they need to 

do to get a hold on this? 

Mr. WALKER. First, let me say that I think the approach they are 

taking now is vastly superior to the approach that they were taking 

before. I would like to provide some more detailed information for 

the record. But I clearly think it is vastly superior to what they 

were doing before. I would like to consult with some of my information technology specialists to provide you more detail for the record, 

if I can, Mr. Chairman.

INFORMATION PROVIDED FOR THE RECORD BY MR. WALKER 

As we reported in May of this year, the department has taken steps over the last 

one year to further comply with the requirements specified in the Fiscal Year 2006 

National Defense Authorization Act and related guidance. The Act’s requirements 

were consistent with our recommendations for developing a business enterprise architecture and associated enterprise transition plan, and establishing and implementing effective information technology (IT) business system investment management structures and processes. As part of DOD’s incremental strategy for developing 

and implementing its architecture, transition plan, and tiered accountability framework for managing business systems, DOD has improved its overall approach to 

business systems modernization. On March 15, 2006, DOD released a minor update 

to its business enterprise architecture, developed an updated enterprise transition 

plan, and issued its annual report to Congress describing steps taken to address the 

Act’s requirements, among other things. 

The updated architecture and transition plan, as well as the report and related 

documentation, reflect steps taken to address a number of the areas that we previously reported as falling short of the Act’s requirements and related guidance. 

While this progress better positions the department to address the business systems 

modernization high-risk area, many challenges remain relative to improving the architecture, implementing its tiered accountability investment approach, and actually 

acquiring and implementing modernized business systems on time and within budget that provide promised capabilities and benefits. 

The enterprise transition plan now includes an initiative aimed at identifying capability gaps between the current and target architectural environments, and DOD 

continues to validate the inventory of ongoing IT investments that formed the basis 

for the prior version of the transition plan. Further, the plan provides information 

on progress on major investments—including key accomplishments and milestones 

attained, and more information about the termination of legacy systems. However, 

it still does not identify, among other things, all legacy systems that will not be part 

15

of the target architecture, and it does not include system investment information 

for all the department’s agencies and combatant commands. Once missing content 

is added and all planned investments are validated by capability gap analyses, the 

department will be better positioned to sequentially manage the migration and disposition of existing business processes and systems—and the introduction of new 

ones.

Chairman COBURN. Thank you. Senator Carper. 

Senator CARPER. Thanks. I think in your testimony, your written 

testimony, you criticized the Department of Defense for lacking a 

comprehensive department-wide plan for transforming itself. Let 

me just ask, what is lacking in the Department’s current strategy 

that you would like to see taken up in this plan? 

Mr. WALKER. First, as you noted, Senator Carper, they have, directly or indirectly, 14 of 26 high-risk agencies—high-risk areas 

government-wide and you need to start with that. Those aren’t the 

only things that need to be addressed with regard to business 

transformation, but they are arguably the most important things 

that need to be addressed with regard to business transformation. 

You need to have a strategic and integrated plan for how you are 

going to end up addressing all these different areas. Quite frankly, 

many, if not most of them, are interrelated. A decision you make 

in one area can have a ripple effect with regard to decisions in others. 

Furthermore, you have too many layers, too many players, too 

many hardened silos within the Department of Defense. There is 

so much hierarchy and so much process orientation there, all the 

more reason why you need to have somebody on the point, who has 

got a plan, who is responsible and accountable, whose is matrixing 

both with the different under secretaries as well as the service secretaries, uniformed and non-uniformed key players to make 

progress on all these different fronts in a strategic and integrated 

fashion. That doesn’t exist to the extent that it needs to exist. 

Now, they have made progress. They have individual plans. The 

approaches that they are taking on those individual plans in most 

cases are much better than the approaches they were taking before. There is also more accountability being provided for. 

But the two big points that I said they need to do, they need this 

strategic and integrated business transformation plan that deals 

with all these areas, and they need a Chief Management Official, 

because these problems aren’t going to come close to getting solved 

by the end of this Administration and it is going to take years of 

sustained attention to get us to where we need to be and we need 

to recognize that reality. 

Senator CARPER. Give us just some idea of the profile of the 

Chief Management Official——

Mr. WALKER. Sure. 

Senator CARPER [continuing]. You mentioned and where might 

we be looking for him or her. 

Mr. WALKER. First, let me say we are not talking about something that is novel. Let me go back to the other question you asked 

about can we learn something from other countries. The answer is 

yes. 

Now, we don’t have a parliamentary system, but in many parliamentary systems of government, they have something called either a permanent secretary, or a general secretary. They are the 

16

chief operating officers for the departments and agencies in government and they have a lot fewer political appointees in the executive 

branch than we do. I would argue that is all the more reason why 

you need a Chief Management Official or Chief Operating Officer 

because it means you are going to get a lot more turnover at the 

top because we have a lot more political appointees. 

We are talking about a proven professional, who will be a political appointee, subject to Senate confirmation. Hopefully, there will 

be statutory qualification requirements. The person should have a 

proven track record of success, ideally both in the private sector as 

well as the public sector. They would commit, hopefully, if everything goes well, to a 7-year term. They would have performance 

standards, and performance-based compensation. They would be responsible for assuring that this strategic and integrated plan was 

developed and properly implemented. 

Importantly, they would not be another layer that people would 

have to deal with on a recurring basis. In other words, they would 

be focused solely on achieving business transformation, not trying 

to manage day-to-day operations, not trying to deal with the normal things that the under secretary and comptroller or under secretary for AT&L, or others have to deal with, just the business 

transformation part. 

This has worked in other countries. It can work here, and I 

would argue we need it worse here than they did because we have 

a lot more turnover and a lot more political appointees in leadership positions, and a lot more money and risk at stake than they 

do. 

Chairman COBURN. So it is your opinion that DOD today does 

not have that comprehensive, integrated business management information system? They don’t have that plan? 

Mr. WALKER. Let me clarify. The plan that I am talking about 

is beyond business information systems. In other words, you have 

business information systems, you have financial management, you 

have acquisition reforms, and you have human capital reforms. 

There are a number of different areas on our high-risk list. 

Chairman COBURN. So it is total transformation. 

Mr. WALKER. Correct. A total business transformation plan. 

Chairman COBURN. But you would agree that they are on their 

way to putting some of these other systems——

Mr. WALKER. Absolutely. They are making progress and they 

have plans for many, if not most, of the sub-elements. We are 

working constructively with the Office of Management and Budget 

and trying to make sure that every department and agency in government has an action plan for getting off of GAO’s high-risk list 

eventually. Some are going to take longer than others, obviously. 

Senator CARPER. Mr. Chairman, you and I have talked with General Walker about our oversight role. This Subcommittee under 

your leadership has done, I think, a remarkable job in terms of performing or attempting to perform an oversight role. We have a lot 

of other committees in the House and Senate that don’t take those 

responsibilities as seriously, and one of the ideas we have kicked 

around to better enable committees to meet their oversight responsibilities, to enable the Congress to meet its oversight responsibility, would be to look at a 2-year budget process or a biennial 

17

1The prepared statement of Mr. Patterson appears in the Appendix on page 59. 

budget, where 1 year you are basically doing the budget and the 

second year you focus a bit more on oversight, not one exclusively 

over the other. Would you just give us your thought on our idea? 

Mr. WALKER. First, I think there is conceptual merit to biennial 

budgeting. As you know, there are States that have biennial budgets. At this same point in time, I don’t think they are a panacea. 

The assumption is that if you only have to do the budget every 2 

years, that you would use the time that was made available from 

not having to do the budget 1 year out of two to do more oversight. 

I don’t know whether or not that would occur, but clearly to the 

extent that time is a problem, that would free up some time. 

Furthermore, lately, we have been running at least one supplemental a year. So one of the questions you have to ask yourself is, 

what do you do if something happens and you have an unanticipated event, maybe a really true emergency rather than an ‘‘emergency’’? Well, then that is what the supplemental process is supposed to be for. Unfortunately, as the Chairman mentioned before, 

we have got too many things running through the supplemental 

process right now that, frankly, we need to move into the base. In 

terms of forcing more trade-offs, you are getting more transparency 

and accountability than historically has been the case. 

Senator CARPER. Thank you very much. Thanks for your service 

and for the great resources you provide in your team that you 

bring. 

Mr. WALKER. My pleasure. 

Chairman COBURN. General Walker, thank you so much. 

Mr. WALKER. Thank you. 

Chairman COBURN. Our next panel, first is Jack Patterson, Principal Deputy Under Secretary at the Department of Defense. He is 

directly responsible for advising and assisting the Comptroller with 

oversight of the DOD financial management policy, financial management systems, and business modernization programs. 

Accompanying Mr. Patterson is Teresa McKay, Deputy Chief Financial Officer at the U.S. Department of Defense. She is the principal advisor to the Comptroller for accounting and financial matters. 

Thomas Gimble is the Acting Inspector General for the Department of Defense. As the Acting Inspector General, Mr. Gimble is 

charged by law to report directly to the Secretary of Defense on 

matters relating to the prevention of fraud, waste, and abuse in 

programs and operations of the Department. 

Let me welcome each of you. We will recognize Mr. Patterson 

first and we will go in the order in which we introduced you. Mr. 

Patterson. 

TESTIMONY OF J. DAVID PATTERSON,1 PRINCIPAL DEPUTY 

UNDER SECRETARY OF DEFENSE (COMPTROLLER), U.S. DEPARTMENT OF DEFENSE 

Mr. PATTERSON. Mr. Chairman, Senator Carper, thank you for 

the opportunity to update you on the progress the Department has 

made in business transformation and financial management. And 

18

by way of the opportunity to meet with you, we also recognize that 

we have an opportunity to inform the American people. 

As stewards of the resources entrusted to us for the defense of 

the Nation, we take our responsibility to the American taxpayer 

very seriously. We also strive to never lose sight of the fact that 

everything we do, every dollar we manage, every contract we fund, 

affects the men and women in uniform who put their lives on the 

line every single day. 

This has been the case since the Administration first took office, 

the words of Secretary Rumsfeld said on September 10, and we appreciate very much that you put them up because, in fact, they are 

the vision that all of us must look to in our daily business in the 

Department. Since that time the Secretary made that statement, 

Mr. Chairman, we have been working to make this vision a reality. 

The challenges the Department faces are not insignificant. Beginning with the sheer size of the enterprise, which you have alluded to this afternoon, with more than 600,000 buildings and 

structures in over 146 countries around the globe, the Department’s assets and liabilities alone exceed those of Wal-Mart, Exxon, 

Ford, and IBM combined. Add to that an employment roster that 

includes 1.4 million active-duty men and women, 740,000 civilians, 

860,000 Guard and Reserve members, two million retirees and 

their families, and an operating budget in excess of $400 billion. 

Add that together and you have some idea of the sheer volume 

of the financial information and data that the Department manages daily, not to mention the difficulty in consistently capturing 

that information and preparing that data so that it can be analyzed 

and communicated to Congress as well as the decisionmakers in 

the Department. That data, to be usable, depends on common business system solutions. Indeed, for decades, there were no such common solutions, only a wide variety of different systems and processes unable to talk to one another, and consequently, unable to 

produce consistent, complete, timely information. 

In 2001, the Department embarked on an ambitious plan to 

bring the Department of Defense into the 21st Century. After 4 

years of work and preparation, in 2005, two comprehensive and integrated plans for financial improvement and business systems 

modernization were launched. As you have heard, they are the Enterprise Transition Plan and the Financial Improvement and Audit 

Readiness Plan. 

The Enterprise Transition Plan is a step-by-step plan that consolidates DOD’s many different business systems and focuses resources to minimize redundancy and reduce overhead. It also details the schedules, milestones, and costs for 98 key transformational programs and initiatives across the Department. 

The Financial Improvement and Audit Readiness Plan, or something we refer to as the FIAR Plan, focuses the Department’s efforts on improving business processes and internal management 

controls. The FIAR Plan unites DOD’s functional and financial operations and comprehensively guides the effort to incrementally 

eliminate material weaknesses to achieve an independently verified 

and clean audit opinion. 

I have asked Deputy Chief Financial Officer Terri McKay to join 

me this afternoon, and following my brief remarks, she will speak 

19

to you about the Department’s progress in improving financial 

management and audit readiness. 

The second part of our plan, improving business systems and 

processes, is equally important and the key to future and continuing success. Like good financial management, effective business 

systems and processes also support the clean audit opinions and 

the internal management controls that help eliminate material 

weaknesses. In this respect, the Department has made clear and 

measurable progress in modernizing and consolidating DOD business systems and operations as well as improving accuracy, reliability, and timeliness. 

There are numerous examples of where we have made progress, 

and if you would allow me, I would just like to enumerate a few. 

Unsupported accounting entries have been reduced by 86 percent, 

or $1.98 trillion, from fiscal year 1999 to 2005. Delinquent debts receivable have been reduced by 42 percent, or $1.1 billion, from fiscal year 2004 to 2005. Fully 95 percent of all vendor payments are 

now done electronically, as compared with 86 percent in 2001, realizing a savings of $6 million. And since 2001, process efficiencies 

at the Defense Finance and Accounting Service have resulted in a 

cost savings of approximately $238 million, all while improving 

productivity and service to the warfighter. 

Mr. Chairman, the challenges we face in accomplishing our goals 

are many and the task is still far from complete by any measure, 

but I believe the Department of Defense has made a clear and 

measurable progress in improving business systems and financial 

management of the Nation’s largest and most complex Department, 

and that progress will continue. 

I thank you again for the opportunity to share these accomplishments with you, and on behalf of the Department, I thank the Subcommittee for its very strong support for these important efforts, 

and most importantly, for your continued strong support of the 

men and women who are out there doing the Nation’s business in 

the global war against terror. 

Chairman COBURN. Thank you. Ms. McKay. 

TESTIMONY OF TERESA McKAY, DEPUTY CHIEF FINANCIAL 

OFFICER, U.S. DEPARTMENT OF DEFENSE 

Ms. MCKAY. Mr. Chairman, Senator Carper, thank you for this 

opportunity to discuss the Department’s financial management improvement effort. As the Deputy Chief Financial Officer for the last 

2 years, it has been my privilege to oversee this undertaking with 

the help of a dedicated staff of financial management professionals. 

Indeed, well over half of my immediate staff have professional certifications. 

As the Deputy Chief Financial Officer, I have three primary responsibilities in this area: To establish policy for accounting, finance, and internal control functions throughout the Department; 

to oversee periodic financial reporting, including quarterly financial 

statements; and to develop and execute a systematic plan for financial management improvement and audit readiness, and we are 

doing this. 

The Financial Improvement and Audit Readiness, or FIAR Plan, 

released in December 2005, charts a course to sound financial manVerDate 0ct 09 2002 14:00 Sep 18, 2007 Jkt 029762 PO 00000 Frm 00023 Fmt 6633 Sfmt 6601 C:\DOCS\29762.TXT SAFFAIRS PsN: PAT
20

agement by improving internal controls, resolving material weaknesses, and advancing the Department’s fiscal stewardship. The 

plan also details a path for integrating the Financial Management 

Improvement Plans of the military services and components and 

confirming those improvements with favorable audits. 

Employing an incremental methodology to achieving audit readiness, we focused our initial efforts on four high-impact areas that 

represent a significant portion of the Department’s assets and liabilities, military equipment, real property, health care liabilities, 

and environmental liabilities. Fund balance with Treasury is also 

a priority. Each focus area includes specific milestones for achieving a successful audit, and during the last 6 months, 64 percent of 

those milestones have been met. 

To give you a couple of quick examples of the progress that has 

been made, in the area of military equipment, which represents 27 

percent of the value of all DOD assets, an initial baseline valuation 

for all military equipment programs, everything from combat vehicles to ships to aircraft, has now been established. This value was 

reported in the Department’s third quarter fiscal year 2006 financial statements. This achievement is especially significant because 

the Department has never before had an accurate valuation of its 

military equipment. 

In the area of environmental liabilities, the initial inventory and 

estimate for 97 percent of all environmental liabilities have now 

been completed. Calculating the value of this important category of 

liabilities will enable the Department to precisely identify the 

amount and the timing of funding requirements necessary to resolve environmental issues. 

The military components are also making good progress toward 

independent audit opinions. For example, the U.S. Army Corps of 

Engineers is currently undergoing an audit of its fiscal year 2006 

financial statements and the Marine Corps expects to be ready for 

a full audit of their financial statements in fiscal year 2007. 

Clean audits for the military components confirm the reliability 

of the financial information and demonstrate the Department’s 

commitment to accurate and timely reporting using a publicly recognized standard, and that commitment is producing results. 

Four years ago, it took the Department 5 months to produce a 

single set of financial statements, and we did it once a year. Today, 

we are able to produce statements every quarter and publish endof-year financial statements in 45 days. This is not, however, reporting for reporting’s sake alone. Rather, we are using the information to better manage business operations. 

For example, through the analysis performed on the quarterly financial statements, we are able to identify monies owed to the various components of the Department and emphasize collection efforts. Efforts thus far have reduced the amount owed to the various 

components by over $1 billion in the last year. 

This information is also used to reduce the cycle time of collections owed to the Department. This effort is especially critical to 

our working capital funds’ cash management efforts. 

So while the FIAR Plan is designed to produce steady, incremental progress toward a clean audit opinion that will take years 

21

1The prepared statement of Mr. Gimble appears in the Appendix on page 71. 

to accomplish, the effort itself is yielding valuable benefits in other 

important areas, so I believe we are making real progress. 

Mr. Chairman, as Mr. Patterson has said, we take our responsibilities seriously, our responsibility to be good stewards of the resources entrusted to us by the American people, and especially our 

responsibility to do all we can to support the brave men and 

women of America’s armed forces who are fighting to defend our 

freedom and our future. Thank you, Mr. Chairman, and I am 

happy to answer any questions that you may have. 

Senator COBURN. Thanks you. Inspector General Gimble. 

TESTIMONY OF THOMAS F. GIMBLE,1 ACTING INSPECTOR 

GENERAL, OFFICE OF THE INSPECTOR GENERAL, DEPARTMENT OF DEFENSE 

Mr. GIMBLE. Mr. Chairman, Senator Carper, thank you for the 

opportunity to discuss the financial management challenges that 

the Department of Defense continues to face and the progress that 

the Department has made in addressing the challenges and achieving business process modernization goals established by the 2001 

Quadrennial Defense Review. 

The Department’s financial statements are the most extensive, 

complex, and diverse financial statements in the government. As 

we have reported in prior testimony, the Department faces financial management problems that are longstanding, pervasive, and 

deeply rooted in virtually all operations. Those financial problems 

continue to impede the Department’s ability to provide reliable, 

timely, and useful financial and managerial data to support operating, budgeting, and policy decisions. The problems have also prevented the Department from receiving an unqualified opinion on its 

financial statements. 

We are encouraged, however, by the framework the Department 

has established to address those problems. The framework consists 

of the Enterprise Transition Plan, which addresses the business 

process modernization goals established in the 2001 QDR and the 

Financial Improvement and Audit Readiness Plan. This framework 

provides the direction for the Department’s financial improvement 

efforts and can be a mechanism for holding the Department’s managers accountable for correcting specific weaknesses and for meeting milestones. More importantly, it provides a mechanism for 

measuring success. 

The challenge to the Department managers is to continue to fortify and refine the framework. Further, within the framework, 

there must be a sustained effort to identify, monitor, and correct 

internal control and system weaknesses. The Department must 

continue to recognize that financial improvement is an ongoing effort that needs sustained management attention and accountability 

at all levels. 

In order for the Department to achieve results in the financial 

management area, the Department must exercise rigor and continued management focus in executing the Enterprise Transition 

Plan, the FIAR, and the assessments of internal controls over financial reporting under OMB Circular A–123. 

22

Not only does the Department need to focus on financial management improvement efforts on known deficiencies, it also needs to 

continue developing corrective action plans for the financial management challenges identified during the course of business and 

while implementing the programs mentioned above. Known balance sheet line item deficiencies include fund balance with Treasury; inventory; operating materials and supplies; property, plant, 

and equipment. Government-furnished material; contractor-required materials, environmental liabilities; accounts payable and 

accounts receivable. Other known deficiencies that are not specifically associated with balance sheet line items include financial 

management systems, intragovernmental eliminations, unsupported accounting entries, the statement of net cost, and the statement of financing. 

In addition, we believe the quality of existing financial data in 

the systems is still a major challenge that the Department faces. 

Although the Department has had some successes in establishing 

the framework to execute financial improvement and audit readiness initiatives, continued focus and commitment by management 

are needed to successfully execute all the improvement initiatives. 

Management must continue to identify and correct pervasive weaknesses that have impaired the Department’s ability to achieve 

auditable financial statements, and more importantly, to provide 

reliable, accurate, and timely data for decisionmaking. 

Our Inspector General financial auditors are active in the financial management improvement process and auditors serve as advisors on the Financial Improvement and Readiness Committee and 

all the DOD audit component committees. Auditors also perform financial-related audits focusing on internal control and compliance 

with laws and regulations. We make recommendations to improve 

the efficiencies in those areas. We have made over 500 separate 

recommendations in the last 2 years. 

The auditors also review assertion packages prepared by the financial managers and serve as contracting officer representatives 

on contracts to audit financial statements, line items, or financial 

management systems. 

Mr. Chairman and Senator Carper, that concludes my statement. 

I would be happy to address any questions you might have. 

Chairman COBURN. I thank each of you. 

Mr. Patterson, I got the difference between what General Walker 

was talking about and the components that you all have put in 

place. You put the accounting and financial controls, are starting 

to put those into place. But he is talking about an integrated and 

transformational management plan that will use the tools that you 

are putting into place now. And so basically what he is saying is 

you are doing the right thing, but you are not doing the overall 

thing. 

I just would like your comments. Before I went to medical school, 

I was a manufacturing manager and we used management information systems to tell us how to make decisions about how we ran 

plants and what to invest in and what not to. I just wonder, if we 

had this integrated, strategic and integrated business transformational plan, would seven of the nine major weapons systems 

now be behind and over-budget, and not small amounts of overVerDate 0ct 09 2002 14:00 Sep 18, 2007 Jkt 029762 PO 00000 Frm 00026 Fmt 6633 Sfmt 6601 C:\DOCS\29762.TXT SAFFAIRS PsN: PAT
23

budget, 40 and 50 percent over budget for the American taxpayer. 

I am just wondering what your comments are. And I am not trying 

to lay blame on anybody. 

General Walker made a significant difference in terms of what 

the overall picture has to be, and you all are implementing a significant component of that. I just wonder what your comments are 

on his thought that you have got to move to the next level, the bigger level, to where you are really managing it at every aspect, 

using the financial tools that you all are developing, you and Ms. 

McKay, but how do you take those tools and then turn them into 

management tools? And where is the overall plan at the Department of Defense to get to what he was talking about? 

Mr. PATTERSON. I think that General Walker does have a good 

point, and we obviously consult with the GAO on a regular basis. 

I think that where we believe we are making progress is, in fact, 

to build one brick on top of the other, and I take your point that 

you do need to have a vision of where you want to go. I think the 

Department is, in fact, doing that. With the Enterprise Transition 

Plan, with the FIAR Plan, and with the Business Transformation 

Agency as an implementor, if you will, as well as the Defense Business Management Systems Committee, which I sit on on occasion, 

we are, in fact, bringing together all of the disparate, different 

ideas, all of the different systems and attempting to do precisely 

what General Walker is talking about. 

But these kinds of things, when you start out to do them, it is 

easy to say it is hard to do, and what we are finding is that it is 

very complex to take the systems that have previously been very 

unique, very tailored to specific needs and now start to build systems that talk to one another, not necessarily totally integrated, 

but at least turn out reports that are usable for decisionmakers so 

that those people who have to make decisions, those people who 

use the analysis, like the Congress, are able to have a common set 

of business solutions that can be used for decisionmaking. And that 

is really the goal here, is to have a common set of business solutions that people can use, particularly in leadership positions, to 

make the decisions so important to the business of the government. 

Chairman COBURN. Would you agree that the American people 

should be suspect about the management when seven of nine—I 

am talking billions, hundreds of billions of dollars in weapons systems—are over budget and behind schedule? There has got to be 

something. It can’t be just poor planning. There has got to be something about the management of that. Some of it is culture in terms 

of the defense industry, I understand that. They think they can 

milk the thing along. But it has to be management and the techniques of management and the business plan that has allowed us 

to get to that level. Would you agree with that? 

Mr. PATTERSON. I would. I would say that what we have found 

in a study that I was a part of during the summer is that there 

are a number of components that all come together to cause the 

kind of circumstances, and I agree, programs are over cost, they 

are behind schedule, and they are not performing, and that is not 

where we want the Department of Defense to be. 

There are things that the current Secretary and Deputy Secretary are doing that have great promise. Using the studies and 

24

the conclusions to recent studies—the CSIS study, Goldwater II, 

the study that I mentioned that I was on—and taking from these 

studies the good recommendations, we are now starting to put 

these recommendations into a plan and implement them. 

Chairman COBURN. Do you think it is a good idea to have a Chief 

Management Official in place? You don’t have to answer that if you 

don’t want to, if you think that causes you problems at the Pentagon. 

Mr. PATTERSON. No, it doesn’t. I mean, what we have done, and 

I think it is to Secretary England’s great credit that he has asked 

the Defense Business Board to look at this very seriously. They 

have. They have concluded that a CMO would benefit the Department and now it is a matter of how do you, understanding the culture, as you have pointed out so clearly, how do you start to put 

those kinds of disciplines into this behemoth we call the Department of Defense of the United States. 

Chairman COBURN. It is kind of like having a mentor with authority in your life. You voluntarily give authority to your mentors 

and they exercise that authority to improve you. That is what we 

are really talking about, is having this overall plan where we get 

a hold of everything. 

Talk to me about 2016 and why you all have moved—I understand 2007 wasn’t realistic, but I have to give some credence to 

what——

Mr. PATTERSON. Well, I am going to give you the broad-brush 

view and then I am going to turn that question over to my expert. 

But effectively, when we put together the FIAR Plan, we established boundaries, time boundaries. But truthfully, what we propose is an event-driven process, not a time-driven process. So as we 

find that we can do things much more quickly, we will accomplish 

them and get them behind us and move on to the next thing. 

But with that as kind of an umbrella statement, I would like to 

turn it over to Ms. McKay, who actually——

Chairman COBURN. Fine. It is kind of like me asking my dad 

when I was a teenager for $100 when I only wanted $10, because 

I knew he wouldn’t give me $100, but by the time I got down to 

$10, I could pretty sure bet I was going to get the $10. I think 

there is merit to an event-driven system, but the fact is—you are 

talking 9 years from now—before we can have systems which you 

all say you can present adequate financial data that you would say 

could get blessed by an auditor. 

Quite frankly, I have looked at a lot of areas in the Defense Department, and to me, my advice is don’t give us a date if you are 

not going to go date-driven. Give us an event-driven. But the point 

is, then let us hold you accountable for achieving the events and 

asking questions, why haven’t you gotten to the next stage on time, 

rather than give us something that is truly unrealistic, because you 

just said, we are not going to do it based on dates. We are going 

to do it based on events. 

That is part of the problem. It is gaming it. What this Subcommittee wants to do is we want to find out real facts, what the 

real problems are, what the situation behind them is, and what can 

we do, both Senator Carper and myself, to implement things in the 

Senate that makes this easier for you, that gives you the tools. 

25

How do you replace all these computer systems that are running 

on RPG or Cobol? I mean, how do you do that and how do you do 

that in a system where you get the information you want? What 

do you need and how do we do that? 

It is fine for Ms. McKay to answer that, but the point is, if the 

date is meaningless, the date should be said that the date is meaningless. You don’t mean the date. 

Mr. PATTERSON. When I say event-driven, I mean that we are 

going to beat that date by some significant number of years, 

and——

Chairman COBURN. All the more reason not to give us that date, 

then. 

Ms. MCKAY. We didn’t explicitly give anybody that date. Where 

I believe that date is coming from is as we develop the FIAR Plan 

and put the building blocks in place, some of those tracks are more 

detailed than other tracks. 

Chairman COBURN. Right. 

Ms. MCKAY. The 2016 is the long pole in the tent in an area 

that, quite frankly, we don’t know a lot of details about yet. What 

we do know is a notional system implementation date and we know 

that we are dependent on that system implementation to resolve 

that particular issue. 

So, in fact, the intent of the FIAR Plan is to do just what you 

suggested, to give you the events and ask us to be accountable for 

achieving those events, and that is the intent. But we have to put 

some targets there as we build these action plans, and so that is 

where those dates come from. The area in question here is the 

valuation of the Department’s inventory and operating materials 

and supplies. That is an area that has not been a focus area of the 

FIAR Plan to date. We have just recently added that and would include a more detailed action plan on how to resolve that issue in 

the version that would be published in September. 

So again, the 2016 date isn’t something that was explicitly stated 

by any of us, but rather I think maybe an assumption made based 

on some GANT charts that are displayed in the plan. 

Chairman COBURN. Let me talk about one other area real quick, 

and Mr. Gimble, if you would comment on this. Senator Ensign 

held a hearing a couple months ago on contract bonus performance 

payments. And my question is not to make a big deal of that. It 

is something we certainly don’t want to happen if people aren’t performing, and the fact is a lot of bonus payments over the last 4 

years have been paid for non-performance. 

Where is the management system in what you are setting up 

that is going to keep that from happening in the future so that we 

are not paying performance bonuses for people who haven’t 

achieved the performance ratings under their contract? Mr. Gimble, 

if you would comment on how that happens, and what you see 

needing to happen in terms of management information systems so 

we are not doing it. And this is $6 billion. This isn’t small change. One of the things 

that was heard at that hearing is if we didn’t spend the money, we 

were going to lose it, and that is exactly the wrong answer to tell 

the Congress of the United States and the people of this country, 

simply because we have this budget cycle problem and we are 

26

afraid we are not going to fund things. This honesty, we have got 

to get back. What do you really need? We want to give you what 

you really need, but we don’t want to play the game of just spending money that you don’t need to spend because you will feel like 

you are going to get penalized next year if you haven’t spent it. We 

ought to be rewarding people for not spending money rather than 

rewarding them for spending it. 

So, Mr. Gimble, if you would answer that first, and then I will 

give both of you an opportunity to answer. It is not to beat up on 

anyone. It has happened. What we want to do is keep it from happening in the future. 

Mr. GIMBLE. Mr. Chairman, the idea of having a central management information system that makes that not happen, I am not 

sure that is the right answer. I think, in my view, the answer 

would be that we need to hold the program offices accountable. 

When they write contracts and put in the provisions and the 

metrics that have to be met, they need to hold the contractors accountable to meeting those or not pay that bonus, and I think that 

is really the issue. 

Chairman COBURN. So you are saying this is pure management. 

This isn’t management information system, this is just pure management. 

Mr. GIMBLE. I think, largely, it is, because obviously, you need 

to have some management information systems within the contract 

management arena, but the real issue of those bonuses, of a performance bonus being paid without being deserved, I think that is 

a management issue more so than a system issue. 

Chairman COBURN. OK. Thank you. Mr. Patterson. 

Mr. PATTERSON. Well, we found exactly the same thing, and 

when we did our study of the large major defense acquisition programs, what we couldn’t find is a thread that linked the Contractor 

Performance Assessment Reports to the award fees. I mean, you 

would have a company that is red and they got 92 percent award 

fees. How did that happen? 

What we also believe is that chronologically, they are not linked. 

And sometimes you can fix things mechanically, just simply having 

a CPAR come out followed by the assessment of the award fee immediately afterwards so that the two are linked, if for no other reason, they are linked chronologically. 

But the point is that this is a management issue, not a systems 

issue. This is purely a management issue and these kinds of things 

can be fixed. 

Chairman COBURN. OK, and that goes back to what Mr. Walker 

was talking about, is having an overall long-term plan for setting 

in a management structure using the information systems that you 

all are so—you have done a great job. I have no criticism. It has 

moved a long ways. There is no question about it. But utilizing 

those tools with a vision of how we want to manage the Defense 

Department. 

How about giving me the next two events that you all are looking 

for to accomplish so that we can follow that? What are the next two 

events, Ms. McKay, in terms of event-driven things that we should 

be looking for as milestones for you all to accomplish? 

27

Ms. MCKAY. I would say to you that the goals that we are working toward that are described in detail in the FIAR Plan today get 

us to a level of auditability in 2009, where we would have 79 percent of our liabilities auditable and, don’t quote me on this, but it 

is in the vicinity of 64 percent of our assets. 

And then the other shorter-term thing that I would say is as we 

continue to execute and monitor those specific milestones in the 

four focus areas that we have described in detail today, we are continuing the planning process in the additional significant areas of 

additional asset and liability categories so that we will have a better understanding of what it takes to resolve those deficiencies and 

pull in the system solutions, take a look at can we accelerate some 

of those system solutions once we have a better understanding of 

that. 

Chairman COBURN. If the Defense Department doesn’t have a 

strategic and integrated business transformation plan that has the 

vision for that, will that change what you decide without that vision and that transformation plan in there that you are looking to? 

In other words, you are going to use these marks of where you need 

to go, but you are going to be doing it without an overall transformation plan and business plan, how you run it. 

In other words, the key is really not the—I was interviewed once 

when I graduated from college. I had a degree in accounting and 

production management. And I was interviewed by the now-defunct 

Arthur Andersen who said, why do you want to do this? And I said, 

because you can do anything you want with numbers. It is exactly 

the opposite of what everybody believes. You can do whatever you 

want with numbers. You can use them as a tool. You can do lots 

of things with numbers. 

Without an overall transformational plan as you all go along, let 

us say if we get the plan 3 years from now, that is going to impact 

some of the things you all do. So would you not agree with that, 

that is going to have an impact on what decisions you make in 

terms of trying to run this? Are you going to be running two parallel tracks again, which is what we are trying to get away from? 

Mr. PATTERSON. I think what I would say to that is we believe 

that the Enterprise Transition Plan, in combination with the Business Transformation Agency, the Defense Business Management 

Systems Committee, as well as the FIAR Plan, that most of us sit 

on all of those committees——

Chairman COBURN. So you are involved in creating those transitional plans——

Mr. PATTERSON [continuing]. So we are involved in——

Chairman COBURN. OK. 

Mr. PATTERSON. And, if you will, it is a human integration, and 

we all work very closely together to see that these initiatives are 

successful. 

But your challenge is well taken. If we find that, as we go back 

and we review these things, that we haven’t done what I have just 

said that we were going to do, we will report back and tell you how 

we are going to fix that. 

Chairman COBURN. One last little note. We are going to have another one of these hearings in 3 to 5 months on this same issue. 

What are the things that we should be expecting from you? What 

28

are the milestones that you hope to achieve in the next 3 to 5 

months? Do you want to go on record with that so we can hold you 

accountable for it? 

Ms. MCKAY. Well, again, we are going to have a good view of 

what it takes to resolve some additional significant categories of assets and liabilities, so we would be able to give you some projections on when we would be able to be auditable there. And I would 

say that the current milestones that are described in the plan, we 

would be able to report to you on our completion of—our success 

in completing those. 

Chairman COBURN. Thank you. Senator Carper. 

Senator CARPER. We have talked a fair amount today about information systems, about inventory systems, and financial management systems. We have not talked a lot about the people that we 

hire to really develop and to run those systems. I would like for us 

to focus on that for a bit if we could. 

In the military, when you have folks in uniform that are assigned to different jobs—at least in my experience in Naval aviation was, and we have a big Air Force base in Dover, Delaware—

and folks, a lot of times will cycle out there, and sometimes the 

very senior will go into a job in the Pentagon for a while, I don’t 

remember a lot of men or women who look forward to tours at the 

Pentagon. We wanted to be running squadrons or running ships, 

not sitting at a desk. We had a lot of good people and a lot of able 

people, but that is not what they wanted to do. 

How do we go about making sure that we get the right people 

with the right set of talents and skill sets in some of these key positions, get them to stay there long enough so that they can learn 

the job, and not just learn the job, but be able to make a real difference? How do we go about doing that? 

Mr. PATTERSON. I think you have hit upon a really important 

point, and actually, I did cycle out of Dover Air Force Base as the 

Deputy Ops Group Commander into the IG at the Pentagon. 

Senator CARPER. When were you at Dover? 

Mr. PATTERSON. I was there from 1990 until 1992. 

Senator CARPER. Good for you. 

Mr. PATTERSON. I was there during Desert Storm, Desert Shield, 

and——

Senator CARPER. Do you recall who the Wing Commander was 

there? Was it Bill Welzer? 

Mr. PATTERSON. Yes, Mike Moffatt and Bill Welzer followed him. 

Senator CARPER. Good. 

Mr. PATTERSON. But, as I was going to say, it is very difficult. 

I mean, it is a difficult thing. It is a high-rent area to come to. It 

is a culture shock when you walk through the building, and if you 

are a Wing Commander, you leave your white-topped car out in 

North Parking and they truck you in. It is an unusual place where 

the people who have the most information and who have the actual 

money are at the lowest rung in the hierarchy, so if you think you 

are going to make a big difference and you are going to change how 

Western civilization views our Defense Department, you are probably going to be shocked. 

But at the same time, I think that the Department offers such 

incredible opportunities. I mean, honestly, where can a major come 

29

to a corporation and write a paper that, in fact, changes the way 

we think about defense? 

So it is a difficult prospect that you offer, but nonetheless, we 

must be doing something right, because as I go through the Pentagon, we have absolutely marvelous people doing superb work 

under extraordinarily difficult circumstances, and so I would offer 

to you that it is hard to fill individual places, but as you look at 

the folks that we have working for us, you can be proud of them. 

Senator CARPER. Ms. McKay. 

Ms. MCKAY. Well, I would echo that and maybe talk more specifically about the financial management career field. It is a tight 

market today and the Washington area itself is very competitive. 

We have been very fortunate in the Pentagon in filling positions 

with people who have professional credentials. It is something that 

we emphasize. The majority, almost all of my staff, my immediate 

staff have either a professional certification and/or an advanced degree. We do have some special hiring authority that we have been 

able to capitalize on that has brought some well-qualified people to 

us. We have some special pay authority that we have been able to 

leverage from time to time. So we have a tool kit and we try to use 

every tool that we can find in it to find the right people, but I will 

tell you, as we exist today, we have a group of the finest professionals that I have ever worked with. 

Senator CARPER. Our colleague, Senator Voinovich, who serves 

on this Subcommittee with us, is a fellow who focuses a lot on 

human resources and having to make the right investments in 

human capital so you have the right person in the right job, the 

kind of tools that they need to do their jobs better. Give us some 

advice on what the Legislative Branch needs to do to better ensure 

that we do have the right people and the right skill sets? 

Mr. PATTERSON. Well, since you asked that question, I think that 

one of the things that you can review or assess is what would be 

by any stretch a byzantine, difficult, arduous approach to getting 

a political appointee into a job of importance. It is unbelievable——

Senator CARPER. Should some of those political appointees, 

should they not be political jobs, if you will, or——

Mr. PATTERSON. No, I think that there are more constructive 

and, in fact, more valid ways of bringing people on into these jobs 

of very high responsibility. I mean, CEOs of Fortune 500 companies 

do not go through anything like an under secretary goes through 

to be confirmed in that job. Not that you shouldn’t be very, very 

careful about who is chosen, but the way in which—the methodology, the road to that success is far more difficult than it needs 

to be. 

Senator CARPER. OK, thanks. Ms. McKay, I am going to ask you 

if you have any thoughts on this, as well. 

Ms. MCKAY. I believe we have the authority that we need to operate within the environment that we are in. We are in the process 

of implementing some legislation that was provided a couple of 

years ago that allows the Secretary to designate specific positions 

as requiring professional certifications. That was helpful. And we 

expect to have implementing guidance on that published within the 

next couple of months. I think we have what we need. 

Senator CARPER. Mr. Gimble, any thoughts? 

30

Mr. GIMBLE. I think we have what we need in terms of the ability to do it. It is a kind of a funding issue. Also, it goes back to 

the, if you are talking about the auditing and accounting world, it 

is very competitive, and let me just give you—I am certified in the 

State of Texas, and this is kind of dated information, but I think 

that it demonstrates something. 

My State Board said that in 1990, they had 8,000 candidates sit 

for the CPA exam. In 2000, 10 years later, they had 3,000 to sit 

for the exam. So then we open up a whole big area in the auditing 

world of government financial statements, which is in addition, too. 

So the competition for the talent out there is extremely tight and 

tough and we have a hard time, frankly, competing with that to 

some extent. But we also serve as a training ground for the private 

sector when we are contracting those out. So it is a challenge and 

a balancing act. 

Do we have the ability to hire the people? We get really good people, we do. Sometimes we retain them, sometimes we are not able 

to because they get better offers in the private sector. But I think 

that it is a challenge. 

And I think the other challenge that we have, particularly on the 

career side of the house, is the baby boomers really are beginning 

to retire. Thankfully, we have gotten a little option where we can 

do the rehired annuitant and attract some of that talent back in 

on a case-by-case basis, and that is really important for us. So I 

would say we probably have the tools. Is it challenging? Always, it 

is. 

Senator CARPER. OK. I want to talk about an intersection and 

the intersection is the responsibilities of Inspector Generals, OMB, 

GAO, the Congress through its oversight responsibilities. My sense 

is we try to focus and encourage better financial management, better control. I am not so sure that we work in a synergistic type of 

way. 

How might we better harness our shared goals to get a better result, realizing that the IG is sort of an independent free agent out 

there, the folks within the Department are Executive Branch? You 

have OMB sort of saying grace over all of you, and then there are 

a whole bunch of us in the House and the Senate, Democrats and 

Republicans, and some have different priorities other than oversight, as I said earlier. How do we get better on sort of pulling together rather than maybe pushing us apart? 

Ms. MCKAY. I think some of the things that we are already doing 

are bringing us to that end. Certainly, we have the IG as advisors 

on many of our boards. As Mr. Gimble mentioned, someone from 

the IG Office sits on all of the audit committees of the components 

and on the various committees that we have to provide oversight 

to the operations that we have underway. We meet regularly with 

OMB to describe our progress to them, make sure that they understand the approach that we are taking. Similarly, we meet regularly with the Government Accountability Office for the same reason. We seek their advice. We accept their advice and try to move 

forward with that. 

With regard to the Congress, I think hearings like this and meetings with the staff can further the communication channels so that 

31

we both understand what each other’s objectives are and where 

they converge. 

Senator CARPER. Thank you. Are you all aware of any resistance 

within the Department of Defense to some of the initiatives that 

are underway? All of us have been in parts of organizations where 

we have been faced with change, and change is not always easy, 

but it is necessary and certainly necessary in this case to change 

the culture and to institutionalize some of the improved management processes that are currently being developed. 

Mr. PATTERSON. Change is always hard, and in cultures that are 

entrenched, it is even harder. But it is a manager’s responsibility 

to adopt leadership to go within their particular organization and 

bring the people along, make them part of your solution. It is not 

easy. It is easy to sit down and write books and say it. It is not 

easy to do it. 

But what I have found in my experience is that you start from 

the bottom and socialize the idea, and quite frankly, the people 

who know the most about the organization and how it should work 

generally are at the lower ranks, and you had better start listening 

to them because they have the ideas at how it works, where the 

tires reach pavement. If you start there and start to move it up the 

chain and get everybody as a part of your solution, as opposed to 

being part of the problem, I think that although it sounds Pollyanna-ish, it does work, and I think that is how a good manager 

goes about that. If you have difficult things to move within the 

oversight world, you had better get to the staff early and get the 

idea starting to bubble up, because that is where I think you are 

going to be most successful. 

Senator CARPER. Ms. McKay. 

Ms. MCKAY. I absolutely agree, and I would like to give you a 

couple of examples. A couple of the areas that we have had the 

most success in executing against this FIAR Plan, environmental 

liabilities and the military equipment valuation, that would not 

have happened had we not partnered with the functional communities. We have been hand-in-hand working on these areas for several years now. It actually predates the actual formal plan. 

And so if you look at that model of the functional community and 

the financial community understanding each other’s objectives and 

where those come together and how we can move forward in tandem rather than separately, we have taken that success and we 

have applied it to the other areas. We are in the process—we have 

partnered with both the folks over in the real property area and 

the health care liability area and are starting to see movement in 

those areas, as well, for the same reason. 

Senator CARPER. Mr. Gimble. 

Mr. GIMBLE. I think that we have historically worked very well 

with GAO from the IG standpoint. Also, what has not been mentioned very much is the services each have very capable audit components and we have all partnered—we realize it is a big job, a big 

task, and I think we have been very good at working collectively 

together to achieve the progress that we are making. 

Another thing, I think this is just a personal observation, having 

been in the area for a lot of years, is that I recall when we first 

started back in the 1990s looking at this, I would go up to some 

32

of the meetings and it would be the auditors’ statement, and my 

position was, the statement belongs to you, the manager, and we 

have the opinion. That is the clear break in responsibilities. And 

for a number of years, it wasn’t that clear. 

Currently, now, it is very clear that management owns the statements. We can advise on ways to improve the statements and so 

forth and we do that. Ms. McKay and I had a discussion yesterday 

that went kind of like this, ‘‘well, I don’t think that we agree on 

these all the time.’’ And I said, ‘‘well, really, I think it is a healthy 

thing to have a little bit of contention between the oversight community and the management, but at the end of the day, you need 

to work together to move it forward.’’

So I think we really do that, since the turn of the century, I 

think there has really been a lot of progress made in that area. 

Senator CARPER. Let me just say again, thank you all for being 

here. This is important stuff, as you know, not just for the dollars 

and cents that are involved, but really for the folks that are out 

on the point carrying the battle for all of us. Thank you. 

Chairman COBURN. First of all, I want to congratulate you on the 

good work that you have done thus far. I want to encourage you 

to keep doing it. We are going to have several questions for the 

record that we would like responses within 2 weeks, if we could. 

Mr. Patterson, my understanding is under the FIAR Plan, you 

are at 64 percent, and I think I heard 2009 to be at 100 percent. 

I guess my question is, is 2009 a hard date or can we expect 2007 

or 2008? You don’t have to answer that, but we are going to submit 

that question to you because that is the kind of milestones we want 

to see you get to. 

The other thing I would say is I had a meeting with Secretary 

Rumsfeld before I came to this meeting, a personal one-on-one 

meeting, and I am committed to help the Pentagon do what it 

wants to do to get things right and to be good stewards of the country’s money. I think he has got fine people working for him and the 

cooperation—we are going to have better cooperation and it is 

going to grow and we are going to do more things to give you the 

tools. 

So one of the questions we are going to be asking you is what 

do you need that you don’t have now to accomplish what you need 

in terms of management to get the information systems up and develop this overall strategic and integrated management plan so 

that we can be there sooner and we can be there at less cost? 

So I want to thank each of you for being here. 

Mr. PATTERSON. Thank you, Mr. Chairman. 

Chairman COBURN. The hearing is adjourned. Thank you all. 

[Whereupon, at 4:09 p.m., the Subcommittee was adjourned.] 

(33)

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