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20–793 2017

[H.A.S.C. No. 114–126] 

DEPARTMENT OF DEFENSE UPDATE ON 

THE FINANCIAL IMPROVEMENT AND 

AUDIT READINESS PLAN 

COMMITTEE ON ARMED SERVICES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

HEARING HELD 

JUNE 15, 2016 
(II) 

COMMITTEE ON ARMED SERVICES 

ONE HUNDRED FOURTEENTH CONGRESS

WILLIAM M. ‘‘MAC’’ THORNBERRY, Texas, Chairman 

WALTER B. JONES, North Carolina 

J. RANDY FORBES, Virginia 

JEFF MILLER, Florida 

JOE WILSON, South Carolina 

FRANK A. LOBIONDO, New Jersey 

ROB BISHOP, Utah 

MICHAEL R. TURNER, Ohio 

JOHN KLINE, Minnesota 

MIKE ROGERS, Alabama 

TRENT FRANKS, Arizona 

BILL SHUSTER, Pennsylvania 

K. MICHAEL CONAWAY, Texas 

DOUG LAMBORN, Colorado 

ROBERT J. WITTMAN, Virginia 

DUNCAN HUNTER, California 

JOHN FLEMING, Louisiana 

MIKE COFFMAN, Colorado 

CHRISTOPHER P. GIBSON, New York 

VICKY HARTZLER, Missouri 

JOSEPH J. HECK, Nevada 

AUSTIN SCOTT, Georgia 

MO BROOKS, Alabama 

RICHARD B. NUGENT, Florida 

PAUL COOK, California 

JIM BRIDENSTINE, Oklahoma 

BRAD R. WENSTRUP, Ohio 

JACKIE WALORSKI, Indiana 

BRADLEY BYRNE, Alabama 

SAM GRAVES, Missouri 

RYAN K. ZINKE, Montana 

ELISE M. STEFANIK, New York 

MARTHA MCSALLY, Arizona 

STEPHEN KNIGHT, California 

THOMAS MACARTHUR, New Jersey 

STEVE RUSSELL, Oklahoma 

ADAM SMITH, Washington 

LORETTA SANCHEZ, California 

ROBERT A. BRADY, Pennsylvania 

SUSAN A. DAVIS, California 

JAMES R. LANGEVIN, Rhode Island 

RICK LARSEN, Washington 

JIM COOPER, Tennessee 

MADELEINE Z. BORDALLO, Guam 

JOE COURTNEY, Connecticut 

NIKI TSONGAS, Massachusetts 

JOHN GARAMENDI, California 

HENRY C. ‘‘HANK’’ JOHNSON, JR., Georgia 

JACKIE SPEIER, California 

JOAQUIN CASTRO, Texas 

TAMMY DUCKWORTH, Illinois 

SCOTT H. PETERS, California 

MARC A. VEASEY, Texas 

TULSI GABBARD, Hawaii 

TIMOTHY J. WALZ, Minnesota 

BETO O’ROURKE, Texas 

DONALD NORCROSS, New Jersey 

RUBEN GALLEGO, Arizona 

MARK TAKAI, Hawaii 

GWEN GRAHAM, Florida 

BRAD ASHFORD, Nebraska 

SETH MOULTON, Massachusetts 

PETE AGUILAR, California 

ROBERT L. SIMMONS II, Staff Director 

JACK SCHULER, Professional Staff Member 

KATY QUINN, Professional Staff Member 

BRITTON BURKETT, Clerk 
(III) 

C O N T E N T S 

Page 

STATEMENTS PRESENTED BY MEMBERS OF CONGRESS 

Smith, Hon. Adam, a Representative from Washington, Ranking Member, 

Committee on Armed Services ............................................................................ 2 

Thornberry, Hon. William M. ‘‘Mac,’’ a Representative from Texas, Chairman, 

Committee on Armed Services ............................................................................ 1 

WITNESSES 

Aguilera, Hon. Ricardo A., Assistant Secretary of the Air Force, Financial 

Management and Comptroller ............................................................................ 8 

McCord, Hon. Mike, Under Secretary of Defense (Comptroller) and Chief 

Financial Officer, Department of Defense .......................................................... 2 

Rabern, Hon. Susan J., Assistant Secretary of the Navy, Financial Management and Comptroller .......................................................................................... 6 

Speer, Hon. Robert M., Assistant Secretary of the Army, Financial Management and Comptroller .......................................................................................... 4 

APPENDIX 

PREPARED STATEMENTS: 

McCord, Hon. Mike, joint with Hon. Robert M. Speer, Hon. Susan J. 

Rabern, and Hon. Ricardo A. Aguilera ........................................................ 37 

DOCUMENTS SUBMITTED FOR THE RECORD: 

[There were no Documents submitted.] 

WITNESS RESPONSES TO QUESTIONS ASKED DURING THE HEARING: 

Mr. Conaway ..................................................................................................... 63 

Mr. Gibson ......................................................................................................... 63 

QUESTIONS SUBMITTED BY MEMBERS POST HEARING: 

[There were no Questions submitted post hearing.] 

(1) 

DEPARTMENT OF DEFENSE UPDATE ON THE FINANCIAL 

IMPROVEMENT AND AUDIT READINESS PLAN 

HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, Washington, DC, Wednesday, June 15, 2016. 

The committee met, pursuant to call, at 10:05 a.m., in room 

2118, Rayburn House Office Building, Hon. William M. ‘‘Mac’’ 

Thornberry (chairman of the committee) presiding. 

OPENING STATEMENT OF HON. WILLIAM M. ‘‘MAC’’ THORNBERRY, A REPRESENTATIVE FROM TEXAS, CHAIRMAN, COMMITTEE ON ARMED SERVICES 

The CHAIRMAN. The committee will come to order. Today, the 

committee meets to receive an update on the Department of Defense’s Financial Improvement and Audit Readiness [FIAR] plan. 

This issue has been a high priority for this committee for some 

time, and as the September 2017 deadline approaches, we need to 

understand how much progress has been made and what obstacles 

lie ahead. 

The Department of Defense [DOD] is the largest single entity of 

the Federal Government, and it is charged, in my view, with its 

foremost responsibility. Taxpayers deserve to know that their 

money is being spent with appropriate checks and controls. That 

public confidence is essential as the men and women of DOD work 

to safeguard our Nation. 

The processes which enable annual audits also enable better 

decisionmaking by the Department and by this committee, which 

will be of growing importance in this dynamic complex threat environment. 

The fiscal year 2010 NDAA [National Defense Authorization Act] 

codified the requirement that the Department be fully audit ready 

by September 2017. In 2011, this committee’s Panel on Defense Financial Management and Auditability Reform, led by Mr. Conaway, made a number of findings and recommendations that have 

been incorporated, and in some cases, executed by the Office of the 

Comptroller. Many significant challenges have been identified, and 

undoubtedly, more will be uncovered. The chances of success are 

greatest when the Department, the services, and other DOD organizations resolve with this committee to overcome those obstacles, 

whatever they may be. 

We look forward to discussing the progress made by the Department in executing the plan, how successes have allowed the plan 

to move forward, and where lessons learned from prior missteps 

have altered that plan. The committee remains dedicated to keep-
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ing the Department on its course toward fiscal responsibility in 

being good stewards of the taxpayer dollars. 

I yield to the distinguished ranking member. 

STATEMENT OF HON. ADAM SMITH, A REPRESENTATIVE FROM 

WASHINGTON, RANKING MEMBER, COMMITTEE ON ARMED 

SERVICES 

Mr. SMITH. Thank you, Mr. Chairman. I agree with everything 

you said. I will submit my statement for the record and just be 

brief and say that it is enormously important that we get to the 

September goal of next year and have the full ability to audit the 

Department of Defense. 

We have worked on this committee a great deal on acquisition 

reform, which is all part of how do we spend our money more wisely, but the greater transparency that we have with how the Department of Defense spends all of its money, the more, you know, efficiently we are going to spend that money and the better we can 

understand how to conduct oversight properly, and the time has 

come for us to achieve that goal. I thank Mr. Conaway for his 

leadership on this issue, and I look forward to your testimony. 

Thank you. 

The CHAIRMAN. Thank you. We are pleased to welcome the 

Under Secretary of Defense Honorable Mike McCord, as well as 

Honorable Robert Speer, Assistant Secretary of the Army, Honorable Susan Rabern, Assistant Secretary of the Navy, and Honorable Ricardo Aguilera, Assistant Secretary of the Air Force, all for 

financial management and comptrollers of their individual departments. 

Without objection, any written statements you would like to submit will be made part of the record. 

And, Mr. McCord, you are recognized for any comments you 

would like to make. 

STATEMENT OF HON. MIKE McCORD, UNDER SECRETARY OF 

DEFENSE (COMPTROLLER) AND CHIEF FINANCIAL OFFICER, 

DEPARTMENT OF DEFENSE 

Secretary MCCORD. Thank you, Mr. Chairman. 

Mr. Chairman, Ranking Member Smith, and members of the 

committee, thank you for the opportunity to update you on DOD’s 

audit readiness. I appreciate your support for our efforts, and I especially want to commend the contributions of Congressman 

Conaway. He led your committee’s panel on all the oversight, as 

you mentioned, which played a key role in focusing the Department’s efforts and continues to keep us on the right path. 

Inside the Department, achieving auditability is an important 

part of Secretary Carter’s reform agenda. You might remember, 

when he testified before this committee in March, he laid out his 

plan to ensure we are ready for the future as well as ready today. 

There was really four major parts that I talked about when we 

described his strategy. First, it is connecting the Department to the 

full spectrum of American technological innovation. That is probably the most noted. Second is force for the future initiatives to 

find new ways to attract and retain the best people. Third is innovation in the way we think operationally, including planning and 
3 

wargaming. And then fourth is reforming how we do business, 

which is where audit effort and acquisition reform come in on our 

top priority. 

Mr. Chairman, I especially want to recognize your leadership on 

acquisition reform. The Department greatly appreciates the ability 

to work with you on that complex issue. While they are important 

subjects, and we tend to talk about them and the Secretary tends 

to talk about them one at a time in individual speeches often because they are so important, these efforts are all connected to the 

Secretary and, therefore, they are connected to us. These are our 

top management priorities, but even as we focus on the five strategic challenges, I think the members of this committee know well 

that the Secretary has described. 

With me today, as you said, are my colleagues, the assistant secretaries of the Army, Navy, and Air Force who have been heading 

up the military departments’ efforts to get this audit ready, and I 

would like to thank them for their leadership. My office has been 

the focal point for the overall policy and for defense agency audits, 

but my colleagues here and their chief management officers in the 

services have done the heavy lifting that has gotten the Army, 

Navy, Air Force, and Marines mobilized for this long endeavor. 

This audit effort has been a team effort even beyond those that 

are sitting at this table today. I also want to highlight the contributions from the DOD Inspector General [IG], GAO [Government Accountability Office], and OMB [Office of Management and Budget]. 

While obviously we respect the independence of the IG and the fact 

that GAO works for you, not for the executive branch, we have 

been working together to achieve a common goal, and we have been 

benefiting from their advice. I would also like to recognize the 

DCMO [Deputy Chief Management Officer] organization inside the 

DOD who are key partners with us on this effort. 

Our focus on the audit has yielded substantial and measurable 

results over the last couple of years. For the first time ever, the 

military services audited their annual budgets for fiscal year 2015, 

combined with the successful recurring audits of other parts of the 

Department that we have had for several years. About 90 percent 

of our fiscal year 2015 budget was audited. Those audits did not 

produce a clean opinion the first time out for the services, but still, 

we learned a great deal from our initial effort, and we will be back 

at it for fiscal year 2016, back at it for fiscal year 2017. We are 

putting the contracts in place now to enable us to audit our full financial statements in fiscal year 2018, as planned, according to the 

common goal that we have. 

For those of you who don’t work with these terms regularly, I 

just want to clarify briefly that a financial audit is different from 

a program audit. There are hundreds of audits done by inspector 

generals usually in DOD in any one year. A financial audit examines our financial and business processes, and a successful audit 

confirms that the information on the financial statements is clearly 

and fairly presented. 

A financial statement audit does not necessarily tell you that 

those funds were spent wisely. That is part of what—you know, the 

joint responsibility that we both have that is separate from the 

audit itself. The absence of a clean opinion does not equal waste, 
4 

fraud, and abuse, nor does having a clean opinion prevent there 

being waste, fraud, or abuse. The lack of an audit opinion means 

that your systems and controls don’t meet audit standards. We are 

working hard to change that, and a substantial progress has been 

made, especially in the last 5 years. 

Fixing the audit findings that we do have continues to be our 

biggest priority. My written statement, as well as the report that 

we provide to this committee twice a year, the FIAR plan report, 

gives you more detail in the nature of the challenges in how we are 

addressing the specifics. The good news is that we now have, because of the audits that these services have done, have the baseline 

of auditor findings that provides an independent assessment of 

where the problems are as opposed to our own assessments of 

where the problems are, and helps us focus our efforts. 

Preparing our huge global enterprise for its first full audit is a 

challenging task. Our department, as the chairman noted, is not 

just another Federal agency. In terms of the scope of our resources, 

our responsibilities, and complexity, we are more like an economy. 

Indeed, each of my colleagues here individually is responsible for 

the financial management of annual resources that exceed the GDP 

[gross domestic product] of about 100 of the member nations of the 

IMF [International Monetary Fund]. 

While this is a major management challenge, we have a sound 

plan on the audit. We are sticking to it. We are making progress 

and we are fully committed to getting it done. I thank the members 

of this committee for your leadership and support. I am proud of 

the progress we have, and I am confident the Department is on the 

right track to achieve a positive opinion. 

[The joint prepared statement of Secretary McCord, Secretary 

Speer, Secretary Rabern, and Secretary Aguilera can be found in 

the Appendix on page 37.] 

The CHAIRMAN. Great. Mr. Speer. 

STATEMENT OF HON. ROBERT M. SPEER, ASSISTANT SECRETARY OF THE ARMY, FINANCIAL MANAGEMENT AND COMPTROLLER 

Secretary SPEER. Chairman Thornberry, Ranking Member Smith, 

and distinguished members of this committee, I thank you for the 

opportunity to appear before you today to discuss the Army status, 

efforts, and accomplishments towards achieving auditable financial 

statements. 

In addition, I want to convey to you that Secretary of the Army 

Fanning, Chief of Staff Milley, and the Under Secretary and Chief 

Management Officer Murphy, and I are committed to improving 

the Army’s financial management and meeting the requirements to 

be audit ready by September 2017. 

It is good to be here this week as we celebrate the Army and the 

Army financial management corps’ 241st birthday. These birthdays 

recognize the contributions and longstanding outstanding traditions and customs and excellence of both. Unfortunately, our history does not include being audit ready. It is not yet in our DNA. 

However, we are changing and building a culture of accountability and understanding audit. It is not easy to derive the significant change, yet despite the operational and fiscal challenges the 
5 

Army faces, our soldiers and civilians remain dedicated to improving the business processes and using our resources efficiently and 

effectively as we generate readiness. 

The current fiscal environment and operational demands present 

a unique challenge for audit readiness. However, this environment 

also affords us the opportunity to evaluate technology, organizations, and training, as well as our business processes. We see the 

value to being auditable. Such information of accountable stewardship have never been more important than they are today. 

The Army’s financial improvement plan for achieving our audit 

readiness milestones includes an iterative external audits and examinations by independent public accounting firm, or an IPA, to inform and focus our Army’s audit efforts. These audits and exams 

provide us feedback on areas requiring additional corrective actions 

and focus our efforts to improve progress towards a financial statement audit. 

The independent public accounting firms completed an audit in 

2015 on our scheduled budgetary activities. Although we received 

a disclaimer, the accounting firm was able to complete the audit 

and provide the Army valuable feedback. In response, the Army 

has developed corrective action plans and we are in the midst of 

remediating and implementing those recommendations. We also 

are repeating a similar audit in 2016. 

Clearly, important to achieving success is leadership involvement. As such, your Under Secretary of the Army chairs our enterprise audit committee. He increased the frequencies of these meetings from quarterly to monthly. During these meetings, we monitor 

the progress of those corrective action plans and we hold leaders 

accountable for where they are attaining and meeting milestones. 

We also hold senior executives responsible and accountable for 

achieving their audit readiness milestones with inclusion of financial improvement metrics in their annual performance assessments. 

Audits have indicated we need to improve and enforce our systems of access controls. The Army continues to achieve success 

with our enterprise resource planning system. The General Fund 

Enterprise Business System, known as GFEBS, is our core business and accounting system. GFEBS enables the Army’s audit 

readiness progress while simultaneously modernizing and improving the Army’s business processes. 

The Global Combat Support System-Army and Logistics Modernization Program, our retail and wholesale supply systems respectively, effectively complement the auditable features achieved 

in GFEBS. The future delivery of the Integrated Pay Personnel 

System-Army, will be important to sustaining the audit, but more 

importantly, they also provide effective total human resource and 

pay operations. 

Finally, our dedicated team of professionals is our most important and valuable resource to achieving audit readiness. Under a 

program Congress approved, we are implementing a DOD-based 

certification program. Our committed management workforce has 

improved their skills with nearly 90 percent having achieved certification. 
6 

In summary, we continue to improve across all business areas. 

Our annual exams have expanded in size and scope, while providing valuable insights to remediation while we develop a culture 

of auditability. The strong commitment of leaders and dedicated 

workforce is the Army’s greatest asset and will enable us to achieve 

our goals. I sincerely look forward to continuing our work with 

members of this committee, GAO, and DOD to ensure that we continue to achieve success and reach our goal of financial audit readiness. Thank you. 

The CHAIRMAN. Thank you. 

Dr. Rabern. 

STATEMENT OF HON. SUSAN J. RABERN, ASSISTANT SECRETARY OF THE NAVY, FINANCIAL MANAGEMENT AND COMPTROLLER 

Secretary RABERN. Chairman Thornberry, Ranking Member 

Smith, distinguished members of the committee, thank you for the 

opportunity today to discuss the Department of Navy’s progress towards auditability. After years of preparation, we eagerly enter the 

audit environment, along with Army and Air Force, as private sector accountants began an engagement on Navy’s fiscal year 2015 

schedule of budgetary activity. 

The disclaimer we received at the end of our inaugural audit was 

not unexpected, given other government agencies’ experience. Our 

Navy team endured the rigors of a first year audit, learned a great 

deal, and our department-wide team is aggressively tackling the 

deficiencies the auditors identified. We are on course navigating toward an audit of all Department of Navy financial statements in 

fiscal year 2018. 

I would like to begin by noting our successes. Navy commands 

produced, on time, over 95 percent of the documentation requested 

by the auditors. Given the global magnitude of that effort, their 

careful preparation, teamwork, and dedication to task were clearly 

demonstrated. 

We have an aggressive enterprise-wide approach to correcting deficiencies. A flag officer or senior executive has been appointed to 

remediate each finding. I personally monitor progress demanding 

sustainable corrective action while preparing for full audit in 2018. 

Characteristically, the Marine Corps is aggressively moving out 

ahead. The Marine Corps has been under audit for several cycles 

now and has made great progress in improving its business environment, strengthening its accountability through increased compliance with accounting standards. The Marines have provided 

many lessons learned for the other services to follow. We expect 

them to stay on present course asserting auditability on all four financial statements at the end of 2016, a year ahead of the congressional mandate to do so. 

While I remain optimistic, I don’t want to minimize the challenges we are facing. The auditors found significant internal control weaknesses in our systems, business processes, and in the 

statement compilation process. These findings make it absolutely 

imperative that we immediately strengthen internal control environments in every one of our business systems. The first year audit 

identified 220 major deficiencies, 82 percent of them related to IT 
7 

[information technology] system weaknesses. Simply stated, we 

have too many systems and most of them were not originally configured to conform to auditability standards. 

To overcome these challenges, we are taking several actions. 

First, we will continue to downsize our current suite of systems, 

eliminating redundant capabilities. During the implementation of 

Navy ERP [enterprise resource planning], almost 100 business systems were eliminated. We now plan to reduce the number of general fund Department of Navy accounting systems from three to 

two while eliminating all other non-auditable legacy systems, 

avoiding maintenance costs, and streamlining IT controls. 

Second, during our audit readiness preparations, we discovered 

that we could not guarantee the integrity of the data resident in 

many of our systems. Auditors identified ineffective controls over 

access and security and noted that we often fail to ensure proper 

separation of duties among users. The audit highlighted these 

weaknesses and systems managers are now strengthening those 

controls in earnest ensuring and documenting compliance. 

Third, we are putting procedures in place that will identify and 

document every accounting adjustment made throughout the year, 

requiring all Navy organizations to record and retain documentation supporting every adjustment. At the same time, we are identifying the root causes of these adjustments with the goal to eliminate them at every step and every business process. 

Fourth, we are working with our primary service provider, the 

Defense Finance and Accounting Service, to strengthen controls 

governing their compilation of our departmental financial statements. DFAS has undergone an independent assessment of the 

controls for which they are responsible and they are addressing deficiencies which contribute to statement inaccuracies, including unsupported accounting adjustments created in their processes. Our 

collaboration is demonstrating the need for a well-documented 

business partnership in which roles and responsibilities are clearly 

understood and adhered to on a daily basis. 

Finally, we have confirmed what we have long suspected. Absolute uncompromising protection of business and financial data generated by classified programs challenges the efficiency of the audit 

process. For the first year audit, DOD classification authorities restricted the number of data elements that were shared with IG 

audit teams. This restriction increased sample sizes resulting in a 

larger volume of documentation that Navy organizations were required to produce eliminating the auditor’s ability to analyze transaction data. 

We are revisiting this issue with urgency, mindful that the solution must ensure protection of these very important programs 

which serve as the cornerstone of our national security. Beyond our 

near-term emphasis on the 2015 SBA [Schedule of Budgetary Activity] audit results, we have identified actions necessary for the 

audit of all our financial statements in fiscal year 2018, and we are 

aggressively tackling them as an enterprise. Our approach is consistent with DOD guidance, emphasizing a line-by-line survey of 

each statement with a focus on beginning balances. 

Over and above the implementation of effective tools that will 

allow Navy to sustain the gains already made, I believe that the 
8 

greatest positive contribution to come from the first year audit has 

been within the Department of Navy culture. Audit deficiencies 

now receive the highest level of visibility and attention, including 

Secretary Mabus, the Chief of Naval Operations, and the Commandant of the Marine Corps. Audit is now a talking point at 

every level of the Department from senior flag officers and civilians 

to the most junior personnel and an integral part of the Department-wide managers’ internal control program. 

As we attend to the detailed work that will ultimately result in 

a clean opinion, we remind ourselves not to lose sight of the real 

objective. Complying with audit standards will result in greater accountability for the public funds appropriated for the Navy and 

Marine Corps critical contribution to the defense of this Nation. 

Thank you. 

The CHAIRMAN. Thank you. 

Mr. Aguilera. 

STATEMENT OF HON. RICARDO A. AGUILERA, ASSISTANT SECRETARY OF THE AIR FORCE, FINANCIAL MANAGEMENT AND 

COMPTROLLER 

Secretary AGUILERA. Thank you. 

Mr. Chairman, Ranking Member Smith, members of the committee, thanks for the opportunity to address this issue with the 

committee. I want to share our progress and challenges towards 

achieving the audit readiness mandate. 

We have a strong support from across the enterprise. We are continuing to imbed auditability in our way of doing business. We 

have a governing structure that is actively engaged in monitoring 

our progress and assessing roadblocks and the challenges when 

they arrive. 

The 2015 Schedule of Budgetary Activity audit has re-enforced 

that we are on the right track regarding our approach to balancing 

our checkbook, reconciling our universe of transactions, and implementing information technology controls. We are actively applying 

the lessons learned from the 2015 SBA audit as we prepare for the 

full financial statement audit. 

Overall, we are pleased with our progress. We have received 

positive feedback from our auditors. We are focused on the critical 

tasks that remain to get us to full auditability, and we are addressing the following key challenges at this stage. 

Number one, reconciling our universe of transactions. Many of 

our transactions rest in legacy systems. For the SBA audit, we 

have reconciled 45 of those systems and we are adding an additional 28 systems that need to be reconciled for the full financial 

statement audit. These reconciliations are heavily logistics related 

and require more effort than our financial systems and represent 

one-third of our system’s efforts. 

Two, institutionalizing our IT controlled discipline. Seventy-three 

percent of our IT notice of findings and recommendations in the 

SBA audit were related to compliance with existing internal controls. These findings represent a significant change to our management efforts, and we are addressing that through training and field 

support. Additionally, we are applying lessons learned from our 
9 

SBA notice of findings and recommendations to all of our systems 

to prepare for the full financial statement audit. 

Three, to complete our asset valuation activities. The FASAB 

[Federal Accounting Standards Advisory Board] and OSD [Office of 

the Secretary of Defense] have issued valuation policies that we 

need. The new policies align with our military equipment methodology and we are well underway with that valuation effort. Our 

teams are working with both existence and completeness and evaluation of real property among other things and should complete 

their work in the fall. 

Four, we want to accelerate the progress that we are making in 

our Air Force working capital funds area. The bottom line is that 

the Air Force working capital funds effort started later than our 

general funds effort, but we have established a solid team led by 

our Air Force Materiel Command and are quickly closing the gap 

with our progress on the general fund side. 

DFAS has helped us by establishing a dedicated team to support 

the working capital fund effort, and we are leveraging the lessons 

learned from the general fund to accelerate our progress. We fully 

expect that working capital fund to be on par with the general fund 

by the end of this fiscal year. 

And five, we are going to continue with the rollout of the Defense 

Enterprise Accounting and Management System, or DEAMS. We 

recently reported to the Congress that DEAMS is in a critical 

change status. Ironically, it is precisely the audit control attributes 

of this enterprise resource planning, or ERP system, that have created the challenges for our users. We opted to retain the front-end 

audit controls that made this Oracle commercial solution successful 

in the private sector, but this has required a significant focus of 

change management as we shift our audit controls from the end of 

the financial process to the beginning. 

We are beginning to see success from this approach as our user 

community has developed new ways to embed auditability in their 

daily work. We actively include these lessons in the critical change 

plan that is currently being developed. 

So in summary, the Air Force is fully committed to being audit 

ready in September of 2017. We expect there to be challenges over 

the next year of preparation, and based on the history of other Federal agencies, we expect the timeline to achieve an unmodified 

opinion of our financial statement to take many years. However, 

the process of preparing for an audit has led to significant improvements in our financial operations, and we fully expect that trend 

to continue. 

Again, thank you for your leadership and your support on this 

issue. 

The CHAIRMAN. Thank you. 

Mr. McCord, Mr. Smith and I have all acknowledged the persistent leadership of Mr. Conaway on this area, and I wanted to 

yield my question time to him. 

Mr. CONAWAY. Well, thank you, Chairman, and I want to thank 

the chairman as well. Full committee slot hearings are finite, and 

I appreciate him dedicating one to this issue. I also want to thank, 

collectively, your teams and all those hundreds and hundreds of 
10 

folks behind you that do this heavy lift. It is hard, it is complicated, 

and there is just a lot of it, and I appreciate that. 

One thing that does concern me is on the future horizon is a 

change in administration, which everyone knows is going to happen. A couple aspects of that. One, how do we make sure the new 

team coming in is properly briefed and understands exactly where 

we are, and if they—and also, through the Senate, confirm how important this issue is to keep it going, keep it on track, and then 

also comments that—what are the risks of the existing political 

leadership going on autopilot over the last 4 months of the administration and not finishing strong, and then properly resourced the 

overall efforts, given these budget strains and the strength in the 

Department of Defense budgets, can you talk to us a little bit about 

the resourcing of this? 

And then in the Senate NDAA, there is a section 811 that would 

make structural changes, with respect to many of the organizations, putting them under a new system. My personal view is that 

would complicate an already difficult circumstance, so any comments you have on that as well. 

So if we could just go down the line and speak to us about the 

change in leadership and the risks to keeping this momentum 

going. 

Secretary MCCORD. Thank you, Mr. Conaway. We have already 

had a couple of meetings of—led by the deputy secretary on transition. It is too early for us to actually communicate with the two 

candidates, under the law, but as soon as that is possible, starting 

probably in August, we will be providing information, on an equal 

basis, to either side that wants it, and then obviously at a higher 

level in November once there is a President-elect. So we are going 

to be ready for that. 

We are focused, first and foremost, per the Secretary and the 

deputy, on our day jobs of executing the mission today, but we are 

very focused also that we are going to be ready to do a solid transition. 

I will tell you that when I came in with the previous team, the 

transition was pretty much about the budget, because when you arrive as the comptroller, there is a budget that has been left to the 

80 percent mark, say, and the new administration has to come 

make their priorities and finish it off and submit it. So that dominated the transition materials that we received that, years ago, 

there was very little on this subject. And we are going to do a much 

better job of making sure that the new team is aware of this issue, 

which has moved a good bit in the 8 years since then. 

Obviously, we can’t speak to what the new folks, what the new 

team, what priority they might place on this issue or whether they 

might come in and decide that our strategy doesn’t make sense to 

them. We have followed the same strategy for years and we have 

benefited from the support of this committee and the Senate Armed 

Services Committee. To be able to follow one strategy for a number 

of years, I think, is a key element of why we have made progress, 

but it is not a given that the new team will decide that what we 

are doing makes sense. We will certainly try and present them all 

the facts and make our case as to why they should continue to implement the strategy that we have laid out. 
11 

With respect to resources, obviously, that is something we can 

talk about. Constrained resources are a strain on a number of subjects, as is the mandate to reduce headquarters personnel by 25 

percent. All of us and all of our teams are headquarters people, by 

definition, it is a headquarters function that we do, and so we are 

trying to deal with the budget uncertainty of the current climate 

and do this at the same time. 

Final point, and I would be happy to expand on this, maybe not 

to use all of your time later. The administration is concerned, the 

Department is concerned, the Secretary is concerned as the statement of administration policy on the Senate bill says with the enormous scope of both the management changes, many of which we 

see as unhelpful in the Senate bill, coming, especially in the acquisition realm, a year after that were already significant changes in 

last year’s NDAA on this subject. 

One of particular concern to me, the Senate bill moves DFAS out 

from under the CFO [chief financial officer], disrupts what I see as 

an end-to-end financial management process that I think should be 

under the CFO, but that is only one of the many changes which 

we think are excessive in the Senate bill. And the Secretary will 

be happy to communicate, as again the SAP [Statement of Administration Policy] does, some of the concerns we have about the 

many changes being thrown at us right as there is a transition of 

administrations under the Senate bill. 

Secretary SPEER. I would like to take that also and—first of all, 

I would like to take this opportunity too, Congressman Conaway, 

you came and sat down with us in our group in terms of leadership 

a couple of years ago. And I think we saw the interest over here, 

and I think the interest here and the push here will keep leadership focused. I can’t speak to the incoming political leadership that 

we will come into, but the culture and how we are—I said it is not 

in our DNA, but we are starting to build that. We are starting to 

build it within our leadership, the understanding of the value of 

the audit, the understanding that the resources produce outcomes. 

And tying the resources to the outcomes is what we are also trying 

to do through the audit, if we can better show better data for 

decisionmaking, so we are doing that. 

But I will point out the Corps of Engineers went about this back 

in early 2000. They achieved a successful audit now for about 8 

years in a row now. I stole their leader. He is sitting behind me 

here. Mr. Wes Miller was a leader who led and guided that. I 

brought him in. So when I walk out the door, that type of leadership remains. They understand what it takes to get to audit. They 

understand the importance of the control, the environment, and 

what the education and training of a dedicated workforce is. 

So I think that will be significantly important to the sustainment 

of it and bringing it to that, but also understanding that the value 

of good, solid, timely, and accurate information is what part of 

the—is being brought right now to the senior executives as well as 

the generals within that part. 

I think the current involvement of the current political leadership, as Secretary McCord mentioned, in the fall, Secretary Work 

is going to pull us back together and ensure where we are, that we 

are still on track before we head into the end of the year, and I 
12 

think that drive will keep us focused through this part. And then 

the folks who are behind us will also do so. And I look forward for 

the continued involvement of this committee and yourself to also 

come back on over and meet with folks to identify the value of 

what their stewardship provides to outcomes. 

Secretary RABERN. With regard to the three parts of your question, first, with regard to the transition. I really have taken a very 

strong stand about embedding the change within the careerists in 

the civilian side and the active duty. They will be those who carry 

through not only this transition but others in the future. 

I learned my lesson about this when I was the assistant director 

and chief financial officer of the FBI [Federal Bureau of Investigation]. It was about embedding into the DNA and those who would 

carry on the lessons learned, the business practices, the changes, 

and I do believe we have done that. I went through the same challenge as the chief financial officer of the U.S. Customs Service 

when it was integrated into the Department of Homeland Security. 

Again, it was about embedding into, as my colleague from Army 

likes to say, the DNA. And once you have that embedded, it becomes just a part of the fiber of the organization, and I do believe 

we are doing that. 

With regard to resources, I would echo Mr. McCord’s comments 

about the headquarters reduction, so I won’t belabor that, I would 

just echo it very strongly. We are part of the headquarters reductions and we have a team in place that is actively doing very important and very positive business. 

With regard to resources, the other thing I would say is we need 

stability. We need stability with regard to resourcing, especially as 

the OPTEMPO [operational tempo] with the fleet has been so demanding and has taken a toll. So it is a very careful balance of our 

resources with regard to the emphasis we place on audit and the 

very expensive audit requirements that our IT system changes require and the maintenance of the fleet so that it can fight the fight. 

With regard to structural changes, I would again echo Mr. 

McCord and say that I believe any structural changes at this point 

would be very disruptive. We now have in place the systems, the 

people, the processes. It has taken us years to get to that point, 

and I do believe that structural changes at this point would be adverse to our progress. Thank you. 

Secretary AGUILERA. And, sir, again, let me echo my thanks for 

your leadership in this issue and working with this committee. We 

look forward to doing that as we continue to get through audit 

readiness. 

The three parts to your question substantially have been answered. I would echo the comments that have been put forward by 

my colleagues. I would offer with you—with the Air Force the commitment that I see is, as a former auditor, what I would think is 

almost irreversible. I am really pleased when I go into senior level 

decisionmaking meetings on the audit, and I am sitting side by side 

with my counterparts in the personnel arena, in the civil engineering community, and the logistics community and to see their commitment in getting all of their areas, all of their portfolios ready 

for audit as well. So in terms of momentum, I feel as though in the 
13 

Air Force, it is almost irreversible and baked into the DNA, as Mr. 

Speer said. 

So in terms of transition, I would echo my comments—my colleagues with in particular. Resources, again, I believe headquarters 

reductions have allowed us to move—have not been favorable to us 

but have impeded us in the SBA audit, but we would look toward 

stability. We want to see more stability—signals with more stability in the future. And any structural changes that the NDAA on 

the Senate side might be proposing again, I would echo. We have 

all of the equipment we believe that we need and anything more 

than that would be disruptive to our efforts. 

Mr. CONAWAY. Well, thank you for your answers, and I appreciate that. One quick anecdote. About a year and a half ago, I was 

aboard the USS Texas and taking a tour of that submarine. I was 

doing a mini town hall meeting in the galley, and a young seaman 

out of nowhere asked me, said: Congressman, how is that audit 

thing working? 

And I don’t know if you guys planted him there, planted that 

question or what, but it gave me some comfort that the importance 

of this is working its way down through the uniform service piece 

of this, and I appreciate the hard work. There are a lot of trials 

and tribulations between here and where we all want to get to, and 

I appreciate what your team has gotten us to this point. 

With that, Mr. Chairman, I appreciate your indulgence, and I 

would yield back. 

The CHAIRMAN. I thank the gentleman. 

Mrs. Davis. 

Mrs. DAVIS. Thank you, Mr. Chairman, and I appreciate you all 

being here. I know this is difficult, time consuming, but important, 

and so you have really represented that. 

I wonder, particularly Secretary Rabern, if you could speak a little bit more, you talked about the procedures documenting the root 

causes. Can you go from your perspective in having been on this 

and other lateral moves, I think, what you see as the root causes? 

You did talk about, you know, the DNA, basically the culture of the 

organization. What more can you tell us about those root causes 

and how you are getting at that? 

Secretary RABERN. I would be delighted to do that. From my 

point of view, regardless of the organization where I have had the 

honor to serve, it is about recognizing the operational mission of 

the organization and that that is what is driving the people who 

work there. 

So when I was at the FBI, we were tackling some very difficult 

issues. Suffice it to say, audit was not the number one thought on 

every FBI agent’s mind every day. So it was about teaching them, 

using their own language, what we were trying to do so that we 

would be able to identify areas of redundancy and find ways to get 

them additional resources by eliminating those bad practices. 

One of the things that I have learned, as I have come back now 

to the Department of Navy, is that first it is about the mindset. So 

again, it goes to speaking to people in their own language. Once 

you do that, as my colleagues have indicated, it really becomes part 

of their DNA. So if you are talking to a nuclear submariner and 

you speak to that nuclear submariner about an operational inspec-
14 

tion, and you talk about the audit in those terms, they have an aha 

moment, and they tackle it in exactly the same way that they 

would tackle that zero defect mindset at sea. 

So much of what I would say is the answer to your question is, 

the root cause is that we are warfighting organizations. We are not 

accustomed to this. The systems that were developed years and 

decades ago by very well-intentioned people were not developed 

with the audit in mind. 

The other thing that I would add has to do with the creation of 

the Defense Finance and Accounting Service. The migration of talent to DFAS has allowed them to perform the functions that they 

provide as our support service, but at the same time, it was a loss 

of talent from the Department of Navy. 

So in an environment where it is a competition for talent, you 

know, it is a buyer’s market, so we are all, my colleagues, the IGs, 

the private sector firms are competing for the same talent. So the 

initiatives that may be on some of your minds to help us with that 

kind of direct hiring authority and those kinds of things would be 

very welcome. 

So that is just the tip of the iceberg, from my point of view, as 

to the root causes. And if I haven’t answered your question, I would 

be glad to provide more information. 

Mrs. DAVIS. You know, I know that you are looking to find the 

best people to fill positions, and you need authorities to do that, especially to be able to hire perhaps on a fast track, if you will, when 

you see people who have the talent to be able to progress towards 

or to enter into a separate area. And that may raise questions as 

well because you are saying as you are talking to people in the language that they understand this, in fact, when you are trying to 

get somebody even from a different discipline, in some cases, how 

does that work and how have you found that to be helpful? 

Secretary RABERN. I will tell you, frankly, that much of it has to 

do with the sense of providing an important service to the security 

of our Nation. So if we are talking about recruiting young people, 

I found this in every organization where I had the honor to serve, 

they want to serve this mission. They want to serve. But they also 

are—especially the generation that is coming up just graduating 

from college, they have a different sort of mentality about moving 

from job to job to job. So we have to open our minds to allowing 

them to grow in that process, be willing to hire them, train them, 

track them, and bring them back by appealing to that sense of 

service to a higher cause. 

Mrs. DAVIS. Yeah. I appreciate that because I think what I am 

learning and I think what you have all shared is that really wasn’t 

the way people performed in the past, particularly in leadership positions. So I think that we would like to give you that opportunity, 

those authorities so—to understand that better and to get at what 

sort of has held a lot of people back in the past, maybe women, 

young people, and people of color perhaps as well. And I think that 

is critically important, so I appreciate your dealing with that. 

I am going to go ahead and, I think, turn it just back to the 

chairman. I wondered if there is any other, you know, guidance 

that you have implemented regarding actions to resolve financial 

weaknesses within your services. What else have you all found in 
15 

terms of the accurate reporting? What is it—is there something 

else that you can address within this area where you have gotten 

guidance and been able to use that or not use that perhaps in the 

past? 

Secretary SPEER. I can take parts of that. One is there is no real 

quick fix to the material weaknesses and the weaknesses that we 

found. You have got to make it in something that is sustainable. 

And so quite often in the past, we tried to do a checkbook mentality, you know, check the block, fix it, and move on, but it wasn’t 

really fixed. 

So you have got to go to the root causes you talked about and 

see why either a control is not working, who, you know, and looking more holistic end to end. And quite often, what we did is we 

turned to the resource manager, the comptroller and said, it is your 

responsibility, but we didn’t bring in, as my colleague said, what 

the mission and the outcomes were supposed to be along the way, 

and that is really where the material weakness is embedded. 

So you have got to fix the control environment, you have got to 

train and make sure people are properly—to do their job, and then 

you have got to hold them accountable. And then you have got to 

make sure they get the proper feedback and the mechanisms 

that—within the tools. 

Going back to early 2000s, the tools weren’t in place, the systems 

weren’t in place, so they didn’t allow their internal controls. And 

so between the systems, the improvement in internal controls with 

people knowing and understanding their job and being properly 

trained across the board, we are removing the material weaknesses 

they tie around the total process, not just financial management. 

You know, human resources, logistics, running of installations all 

feed into the financial statements, and quite often, the material 

weakness is embedded in the outcome of how people perform their 

mission, and they weren’t even doing it how they had defined how 

they are supposed to do it. 

Mrs. DAVIS. Yeah. 

Secretary SPEER. And so we think now we have tied those two 

together and people better understand that the resources we give 

them is to those outcomes, and that as long as they are trained 

properly with the proper tools and given the ability to do it, they 

will execute properly. 

Mrs. DAVIS. Okay. Thank you. 

I am going to turn it back to the chairman at this point. Thank 

you. 

The CHAIRMAN. I thank the gentlelady. 

Mr. Franks. 

Mr. FRANKS. Well, thank you, Mr. Chairman. 

Mr. Chairman, I am especially mindful of the fact that this effort 

to move toward a more auditable services posture is in large measure due to your leadership, and I think this gives a lot of us great 

credibility. But I especially want to point out that there is probably 

no one on this dais that has the knowledge and the understanding 

of just the entire audit philosophy and mechanism in general than 

one Mike Conaway. He is far ahead of all of us. And I think that 

the effort that we are involved in here is going to give many of us 
16 

trying to advocate for a stronger military budget a lot more fire 

power, and I really appreciate all that is being done here. 

And I suppose many of us here recognize the profound impact 

this sequester has had on the military, and I hope that this process 

that we are involved in right now will really help us in the debate 

going forward to turn back some of that, in my judgment, unwise 

policy. 

So with that, I just have some, again, very simple questions, and 

I will address Mr. McCord. 

Mr. McCord, how long has—I should just say how has the plan 

changed over time as you have executed? What has significantly 

changed since 2005 or since 2009, respectively? 

Secretary MCCORD. Thank you, Mr. Franks. The main change 

that really my predecessor Bob Hale made in 2009 was to focus, 

first and foremost, on the budgetary side, which is the information 

that people use to manage most. The thought process was that this 

would get it into people’s heads quicker that this is information— 

that doing this audit effort will help you manage better. And I 

think there is a key psychological part there, and the Marine Corps 

I think has demonstrated that they got this first and foremost 

ahead of everyone else maybe, is that when you stop thinking of 

audit as something like eating your vegetables that you are doing 

only because someone told you it is good for you, but you don’t 

quite get it yourself that you want to do it, then you approach it 

mentally as a chore as opposed to getting the buy-in that, oh, this 

is actually going to help me run my organization better. That is the 

big breakthrough, I think, that the Marine Corps made in being 

the first service out there. 

And I think that having the budget be the first—the annual 

budget that we get from Congress be the first thing we focus on 

auditing enabled that mental lead that people connect the audit effort with goodness for themselves, goodness for their organization, 

and being able to be on top of their own resources better. 

Subsequent to that time, we really haven’t changed the plan significantly very much. When I succeeded Mr. Hale, my thought was 

to keep, you know, the plan, as long as I saw that it was working. 

I still believe that it is. The main new information now, of course, 

is that each of my colleagues here in each of the military departments has had a—each of the services has had an independent 

audit now. So we have somebody else, an independent company, 

independent audit firm telling them what you need to work on, and 

so, of course, we are reacting to that now. 

And Dr. Rabern mentioned the large number that the Navy had, 

for example, but many of those were the same thing repeated a 

bunch of times. So it wasn’t as bad as it sounds that there was 200 

different problems, but there were many cases of the same problem. So the focus now, naturally, shifts to as you go from years of 

planning to get this done and preparing to get this done to actually 

being in and having the independent firms tell you where you are 

weak. That is necessarily going to focus us on the specific things 

that the independent firms have now said, you need to fix this the 

next time I come back, because in general it will be the same firm 

that comes back the next year. Obviously, they are going to be 
17 

looking to see if you corrected the deficiency that they identified 

the first time. 

Mr. FRANKS. Well, Mr. Chairman, I guess I have already made 

the point that I think this is a significant moment and that your 

leadership and that of Mike Conaway will be a legacy both for the 

military and for each of you. And so I would just ask the last question, just a quick thought. If there is anyone there on the panel 

that would suggest if there is one thing Congress and this committee could do to assist you in the endeavor to ensure success, 

what would that be? 

Secretary MCCORD. I would say that—I think I may repeat a 

comment I made briefly earlier that I think the ability to work 

with this committee and your partners in the Senate to follow pretty much the same plan for a couple of years in a row now, 4 or 

5 years, has really helped us a lot, and that that is something that 

I would request, that unless you—obviously, in your judgment, if 

you think that we are not going in the right direction, then of 

course we need to talk about changing the plan, but if you think 

we are, to let us continue to kind of move in the direction that we 

are, I think that has been of enormous help to us 

Budget instability, obviously we all want that to be fixed, and 

that is something that requires the entire body, you know, to get 

together to figure out how to deal with sequester. That is an enormous drain on the time and mental energy of leadership, not just 

in the FM community but the Secretary, the deputy. You know, 

that is a larger problem that weighs on us and is a big distractor, 

but—— 

Mr. FRANKS. Well, thank you, Mr. Chairman. I thank all of you. 

The CHAIRMAN. Thank you. 

Mrs. Hartzler. 

Mrs. HARTZLER. Thank you, Mr. Chairman. I would like to echo 

the words of my colleague, the appreciation for the leadership of 

the chairman and Mike Conaway on this. This is a vital, vital 

project that you are embarked on, and I want to thank you all for 

your tireless efforts. 

And this isn’t just about, you know, spreadsheets and the mundane parts of accounting here. This directly impacts the readiness 

of our soldiers, and we are fighting a fight here to try to ensure 

that our men and women have the resources they need. 

You know, we are facing a readiness crisis. We have had cuts to 

our defense, and many of us here in this room have been advocating for more dollars to be invested to address the threats in the 

world. But time and time again we are facing challenges here by 

people saying: Well, the DOD can’t have an audit, so they don’t— 

you know, if they can’t audit, then why should we give any more 

money? And so this is putting men and women’s lives at risk, and 

it is imperative that we get this done certainly by next September, 

but sooner better. 

And I enjoyed hearing your testimony. I appreciate especially, 

Dr. Rabern, your getting prescriptive and telling what you are 

doing after the results, the steps. Some of them I jotted down here. 

You have decreased the number of systems by 100, the accounting 

systems. That makes sense. If they are not—everybody is operating 

on a different accounting system and they are not talking, they 
18 

can’t guarantee the security. We need documentation for every adjustment, makes sense, unsupported documentation. 

I wanted to ask about the classified problem. It just seems offhand that you could have auditors who are specifically of the classified level to do that portion. Is it as simple as that or what do we 

need to do to address the classified problem? 

Secretary RABERN. I will describe as generically as I can for obvious reasons. Some of it has to do with what I refer to in terms of 

the competition for talent. So to have people who, first of all, are 

able to obtain the level of security clearance that is required is very 

time consuming. So there is very few things more disheartening 

than having one or two people who are allowed access to these programs for one of either the IG or the independent audit firm, then 

leave to take another job. So that is one component. 

The other component has to do with ensuring the protection for 

the information within those systems, and I probably should not 

elaborate beyond that. I would be happy to come by and talk with 

you in greater detail about that. It is something that has brought 

the financial community and intelligence communities to a point 

where now, I think, we are starting to have the discussions that 

will allow us to protect the integrity of the data but also provide 

meaningful information so that the auditors can conclude that the 

opinion is well earned. 

Mrs. HARTZLER. Well, keep up the great work. 

Secretary RABERN. Thank you. 

Mrs. HARTZLER. Mr. Speer, I didn’t hear in your testimony, but 

I was involved in a couple of other things as you were talking here, 

so maybe I missed it, but did you get as prescriptive as Dr. Rabern 

did, listing specifically what needs to be done to be able to do an 

audit and what you are working on? Could you outline five of those 

things that you specifically are working on again? 

Secretary SPEER. Yeah, absolutely. And I am sorry if I get passionate about it too, because it is more than five. 

Along the same lines, we had 290 corrective actions that we are 

working right now. 

Mrs. HARTZLER. Ninety? 

Secretary SPEER. Two hundred ninety. 

Mrs. HARTZLER. Two hundred ninety. 

Secretary SPEER. Two hundred ninety findings that were from 

the auditors, of which were shared between us and DFAS, and we 

are working those corrective actions already. We have got a good 

portion of those already underway or already corrected. Many of 

them were very similar across, as Mike McCord said, to where you 

will find them in one system, but they are iterative across all systems. And we needed to fix, for instance, access control, the similar 

access control in one system. 

We had similarly—when we fielded our general fund enterprise, 

business system had over 200 systems. We are down to 70. We got 

actually down to 60, but a couple grew back. And the way they 

grow back is you have minor micro-applications being applied. So 

those are examples of definitive type things. 

The other piece of it is just training. Part of the aspect of getting 

at it is that we found folks are not necessarily intentionally doing 

the wrong thing and that there is not standardized across. So as 
19 

the auditors identify those, they weren’t necessarily notice of findings, but we found that, for instance, our commands needed additional training in some of the aspects that they do, so we are focusing training towards those as we go through. 

I would like to also go back to what we found in terms of all. I 

think each of us saw this problem, and you got to it in terms of 

the sensitive activity of classified data. It is not only the training 

on that and the access from the auditors, but it is also the case to 

where as we reduce the number of systems—the good part of having bad systems was nobody could see and couldn’t aggregate the 

sensitive activity that was going on in there, was we start reducing 

and make very transparent type systems in the audits. That is one 

of the things in terms of keeping the data classified we are having 

to do. 

So one of the things that the Army will be asking for help for 

in continuing the support of some of our additional systems called 

GFEB [General Fund Enterprise Business System] sensitive activities that we are fielding is very necessary to sustain the audit. And 

so we have added people to classified programs to be able to do 

manual sorts through the data, and that is very important and it 

has enabled us to get through. 

So you know, not only at reducing the number of systems, training, getting up the corrective action plans, understanding how to 

aggregate the data so the auditors can get that was one of the challenges we all got to called the universe of transactions. 

And then lastly, the reconciliation of the way that the manual 

processes are. What we found is that everybody focused a lot on the 

system that didn’t look at the manual controls, and a lot of the 

manual controls were some of the things from lessons learned that 

we found that individuals were non-standardized and were not 

keeping sustained across the commands. So we have got a heavy 

effort right now going through under our optimization effort to 

standardize those business processes across it so we can better 

align the training and make sure for policy. We then update the 

policy to make sure folks understand what is expected of them 

across those and that leaders then make sure that it will be done 

properly within their business areas. 

Mrs. HARTZLER. Thank you. Thank you. 

The CHAIRMAN. Mr. Gibson. 

Mr. GIBSON. Thanks, Mr. Chairman, and I appreciate the panelists. 

This certainly is a very important hearing, and you know, we 

have heard time and again how important this is to the integrity 

of all of our efforts, this reform. And I want to associate myself 

with the remarks of Mr. Conaway. 

Years ago, I spent 3 years on the faculty at West Point, and 

among the issue areas that was studied and brought highlight to 

the cadets were the vulnerabilities, the challenges of transition. So, 

you know, I appreciated the remarks that you made on that. 

So much effort has been put into this in recent years, and it really needs to be successful, and knowing that we have this period of 

vulnerability or challenge and the fact that leadership is putting effort against that is encouraging. 
20 

Towards that end, you know, assuming we get there in 2017, 

what has been done to SOPs [standard operating procedures] and 

software systems to ensure that we stay there once we get there? 

So, you know, what comes to mind is, you know, oftentimes when 

you bring a new endeavor forward and you are working on something online, you will have to fill out a series of boxes and submit, 

and you submit and it is missing two categories. It stops you. You 

didn’t even get accepted. You have to go back and you get a red 

box that says you haven’t done this. 

So, you know, assuming we get there, what have we done to our 

code, our software system so that, you know, even down at the battalion task force level, although I—you know, I know that that is 

generally not the problem but, you know, as we work at our financial officers across the DOD, as they enter in data that, you know, 

they will get stopped and have to, you know, provide full view of 

things before they go forward. 

I guess we can start with the DOD and go to the services. I am 

really just interested, assuming we get there, what have we done 

to SOPs and software systems that once we get to a full audit, that 

as we bring on new—it is often the case in the services that you 

change jobs about every year or two. What have we done in the 

superstructure to make sure that we don’t get off track going forward? 

Secretary MCCORD. I guess at our level, Mr. Gibson, we primarily approach that as management practices to make sure we 

stay on track. I probably have to get you for the record a more specific software answer. I am not a software expert myself. But the 

primary focus that we have is on making sure that procedures, are 

both holding managers accountable and their performance ratings 

and those systems that we set up are going to sustain the effort. 

But I couldn’t—I would have to get back to you for the record on 

software-specific coding. 

[The information referred to can be found in the Appendix on 

page 63.] 

Secretary RABERN. I have a couple of what I consider to be really 

good examples, one for Marine Corps and one for Navy. As you peel 

back the layers of these processes as you have described, it is 

amazing what you find. Just recently, the Marine Corps realized 

that they had coded an automated system for separations that was, 

for lack of a better word, foolproof. So as you described, stop you 

here, you can’t go further until you do it right. 

And what we discovered, as we respond to audit, is they had reinserted a human being into the process which was then adding errors. So they have modified the SOPs. No longer is a human being 

allowed to interfere with the hard coding in those systems. That is 

one example. 

For the Navy, we have learned, as a result of the findings of our 

first year audit, that we had hundreds exam—hundreds of instances of a supply system, so every ship had developed their own 

version of a system. So right now we have a flag officer reporting 

to me every other week on the progress to get to one system where 

the coding will not allow any other changes to be made. 

So that is kind of where we are at. And again, I would say I applaud the efforts of the independent audit firms in helping us find 
21 

these things, and holding people accountable for fixing them is 

what is going to get us there. 

Mr. GIBSON. Well, thank you. That is exactly the kind of response I was looking for. 

Mr. McCord, what I would recommend is—and I have got scars 

in my past, in my body to—I mean, it would probably be worthwhile to sort of capture these points across the services because so 

much effort has been put into getting—and I certainly—Mr. 

McCord, I certainly understand your point. You are not going to 

micromanage this. You are going to manage practices and people. 

But, you know, the services are really learning some hard lessons 

in this to make sure that we stay on track, and I think it would 

be worthwhile to have a repository of best practices so that we can 

socialize that across all the services. 

Secretary MCCORD. Your point is well taken, Mr. Gibson. 

Secretary SPEER. Can I add one thing to that, because I mean, 

we were jumping on that earlier. But first of all, we are deficient 

in it. One of the findings from the auditors was the documentation 

was insufficient. We thought that in the European environment we 

had fixed a lot of it and found that there is still the human in the 

loop and that we had not properly documented and/or where documented, there were more than one instance, and it wasn’t standard. 

So when you—part of what we are trying to do right now is make 

a repository through knowledge management as part of our effort 

right now of ongoing. One of our corrective actions is to provide 

where those SOPs and where those standard business practices 

are. 

And so we have got, as one of the efforts to be done, within the 

next 6 months to do so. We have found that there are best practices 

amongst the different commands, and we are using that to streamline and identify where those best practices are. That is part— 

again, I point to Mr. Wes Miller. He had done that at the Corps 

of Engineers. And so we are trying to do that. 

And it is not all automated, though. What you find is that a lot 

of the SOPs over time, they exist, but folks have gotten away from 

using either those, you know, tactics, techniques, and procedures 

and SOPs, and getting back now out of a deployed environment. 

They have gone to what had worked for them in a deployed environment, and now we are trying to identify those and make sure 

the policies direct them to it. 

Mr. GIBSON. Absolutely. I thank all the panelists. 

And, Chairman, thank you for your indulgence. My time has expired. 

The CHAIRMAN. Thank you. 

Mr. McCord, I have got a few questions. But if the other three 

of you have something to add, I don’t mean to exclude you. 

So is there any doubt, Mr. McCord, that DOD will be ready to 

meet the statutory deadline of being audit ready by September 30, 

2017? 

Secretary MCCORD. We are pretty confident that we are on the 

path to get there. Obviously, on that date, there will, absent some 

very unusual series of events, be different people holding these jobs 

who will actually be the ones to make the assertions at that time. 
22 

As I alluded to briefly before, we will be—the contracting to hire 

the independent firms to make that deadline has to take place near 

the end of our watch this year. And so I think the confluence of 

timing will work pretty well. 

The deputy secretary is going to get us together again in the fall 

about the time that we will be able to transition—pardon the use 

of the word there—to move from talking to both candidates to talking to the President-elect will be about the timeframe when we will 

need to make those decisions. So we might be able to have a little 

overlap with the next team to say, here is what we see, we think 

we are ready to go. We will want to push the button and go on contract in the fall of 2016 to start the process for the fall of 2017. We 

might be able to have enough interaction to have an informed decision that the next team will have some ability to comment on; otherwise, we will just make the best decision, of course, that we are 

able to, based on our information, this fall on our watch. 

The CHAIRMAN. Okay. I think Dr. Rabern said that as they analyze the weaknesses so far, 82 percent of the problems related to 

IT weaknesses, at least I wrote that down. So that leads me to 

have a question. Are we going to get a bill or a budget request from 

DOD or any of the services to have a big IT purchase or upgrade 

in order to comply with that deadline? 

Secretary MCCORD. I would say, in general, no. There will be 

specific examples. There have been and there may continue to be. 

We are working now on an omnibus program, and there may be examples where we ask for a specific amount to fix a particular thing. 

But as Dr. Rabern alluded to, changing systems at this point is not 

in the cards, not—of any of us to do, kind of a fundamental throw 

this out start something new. That is not at all what we think— 

we think that we have the systems that are going to work for us, 

and there may be tweaks needed but not fundamental change-outs. 

Secretary RABERN. If I could just add—— 

The CHAIRMAN. Yes, ma’am. 

Secretary RABERN [continuing]. To perhaps calm your fears. Of 

the 220 findings, 149 will be remediated by the 30th of this month. 

This goes to Mr. McCord’s comment about the redundancy of some 

of the findings. We are also being very harsh with our systems 

owners. It is about eliminating systems. It is not about anything 

other than that, unless we find ourselves with no alternative. So 

we would only come back if we find ourselves in that place. 

And I would say I am very excited about the pace of learning as 

folks in uniform and our civilians learn how to respond rapidly to 

this new environment. 

The CHAIRMAN. Well—and I don’t know nearly as much about 

this as Mr. Conaway or you all. What my memory is when we talk 

about this before, is part of the problem was business systems that 

didn’t talk to each other have created part of the difficulty in getting to an audit. So that is part of the reason I ask, okay, are we 

on track to have this thing work together or are there going to be 

big expenditures? But you have made me feel better. 

And I presume you all don’t have a substantially different answer for the Army or the Air Force? 

Secretary SPEER. I don’t have a substantially different answer, 

but we do need the funding that we requested to the modernization 
23 

of the systems we do have. For instance, our integrated pay personnel system helps sustain the audit. It helps eliminate hundreds 

of human resource systems to allow the integrity of the data within 

that, but also improves the ability to look at the total force and allows us to integrate the personnel pay of our military folks into 

that. 

We have a single and fully filled now General Fund Enterprise 

Business System throughout the Army, and we won’t be asking for 

a new one. We do have funding that we requested for the sensitive 

activities I mentioned earlier, which allows us to protect the classified data that we didn’t see. We didn’t realize that these transparent open systems back 8 years ago would allow people to see 

what was going on in the classified community. And so those are 

the limited types of things, but not new financial systems is not 

coming down the pike. 

The CHAIRMAN. Okay. 

Anything different for the Air Force? 

Secretary AGUILERA. In the Air Force, there are no new financial 

systems, but the critical change process that we are undergoing 

right now for the Defense Enterprising Accounting and Management System, DEAMS, we will able to give you a full report at the 

end of July on what is required for that system going forward. 

The CHAIRMAN. In other words, it is possible you all may have 

more budget requests? 

Secretary AGUILERA. Right now, it looks like probably reorganizing within the budget for that. So perhaps a reprogramming of 

some kind. 

The CHAIRMAN. Okay. 

Ma’am, do you have something else? 

Secretary RABERN. I am sorry, I would be remiss if I did not 

credit the Marine Corps. Because the Marine Corps has been so far 

ahead of Navy, we have had lessons learned. And included in that 

is the use of Marine Corps systems that have passed the audit and 

having the Navy start using those systems. We have some—at 

least one very good example of that and we are hoping we will find 

others. 

The CHAIRMAN. Okay. Can that extend to the other services, do 

you think? 

Secretary RABERN. Absolutely. 

The CHAIRMAN. Are you all willing to look at a Marine Corps system? 

Secretary SPEER. We did look at it. We looked at it before we 

went to General Fund Enterprise Business System, and now we 

have fully filled this system. It is more modern and capable also. 

So part of the issue we all have is the feeder systems that feed it 

from other non-financials. And we have got to get rid of some of 

those interfaces that feed that are hard to maintain. So that is part 

of what we are reducing within the General Fund Enterprise Business System. 

Our system is fully compliant, so I think GFEBS is the right answer for us. And it is integrated with the rest of already logistics 

modernization and our Global Combat Support System which provides our other logistical support. 
24 

The CHAIRMAN. Okay. I am just saying it is okay to look across 

to other services, though, when appropriate. 

Mr. McCord, one of the questions as you all were talking about 

having these independent agencies evaluate your systems was, for 

me at least, do you believe DOD can internally rectify all of the 

issues that they identified or are there situations where an outside 

entity can help come correct some of the weaknesses that have 

been identified? 

Secretary MCCORD. I think that we are and need to be open to 

outside input. And when I mentioned in my opening statement that 

we have been meeting on—I have been meeting with Gene Dodaro, 

the head of GAO, on a periodic basis, with OMB officials present, 

with the inspector general present the last time we met, many of 

these folks have experience from other agencies that have seen 

things before that we haven’t gotten to that yet. And I found this 

with the OMB folks, for example, that have useful insights for us. 

In addition, some of the things—again, from having that broad 

view, GAO has the same ability to inform us with things that they 

have seen with advice. And we have tried to get them to be more 

partners with us, recognizing that they do have to stand apart from 

us at the same time a little bit. 

We also have—I guess I lost my train of thought here. We have 

to learn from what the independent auditors say. One of the concerns that we have is that the scope of what we do may make it 

hard to get audit firms on contract with us for the scale of work 

that we have to do. As you know, there are the so-called big four. 

Two of those firms really aren’t doing audits right now. They are 

doing the consulting side, which makes it hard for them to then be 

independent auditors. And so having sort of two of them in and two 

of them out constrains us already. 

The amount of work that we have, I mean, it would be attractive 

work, I think, given the size of it, but it is also—you know, there 

is limited number of people that can handle the size of the work 

that we do, and that would be one the concerns we have is sort of 

the capacity of independent firms that have this outside expertise 

to work with us. 

The CHAIRMAN. Okay. Again, my memory may be fuzzy, but I recall that in some of our past discussions that there was concern 

about the DOD agencies being able to get audit ready and that 

some of their issues might even affect whether the services were 

ready. Can you address that? 

Secretary MCCORD. Yes. That is a fair observation. The Fourth 

Estate, as we call the defense agencies in general, are not as far 

ahead as my colleagues in the military departments are. Some of 

them are. And that is not a blanket statement, because there is 

about two dozen of them. Some of them have been passing an audit 

for years. Defense Finance and Accounting Service as an entity in 

and of itself has passed an audit, I believe it is 14 or 15 times in 

a row now. But there are many that have never done so and are 

not as far along as the services. That is correct. 

What we are—the strategy that we are following, and we have 

described in our plan is we are basically, as you might expect, taking the biggest and most important ones first, the most material 

in audit terminology. So that would be the ones that are business-
25 

like, DISA [Defense Information Systems Agency], DLA [Defense 

Logistics Agency], the ones that you would probably expect. Two 

combatant commands: SOCOM [Special Operations Command], because they are service-like and control their own funds; TRANSCOM [Transportation Command], because they are a businesslike 

entity; and then our health—Defense Health Agency. So those are 

kind of the biggest ones that we are focused on first and then we 

will move to smaller and smaller ones as we go. 

Ideally—and this gets back to the sort of auditor capacity point 

I was making. Ideally, you might like to have just one firm audit 

all of that, but because people have these consulting relationships, 

some of them are sort of conflicted out. They can’t—it would be 

hard to find a firm that has no consulting relationship with any of 

two dozen defense agencies. That argues against bundling them all 

together, which would make it easier contractually maybe to get a 

handle on them as one entity. So that is kind of the tension that 

we have. 

The inspector general, if I could speak for them on this point, 

would prefer to have as, you know, one big contract or maybe one 

contract just for all defense agencies. We don’t think we are going 

to be able to do it that way because of the need to get independence 

and have people that haven’t consulted for SOCOM, say. So we 

can’t have any package that includes SOCOM, include—you know, 

no one would bid on it if it has done any consulting. So that is the 

tension we have. 

But we do recognize—you are correct, Mr. Chairman, that we 

have some work to do on the Fourth Estate to catch up to where 

the services are. All of them, as we said, have done an audit, they 

are full budget this year, which only some of the defense agencies 

could claim that. 

The CHAIRMAN. And I think finally for me at this moment, there 

have been press reports—and I don’t mean to pick on anybody in 

particular, but I think it was DLA had some—had bought some 

things and, you know, lost track of how many it had or disposed 

of various items. And, obviously, it is an enormous enterprise. 

I am trying to get to the question of what an audit gets us. And 

so in the—just taking that hypothetical example, if DLA is able to 

pass an audit, should it theoretically be possible, then, that someone could go and keep track of what they buy, where it is, how it 

is disposed of and—you know, with any of the items for which they 

are responsible? 

Secretary MCCORD. The way I would respond is, is one of the 

most important benefits of audit is cleaning up the way you do 

business to attempt to go into audit and attempt to get a clean 

opinion. So it is almost—I will try a trite kind of phrase, you know, 

that it is the journey as well as the destination. It is what—cleaning up your operation—— 

The CHAIRMAN. It is the systems and processes necessary to get 

to a clean audit, right? 

Secretary MCCORD. Necessary even to show up for the audit and 

especially necessary to pass the audit—— 

The CHAIRMAN. Yeah. 

Secretary MCCORD [continuing]. Then provide that better information about your organization. It doesn’t mean that, for example, 
26 

there couldn’t be fraud. Right? Someone could collude to alter the 

records and steal a piece of equipment. That can happen whether 

you are passing an audit or not. But it reduces the chance of—having better controls means you are more likely to catch any particular thing. 

And, again, I think Susan Rabern could maybe comment from 

the Marine Corps experience as the service that went first, that 

that was where the light bulb went on, I think, first with the Marines is the things that I have to do to get in the game for audit 

and to pass an audit allow me to run my business better, increase 

the chances that I will find ways to redirect resources within my 

own organization from things that are lower priorities or things 

where I can find efficiencies. It does help you run the business better. 

Dr. Rabern may want to give some example from the Marine 

Corps particularly. 

Secretary RABERN. I don’t know whether I would emphasize the 

Marine Corps examples because I feel I have some other examples 

that might be better. So with apologies, the things that come to 

mind really are my experience at the FBI. And I would say that 

the work we have done is hard. It is labor intensive. We have made 

amazing progress. But that said, there is a lot of really hard work 

ahead of us. 

And the thing that I worry most about has to do with assets. So 

when you are talking about the Navy, it is about—it is a capital 

intensive institution, as was the FBI. So when you are asking people to count and cost things, that becomes very, very difficult. And 

to your DLA example, these are massive enterprises. And so having 

the IT systems that are ready, sustainable, permanent, eliminating 

the bad business practices, those are the things that are going to 

be the really—the next very steep learning curve that we will have 

to climb. 

The other thing I would add is, with regard to the other agencies, 

to elaborate on Mr. McCord’s comments, in addition to the clean 

opinions that he cited for the Fourth Estate entities, we have the 

issue of what is called the SSAE [Statement on Standards for Attestation Engagements] 16 reports. And this really goes to the nature of service being provided to the Army, Navy, Air Force, and 

Marine Corps. 

So we have been working together on a very collaborative way, 

first with DFAS as our ready partner. We have made tremendous 

progress with them, and we are tackling those similar kinds of 

things with the other elements of the Fourth Estate. 

The CHAIRMAN. Well, I will just comment, finally, I think the 

way you started—Mr. McCord, the way you started out your comments, it is important to say what an audit is and what it is not, 

and what it—but what it enables managers to do, which to me is 

the key thing. So that is part of the reason for that question. 

Mr. Conaway had another question. I yield to him. 

Mr. CONAWAY. Real quickly. Mr. Speer, you mentioned that one 

of the recommendations out of the 2012 audit panel was that performance evaluation documents include specific items as to what 

needs to be accomplished for the next year. And you mentioned 

that you have baked that into the Army’s evaluation so that you 
27 

understood if the other agencies, other services have done the same 

thing with respect to their personnel. And then on an annual basis, 

have we actually—obviously, you are not going to say who, but 

have you actually disciplined anyone who failed to meet the standard that was set in their—you know, ahead of their evaluation? 

So, Mr. Speer, any experience actually using the evaluations to 

improve performance? 

Secretary SPEER. I can’t definitively say what the outcomes of 

any specific individual was. I just know that we are now monitoring, there is incorporating in each of the senior executive’s performance plans. So it should be if they are not maintaining and 

achieving that objective that is in their performance plan, it will 

impact both in terms of their feedback as well as their performance 

and their performance-based evaluation where they receive monetary compensation or otherwise for it. And we certainly can go back 

and see if there is—you know, whether it is within some of those. 

We talk about it. We certainly provide feedback on it to individuals, and we provide feedback to individual commands. We then go 

through, and as I said in the audit committees, monitor and provide commands feedback as how the individual commands are 

doing for feedback to those performance statements. 

Mr. CONAWAY. Ms. Rabern. Dr. Rabern. 

Secretary RABERN. Specifically answering your question have we 

held anybody accountable? Yes, we have. Two examples I would be 

happy to talk with you about privately. It is all about sending the 

message that this is serious business; we mean it, and those who 

aren’t performing, we will find someone who can. The time is of the 

essence. We have to have people who can do this job. It is not fair 

to anyone to have someone in the job who can’t do it, and it is not 

fair to those around them. So the answer to your question is yes, 

sir, we have. 

Mr. CONAWAY. All right. Thank you. 

Mr. Aguilera. 

Secretary AGUILERA. And I echo the comments. Yeah, our SES 

[Senior Executive Service] corps also has those audit requirements 

in their performance evaluations. I don’t know of any particular instance where we have had to discipline anyone. I can get that for 

the record. 

[The information referred to can be found in the Appendix on 

page 63.] 

Secretary AGUILERA. But I would also like to comment on the— 

and commend the Department for the FM certification program to 

elevate the level of financial management and expertise in the entire staff. And all of the services are complying with that, and the 

Air Force is taking the lead on that. And we are very proud of the 

achievements of our airmen in that regard as well. 

Mr. CONAWAY. I appreciate that. 

Mr. McCord, you started down that path about the limited resources with respect to audit firms and firms big enough to do the 

job. In 2018, will there be another firm needed for the overall DOD 

rollup or will that be able to do that with—in other words, how are 

you going to do the consolidation, in effect, of all these disparate 

agencies under one roof? Is that a different firm? 
28 

Secretary MCCORD. You know, I get the challenge. I think that 

would be helpful and we would desire it, but we can’t create the 

supply. Right? I mean, if the two firms—the two of the big four 

firms that aren’t in that business right now choose not to, you 

know, to bid, then we will have to do it another way. And one possibility is to have not—probably the real-life possibility is to have 

the Government Accountability Office do the audit. That is, you 

know, something we have discussed a little bit, if we can’t get a 

public firm to do it. 

I don’t think the Inspector General of the Department of Defense 

has the capacity or would likely have the capacity to do the entire 

thing themselves without—certainly, not with any less IPA support 

than there is now. 

Mr. CONAWAY. Thank you, Mr. Chairman. I yield back. 

The CHAIRMAN. Mrs. Davis. 

Mrs. DAVIS. Thank you, Mr. Chairman. 

And just briefly, you talked about the DHA [Defense Health 

Agency] are along the list of those agency specific areas within the 

Defense that have to be looked at, have to be audited. And I wondered if you could—I mean, there has got to be something that is 

actually unique from one to the other, I would assume. And is that 

true that you are looking at some different things? 

We have obviously had a number of reports, commissions, et 

cetera, looking at expenses within the DHA. And I am—and as we 

consolidate that more or have DHA more as a focus as we look at 

new ways of making sure that our men and women are covered and 

their families, is that different? 

Is that going to add—and even in terms of who you bring in to 

take a look at those, knowing that we have many, many private entities as well within health care? How do you see that moving forward? Where will that fit? 

And there is also a—you know, a concern about retention for the 

services as we look at health care. Can you just very briefly—and 

we can look at this again. I am just wondering how that fits in, 

obviously, within the personnel committee in trying to continue and 

work with you as you move forward in that area. 

Secretary MCCORD. Well, Ms. Davis, as you know, the management of the health enterprise is on the table, I believe, in both authorization bills. 

Mrs. DAVIS. Right. 

Secretary MCCORD. So we recognize that that is something that 

may be coming. I don’t see us right now altering our audit strategy 

for DHA. But, you know, it is something we would take a look at, 

depending on how this comes out at the end of the year in the final 

NDAA. But, yes, I do—— 

We have, of course a number of years, we have had changes in 

TRICARE that we requested that have been agreed sometimes in 

part and sometimes not. But then there is a more fundamental 

management change that is on the table this time. Again, I don’t 

see that, though, having us—it needs to be audited. However it is 

run, however it is managed, it needs to be audited. So I think that 

we are going to probably press ahead basically unless we see, you 

know, the management changes would require us to do something 

else. But at this time I think that we would probably stick with the 
29 

plan of having the DHA be one of those corps defense agencies, 

along with DLA, DISA, that are the first things that we need to 

get done. 

In terms of having the whole Department be audited, you know, 

you cannot overlook the big defense agencies. There is an agency 

here or there that is so small and specialized, maybe the folks— 

the system, the POW/MIA [prisoner of war/missing in action] effort, 

that you could possibly pass an audit if they—you know, they 

would be so small. But DHA is not one of those. 

Mrs. DAVIS. Right. 

Secretary MCCORD. So I think that we are going to probably just 

continue to press, unless we see that the management changes that 

might be—ensue out of the NDAA or otherwise would cause us to 

revisit, but I don’t anticipate that at this time. 

Mrs. DAVIS. Okay. Thank you. 

The CHAIRMAN. Mr. Lamborn. 

Mr. LAMBORN. Thank you, Mr. Chairman. And excuse me for 

being late. I was in another committee having a markup on a number of bills. But thank you for having this hearing. 

And I hope I am not duplicating anything that may have been 

asked or answered earlier. In fact, I know this is related—not the 

same, but related to what Representative Conaway was just asking 

you about. But this is for any one of you. 

In your written statement, you identified that auditors found 

noncompliance with IT controls to be an issue. You cite that remediation actions have focused on the accreditation processes for 

these systems, yet in reality, these are typically one-time activities 

that have been valid for several years. Your stated course of action 

does not address the human aspect of this noncompliance. 

So why are administrators throughout the enterprise not removing users’ access when they leave an organization? Are administrators receiving additional training or losing their privileges? This is 

a huge vulnerability that our adversaries can and most likely have 

exploited. 

Secretary SPEER. I will take that one on first. Because, you know, 

we had a false sense of security. We implemented a brand new 

ERP across the Department of the Army and GFEBS in the control 

mechanisms, and we had documented as to what folks needed to 

do in terms of access controls. But, again, the human in the loop 

wasn’t enforcing it. So we brought folks together and we found out 

what was wrong, and we are now identifying both the further controls to ensure it is being done properly. And we found not only had 

it not been done inside of that ERP, the feeder systems. 

So when we talked earlier about having multiple findings, we 

had 290 findings in the Army. Of the findings, 32 percent of our 

findings from the audit through an SBA dealt with systems. So 

many of those were duplicates across. And so we have to go 

through and now start putting in the regular checks to make sure 

folks are, in fact, clearing people out when they out-process. 

Many of those are manual processes that individuals have to 

make sure they are done. But some of those are just making sure, 

again, that their standard processes are understood. They are 

being held accountable for those, and that who has to hold those 

folks accountable. And so we are putting a reemphasis focus on 
30 

those. So it is many of the control mechanisms that we talk about 

that are being violated when the auditors came through. 

Secretary RABERN. I would just add four points. We are, in fact, 

removing access in those cases where we find that it is necessary 

and required. 

I would just echo your concern about the exploitability of this 

problem, and it is imperative that we get it fixed at a return. We 

are standardizing our SOPs and requiring adherence to those 

SOPs. And then the final point I would make is that in every case, 

we are holding a flag officer or an SES career civilian accountable 

for the correction. 

Mr. LAMBORN. And as a follow-up, although—I will wait—I will 

stand back and wait. 

Mr. Aguilera or Mr. McCord, do you have something to add? 

Then I have a follow-up. 

Secretary AGUILERA. I would echo the comments. We are pursuing a lot of the same policies. 

Mr. LAMBORN. Okay. 

Secretary AGUILERA. Not all of them have to do with—not all of 

those notice of findings and recommendations have to do with ghost 

employees that are still logging onto systems. Also things like the 

person—a separation of duties, the person who enters an obligation 

isn’t the same person that approves the obligations. So we are taking steps in those arenas as well. 

Mr. LAMBORN. Thank you. 

And, Mr. McCord, do you have anything to add? 

Secretary MCCORD. No, not on this one. 

Mr. LAMBORN. Okay. And then my follow-up question, then, is 

did you find any of the departments more susceptible to this kind 

of lack of compliance or not? Are you able to comment on that? Or 

was it the same across the board? 

Secretary MCCORD. The IT issues were pretty similar across the 

three. It was a major finding in every case. 

Mr. LAMBORN. Okay. Thank you very much. 

Mr. Chairman, I yield back. 

The CHAIRMAN. Mr. Johnson. 

Mr. JOHNSON. Thank you, Mr. Chairman. 

And, witnesses, thank you for your testimony today, and thank 

you for your service to the Nation. 

The need to improve business and financial oversight and transparency in the Department of Defense will help support efficiencies 

in your operations and strengthen controls to deter waste, fraud, 

and abuse. This is something that the American people will hold 

us as their elected representatives accountable for, and so we must 

hold you all accountable for it. 

And I know that the Department is committed to full financial 

audit readiness by September 30, 2017. So over the next 15 

months, DOD will be preparing its financial statements for a full 

audit. And what I would like to ask, and I hope that this question 

has not been asked and answered—I am just arriving at the hearing. I had prior business, so I apologize for not being here to listen 

to all of the testimony and questions and answers. 

But if punitive actions are taken by Congress, do you believe that 

this will help ensure the future preparation and readiness of the 
31 

Department of Defense for an audit or will it hinder it? And I will 

ask each one of you that question. 

Secretary MCCORD. Thank you for that question, Mr. Johnson. 

When you say ‘‘punitive actions,’’ I guess the first thing that comes 

to mind to me are the several versions of what has been called 

Audit the Pentagon Act that have been introduced in the House or 

the Senate over the last couple of Congresses. And often the penalty or the stick in those bills is to take funding away from a department or some part of a department that doesn’t have a clean 

opinion and give it maybe—and there might be a carrot aspect 

where the money would flow to someone who has a better audit 

performance. 

And the fundamental concern I have about that is that each of 

our military departments or each of our parts of the department 

has a mission to perform, and taking funding away from them because of their audit performance or lack of audit performance 

doesn’t change the fact that they still have a mission to do. And 

on the flip side, to give money to—to make up an example, to give 

money to DTRA [Defense Threat Reduction Agency] because DTRA 

passed an audit over and above what they request and what they 

need, to me, is not a good use of taxpayer resources either. 

I mean, I understand that money is an incentive in life, but to— 

the biggest stick that has been out there in the various iterations 

of this bill has been to take money or to take milestone authority 

or other—to make acquisition decisions harder is the other one. 

But, similarly, I mean, the reason that we have these programs 

and the reason that we request funding for particular agencies 

within the Department is because they have a mission to perform, 

and I would sort of hate to divorce the funding—you know, you 

should evaluate that on the merits, whether you think what DTRA 

or some other part of the agency is doing is needed or not needed 

based on requirements, not based on as a regard for performance, 

as important as it is, on the audit. 

Mr. JOHNSON. I understand. Any of the other witnesses have 

anything to add to that? 

Secretary SPEER. You know, I would add the same thing to that. 

I think it is more holding accountable instead of disincentivizing. 

Because I think some of the—I will call them punitive measures or 

disincentives. It is like failing a class and then saying, well, you 

don’t go to class then. The people who need the funding need to be 

able to fix and rectify some things that some of the folks will be 

pulling the funding from and completing the mission they need to. 

I think we definitely need to hold a level of accountability, but 

in terms of what this committee is doing to us right now is, you 

know, identifying and then recognizing those folks who do achieve 

and providing some sort of incentive to do so and providing the 

value of what they need to do. 

I think that some of the things we have seen in terms of those— 

for instance, I can’t do the work without DFAS. Taking DFAS away 

from the Department of Defense would not help us. 

Mr. JOHNSON. All right. 

Secretary SPEER. We need to share the responsibility for those 

things, identify what is not being done, then rectify those things. 

Mr. JOHNSON. All right. 
32 

Doctor. 

Secretary RABERN. I would echo my colleagues, but I would add 

that these kinds of punitive actions would potentially further degrade readiness at a time when our personnel tempo is quite severe. And the last thing I would say is I believe it would further— 

it would demoralize our workforce who have worked so hard to get 

us to the point where we are now. 

Mr. JOHNSON. All right. 

Mr. Aguilera. 

Secretary AGUILERA. I would echo the comments already made. 

It would damage readiness. And then, as I said before, as an auditor I have been heartened by seeing the cooperation among the different communities in the Air Force, civil engineers, logisticians, 

engaged in our auditability. And so punitive actions like that would 

actually retard the whole audit process because they wouldn’t have 

the manpower, they wouldn’t have the resources available to them 

to help us reach audit. So in the end, it would actually set us back. 

Mr. JOHNSON. All right. Thank you, and I yield back. 

The CHAIRMAN. My understanding is there are no more questions. So I want to thank you all for being here. I think it is important to also express appreciation for the progress that has been 

made so far. 

It seems that we went a long time with fits and starts and restarts on this audit issue, but now we are making progress. And 

I think that is credit to the leadership of the departments involved 

and especially to the people you all work with every day. And I 

know you will understand, if we work to continue to hold the Department’s feet to the fire, that we meet the statutory requirement 

and can ultimately have a successful audit. 

As we talked about, it is important for public confidence, it is important for better decisionmaking, and then—so there is a lot that 

stems from the controls and systems that are put in place when 

you can have a successful audit. 

So, again, thank you all for being here and answering our questions. And we will look forward to further conversations on this in 

the future. 

The hearing stands adjourned. 

[Whereupon, at 11:40 a.m., the committee was adjourned.] 
A P P E N D I X 

JUNE 15, 2016 

PREPARED STATEMENTS SUBMITTED FOR THE RECORD 

JUNE 15, 2016 

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WITNESS RESPONSES TO QUESTIONS ASKED DURING 

THE HEARING 

JUNE 15, 2016 

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RESPONSE TO QUESTION SUBMITTED BY MR. CONAWAY 

Secretary AGUILERA. At the Air Force Senior Executive Service (SES) level, Financial Improvement and Audit Readiness (FIAR) has been incorporated into performance plans. We have performed a review of the performance objectives for senior 

leaders and we are currently not aware of any specific disciplinary actions taken as 

it relates to FIAR. In response to audit findings and readiness activities, corrective 

actions focus on developing and disseminating to the technical level process and policy changes, and implementing the training to support awareness and compliance 

with those changes. [See page 27.] 

RESPONSE TO QUESTION SUBMITTED BY MR. GIBSON 

Secretary MCCORD. Mr. Gibson, you’ve highlighted one of our primary vulnerabilities in the way we do business today, and also some of the key elements of our strategy for sustainment of financial auditability. The vulnerability comes from decentralizing most of the decisions on exactly how business is done across our massive 

enterprise, often differently for the same basic task and frequently using multiple 

business systems that feed information into our financial systems. Every one of 

these varied processes and systems should have a Standard Operating Procedure 

(SOP) that’s been tested for effectiveness. This makes the audit more time consuming (and expensive) and creates the need for much more manual intervention 

to adequately monitor compliance. Simply stated, our approach in these matters is 

to simplify and standardize processes. One element of this approach involves reducing the number of legacy systems and standardizing both systems and data, automating controls where possible. We have issued policies enforcing upfront controls 

(such as system access control) and edit checks in the systems along the way to 

strengthen data integrity, eliminate need for manual corrections, and prevent inaccurate data from processing. As a result, there will be fewer manual processes and 

work-arounds required allowing us to sustain our remediation and auditability. The 

best example of this is in the Procure-to-Pay process where we are automating the 

interfaces between financial and contracting systems, and minimizing the number 

of systems involved in this process that supports spending streams of hundreds of 

billions of dollars each year. [See page 20.] 

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