U.S. GOVERNMENT PUBLISHING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Publishing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

89–683 PDF 2015

S. Hrg. 113–753 

IMPROVING FINANCIAL MANAGEMENT AT THE 

DEPARTMENT OF DEFENSE 

HEARING 

BEFORE THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

MAY 13, 2014 

Available via the World Wide Web: http://www.fdsys.gov/ 

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs 

( 
(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

THOMAS R. CARPER, Delaware Chairman 

CARL LEVIN, Michigan 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

MARK BEGICH, Alaska 

TAMMY BALDWIN, Wisconsin 

HEIDI HEITKAMP, North Dakota 

TOM COBURN, Oklahoma 

JOHN MCCAIN, Arizona 

RON JOHNSON, Wisconsin 

ROB PORTMAN, Ohio 

RAND PAUL, Kentucky 

MICHAEL B. ENZI, Wyoming 

KELLY AYOTTE, New Hampshire 

GABRIELLE A. BATKIN, Staff Director 

JOHN P. KILVINGTON, Deputy Staff Director 

MARY BETH SCHULTZ, Chief Counsel 

PETER P. TYLER, Senior Professional Staff Member 

TROY H. CRIBB, Chief Counsel for Governmental Affairs 

KEITH B. ASHDOWN, Minority Staff Director 

CHRISTOPHER J. BARKLEY, Minority Deputy Staff Director 

ANDREW C. DOCKHAM, Minority Chief Counsel 

JENNIEFER E. WHITE, Minority Legislative Assistant 

LAURA W. KILBRIDE, Chief Clerk 

LAUREN M. CORCORAN, Hearing Clerk 
(III) 

C O N T E N T S 

Opening statements: Page 

Senator Carper ................................................................................................. 1 

Senator Coburn ................................................................................................. 3 

Senator Tester .................................................................................................. 19 

Senator Johnson ............................................................................................... 26 

Senator Ayotte .................................................................................................. 29 

Prepared statements: 

Senator Carper ................................................................................................. 55 

Senator Coburn ................................................................................................. 57 

WITNESSES 

TUESDAY, MAY 13, 2014 

Hon. Robert F. Hale, Under Secretary (Comptroller) and Chief Financial 

Officer, Office of the Under Secretary of Defense (Comptroller), U.S. Department of Defense ............................................................................................. 7 

Robert M. Speer, Acting Assistant Secretary of the Army (Financial Management and Comptroller), U.S. Department of the Army .................................... 10 

Hon. Susan J. Rabern, Ph.D., Assistant Secretary of the Navy (Financial 

Management and Comptroller), U.S. Department of the Navy ....................... 11 

Hon. Jamie M. Morin, Ph.D., Assistant Secretary of the Air Force (Financial 

Management and Comptroller), U.S. Department of the Air Force ................. 14 

Hon. Jon T. Rymer, Inspector General, U.S. Department of Defense ................. 43 

Asif A. Khan, Director, Financial Management and Assurance, U.S. Governmental Accountability Office ............................................................................... 44 

ALPHABETICAL LIST OF WITNESSES

Hale, Hon. Robert F.: 

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

Prepared statement .......................................................................................... 60 

Khan, Asif A.: 

Testimony .......................................................................................................... 44 

Prepared statement .......................................................................................... 102 

Morin, Hon. Jamie T.: 

Testimony .......................................................................................................... 14 

Prepared statement .......................................................................................... 85 

Rabern, Hon. Susan J.: 

Testimony .......................................................................................................... 11 

Prepared statement .......................................................................................... 78 

Rymer, Hon. Jon T.: 

Testimony .......................................................................................................... 43 

Prepared statement .......................................................................................... 92 

Speer, Robert M.: 

Testimony .......................................................................................................... 10 

Prepared statement .......................................................................................... 71 

APPENDIX 

Chart submitted by Senator Coburn ...................................................................... 135 

Chart submitted by Senator Coburn ...................................................................... 136 

Information submitted by Mr. Rymer .................................................................... 138 

Information submitted by Ms. Rabern ................................................................... 154 

Information submitted by Mr. Hale ....................................................................... 154 
Page

IV 

Responses for post-hearing questions for the Record from: 

Mr. Hale ............................................................................................................ 139 

Mr. Speer ........................................................................................................... 148 

Mr. Rymer ......................................................................................................... 157 

Mr. Khan ........................................................................................................... 166 
(1) 

IMPROVING FINANCIAL MANAGEMENT AT 

THE DEPARTMENT OF DEFENSE 

TUESDAY, MAY 13, 2014 

U.S. SENATE, COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, Washington, DC. 

The Committee met, pursuant to notice, at 10:30 a.m., in room 

SD–342, Dirksen Senate Office Building, Hon. Thomas R. Carper, 

Chairman of the Committee, presiding. 

Present: Senators Carper, Tester, Coburn, Johnson, and Ayotte. 

OPENING STATEMENT OF CHAIRMAN CARPER 

Chairman CARPER. Good morning. The hearing will come to 

order. Today’s hearing will examine, as we know, the efforts underway at the Department of Defense (DOD) to improve financial 

management and to obtain a clean, unqualified audit of the books 

at the Department of Defense. I want to begin today’s hearing by 

asking why financial management at the Department of Defense, 

and any other agency, is important in the first place, but especially 

the Department of Defense. 

Accurate and complete financial accounts give agency leadership 

and Congress the information that we need for effective management and planning, and, I might add, execution. Clean auditable 

financial statements also give us the information we need to hold 

agencies accountable, to look in every nook and cranny of the Federal Government and ask this question: Is it possible to get better 

results for less money? 

I talk to people all the time who say to me, I do not mind paying 

some extra taxes, I just do not want you to waste my money. And 

we waste money probably in every agency to some extent. We especially waste it in the Department of Defense. You know that is 

true, I know that is true. So do our taxpayers. 

We cannot, however, effectively identify areas to reduce spending 

if we do not know how much and where we are spending that 

money in the first place. Federal agencies have been required to 

produce auditable financial statements since the mid-1990s. Unfortunately, nearly two decades later, the Department of Defense, 

which spends more than $2 billion every day, has yet to meet this 

obligation. Despite years of effort and one deadline after another, 

Department of Defense books are so flawed that auditors still cannot even attempt to perform a complete audit. 

It is no surprise then that the Department of Defense finances 

have been on the Government Accountability Office (GAO) high 
2 

risk list since 1995. In part, this is due to pervasive management 

deficiencies that would never be tolerated in private sector business 

and that are actively being addressed in other Federal agencies. 

Here are just two examples. 

Just last month, the Government Accountability Office released 

a report showing that the Department’s antiquated inventory systems, often containing incomplete and inaccurate information, have 

led to millions of dollars in wasteful ammunition purchases. The 

Department continues to buy spare parts that it does not need. 

In fact, last year the Department gave this Committee figures 

showing that at one point in 2013, it had $754 million worth of 

items that were on order, but not yet delivered, which the military 

services simply did not need. However, the Department still paid 

for and accepted the unneeded items. This is an unacceptable situation. And these are just some of the problems we know about. In 

all likelihood, the poor state of the Department’s books mask even 

more instances of waste and fraud. 

In these tough economic times when we are going to be asked, 

and we are being asked, to make decisions about pay for our active 

personnel, compensation for active duty personnel, compensation 

for our veterans, making those decisions, we are going to be asked 

to make decisions about base realignment and closures again before too long, making those kind of decisions. And for us, as we face 

those kinds of decisions, I just want to say, we cannot tolerate this 

continuing level of mismanagement and waste. 

In 2011, we met in this same room. Dr. Coburn and I held a 

hearing, maybe even with the same title, and we discussed how the 

Department was going to meet its statutory deadline of achieving 

financial auditability by 2017. Just after that hearing, then-Secretary of Defense Leon Panetta made an important announcement 

that greatly elevated the priority of financial management, higher 

than it had been ever elevated before. 

He also established an additional deadline for a partial financial 

audit by the end of fiscal 2014 in order to quicken the pace of improvements. To his credit, his successor, Secretary Hagel, has stood 

by these goals. This means that in several months, the entire Department should have its Statement of Budgetary Resources (SBR), 

a key financial component, ready for audit. 

We are here today to get an update on this quickly approaching 

deadline. Fortunately, the Department can look to some recent successes to help find the right path to reach its goal. The Marine 

Corps has made some important progress in auditing its books, 

achieving a clean opinion, at least on a portion of its fiscal year 

(FY) 2012 accounts, last December. And that is good news. 

Also, the Department of Homeland Security (DHS) was until recently the only other department unable to audit its finances. Last 

year, Homeland Security, as we know, was able to achieve a clean 

audit. A department created barely 10 years ago, broad, large, lot 

of people, lot of money, they were able to achieve a clean audit last 

year. 

If they can do that, the Department of Defense needs to keep 

its—we need to keep your feet to the fire and you all need to get 

the job done. And this idea of a goal for 2014 slipping and the goal 
3 

1The charts referenced by Senator Coburn appear in the Appendix on page 136 and 137. 

for 2017 slipping, that dog does not hunt here. We are going to 

make that perfectly clear. 

A key question is whether the entire Department of Defense is 

learning enough and fast enough from these examples. Let me just 

say, we have some obligation in this, too, and when we shut down 

the government, we allowed the government to be shut down, when 

we do stop and go budgeting, fiscal cliffs, then we are part of the 

problem and are not part of the solution, I acknowledge that. 

Tom Coburn and I have made a compact with Senator Johnson 

and Senator Tester that we are not going to let the government be 

shut down again. We are going to do a better job, we are going to 

do our share, and maybe if we do, you guys will do a better job of 

doing your part as well. But we do not want to be the problem. We 

want to be part of the solution. 

A key question, again, is whether the entire Department of Defense is learning enough and fast enough from these examples that 

I just mentioned. Today we have been joined by several witnesses 

and key players for helping the Department of Defense improve its 

financial management processes and controls. Their work, if successful, will allow the Department to produce reliable financial 

statements that regularly produce critical information for decisionmakers. 

To our witnesses, we want to thank you for joining us. We look 

forward to your testimony. Let me now turn to Dr. Coburn for any 

comments that he wishes to make. Thank you, Dr. Coburn. 

OPENING STATEMENT OF SENATOR COBURN 

Senator COBURN. Thank you, Mr. Chairman, for holding this 

hearing. I would welcome all of our panelists and say we applaud 

your effort. But as my dad used to say, effort sometimes is not 

enough. You have to apply maybe a different approach and a different technique. 

I want to start by reading an assessment I am going to put up 

for you comparing 2001 to where we are today.1 The assessment in 

2001, inability to consistently provide reliable financial data, managerial data for effective decisionmaking. Still there, no change. 

Lack of an overreaching approach to financial management, disparate systems, accounting, financial, and feeder hampered by a 

lack of integration and standardization. Still exists. 

The Financial Improvement and Audit Readiness (FIAR) plan 

provides the approach. It is unclear right now to me how well it 

is being implemented, especially as audit goals are descoped and 

deadlines are missed. Systems environment remains more or less 

unchanged. Convoluted business processes, which fail to streamline 

excessive process steps, sometimes driven by accounting, operational and organizational structures, further complicated by aged 

and disparate systems. 

Enterprise Resource Planning (ERP) results have been mixed. 

Air Force Expeditionary Combat Support System (ECSS) was canceled after nearly 10 years of work and a billion dollars. We recommended in 2011 it be canceled. It took 21⁄2 years to get it can-
4 

celed, then we paid the contractor a payment and did not hold 

them accountable for what they were developing. 

Difficulty in obtaining financially based outcome oriented management metrics. This problem continues. GAO has reported that 

metrics are not adequately defined. Inability to produce Chief Financial Officer (CFO) Act compliant annual financial statements. 

No change. Disproportionate budget dollars appear to support nonvalue-added activities. Since useful information is hard to extract, 

useful corrective action is difficult to implement with a lack of 

widespread understanding of how financial information can help 

us. Has not changed. 

Cultural bias toward the status quo driven by disincentives for 

change and short timeframes of political appointees who otherwise 

might serve as agents of change. No change. Requirement of an infusion of personnel with technical and financial skill sets necessary 

to achieve integrated financial management systems. DOD is investing in training programs. It is still not fully implemented, and 

oftentimes CFO nominees lack the requisite qualifications. 

I am most surprised when I hear some of my associates ask why 

auditability matters. I suspect this question is a result that many 

of my colleagues lack real world experience. They have never run 

a business in an organization that has to make the most of its resources that it has available. To a business—and the Pentagon is 

not a business—but to a management organization, reliable financial data is what powers the strategic planning, the strategic budgeting, and operational decisions, and often means the difference between success and failure. 

But even to Congress, auditability is of paramount importance. 

We cannot do our job without it. The fact that our largest Federal 

department with nearly a $700 billion budget still cannot comply 

with the law after several decades is a failure that rests squarely 

on us, the Congress, because by accepting the continued excuses 

and delays, we have failed to do our job. 

The appropriations and accountability clause of the Constitution, 

Article I, Section 9, Clause 7, says the following: No money shall 

be drawn from the Treasury but in consequence of appropriations 

made by law, and a regular statement and account of the receipts 

and expenditures of all public money shall be published from time 

to time. They have not done that in 30 years in the Pentagon. 

The intent of this clause is simple. Congress cannot possibly 

know that the Executive Branch is obeying the first part of the appropriations clause, spending, without confidence in the second, accountability. The decades-long failure by the Pentagon to comply 

with existing Federal financial management laws is against the 

very spirit of the Constitution. Our Founding Fathers demanded 

that those spending taxpayer dollars are held accountable to the 

taxpayers, the people funding the bill. 

The financial management problems within the Pentagon are intimately related to its problems of waste, mismanagement, its 

budget woes under sequestration. Currently, neither military leaders nor lawmakers can consistently and reliably identify what our 

defense programs cost, what they will cost in the future, or what 

they have cost us in the past. 
5 

When the Pentagon itself does not know and cannot tell Congress how it is spending its money, good programs face cuts along 

with wasteful programs that we will not need, which is the situation we find ourselves in today, cutting meat instead of fat. Unreliable financial information makes it impossible to link the consequences of past decisions and, oh by the way, holding people accountable for those decisions to the Defense budget or measure 

whether or not the activities of the Defense Department are actually meeting military requirements. 

The problem is clear. You cannot manage what you cannot measure. If the Pentagon does not know how it spends its money, Congress does not know how DOD is spending its money. With the Nation’s debt nearing $18 trillion and counting and tighter budgets 

across the Federal Government, DOD needs now, more than ever, 

to better manage the scarce resources. The first charge of the Congress is to defend the country. 

Today DOD leadership has told us that they are on the right 

track, making progress. I have heard that song before. Some of our 

Nation’s best watchdogs, the GAO and DOD Inspector General 

(IG), will testify that the core financial management weaknesses, 

the longstanding deficiencies, still exist and remain a significant 

risk to DOD meeting its statutory, constitutional requirements. 

If you take away only one point today it should be this: Poor financial management is the root cause of much of DOD’s current 

problems, be it the ability to control costs, as evidenced by weapon 

system and information technology (IT) system overruns, anticipate 

its future costs, measure performance, or prevent waste, fraud, and 

abuse. Congress best helps DOD fulfill its obligations under the 

law and to the American taxpayers by holding DOD accountable for 

its failure to comply with the law. 

Mr. Chairman, I have only one request of our first panel, is that 

you will stay and listen to the GAO and IG. I know they seem to 

be a thorn, but there is some reality in what they say, and if we 

mix that reality with a good effort that everybody at this table 

right now is making—I am talking about our panelists—we will get 

closer. 

I would just summarize, and we will do it through the questioning. We have changed what the National Defense Authorization 

Act (NDAA) called for by going to the accounts instead of the resources. I understand you were allowed to do that, but if you really 

want financial data to be able to make good financial decisions and 

to control costs, you are not going to get it that way until maybe 

2022, 2021. With that, I yield back. 

Chairman CARPER. Let me just followup on something that Dr. 

Coburn just said. He has urged you to stay, if you can, for the second panel. I would ask that you do that as well. If for some reason 

you cannot, please, for God’s sake, make sure that you have somebody senior who is going to be here dutifully taking notes. 

Jane Hall Lute who about a year or so ago, was the Deputy Secretary of Homeland Security, as you may recall, and she would go 

meet with Gene Dodaro, the Comptroller General, not every week 

or every month, but just about, to talk with him face to face—the 

No. 2 person at DHS—to figure out how to get the Department of 

Homeland Security off the high risk list at GAO. 
6 

And working it, working it, working it month in and month out, 

and finally they did make progress. And as Dr. Coburn said, some 

people think of the Government Accountability Office, our watchdog, as a thorn in the side of agencies. They actually play a very 

constructive role, as you know. And they want agencies off the list. 

They want to have other things they can focus on instead of the 

problems that we are going to be talking about here today. 

And one of the items they would like to get off the list, and so 

would I, is major weapons systems cost overruns, which now I 

think exceeds $400 billion. So plenty of work to do. 

I am going to introduce briefly everybody. Mr. Hale, it is not 

going to be a pleasant hearing, but having said that, I just want 

to say we do appreciate your service. I know you are going to be 

stepping down later this year. We appreciate your service and wish 

you only well as you go forward. 

Bob Hale is the Under Secretary and Chief Financial Officer at 

the Office of Under Secretary of Defense, at the Department of Defense. Mr. Hale was appointed to his current position in January 

2009. As Under Secretary of Defense, Mr. Hale is principal advisor 

to the Secretary of Defense on budgetary and fiscal matters, including development and execution of the Department’s annual budget 

of $600 billion. As Chief Financial Officer, Mr. Hale oversees the 

Department’s financial policy, financial management systems, and 

business modernization efforts. 

Our next witness is Mr. Robert Speer, Acting Assistant Secretary 

of the Department of the Army. Mr. Speer assumed responsibility 

for his position a couple months ago, in February of this year. As 

Acting Assistant Secretary, Mr. Speer advises the Secretary of the 

Army and Chief of Staff on matters relating to financial management and oversees the development, formulation, and implementation of policies, procedures, and programs for improving the efficiency and effectiveness of Department resources. 

Our next witness is the Honorable Susan Rabern. Is it Doctor 

Rabern? Are you retired Navy? 

Ms. RABERN. Yes, sir. 

Chairman CARPER. What was your rank in the Navy? 

Ms. RABERN. Captain. 

Chairman CARPER. Captain. All right. So we will have several titles we will use for you today. The Assistant Secretary of the Department of the Navy for Financial Management and Comptroller. 

Dr. Rabern was appointed to her current position in August 2013, 

last year. As Assistant Secretary and Comptroller, Dr. Rabern is 

responsible for managing and directing financial matters, including 

the annual budget of the United States Navy and the U.S. Marine 

Corps. Dr. Rabern, again, retired from the United States Navy and 

we now know is a retired Navy captain. 

Our final witness is the Honorable Jamie Morin. Assistant Secretary of the Air Force for Financial Management and Comptroller. 

Dr. Morin was appointed to his current position in June 2009. As 

Comptroller and Chief Financial Officer, Dr. Morin is the principal 

advisor to the Secretary and Chief of Staff of the Air Force on all 

financial matters. He is responsible for providing financial management and analytical services necessary for the effective and efficient use of Air Force resources. 
7 

1The prepared statement of Mr. Hale appears in the Appendix on page 60. 

We thank you all for being here today. We thank you for your 

preparation, for your testimony, and for your willingness to respond to our questions. I have one other favor to ask of all of you. 

I want you to take this to heart. I read through your statements 

and it was replete with acronyms. I do not like acronyms. GAO is 

fine, DOD is fine, the Federal Bureau of Investigation (FBI) is fine, 

the Environmental Protection Agency (EPA) is fine. The Schedule 

of Budgetary Activity (SBA), which shows up repeatedly. The 

Americans with Disabilities Act (ADA) shows up repeatedly. 

I do not want you to use acronyms. If it is something that is common, we see it all the time, that is fine. Otherwise, I will stop you 

every time you do it. Use the words. All right? It will help me, it 

will help us, and ultimately it will help you. 

With that having been said, I think we have a vote starting— 

what time—we will have a vote starting at 11:10. Tom, you and I 

may want to do what we did last week and just take turns going 

back and forth so we can make progress. Mr. Hale, please, welcome, and again, please proceed. 

TESTIMONY OF THE HON ROBERT F. HALE,1 UNDER SECRETARY OF DEFENSE (COMPTROLLER) AND CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT OF DEFENSE 

Mr. HALE. OK. Well, thank you, Mr. Chairman, Senator Coburn, 

Members of the Committee. I am here to report on financial management of the Department of Defense. When I became DOD’s 

Chief Financial Officer more than 5 years ago, I established a number of goals. I have reported on progress on those goals in my prepared statement. In my oral remarks, I will focus on one of those 

goals, namely, I think the key one for today, improving financial 

management and achieving auditable financial statements. 

Meeting this goal has been a challenge; frankly, more of a challenge than I expected when I started. However, despite the budgetary turmoil of recent years, I believe we have made substantial 

progress, without question more progress in the last few years than 

we have made in any other period after passage of the 1994 Act. 

Our audit strategy focused first on the elements of our business 

that most often influence our decisionmaking, particularly budgetary information and counts and location of our property known 

as existence and completeness, not an acronym, but not a very 

helpful English phrase either. 

We have set interim goals for our audit efforts and we have 

clearly in mind the legally mandated goals for overall audit readiness. We report on those goals regularly, twice a year, in an audit 

progress report. We will deliver the ninth installment later this 

week to the Congress. All of those, I might add, were provided on 

time. 

While we are focusing first on our budget statement and property 

information, we also have a plan to achieve audit readiness for all 

of DOD financial statements, and I believe we are on track to 

achieve audit readiness for all our financial statements by 2017. 

Meeting audit goals requires major changes in a department that 

is big and where change is difficult. We needed new financial sys-
8 

tems, we need significant changes in our business practices. They 

are hard to implement in a big organization and we face special 

challenges that you alluded to, Mr. Chairman. 

Five government shutdown planning drills in the last few years, 

two 6-month continuing resolutions, last year sequestration and a 

furlough, followed by a shut-down and a furlough. And we have 

wasted time—time and again we have wasted time, replanning 

budgets because of the seemingly constant changes and the outlook 

for revenues. This turmoil has definitely usurped time that could 

have been spent on audit and other activities. 

But despite that turmoil and other challenges, we have made 

substantial progress, and much of that has been documented by 

independent public accounting (IPA) firms, and I think that is a big 

difference compared to prior periods. We understand that after 20 

years without auditable financial statements, Congress is skeptical. 

You want an independent verification of our progress and, frankly, 

so do we. 

Let me highlight a few audit results for you. The Marine Corps 

last year received a clean audit opinion on the current year of its 

budget statement—that is the statement for budgetary activity, but 

I like the current year better—for 2012 and we expect a similar result in 2013. This result was verified not by one, but by two independent auditors, one in the private sector and one in the public. 

The entire Department of Defense has been evaluated and 

deemed ready for audit of our funds distribution process known as 

appropriations received. It is a critical accomplishment because it 

provides verification that we are distributing the funds the way 

that Congress envisioned when you passed the laws. Again, the 

services were all verified by independent public accounting firms. 

We received a clean audit opinion from an independent auditor 

on the controls within our civilian personnel data system, as well 

as systems handling military pay, civilian pay, and disbursing. 

Navy has achieved a positive opinion on civilian pay and travel expenses; Air Force on funds balance with Treasury; Army has completed an examination similar in scope to the audit they will face 

this fall. 

And finally, DOD is well along in deploying financial systems 

and they are stabilizing in terms of cost and schedule. So independent auditors have verified progress in many specific areas, but 

we will soon face a broader goal that we are all aware of, audit 

ready budget statements by September 2014. 

By audit ready, we mean that we have made significant—sufficient progress in processes and data so that we can withstand an 

independent audit, in the view of management. Audit readiness 

provides most of the benefits of the audit process. The audit itself 

attests to our success. It is too early to know for sure the audit 

ready status for every budget statement by September 30 because 

we are still in the process of remediation. We are going to use 

every moment we have to try to make fixes. 

However, we expect that most of DOD’s budget statements will 

be ready for audit by September 30, including statements in all of 

the military services, and I believe that is an enormous accomplishment for this Department. We are finally getting to the real issue 
9 

of the military services. We had not done that before and we need 

to do it. 

Once our statements are audit ready, we will pursue the formal 

audit in a cost-effective manner and that Congress requires that by 

law, actually. One lesson we learned from the Marine Corps is we 

simply cannot acquire the documentation needed to verify prior 

year transactions quickly enough to meet audit needs. Some of 

those transactions go back 10 years, they are in long-term storage, 

and we just do not have quick access to them. 

We will, therefore, focus the formal audit on the current year 

budget activity which contains, by far, the most important information. And we will build quickly toward the full SBR, because we 

will get one year done and that will give us that data correct. We 

can probably go back a couple of years, so I hope, quickly we will 

build toward the full SBR, and I do not think that this process will 

significantly delay the time we get an audit opinion on the full 

SBR. 

Time does not permit me to cover other important goals that we 

are pursuing. You will see them documented in my statement. I 

will end with the bottom line on auditability. Despite formidable 

obstacles, we have made demonstrable progress, progress that has 

been verified by independent auditors. We still, clearly, have much 

work to do and I accept that point. 

However, in most cases, we will substantially meet the first 

broad goal for audit readiness and budget statements in September 

2014, and we will then begin the formal audit in a cost-effective 

manner. Meeting this goal is an important step for the Department 

and that is something that Secretary Hagel believes in. Whenever 

I talk to him, he clearly is interested in this topic. 

Last year he made a video for the entire Department of Defense 

on audit readiness, and I will quote from that video, and that is, 

We need audit readiness and audits to demonstrate that DOD 

manages the public’s money with the same confidence and accountability that we bring to our military operations. 

Mr. Chairman, that concludes my brief opening remarks. After 

my colleagues are finished, I will be glad to join in answering questions. 

Chairman CARPER. Thanks for that testimony. I am pleased to 

hear about the video—I heard that Secretary Hagel gave underlining the importance of making progress on this front to the employees of the Department. The video I am really looking forward 

to is the one that he does later this year and says that we really 

did—not just most of our agencies, but we nailed it by the end of 

this fiscal year. And the one I am really looking forward to is 2017. 

He may not still be the Secretary, but somebody will be, and that 

is the one I am looking forward to. Thanks very much. 

All right. Mr. Speer, please proceed. 
10 

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

TESTIMONY OF ROBERT M. SPEER,1 ACTING ASSISTANT SECRETARY OF THE ARMY (FINANCIAL MANAGEMENT AND 

COMPTROLLER), U.S. DEPARTMENT OF THE ARMY 

Mr. SPEER. Chairman Carper, Ranking Member Coburn, and distinguished Members of the Committee, thank you for the opportunity to appear before you today to discuss the Army’s approach 

to implementing financial improvement, my assessment of Army’s 

progress toward achieving auditable financial statements, and implementation of the Army’s enterprise resource planning systems. 

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

McHugh, Chief of Staff of the Army Odierno, and Under Secretary 

of the Army and Chief Management Officer Carson and I remain 

committed to improving the Army’s financial management and 

meeting the Army’s requirement to be auditable by September 

2017. 

Despite the serious challenges the Army faces from ongoing resource uncertainty, the Army’s soldiers and civilians remain dedicated to improving our business processes. The Army’s financial 

management improvement plan documents the Army’s approach to 

achieving our audit readiness milestones, and includes reliance and 

iterative exams, audits from an independent public accounting firm 

to inform the Army’s audit readiness status, and provide objective 

feedback on areas requiring additional focus and corrective action. 

The Army is making progress. An independent public accounting 

firm recently examined and delivered a report on the general fund 

Statement of Budgetary Resources focusing on 2013 transactions 

within the Army’s Enterprise Resource Planning environment. Although not a clean opinion, the independent public accounting firm 

was able to complete the examination, was able to provide us and 

confirm confirmation of improvements, and throughout the examination, identify areas we need corrective action. 

In response, the Army has been implementing a plan of action 

to remediate those findings prior to the 2015 audit of scheduled 

budgetary activities. In addition, during fiscal year 2014, the Army 

received a clean opinion from a public accounting firm on the examination of real property. Those assets are at 23 different Army 

installations, which accounted for over 50 percent of the book value 

of the Army’s real property assets. This audit supports the second 

DOD audit readiness priority verifying the existence and completeness of our assets. 

Additionally, the Army continues to achieve success in implementing new systems. The General Fund Enterprise Business System (GFEBS) is our core business system used by over 53,000 users 

at over 200 locations worldwide. It enables the Army’s audit readiness progress while simultaneously modernizing and improving our 

Army’s business processes. The Global Combat Support Systems 

(GCSS), GCSS-Army, and the Logistics Modernization Program 

(LMP), our retail supply and wholesale logistics systems, will effectively complement our auditable features of GFEBS. 

We recognize audit readiness requires engagement throughout 

the organization so we hold senior executives accountable for 

achieving the audit readiness success. Since fiscal year 2012, finan-
11 

1The prepared statement of Ms. Rabern appears in the Appendix on page 78. 

cial improvement metrics have been a component of all senior executives’ annual performance assessments. 

The Chief of Staff of the Army regularly monitors progress of 

both internal assessments as well as external audits and holds formal reviews to hold leaders accountable. The Army-wide engagement has facilitated our progress to date and is critical to our overall success. 

The current fiscal environment involving defense requirements, 

both at home and abroad, present unique challenges for our organization to achieve audit readiness. However, this environment also 

affords us an opportunity to evaluate and optimize our technology, 

our organizations, our workforce, and our training to improve the 

overall business processes. 

We are looking to evaluate these financial management optimization concepts in the coming year, and to gain benefits and improve 

performance from accurate and timely auditable data. We continue 

to demonstrate improvement across the whole business process 

area. 

Our annual exams have continued to expand on scope and size 

and mirroring the growth and evolving involvement in our audit 

readiness program, while providing us valuable insights for remediation and correction toward the overall goal of achieving audit 

readiness. 

I sincerely look forward to continue our work with Members of 

this Committee, the General Accounting Office, and the DOD 

Comptroller to ensure our continued improvement in Army business processes to achieve audit readiness. Thank you and I look 

forward to the engagement. 

Chairman CARPER. When Dr. Coburn and I led the Federal Financial Management Subcommittee, we cared a lot about these 

issues as well. He is going away at the end of the year, but we are 

going to stay right on this issue for as long as it takes. He has 

worked there for years, when we were on the Subcommittee, and 

certainly now as well. So thank you. 

Mr. SPEER. Yes, sir. 

Chairman CARPER. OK. Captain, Doctor. 

TESTIMONY OF THE HON. SUSAN J. RABERN,1 Ph.D., ASSISTANT SECRETARY OF THE NAVY (FINANCIAL MANAGEMENT 

AND COMPTROLLER), U.S. DEPARTMENT OF THE NAVY 

Ms. RABERN. Yes, sir. Thank you. Chairman Carper, Senator 

Coburn, Members of the Committee, I am pleased to have this opportunity to discuss with you the progress the Department of the 

Navy is making toward Congressional mandates for financial audit 

readiness. I will share with you some of our significant achievements to date, but I will also tell you that much more hard work 

needs to be done by our Navy-Marine Corps team before we reach 

our goal of full financial auditability. 

Implementing effective internal controls over the Department’s 

business operations, verified by successful financial audits in coming years, will send a reassuring message to Members of Congress 

and American taxpayers. The message will be clear. In supporting 
12 

our Nation’s modern powerful Navy-Marine Corps warfighting 

team, the Department of Navy is minimizing the risk of misusing 

taxpayer dollars and maximizing accountability. 

The underlying fundamentals for our task are relatively simple. 

Strong, prescribed internal controls must be in place, regularly performed and periodically tested for effectiveness. Documentation 

proving the controls performance must be readily available. Implementation of these objectives is known to be extremely complex 

when applied to a very large organization such as our military department, but all the more critical in an environment of uncertainty. 

We are making steady progress toward our goals. Our most immediate objective is complying with the mandate to achieve audit 

readiness on our Department’s Schedule of Budgetary Activity by 

the end of the present fiscal year. The Marine Corps portion of this 

schedule has been under audit for four cycles, and in December, 

the Department of Defense Inspector General issued an unqualified 

opinion for the fiscal year 2012 schedule. 

In addition to the Marine Corps effort, our Department has asserted audit readiness on nine SBA business segments, receiving 

favorable examination opinions on four of these nine assertions. 

Exams on three more of the nine assertions are currently underway. The tenth remaining SBA segment, financial statement compilation and reporting, is undergoing remediation which will support an eventual SBA audit. Today I am cautiously optimistic that 

we will achieve SBA audit readiness by the end of fiscal year 2014. 

In the area of asset management we have received favorable 

audit opinions on the Department’s accountability for ships, aircraft, satellites, and fleet ballistic missiles, and shore-based ordnance. In addition to these initial successes, the Department of 

Navy is now executing a detailed plan to achieve Department-wide 

compliance with financial standards for all asset classes. 

In addition to the benefit of enhanced stewardship over public assets, our auditability efforts will assist in moving needed items to 

the warfighters more quickly and avoid excess buying. We will face 

formidable challenges as we pursue full financial auditability by 

the end of fiscal year 2017. Complying with audit standards for 

asset accountability, including accurate valuations, will be a complex endeavor. 

And as we move to strengthen the capabilities of our present 

suite of business systems, our future business systems are still 

evolving. Also, we must continue developing additional capacity to 

sustain the business improvements we have made Departmentwide in every organization, recognizing that reaching audit readiness is not a one-time exercise. 

Today I believe we have a solid approach to known remaining 

impediments to full financial auditability. As with my previous assessment of the fiscal year 2014 SBA goal, I am cautiously optimistic that the Department of Navy will achieve full financial audit 

readiness by the end of fiscal year 2017. 

As we progress, we have begun cataloging tangible efficiencies 

resulting from our auditability efforts. One example is the significant savings on our departmental bill for paying vendors by expanding automatic feeds of electronic contracting data. As manual 
13 

controls are replaced by automatic controls, bill-paying is at the 

same time less costly and more accurate. 

In fiscal year 2013, we estimate that the Department saved ap- proximately $4 million because of the specific improvements in 

electronic commerce. In a second example, one of our major commands tightened internal controls over its requisitioning process, 

adding more rigor and validating outstanding orders for goods and 

services. 

By doing so over several years, this organization canceled req- uisitions totaling $3.5 million for orders no longer needed, recouping this buying power and allowing them to purchase other needed 

items. Other instances of savings will be replicated through the Department as internal controls are strengthened and lessons 

learned. 

In closing, I would tell you that our Department-wide effort has 

the active support of our executive leadership and we are driving 

this accountability all the way down the chain of command. As we 

make the changes which move us closer to audit readiness, thousands of managers throughout the Department of Navy are embracing these positive improvements to our business environment. 

I pledge to you that you have our Department’s full commitment 

to achieve these challenging mandates through the collaborative 

hard work and persistence of our determined workforce. I would be 

pleased to address any of your questions at the appropriate time. 

Thank you very much. 

Chairman CARPER. Thanks very much. I am a retired Navy captain as well. Sometimes when we talk about difficult things to do, 

we talk about trying to change the course of an aircraft carrier, but 

we know that if we stick with it, all hands on deck, everybody pulling together, we can change the course of aircraft carriers. This is 

a really big aircraft carrier. 

Ms. RABERN. Roger that, sir. 

Chairman CARPER. And this is a really tough course change to 

make. 

Ms. RABERN. Yes, sir. 

Chairman CARPER. And it is all hands on deck. We appreciate 

some good things that are going on with the Marine Corps and the 

encouragement that you have given to us. We just want to keep 

pushing. 

Ms. RABERN. Yes, sir. Will do. 

Chairman CARPER. Thank you. Dr. Morin. 
14 

1The prepared statement of Mr. Morin appears in the Appendix on page 85. 

TESTIMONY OF THE HON. JAMIE M. MORIN,1 Ph.D., ASSISTANT 

SECRETARY OF THE AIR FORCE (FINANCIAL MANAGEMENT 

AND COMPTROLLER), U.S. DEPARTMENT OF THE AIR FORCE 

Mr. MORIN. Thank you, Mr. Chairman. Thanks for the opportunity, once again, to share Air Force progress toward audit readiness and our strong commitment to the goals set out in the legislation. Sir, in 2011, I testified to your Subcommittee at the time that 

we saw moderate risk in the Air Force’s plan to achieve overall 

audit readiness by 2017, and that that was mainly due to IT challenges. 

Since then, as you know, Secretary Panetta gave us the challenging deadline for the Statement of Budgetary Resources by 

2014. 

Chairman CARPER. I like the way you caught yourself there. That 

was good. Let me just say, my admonition at the beginning, I do 

not like acronyms. In fact, I think lots of my colleagues feel as 

strongly about it as I do. You are doing just fine on that score. 

Keep it up. 

Mr. MORIN. We will try to keep it up. In response to that nearterm aggressive challenge, the Air Force dramatically increased the 

resources that we are investing in the audit readiness effort, including both management attention and funds. 

As a result, I can testify to you today that I believe we have increased the likelihood that we will meet the 2017 audit deadline. 

And while there is a great deal of work still to be done, I have observed fundamental and positive changes in the Department’s approach to the audit agenda over just the last few years. I think 

these improvements continue under Secretary Hagel’s leadership. 

Mr. Chairman, you have been a very strong proponent of the 

military services sharing audit readiness lessons with one another. 

I am pleased to report we are doing a great deal of that, including 

learning from the work of outside auditors, like the GAO, and of 

course from our Inspector General. 

For example, a couple of years ago, the GAO briefed this Committee on deficiencies it found during an audit reviewing another 

service’s military pay records. You held a hearing on the topic and 

we saw that report. We then had the opportunity to request the Air 

Force audit agency conduct a similar review of our own pay 

records. 

We found that the overwhelming majority of airmen are properly 

and timely paid, correctly, and we found that our processes were 

generally good. However, we found that in one specific area, our 

process for reviewing and retaining documentation about the housing allowances paid to our airmen was not sufficient and we were 

not retaining enough records to support an audit. We were validating the pay was correct, but not documenting that validation in 

a way that would withstand audit. 

So as a result of that internal audit, my office put in place a new 

set of procedures for document retention and for validation. We are 

currently in the midst of an Air Force-wide 100 percent recertification of every Airman’s housing allowance entitlement for those 

with dependents. 
15 

This is one example. Another example was a best practice we 

adopted from the Navy. They used their audit agency to conduct 

monthly field testing of critical financial processes. We took that on 

a couple of years ago and last year we tested over 10,000 transactions Air Force-wide, assessing each one for compliance with a 

long list of audit requirements. We have seen compliance increase 

from roughly 40 percent to roughly 90 percent over those 2 years 

of testing. 

These are just a couple of many collaboration examples; Mr. 

Chairman, we appreciate the attention and your continued engagement. 

To make an assertion of audit readiness on the Schedule of 

Budgetary Activities at the end of this year, Air Force leadership 

will need to review our progress and remaining challenges. So let 

me provide you with just a few specifics about where we are at. 

Over the last several years, the Air Force has asserted audit 

readiness on a variety of processes. You have seen those, including 

civilian pay, budget authority and distribution, military equipment, 

spare engines, and other components of our operating materials 

and supplies. In some cases, we have received clean bills of health 

from independent auditors. In other cases, as with the other services, we have received a list of specific control weaknesses that we 

need to fix. We now have well-developed plans to resolve those 

weaknesses. 

Your Air Force is strongly committed to this effort. It is the law, 

we believe it enhances our readiness, and we believe it is an important sign of good financial stewardship. Secretary James, our Secretary of the Air Force, included the audit and making every dollar 

count as one of her top three priorities for the Air Force. She recently wrote to key leaders across the Air Force on audit readiness 

and gave them some very specific directions about things they 

needed to do to help. 

Our Chief of Staff, General Welsh, has also been a strong supporter and is engaged. In addition, many of our major command 

commanders, our four-star leadership, have integrated audit readiness into their own personal management control structures in a 

way that simply was not the case years ago. 

The support of senior leaders is all the more important when we 

are asking airmen to do difficult things like the revalidation of 

housing allowance that I mentioned, or like our count of 1.9 million 

individual items in our general equipment inventory, which we 

have been doing. Leadership support has allowed us to increase financial resources approximately eightfold and partner with a Big 

Four accounting firm to help assess our readiness and identify corrective actions. 

There are still, of course, challenges remaining despite all this 

progress and support. Our IT systems remain our biggest single 

challenge. We have made great strides, particularly in the last 

year, in fielding the Defense Enterprise Accounting Management 

System (DEAMS), to replace our current 1968 accounting system. 

We received a positive assessment from the Air Force Operational 

Test and Evaluation Center on DEAMS as currently deployed, and 

we have deployed it to six more bases since October 1. 
16 

We will complete deployment to all of Air Mobility Command in 

just the next couple of weeks and then many more bases October 

1. We are on track to complete deployment Air Force-wide before 

the full financial statement audits begin. 

I do, Mr. Chairman, want to single out the folks at Dover Air 

Force Base who were some of our early adopters, and their Comptroller, Major Will Vivoni, who is doing a great job leading there. 

They are pathfinders for us. So while the systems issues continue 

to be our single greatest risk area—— 

Chairman CARPER. I am happy to extend your time for a couple 

more minutes now. You mentioned Dover Air Force Base. Much appreciated. Actually, I will just take a moment. Every year we go— 

the Air Force and the Commander-in-Chief, go through a process 

where they evaluate all the Air Force bases across the world, and 

they go through a Commander-in-Chief evaluation, and there is 

usually an Air Force base that is on the airlift side and there is 

a base that is on the fighter aircraft side. And they sort of compete 

for the top prize. 

I think for 3 out of the last 5 years, Dover Air Force Base has 

been a finalist for 3 of those 5 years. We are enormously proud of 

them. Thank you for mentioning them. 

Mr. MORIN. Absolutely, sir. The work they are doing there supporting the mobility mission and, of course, supporting the dignified return of those that we have lost in conflicts overseas is absolutely central to what your Air Force does every day. 

So the systems issues that I mentioned are our single greatest 

risk factor. As others have testified, budget uncertainty has 

harmed our audit readiness efforts as well. Restrictions on travel 

and restrictions coming with the civilian furloughs have all had 

significant impacts. We are working to recover from those. We also, 

unfortunately, lost about 7 months due to a contract protest that 

took our independent public accounting firm support offline. We resolved that last year. 

As you acknowledged Mr. Chairman, the single most important 

thing, I think, that the Congress could do to help and to support 

our troops in this vital area would be to provide a level of budgetary clarity and to complete legislative work on time. 

Based on our assessments to date, sir, I believe it is likely that 

Air Force leadership will be able to assert audit readiness for our 

Schedule of Budgetary Activity at the end of this fiscal year. That 

is a decision to be made later this fiscal year, but that is my current assessment. 

An audit of the Schedule of Budgetary Activity beginning in 2015 

will be challenging for the Air Force, but I think it will help us accelerate towards a clean audit opinion on all of our statements. I 

think getting auditors’ eyes on our processes has paid dividends so 

far and will continue to do so. 

My final point, if I may, is that for financial improvement and 

audit readiness, the journey is every bit as important as the outcome. 

It is through the process of building toward these clean audits 

that we are identifying weaknesses in department financial management that we can focus on and correct. It is the correcting of 

those weaknesses that enables us to carry out our mission as finan-
17 

cial managers in DOD, which is to produce the maximum amount 

of combat capability for this Nation with each taxpayer dollar that 

is entrusted to us. That is the job. This journey is well worth the 

effort. 

Chairman CARPER. Well said. Thank you very much to each of 

you for your testimonies this morning. We have a vote underway 

and we are about 5 minutes in. I am going to go ahead and ask 

some questions and then head off and vote. Dr. Coburn is going to 

come back. Between him and Senator Tester we will tag team and 

make sure we keep going and do not lose any time. 

I mentioned GAO tells us weapons systems cost overruns for 

major weapons systems, I think, is over $400 billion. Every now 

and then, though, we do some smart things, too, and I just want 

to acknowledge that. We have about 100 C–5A’s and B’s aircraft, 

huge cargo aircraft. They are about 30, 40 years old. They are very 

reliable in terms of providing the airlift that we need from time to 

time. 

We collectively made a tough decision, what to do with them. We 

ultimately decided to go ahead and begin retiring not all, but some 

of the C–5A’s, the older aircraft, and to take the C–5B’s and modernize them. And as Mr. Morin and others know, we have now 

modernized not all, but most of the, I think, C–5B’s. They are now 

C–5M’s. We have a whole squadron, about 18 of them at Dover Air 

Force Base. 

About a year and half ago, one of them set, I think, 40 world 

records for the ability to carry cargo nonstop. We fly routinely over 

the top of the world from Dover Air Force Base to Afghanistan. 

They use less gas, they are quieter, and they are much more reliable. I think operations maintenance, rather, their operational capability is approaching 80 percent, which is where it ought to be. 

So we are pleased with that. 

The first question I want to ask is to Comptroller Hale on meeting audit goals. As I mentioned in my opening statement, Secretary 

Hagel has been vocal in his support, as was Secretary Panetta, for 

improved financial management at the Department of Defense. 

Leadership is the key. If we do not have leadership on this stuff, 

we will never get it done. And their support, from both of them, 

is incredibly important. 

I applaud their strong commitment to improving financial management. Some people think this stuff is just green eye shades and 

it is not especially interesting and people get lost in the acronyms, 

SBA, ADA, SBR. What does all this mean? Well, what it means is 

the ability to be ready, for us to be ready to take on a fight, whatever part of the world it is in. 

For us to be effective, to be able to do so with minimal loss of 

life to our folks, to be able to make sure they are paid, that we 

have travel systems that work, that we are able to provide for their 

healthcare needs, that the weapons that they need, the weapons 

systems that they need are reliable, that we have the spare parts 

that we need when we need them. 

We need to have the ability to have electronic health care records 

when people go from active duty into the Veterans Affairs (VA) system. All that is necessary for us to be ready for the fight. 
18 

Warfighters are counting on us. The American taxpayers deserve 

our best efforts on this front. 

So, again, Mr. Hale, I have already pointed out this is, I think, 

your last appearance before this Committee. Kind of a mixed blessing, is it not? But we are glad, nonetheless, to see you and wish 

you well. I understand if you do retire, there is a fellow that the 

Administration thinks would be a worthy successor. His name is 

Michael McCord. Has he actually been nominated? 

Mr. HALE. Yes, he has been nominated and through Committee 

for confirmation. 

Chairman CARPER. OK. Fair enough. Thank you for that update. 

In your statement, you said that we expect that most of the DOD 

budget statements will be ready for audit by September 30, 2014. 

That would imply that some parts of DOD will not be audit ready. 

Also your testimony says that for the Department-this is, I think, 

a quote—eventually a fully auditable Statement of Budgetary Resources will emerge. 

I would just say, the audit goal is for the entire Department, to 

have a fully auditable Statement of Budgetary Resources by the 

end of fiscal 2014. And that is not that many months away. 

Mr. Hale, will the Department of Defense meet the 2014 deadline 

for achieving a fully auditable Statement of Budgetary Resources 

or will just some of the requirements of that deadline be met? 

Mr. HALE. Well, Mr. Chairman, I think that we will meet the 

great majority of them, but I am not going to put into audit statements and waste the taxpayers’ money if they are not audit ready. 

There may be a few that are not. Principally, probably, in the Defense agencies. We started later with them and they are particularly complex, although they are smaller. 

I hope we can make it with all of them, but I want to be candid 

with you that we may not and we will move immediately to fix 

those as quickly as we can. I want to get to the top of the hill 

badly, and that is audit readiness for all of the Statement of Budgetary Resources, but I also do not want to waste money by putting 

into audit a statement that we know is not ready. 

So bottom line, I think we will get there for most, but there may 

be a few that are not ready by September 30, and we will move 

as quickly as we can to fix those. 

Chairman CARPER. Most can be 51 percent. Most can be over 

half. 

Mr. HALE. I think it will be more than that. I expect you have 

heard my colleagues say that we expect—there is a good chance 

that all four of the military services will declare audit readiness. 

That is probably more than 80 percent of our budget if that happens. All of our trust funds, like the military retirement trust 

funds, are all ready. They are auditable or under audit. 

And a number of our agencies are ready, but a few may not be. 

So it will be substantially more than 51 percent. 

Chairman CARPER. All right. Mr. Hale, the difference between a 

Statement of Budgetary Resources audit and a Schedule of Budgetary Assessment audit is, understandably, confusing to a lot of my 

colleagues and even our staff, smart as they are. 

But to my understanding, is that the Schedule of Budgetary Assessment is just a portion of the full Statement of Budgetary Re-
19 

sources. I also understand the Department will need several years 

of conducting the Schedule of Budgetary Assessment in order to 

meet the requirements of the Statement of Budgetary—— 

Mr. HALE. So let us use English. It is current year versus the 

prior year. 

Chairman CARPER. Statement of Budgetary Resources audit. 

Mr. HALE. Right. 

Chairman CARPER. All right. That was clear, was it not? 

Mr. HALE. Yes. 

Chairman CARPER. No wonder this is hard to do. It is hard to 

even say. 

Mr. HALE. It is hard to say. So we want the full statement, which 

is all the current year transactions and prior years. Some go back 

as much as 10 years. That was our goal and when we got into the 

Marine audit, we realized that we could not produce the documentation quickly enough. Do you need to leave, Mr. Chairman? 

Chairman CARPER. In a moment. 

Mr. HALE. When we got into the Marine audit, we realized we 

could not produce the prior year documentation quickly enough. 

Some of it is probably in long-term storage. It goes back as much 

as 10 years. And we were basically wasting our time and audit 

money looking for data that we could not get. 

So we said, Look, let us go after the current year, it is the most 

important one. It will buildup over a couple of years a body of data 

where we do have the documentation and that will lead us to a 

Statement of Budgetary Resources. 

I want to get to the top of the hill, but I want to do it in a manner that is reasonable and efficient. If we have to vary the path a 

little bit we will, and that is what we have done here. But there 

is no change in the goal. We want to do the full Statement of Budgetary Resources, including both the current year and the prior year 

information. 

Chairman CARPER. All right. Sometime later this year, you will 

be gone. Maybe Mr. McCord will be in your seat, in your shoes. I 

said earlier we are going to stay on this. And Dr. Coburn is going 

to be here until the end of the year. I wish he would stay on a lot 

longer. We are going to make sure every day that he is here and 

I am here, this Committee is around, that we are going to just stay 

on top of this. And if it is 80 percent or 90 percent, that is better 

than certainly 50 or 60 percent. 

Mr. HALE. Better than zero. 

Chairman CARPER. It is a lot better than zero, but it is not 100 

percent and we want to get as close to 100 percent as we can. And 

we want to be helpful and not a problem in getting to that goal. 

Senator Tester and then when Dr. Coburn comes back, he will be 

chairing and I will be back shortly. Thank you. 

OPENING STATEMENT OF SENATOR TESTER 

Senator TESTER [presiding]. Absolutely. Thank you, Mr. Chairman. I do want to thank the Ranking Member and I want to thank 

all the witnesses for being here today. In the Banking Committee, 

we talk about banks that are too big to fail, and I do not know how 

we got to this point, but maybe the DOD has gotten too big to 

audit. 
20 

I certainly hope not because I do not think anybody around here 

disagrees that a full audit of the Pentagon’s books is critical for 

moving forward. It would not only help identify ways to increase 

operational efficiencies, it would increase transparency, it would 

bring a more appropriate level of oversight to the Department of 

Defense. 

In a budget environment in which we continue to see requests 

for program eliminations, base closures, reduced personnel benefits, 

the DOD’s failure to meet audit readiness is frustrating. 

I appreciate the fact that Mr. Hale talked about being at 80, potentially 90 percent, but the Chairman is right. We need to get to 

100 percent, especially when we continue to hear about wasteful 

contracts in Afghanistan or the failure of the DOD to develop an 

electronic health record in tandem with the VA. We can do better, 

we must do better, and I do look forward to working with all of you 

to get it done. 

As I said when I opened, I do not know how we got here, but we 

have to get this fixed because, quite frankly, it is unfair to the 

country and really unfair to the taxpayers. 

Mr. Hale, in your testimony, you highlighted that one of your 

three goals is resources in a legal, effective, and efficient manner. 

A few months back, we had a few conversations—I appreciate 

that—about a provision in last year’s omnibus appropriations bill 

that is related to the environmental studies for Intercontinental 

Ballistic Missile (ICBM) silos. You are nodding your head. You remember. I appreciate those conversations. 

As you remember, I felt strongly that the language in the bill 

clearly prohibited the DOD from taking certain actions. Meanwhile, 

there were some, not all, but some in the Pentagon and high places 

that seemed intent on moving forward regardless of what Congress 

had to say on the matter. 

This was incredibly troubling to me, and there is no doubt in my 

mind that the DOD would have completely disregarded this particular provision if we would not have put pressure, myself and 

some other Senators, on the DOD. 

I just want to ask you a few basic questions. Would you agree 

that disregarding the voice of Congress is dangerous and counterproductive? 

Mr. HALE. Yes. It is also illegal. 

Senator TESTER. That is good. When there are questions about 

the DOD’s authority to execute certain funds, how are they resolved? 

Mr. HALE. Generally it is clear, from what you say, in the law. 

When it is not, we consult our lawyers and sometimes they consult 

the Administration lawyers, and that happened in this case. Lawyers can disagree or there can be vagueness, and so at that point 

there has to be an adjudication at the highest level, and it occurred 

here, it does not always come out the way you want, but that is 

the process. 

Senator TESTER. OK. 

Mr. HALE. I should tell you that we took it seriously. 

Senator TESTER. And I appreciate that and I think you did. You 

talked to your lawyers, you talked to the Administration’s lawyers. 

Do you ever engage in Congress when there are conflicts like this? 
21 

1 Information submitted by Mr. Hale appears in the Appendix on page 154. 

Mr. HALE. Yes, I think so. I mean, it would probably be better 

to have our general counsel here, but I believe there are discussions with Congressional lawyers when it is appropriate. In the 

end, I mean, we will be guided by the Administration’s lawyers, but 

we do talk. 

Senator TESTER. OK. I just think it is really critically important. 

I think Congressional intent is very important, and I will tell you 

that it was more than just a little bit disconcerting when we had 

the conversation with the ICBM caucus Senators, and basically one 

of the people in that meeting basically said, We do not care. We 

are doing what we want to do. 

Mr. HALE. I would not agree with that. 

Senator TESTER. Well, were you in the meeting? 

Mr. HALE. No. I mean, I would not agree with the statement. 

Senator TESTER. OK, perfect. That is good. 

Mr. HALE. I was not in the meeting. 

Senator TESTER. Now I want to talk about the inability of the 

DOD and the VA to coordinate development and deployment of 

electronic medical records. The Chairman talked about it a little 

bit. It allows for a seamless transition for a service member. It is 

the right thing to do. It has been talked about since January 2007 

and maybe before when I walked into this body. 

To what extent are you able to answer what the specific challenges are here? Because it seems pretty basic stuff to me. DOD 

gets together with the VA and moves forward with an electronic 

medical record that talks to one another. So what is the problem? 

Mr. HALE. Well, I am not the expert here, although I am definitely aware of the issue and I think DOD and the VA are committed to that. We have differing views at times about which system to use, but if we choose a different system, it will have to be 

able to talk to Vista. However, I would like you to consult with others rather than me on the details of that. 

Senator TESTER. OK. Anybody specifically? 

Mr. HALE. I will get, it is probably just right, our Acting Under 

Secretary of Defense for Personnel and Readiness (P&R) or our 

lawyers. 

Senator TESTER. OK. 

Mr. HALE. I will get you that.1

Senator TESTER. Well, this brings me to another issue. If it happens with VA and DOD, the question becomes-when it comes to 

major acquisitions that the military is going to make, to what extent does your office engage with other agencies, for instance, 

DHS? There is some parallel work that is being done. They may 

have already something tricked out that works from a technological 

standpoint. Do you consult with other agencies? 

Mr. HALE. Yes. I mean, we have cooperated with other agencies, 

satellite programs, with the National Oceanic and Atmospheric Administration (NOAA), for example, as just one example. Many of 

our weapons are somewhat unique and therefore, the Departmentthere are not other agencies involved, but where that is appropriate, I believe we do do it. Do you have something specific in 

mind? 
22 

1 Information submitted by Ms. Rabern appears in the Appendix on page 154. 

Senator TESTER. No, I can give you specifics, but generally 

speaking, I think it is critically important, when you guys are looking at a new system, to look around and see if somebody has already built it and then you could utilize it. It saves a whole bunch 

of money and eliminates the problem. 

I know that there are turf issues. We see it in the Senate between committees. It is silly and I think it is silly between agencies, too. So if you can utilize that, I think it makes it more cost 

effective. And I think it makes you more effective overall. That is 

all. 

Susan—and I appreciate you all being here. But you represent 

the one service on the panel that has achieved audit readiness. 

Congratulations. 

Ms. RABERN. Thank you, sir. 

Senator TESTER. I appreciate your examples of how this accomplishment translates into real-world benefits for our military, our 

veterans and those who do business with the DOD. Do you have 

an estimate of the savings that you have achieved from the Marines audit? 

Ms. RABERN. Across-the-board, I do not, but I would be happy to 

provide that for you, sir.1

Senator TESTER. That would be great if you had it. I mean, I 

think that if you could use—if you could utilize the information 

that you have gained with yours, with your audit process, I think 

that it makes it all that more important to get a DOD-wide audit 

done. 

I just want to close by saying something similar to what the 

Chairman said before he left. There is no reason the DOD cannot 

have an audit. If it is because you are too big, then we need to address that, and you need to be honest with us, but I do not think 

that is a reason. 

I think it has been something that there has not been a focus on. 

I get the impression that Mr. Hale has put a focus on it and I appreciate that. The proof is going to be in the pudding because the 

charts that the Ranking Member put up about 2001 compared to 

today are spot on, and if we are here next year or the year after 

and we still have those same kind of charts up, there is going to 

be some ramifications to that because more and more people in the 

Senate are aware of this and they want it fixed. Thank you all. 

Senator COBURN [presiding]. Thank you, Senator Tester. 

Let me make just a few comments. Audit readiness to me is a 

misnomer. What you want is an audit to see whether or not you 

have the financial controls in place with which to make management decisions. You do not do an audit to do an audit. You do an 

audit so that it enhances and hones your ability to make financial 

judgments based on the data, to know that your data is accurate. 
23 

1The chart referenced by Senator Coburn appears in the Appendix on page 135. 

So, I put up this little chart.1 It is the audit deadlines, and I understand Senator Carper asked you about SBA versus SBR. But 

the fact is, an SBA is meaningless to me as an accountant because 

it gives you just one little scope of period. And the Pentagon has 

multitude of programs that are run in years. So all it says is for 

this one short period of time, we have some financial controls if you 

pass it. Not on the statement of resources, but on the statement 

of activity. 

And so, the whole idea of an audit is to have an audit to know 

what your holes are and your financial weaknesses and your management weaknesses, so you can change things. Now, let me give 

you an example of somebody who has done it right in the Air Force, 

General Wolfenbarger. She is responsible for $16 billion at the supply depots. Three years ago, she instituted a continuous process improvement. Most of the people in the Pentagon do not even have 

any idea what that is. 

But it is how every other modern business combines their audit 

information with their management so that they achieve savings. 

General Wolfenbarger and her team have saved, year to date in the 

last year, about $680 million, and they did it because they actually 

know what they are doing because they got good numbers. 

The question I asked her after she made her presentation is, 

could you pass an audit? Of course. We could not do continuous 

process improvement unless we could pass an audit. So I kind of 

want to take us away from audit readiness, which is the buzzword 

that we are hearing at this hearing, to having an organization that 

has the financial controls with which to make the proper decisions, 

because that is the whole basis. 

The audit is the check to see if you have got the information systems, if you have got the financial data. I also have one other anecdote. The commanding general at Altus Air Force Base cut $100 

million out of his budget in one year. It is a small Air Force base 

and he did it through good management. He did not have a general 

saying, You will cut $100 million. He did it on his own. And, of 

course, the flashback came, You did not spend all your money, 

which is another problem. Use it or lose it. 

So Mr. Hale, really what has happened is, based on the NDAA, 

we have descoped on the basis of the outlet clause that was in that, 

that if it is too hard or too expensive, you can go to one year audit 

readiness. Right? We descoped what the NDAA said. Is that not 

correct? 

Mr. HALE. Yes, but only as a way to get to the top of the hill, 

because we knew we could not get there any other way. I mean, 

we still want the full statement and we will get the full statement. 

That is the whole point. But I did not want to waste taxpayers’ 

money doing audits when we knew, after the experience in the Marines, that we did not have 10-year-old data quickly enough to satisfy audit needs. So we are going to build toward it more slowly. 

Senator COBURN. So when you meet the statutory deadline, if it 

is met, you will have only 5 years of data? 

Mr. HALE. Well, I think we can do better than that. As you get 

back to the far distant data, it is small as a percentage. If we can 
24 

get the first few years correct, I think the percentage will be small 

enough that we may have to engage in some special efforts, but I 

believe that we will not have to wait 10 years. I mean, it is certainly not our plan. 

Senator COBURN. So is 2 years data good? 

Mr. HALE. I do not know if two will do it, but I would hope two 

or three would do it. 

Senator COBURN. But right now, do we not have last year’s data? 

Mr. HALE. We would have last year’s data, yes. It is when we go 

back—I mean, some of our accounts are open for obligation for 5 

years, military construction, for example. And then the law allows 

up to 5 years to expend the money. So some of it goes back as 

much as 10 years. You get back 5, 7, 8 years, we do not have it 

readily available. It is there, but it could be in some long-term storage and we need it quickly during an audit. An auditor cannot wait 

for weeks while we are looking for the data. 

And we just found with the Marines, we were not getting there. 

So, I want to get to the top of the hill, but I want to do it in a 

way that is as quick as possible, and also mindful that I do not 

want to spend audit money and I am not getting anything for it. 

Senator COBURN. So that question comes on, on construction accounts, for example. Whoever is managing that does not need that 

long-term data to manage that effectively right now? 

Mr. HALE. Yes, they need the data right now. I wish I had it and 

I do not. 

Senator COBURN. So the point is, is because we do not have the 

data and we have not developed a system for the data, you cannot 

manage it effectively right now because you have information that 

is missing. 

Mr. HALE. I think our management is impaired. I mean, we do 

have information on obligations, and I know that is correct. We do 

150 million accounting transactions a year. If 1 percent is wrong, 

we have 1.5 million wrong transactions. We would have massive 

mispayments. We have massive Antideficiency Act violations. None 

of that is occurring. 

But we need the audit both to verify it and especially for the outlay data. So I agree with you. We need this information as quickly 

as we can get it. I do not want to waste money in the process of 

getting it, and I know you do not want me to do that either. 

Senator COBURN. So in your written testimony, you say, DOD 

does have accurate information about where we obligate public 

funds. If that is true, you know where the money is going. 

Mr. HALE. Yes, we know where the obligations are going. And 

again, my rationale there is what I just gave you. If we did not, 

we would have massive antideficiency—I mean, even if a tenth of 

a percent were wrong, we would have 150,000 wrong transactions 

every year. We would be paying the wrong people, we would be 

overrunning accounts. None of that is happening. 

Senator COBURN. So my question is this: If you know where the 

money is going, then you should have a Statement of Budgetary 

Resources. 

Mr. HALE. And that is a good question. And I cannot document 

it in a manner that satisfies auditor. I know it is there because otherwise I would have the problems I just described to you. But I 
25 

1 Information submitted by Mr. Hale appears in the Appendix on page 154. 

cannot document it in a way that will satisfy an audit and we need 

to do that. Moreover, the outlays are more of an issue. I think we 

do not have—— 

Senator COBURN. So you know that, but you cannot document it. 

So my question to you is, how do you know that? If you cannot document—if somebody comes in, you cannot prove it to an auditor, 

but you can sit here and testify that you know it, but you cannot 

give us the backup information to say that is true, how can we rely 

on that as a—— 

Mr. HALE. Senator, if there were any significant percentage that 

were wrong, as I said, we would have massive mispayments, and 

I will tell you what, we would hear about them real quickly if we 

were not paying our vendors, if we were not paying our people, and 

we have some, but they are tiny as a percentage. 

So I know that that information is right. That does not take 

away, in my mind, for the need to do the audit at all. We need to 

verify through an independent audit and we need to correct, other 

than the obligations, and we need to improve our business practices. 

Senator COBURN. OK. The Antideficiency Act you mentioned is a 

key to Congress’s constitutional power to control the purse strings 

and ensure that public funds are spent as appropriated. The DOD 

IG reported that it found hundreds of near-missed ADA violations, 

Antideficiency Act violations—I will try to not use the acronyms to 

please my Chairman. 

Mr. HALE. You could get in trouble, too, Senator. 

Senator COBURN [continuing]. Because of inadequate funds control and that several of these near misses turned out to be actual 

Antideficiency Act violations. In your testimony, you note that one 

way to reduce the Antideficiency Act violations is to process potential violations quickly. But GAO has reported several examples 

where investigations of potential Antideficiency Act violations took 

months or even years to complete. 

Would you provide us the number and dollar amount of the investigations that have been initiated, completed, and reported for 

the last 2 years? 

Mr. HALE. Yes. I do not have those in my head.1 What I can tell 

you is when I took over this job, we had about 25 ongoing ADA investigations that were late. Now we are down to one and I have 

worked with my colleagues here and they can attest to that—that 

we needed to speed up the process. Oftentimes, by the time we finally get done, people are retired, and we need to hold them accountable by doing this more quickly. 

Senator COBURN. OK. The other thing I would like for you to answer—you do not have to answer this today—is the average length 

of time it takes to complete one of those and how many people are 

involved. 

Mr. HALE. OK. 

Senator COBURN. You have also reported, and you said so again 

just in your recent testimony, that they are a small portion of your 

budget. 

Mr. HALE. Yes. 
26 

Senator COBURN. My question is, is it OK to have those even 

though the numbers are small? 

Mr. HALE. No. I mean, zero is the only right goal. I do not know 

that I will ever get there, but it is the only right goal. 

Senator COBURN. Are you aware that the DOD IG has reported 

that of the 120 actual ADA violations, Antideficiency Act violations 

reported by Federal agencies, 82 were reported by the Department 

of Defense? 

Mr. HALE. I do not recognize that number. What I have calculated is the percentage of our budget. 

Senator COBURN. Well, but your budget is the biggest budget in 

the Federal Government so percents do not mean anything. Actual 

dollars mean something to the American people. 

Mr. HALE. Zero is the only right goal. 

Senator COBURN. OK. I guess we will come back for another 

round. 

Mr. HALE. OK. 

Senator COBURN. Thank you. 

Chairman CARPER [presiding]. Senator Johnson, I think you are 

next and then Senator Ayotte. 

OPENING STATEMENT OF SENATOR JOHNSON 

Senator JOHNSON. Thank you, Mr. Chairman. I want to continue 

to explore this term audit ready, because I do not think it should 

be a goal. I mean, it should be a requirement. In business, I would 

go to the department or division and say, ‘‘Are you ready for the 

audit? ’’, because the audit was going to happen. I just think the 

purpose and the goals here are just being misused and I think that 

is part of the problem. 

The goal of the audit is not to just prove you are doing everything right. The audit should be used as a management tool to be 

conducted to tell you where you have deficiencies. 

So I think the reason we do not have an audit for the Defense 

Department is because we have been pursuing what should be a 

requirement, audit readiness, when we should be pursuing just 

having the audit and then using the information, because it is 

going to be a qualified audit. You are not going to get a clean audit. 

But the goal would be then to utilize the information from the 

audit to drive your management. 

So tell me where I am wrong there. Tell me why we are pursuing 

what I think is the wrong goal and why do we not just start conducting audits? 

Mr. HALE. A couple of years ago, we knew we were not ready and 

we would have simply wasted time. The auditor probably would 

have come in and said, You are not even close, and so we would 

end up paying them to do nothing. That was—— 

Senator JOHNSON. First of all, I totally disagree with that assessment. 

Mr. HALE. OK. 

Senator JOHNSON. I do not see how spending money on an audit 

to determine how bad you really are is a waste of money. 

Mr. HALE. Well, I would ask the GAO and IG if they agree that 

we, 2 or 3 years ago, should have immediately begun an audit. But 

now, I think we are to the point where you are exactly right. We 
27 

will learn so much more by getting into audit because we will have 

a private sector audit firm that really knows this stuff telling us 

what is right and what is wrong. 

Senator JOHNSON. So when will we do that? When are we going 

to start? Have we ever conducted an audit on any component of the 

Defense Department? 

Mr. HALE. Oh, yes. If you look at my prepared statement, you 

will see we have audited or been examined by independent public 

accountants a large number of parts. We had a full-up audit of the 

current year of the Marine Corps, and they just got a clean opinion 

last December. And I hope and I think that we will have—— 

Chairman CARPER. Excuse me. Would you just stop right there? 

Say that again, your last statement about full year end—just say 

that again about the Marine Corps. 

Mr. HALE. The Marine Corps had an audit completed last December of the current year of its Statement of Budgetary Resources 

and got a clean opinion in December of last year. We expect they 

will get another one—that was on the 2012 statement on the 2013 

one. Does that answer your question? 

Chairman CARPER. I am confused. I was thinking that progress 

had been made on 2012, not on the current year. 

Mr. HALE. No, I meant current year meaning the 2012 data, just 

that year, not the prior year data where we could not find the documentation quickly enough. 

Chairman CARPER. OK. All right. 

Mr. HALE. So that was the year of 2012. 

Chairman CARPER. Fair enough. That will not be counted against 

your time. 

Senator JOHNSON. I want to go to a statement that Senator Tester talked about, whether the Department of Defense is too big to 

be audited. I just want to point out the fact that Walmart’s, revenue exceeds $450 billion per year. They have 2.2 million employees, 1.3 million just here in the United States. They have to go 

through an audit, and they do it successfully, because of SarbanesOxley, risking prosecution and fines if they do not have a successful audit. 

What is different about the Defense Department than Walmart 

in terms of why you just do not do an audit and why you cannot 

successfully complete one? Tell me the difference between private 

sector and public sector, why this has been such a difficult task. 

Mr. HALE. Well, first off, we are not too big, I mean, and we will 

divide it up into sections and we are not too big to do it. That is 

certainly not a reason. Size makes it harder, but we are not too big. 

If you ask me why we are not done now, I would really like to 

have the first 15 years after the Government Management Reform 

Act, which required auditable statements in 1994, I would like to 

have them back. We made some progress then, but there was never 

a coherent plan in the Department and we did not have systematic 

senior leader attention. 

I think in the last 5 years, we have solved both of those problems. We now have a plan. We have resources set aside, which was 

not the case in those first 15 years, and we clearly have senior 

leader attention. It starts with Secretary Hagel, but as you have 
28 

heard my colleagues say, it goes down through their own leadership and so on. 

Senator JOHNSON. Let me back up. The point I am trying to 

make is if back in 1994, you would have just started conducting audits, start auditing, start seeing the deficiencies and start correcting based on the information, why did we not do that? Would 

that not have made sense to do that? 

Mr. HALE. Well—— 

Senator JOHNSON. Does it not make sense to do that now? 

Mr. HALE. I think it does now. 

Senator JOHNSON. Why delay 3, 4, or 5 years? 

Mr. HALE. I think it does now and we intend to for the budget 

statement. 

Senator JOHNSON. Anybody else want to chime in in terms of 

why do we not just start auditing? And does that not make sense 

for some reason? 

Mr. SPEER. No, sir, to me it does not make sense if you know you 

are not ready. An independent public accounting firm would come 

in and if after doing an evaluation and testing right away would 

disclaim. It depends on where you are in your current environment, 

your controls, and the benefits you can get out of doing the audit. 

And the cost of that was deemed to be, and rightfully so, that you 

would not get anywhere to where you are improving or get the financial information that they are expecting and the benefits. 

Senator JOHNSON. You know what you get out of it? A lot of 

management pressure to correct the deficiencies, which I am not 

seeing right now. That is what you get out of it. 

Mr. SPEER. I agree with where we are right now. 

Senator JOHNSON. Certainly in public companies, they have the 

necessary pressure. If they do not do it, they are either going to 

jail or they are going to have massive fines implemented against 

them. What kind of pressure do we need to institute against the 

Department of Defense to actually get it done? 

Mr. SPEER. Senator, I believe we have it right now and I believe 

you have heard it here already. I think to get audited, you are 

going to hear GAO talk about the six issues and six challenges you 

have to meet. We have got leadership involvement now. You had 

to have a reality of understanding the benefits that the Ranking 

Senator talked about. 

It is not just a journey. It is a journey to get you there and prove 

the controls, but it is using the financial information for the benefit 

of the entity, and we are about making leadership understand that. 

The Vice Chief of Staff of the Army now sees it as readiness, 

readiness to the units that he oversees. He is brought into the strategic readiness where he looks at units being ready to go. He had 

to have the understanding and control governance over it. So now 

that you have the controls put in place, we are putting controls in 

place that allows the audits. We had systems that did not talk to 

each other. I do not know how we got to where we were. 

Senator JOHNSON. I understand. Again, let me get back to the 

point. How much of the Defense Department has undergone an 

audit, what percentage? 
29 

Mr. HALE. For the budget statement, it is probably 10 percent at 

this point. I think for the budget statement, after September, I 

hope, it will be in the high 80s or more. 

Senator JOHNSON. How have you broken down this task into 

components? What are the components? Is it strictly by service 

branch? How have you broken it down? 

Mr. HALE. More than that. 

Senator JOHNSON. Have you broken it down even further? 

Mr. HALE. By service and then also each Defense agency and 

some trust funds on the side. But then we have broken it down, 

as my statement indicates, into various categories of information, 

military and civilian pay, our disbursing activities, the various activities that we conduct financially. And we have sought to improve 

those processes to the point where we can get an examination by 

an independent public accountant—we are not grading our own 

homework-and have them come in and say, Yes, it is either right 

or no, you have to do the following things. 

Senator JOHNSON. Is part of the problem there because as those 

systems are systemwide and they become massive, it becomes pretty difficult to get your arms around that? Again, in a public company, you would audit a division or a department and you would 

knock it down to small enough component parts and you would 

complete it. Basically, it is like cleaning out a garage. 

You go in the corner, you clean out one of the corners first. 

Again, have we made this so massive, have we made it such a process that we are just not getting it completed? 

Mr. HALE. I do not think so. I think it has been a lack of a coherent plan and attention in the first 15 years. I think we have got 

them now and you are seeing the results. We are going to be under 

audit, I believe, starting in October or November for the fiscal 2015 

statement on most of the Department’s budget. 

Senator JOHNSON. Thank you. I am out of time. 

Chairman CARPER. Your time is expired. Senator Ayotte, you are 

on. Welcome. 

OPENING STATEMENT OF SENATOR AYOTTE 

Senator AYOTTE. Thank you. This is obviously a very important 

topic. Appreciate all of you being here and I appreciate the Chairman and Ranking Member having this hearing. 

One thing I am trying to get a hold of is—and I know, Secretary 

Hale, we had a recent Armed Services Committee hearing on this 

acquisition topic as well. I mean, the Department is just littered 

with failed acquisition programs throughout the services. I mean, 

billions and billions of dollars. There are lots of examples. $2.8 billion wasted on National Polar Orbiting Operational Environmental 

Satellite System; 2.5 wasted on the Transformational Satellite 

Communications System. 

From 2007 to 2013, the Air Force wasted $6.8 billion on 12 major 

acquisition programs that never went to field. Help me understand. 

I believe that this audit issue is incredibly important, and the fact 

that we are now diminished from a Statement of Budgetary Resources, which was what what was in the NDAA in terms of requirement, to a statement of budget activity which really only 
30 

shows us the year window, how is this tool going to help us with 

the acquisition programs, Secretary Hale? 

Mr. HALE. Well, first off, let me repeat, the Statement of Budgetary activity of the current year is just a means to get to the full 

statement because we did not have-we cannot produce the data or 

documentation quickly enough. So we are not backing off of the 

goal of auditing the full statement at all. We are just getting there 

in a way that I think is cost-effective. 

I am not going to sit here and tell you, Senator Ayotte, that financial statement audits are a panacea for every problem in the 

Department of Defense, including all the acquisition issues. Requirements are a key issue in terms of determining whether we 

succeed in acquisition, as are the skills of the workforce, and I 

think Frank Kendall is working those issues hard. 

But I believe we could help by tightening our controls and we 

will have to do that in the process of getting the financial statements, in terms of giving all of us, including Frank Kendall and 

those who work for him, better information. 

Senator AYOTTE. Can I ask you about a particular one? 

Senator COBURN. Could I interrupt for just a second? 

Senator AYOTTE. Sure. 

Senator COBURN. Here is the difference, Bob. In a large business 

with big acquisitions, the CEO is getting a report every week, 

whether it is on time or on budget. We do not have that. Secretary 

Hagel does not know the major acquisition programs, whether it be 

an enterprise resource program or a weapons system or anything 

else. He is not getting a weekly report so he can act on it because 

we do not have the information to give it to him. 

That is the key point. That is why the audit is important, so you 

will get the financial information so you can flow the information 

up to the decisionmakers so that when you have a red flag, they 

know it. Not 2 years after the red flag came up, but the day the 

red flag came up. 

Senator COBURN. Not after we spent billions of dollars. 

Mr. HALE. It sounds reasonable to me, Senator Coburn. 

Senator AYOTTE. Thank you, Senator Coburn, and I agree fully 

with the comments of Senator Coburn and how important this is. 

So this morning, there was a description of reports that the Pen- tagon is going to field an $11 billion contract to overhaul its electronic health records system, and this would be by far the biggest 

IT contract since healthcare.gov failed rollout. 

And with all due respect, we do not really have—I think there 

are a lot of issues with IT acquisition, not just in DOD, but this 

has been an issue that this Committee has focused on across the 

government. And as I hear that, it raises red flags for me in terms 

of what controls are going to be put in place given that you are not 

in a position, as you would like to be, Secretary Hale, to have this 

type of data that we just talked about. 

What are the controls that are going to be in place for taxpayers 

on this huge contract? Important. I understand the purpose of the 

contract. It is going to, as I understand it, impact all of the health 

records for our men and women in uniform, but we have a history 

of not having-obviously, we are not in the place we want to be on 

the audit. 
31 

We have notable examples of failed IT projects and this is an $11 

billion project. So what controls can you assure us are going to be 

put in place as you go forward with this? And I guess a good question is, will Secretary Hagel get those reports weekly to know 

whether the $11 billion is being spent properly and we are on time? 

Mr. HALE. That one I think I can tell you he will. He is deeply 

and personally involved in that program. Frank Kendall meets 

with him weekly, and although I am not in those meetings typically, I think that this issue will come up. I think he will get regular reports. We will give him the best data we have, and actually 

on the obligation side—we have had this conversation before—I believe our data is fundamentally accurate. We still need to do the 

audit to verify that, but I am not seeing the problems that would 

occur if it were not accurate. 

The key thing on the IT—two key things. One is the requirements. There has been a lot of time devoted to trying to make sure 

the requirements are right in this contract. So although I am not 

the best guy to talk about it, I know that there has been a great 

deal of attention. 

And I think Frank Kendall, if he were here, would say that we 

need to develop better training for our acquisition professionals in 

IT. And they are consciously working to expand the curriculum, for 

example, the Defense Acquisition University, to try to improve the 

training. 

Senator AYOTTE. So I think this is a contract that this Committee also—we really need to keep an eye on it. It is $11 billion. 

It is a huge IT acquisition and it makes me very concerned. I am 

glad that the Secretary himself is going to focus on this because 

there are just too many examples where we have invested in IT 

projects that have not gotten the results, and $11 billion is a significant project. 

Senator COBURN. Why not convert the VA system to the military? I know that we always have a reason why, just like on our 

ERP programs, we always buy programs and then modify them to 

fit the military, rather than have the military modify their programs to fit a proven system. 

Senator AYOTTE. Great idea. 

Mr. HALE. I would like to get you with Frank Kendall to answer 

that question, Senator Coburn. I have heard the answer, but I 

think that he has the depth that is appropriate to address it. If we 

do go with a separate system, the requirement that it be interoperable and be able to talk to Vista will be a key, which is the VA 

system will be a key requirement. But I would rather have him address that. 

Senator COBURN. Just to note for the record, the Federal Government spends $80 billion a year on IT. Forty billion of it is wasted 

every year. 

Senator AYOTTE. I look forward to seeing that answer as well. 

Thank you. I wanted to ask you about improper payments. You 

have, I think, testified again today about the fact that the DOD’s 

rate of improper payments is only .17 percent. 

If you compare that to governmentwide, it is 3.53 percent. But 

GAO, in its 2011 report, really targeted—and I know that some of 

the data used in that report was going backward. So I will give it 
32 

that. But GAO basically found that DOD’s improper payment estimates were neither reliable nor statistically valid because of longstanding and pervasive financial management weaknesses. 

Of course, this is all about what this hearing is about. But how 

do we know that what you have given us today is accurate? And 

can you give me some more details on how DOD’s improper payments program has evolved to get to this point where apparently 

your statistics are quite good? 

Mr. HALE. Well, I think the main thing we have done is try to 

close the barn door before the cows leave, rather than just looking 

at improper payments after they occur and trying to fix them. For 

example, we put in place in commercial payments something called 

the Business Activity Monitoring (BAM) System which looks to 

see—it is pretty simple. 

It has rules. It says, Hey, if two invoices come in within 2 days 

and they have the same number, spit it out to a human so they 

can see if it is a duplicate payment. That is a trivial one, but there 

are many others. We are trying to do something similar in travel, 

which is an area where we still need to make further improvements. 

In terms of the accuracy, we have done, because of IPERA, or to 

comply with it, pretty extensive statistical testing. GAO does not 

like all of our testing, but you get two statisticians, you are going 

to get two different opinions. Our statisticians think our sampling 

is fine, but we have actually changed it to try to satisfy GAO. 

Pretty extensive sampling after the fact to see if indeed the cows 

are still in the barn, and the data you are seeing reflects that they 

are, with some exceptions. And again, zero is the only right goal 

for improper payments. 

Senator AYOTTE. Of course. 

Mr. HALE. But they are pretty small and I am not sure we are 

going to get all that much better. I think it is a success area for 

this Department. 

Senator AYOTTE. Thank you. May I ask one more question, Mr. 

Chairman? I know my time—— 

Chairman CARPER. Yes. 

Senator AYOTTE. I just want to ask the Air Force, when Secretary Hale talked about the 80 percent goal in terms of this fall, 

obviously we are not where we want to be with the SBRs—— 

Mr. HALE. The goal is 100, but we may not—— 

Senator AYOTTE. Correct. Where is the Air Force on this? Because you have been the service branch that I think has had the 

most difficulties and challenges. 

Mr. MORIN. Yes, ma’am. We certainly started behind in this effort. Our financial systems modernization was and remains several 

years behind the other departments. We are in the early stages of 

fielding a modern financial system, and are still relying on our 

1968 accounting system. The other services are further along. 

However, while the ultimate—while the judgment of audit readiness for the Schedule of Budgetary Activity will be made later this 

year by the Secretary of the Air Force, right now it looks like we 

will be ready to assert on that schedule. So that is our view at this 

point. Again, we have significant milestones to get through over the 

course of the summer. These issues include our work in conjunction 
33 

with the Defense Finance and Accounting Service (DFAS). We have 

corrective action plans that we are laying in place based on past 

engagements by independent public accounting firms. But our assessment right now is that we are on track for that. 

Senator AYOTTE. And on all of this audit issue, is it being driven, 

I know, not just beyond Secretary Hagel, but at the Secretary level 

of each service branch? 

Mr. MORIN. Senator, when our new Secretary of the Air Force 

took office just a few months ago, she laid out three top priorities 

for her tenure and for the Air Force under her authority, direction 

and control. One of those three was making every dollar count and 

audit readiness was a key part of that for her. So very much so. 

Ms. RABERN. Yes, ma’am. The Secretary of the Navy is a former 

State auditor for the State of Mississippi. He made it clear to me 

on day one this was his highest priority and he talks to me about 

it every week. 

Chairman CARPER. Did you say Secretary of the Air Force or the 

Navy? 

Ms. RABERN. Navy, sir. 

Chairman CARPER. Thank you. 

Mr. SPEER. Yes, ma’am. Secretary McHugh is very heavily involved in and interested in it. I was in the Chief of Staff of the 

Army’s office yesterday talking to him about auditability and he is 

trying to get better financial information for cost informing readiness. And heavily involved with the Vice Chief of Staff of the Army 

overseas and on a monthly basis. 

Senator AYOTTE. Thank you. 

Chairman CARPER. I am a recovering Governor. My last job when 

trying to solve issues in our little State of Delaware, I would oftentimes say to my Cabinet, some other Governor in some other State 

has confronted this problem and has figured out how to solve it and 

we need to find that State, that Governor, and whoever solved it 

and find out if their solution was exportable to our State. 

Occasionally we would have Governors from other States who 

would say, Well, how did you do this or that, and we would try to 

help them. 

In the Navy, Captain Rabern, I do not know if you ever heard 

the term refusal speed, but when you have an airplane heading 

down the runway to take off, the airplane gathers up speed until 

it finally reaches a speed we call refusal speed, and that is the 

speed at which the pilot decides to keep the airplane on the ground 

or decides, We are going to fly this baby. 

The Department of Homeland Security a couple of years ago decided—they had, if you will, the aircraft going down the runway 

moving toward—heading forward to being auditable and actually 

having a clean audit. And somewhere along the way, they reached 

refusal speed and they said, We are going to fly, we are going to 

get this done. And they did. 

And it was not just Jane Lute who we have no disrespect for, the 

Deputy Secretary, it was not just Rafael Borras. It was all the way 

down and through their organization. But thinking back about my 

experience as Governor, flying in from other States seeing, how 

they solved particular problems, what lessons have we learned? 
34 

And this is for each of you. What lessons have we learned, taken 

to heart, from the Department of Homeland Security? 

For them to have actually achieved not just to be auditable, but 

actually have a clean audit within the timeframe they had, it is 

pretty amazing. They are a huge department. They have hundreds 

of thousands of employees. They do all kinds of things. They are 

spread out not just all over the country, all over the world. 

If they can do it in a short timeframe, how did they do it? What 

have we learned from them? What have you learned from them? 

Ms. RABERN. Sir, we have learned a lot not only from the Marine 

Corps, but from our sister services. I am not sure you are aware, 

I was the Chief Financial Officer of the FBI, U.S. Customs Service, 

and the Agency for International Development. So I bring those 

lessons learned to this job. 

Chairman CARPER. Well, you have quite a resume. 

Ms. RABERN. I have been in other places. I have been blessed. 

Yes, sir, thank you. The thing that I find most important, absolutely across-the-board in every one of my experiences is if the boss 

does not get it, then it will not work. So the tone from the top is 

absolutely most—— 

Chairman CARPER. Leadership is the key in everything and that 

includes this. 

Ms. RABERN. Absolutely. It is also about me being actively involved and spending time with those who are responsible for the 

subsections of our budget. We have 19 budget submitting offices. I 

meet with them regularly. I bring them to me, I go to them, I go 

into the duck plates. I talk with the people who are actually making the transactions. 

You and I both know that you can tell by doing that, walking 

around management, whether you are ready or not, whether the 

tone and tenor is right, and absolutely, from my past experience, 

I can tell you that the Department of the Navy is there. The momentum is there, the refusal speed, I think you called it, we are 

there. We are excited. We are ready to go. We are ready to take 

the lead that Senator Johnson has just described. It is time. It is 

time for us to do it. 

Also, having a staff that is trained. This is one of the things that 

I spend time thinking about and that is making sure that the government employees understand their particular individual role 

with audit, so their day-to-day duties are well understood about 

what their personal role is in audit success. We are working on 

that. We are working on a fundamental training framework so that 

every person involved in financial management in the Department 

of the Navy understands what their role is. 

The other thing that I have learned across-the-board is that it is 

not only about training the culture of the organization that is being 

audited. It is about also understanding. You have to train the auditors so that they understand what the mission of the organization 

is. And that is something that you have to do up front and early. 

They have to understand who you are and what your language is 

and what your business is. 

And the other thing—the final thing that I would say is you 

should never dance in the end zone. You should never discount the 
35 

difficulty of this work, nor should you discount the importance of 

getting on with it. Thank you, sir. 

Chairman CARPER. Well, before we can dance in the end zone, we 

have to get into the red zone. I think we may have moved into the 

other team’s territory, but we are not even in the red zone. So 

maybe we can get there if we keep this up. We have to. All right? 

Ms. RABERN. Yes, sir. 

Chairman CARPER. Football is not that far away. So like late 

September we want to be in that red zone. Dr. Morin, just quickly, 

Air Force has really the most ground to make up. You said that 

a couple of times. What do you learn from DHS and the way that 

they have actually made up ground, they made up quickly, and got 

into the end zone? I invited them to come here today and do a 

dance in the end zone. They declined. 

Mr. MORIN. Senator Carper, Dr. Rabern has an exceptional resume. I have a very good staff to compensate for my lack of resume. I will note that the Acting CFO of the Department of Homeland Security is a retired Air Force officer who used to work for me, 

so we have a lot of opportunities to exchange thoughts and ideas 

on efficient fiscal management as well as audit. 

Chairman CARPER. What are some things you have learned from 

that person or others in DHS that would help expedite this process? 

Mr. MORIN. For us, the biggest piece is the value of getting the 

auditors’ eyes in. To Senator Johnson’s point from earlier, I think 

we really are taking exactly the strategy you have laid out, which 

is starting the audit. I think we have had very recently a Big Four 

accounting firm in looking at Air Force-wide civilian pay, billions 

and billions of dollars of our activity, and they looked at it end to 

end. 

They found our noninformation technology controls were generally functioning well. I think it was 25 out of the 28 that they 

examined they found were well designed and functioning well. 

Punch list of things to improve, just like you brought up, on the 

remainder. They found in some of our IT areas we had issues 

where, for example, we were not doing a good job of purging user 

rosters on systems, and so people would move on from a job but 

still retain their systems access. 

Again, those are issues, but they are punch list items. Right? You 

can fix those. I think that is exactly what is going on and that is 

a key lesson from Homeland Security. You have to build that list 

of concrete, definitive actions. For many years, the Department 

would have auditors come in and issue a same day disclaimer: We 

cannot get to the answer, the systems are not reliable, the data is 

not reliable, we are done. 

We are now to the point that by focusing on these individual segments—we call them assessable units—and breaking it down, we 

are getting to finite and achievable lists. We are not hitting them 

all right the first time, but we are getting most of them right and 

we are cleaning them up as we go. So that is just absolutely key. 

Chairman CARPER. Thank you. Real quick, 30 seconds, Mr. 

Speer, same question. 

Mr. SPEER. Yes, sir. I agree with that and I guess my background 

is in audit and accounting. I came from PriceWaterhouse Coopers 
36 

to this job and I was a program manager in the Corps of Engineers 

audit, which is probably the largest audit in the Department of Defense, and we learned a lot from it. Part of it, I think I agree with 

Senator Johnson. Get in the game and start playing. You start to 

learn the value of the audit, you start to learn the culture of an 

audit, and you start to understand that leadership involvement and 

commitment to it is what accomplishes it. 

You cannot win it if you do not play. So we are at that stage now 

where I think it is the value of playing the game. I think we have 

the controls in place and we have leadership involved and you see 

now the benefit. We see people actually using the data now out of 

the systems that makes the difference and that is part of the value 

of the audit. 

Chairman CARPER. Mr. Hale, 30 seconds, same question. DHS, 

what have you learned from them? How have they helped you with 

this challenge? How are they helping you with this challenge? 

Mr. HALE. We actually hired the person who did the DHS audit. 

Chairman CARPER. Is that person in this room? 

Mr. HALE. Because of personal problems she had to leave us. 

Chairman CARPER. Is she in this room? 

Mr. HALE. Is Margo here? She is not here. She had some serious 

personal problems and is going to have to leave us. But I think the 

tone at the top was clear. They had the biggest problem valuing 

their assets, which is an issue we have not confronted yet, but I 

think we got a fair amount out of Margo while she was with us and 

we will continue to benefit from them. 

Chairman CARPER. All right. We wish her well. Thank you. Dr. 

Coburn. 

Senator COBURN. Mr. Hale, let us assume that GAO was right 

on improper payments and the statistical validation. You disagree 

with them and you said you have made some changes in how you 

are doing that. So let us assume that they are right and you are 

wrong. So we do not know. If we make that assumption, we do not 

know how all of the money is spent, right? And we do not know 

the accuracy of the improper payments. And 1 percent of $700 billion is $7 billion in Oklahoma. I do not know what it is up here, 

but that is what it is. 

Mr. HALE. Pretty much the same. 

Senator COBURN. $7 billion is a lot of money, and I can tell you 

I am skeptical at every hearing on the improper payments for the 

DOD simply because of the massive size of it. Let us talk for a 

minute about plugs. Tell me what plugs are in your mind in terms 

of the Pentagon’s financial statements. 

Mr. HALE. The jargon we use, which I think is more explicit, is 

journal vouchers. There are circumstances that we need to fix. I 

will use the analogy, you have 1,000 people on your bank account 

and by the end of the month 990 of them report and 10 do not. We 

have to return. We have to tell the Treasury what we spent. 

And so we issue what is called a journal voucher that estimates 

the amount for those 10 who have not reported, and are supposed 

to go back and reconcile it. We have not always done that and that 

is one of the things we have to fix and are fixing. They are pretty 

small as a percentage. They are getting down to levels that may 
37 

not be material in a financial audit of less than, say, 1 percent, but 

they are an issue and they have to get fixed. 

Senator COBURN. Mr. Speer, you have received questions from 

the Senate Armed Services Committee hearings about the Army’s 

decision to process some of their disbursements directly through 

your ERP system, and in the process, bypassing the need for these 

transactions to be processed by DFAS. I will use—he is turned 

around. He will not care that I am using an acronym. 

Can you explain why you made that decision and how it improves the Army’s financial management capabilities? 

Mr. SPEER. Yes, sir. It was part of a review we did. It was part 

of cure to pay and to analyze and optimize the system. We looked 

at the way we were currently disbursing and we looked at some of 

the connectivity between some of the systems that caused us some 

of the errors. And so, when we looked at Treasury direct disbursing 

out of the system, we tried to engineer the process and see whether 

or not that could go direct Treasury disbursement. It eliminates 

some of those errors and some of the reconciliation needs, some of 

the plugging of the numbers and fixing back. 

And so, we piloted that program and we are phasing it in as we 

are finding success. We are still measuring whether the results of 

such provided a reduced cost. We are going through that currently 

now, the cost benefit analysis. We believe that from—the disbursements we are making now is about 15,000 a month and we are 

having zero out of balance condition with Treasury, so it provides 

that correct, easy reconciliation by not going through some of those 

other processes. 

Defense Finance Accounting Service it turns out to be very much 

still involved in the process, still coming back to the accounting and 

sees that it still has oversight and participation in that process. So 

we believe that this entitlement within the system will provide 

oversight of what we are paying, then creates that disbursement 

file out of the same system, provides a more easily reconcilable, direct, and less costly way of doing business. 

Mr. HALE. I do want to clarify. We have not made any decision 

to change the roles and missions between the Army and DFAS yet. 

We are looking, the Army is, we are. If it is cost-effective, we will 

do it. If it is not, we will not. 

Senator COBURN. Well it is only cost-effective if you can have real 

savings or you can have real accuracy, which you do not have now, 

and I do not know how you put a dollar on that other than you 

are going to markedly improve financial management if you have 

real accuracy. 

During your testimony, you mentioned that disbursing straight 

from Treasury is the best practice. Who has determined that and 

what other agencies use this? 

Mr. SPEER. Most other agencies use Treasury direct disbursing. 

I do not recall, in terms of the testimony, saying best practice. We 

believe it is best practice and we are testing that out as part of 

what we believe it is. We have seen other agencies do so, and so 

the systems are capable of doing it. It is a changing of the environment of the systems, and so that is why we went to the procureto-pay pilot to assess that. 

Senator COBURN. Well, every other agency uses Treasury. 
38 

Mr. SPEER. Yes, sir. 

Senator COBURN. I had one other question for you, Mr. Speer. 

Given the Air Force’s success on their supply depots, would it not 

be nice if the Defense Logistic Agency went and learned from General Wolfenbarger what she did? I do not know what the size of the 

Defense Logistics Agency (DLA) is, but I know it is bigger than $16 

billion. 

It would seem to me that you would not have to reinvent the 

wheel if you went and had a little confab with the head of the DLA 

and the head of the depot system in the Air Force. And maybe 

transferred management techniques, motivational techniques, and 

processes could really significantly increase the savings and also 

increase the accuracy and decrease the inventory, because that is 

money that is tied up and we all know that is a problem. 

Mr. SPEER. Yes, sir. As a matter of fact, I wrote that one down, 

to go back and follow through with the Air Force on that one. I am 

very interested in it. I think we are going through some of our own 

asset visibility and trying to improve, and General Via has significant efforts ongoing for improving the accuracy of the data. 

The U.S. Army Material Command (AMC), for instance, is one of 

the ones that is reporting directly to the Chief and very involved 

right now on the cost of training and cost of readiness, and we are 

looking at those kind of activities. 

Senator COBURN. Well, the key thing that Doctor—I want to say 

Doctor when I say general, pardon me, that is my former training—General Wolfenbarger did is she got her commanders at each 

one of these to buy into this as well, which you all mentioned. 

Leadership is the key and the whole goal is to better financially 

manage so that you do not waste money, that you buy better, that 

you get a more efficient utilization of the American taxpayer dollars. 

So I would just say, just having a meeting, you meet with 

Wolfenbarger and then see what you think. It is just me saying 

that, but when I see almost $600 million last year in savings that 

would not have occurred had they not done that, to me that is real 

change. That is 10 percent of Oklahoma’s budget. Thank you. 

Chairman CARPER. Thank you. Senator Johnson. 

Senator JOHNSON. Thank you, Mr. Chairman. I want to just go 

back to the discussion of the goal of what we should be looking at 

in terms of an audit. Again, from my standpoint, the goal of an 

audit is to provide management information. What I am hearing, 

maybe I am making an incorrect assumption here, is the goal, in 

terms of the Department of Defense, is to get audit ready so that 

when you conduct an audit, it is going to be a clean audit. Am I 

misreading that? 

Mr. HALE. Well, it is a step on the road, Senator Johnson. We 

have to get close enough so that we are just not wasting the 

public’s money with an audit. But no, the goal is to have accurate 

information and have the audit attest to that. 

Senator JOHNSON. OK. I am glad a couple members of the panel 

have somewhat agreed with my approach—conduct the audit and 

use the management results. I want to talk about the component 

parts, how you break this thing down so it is manageable. I think 

you called it assessable units. 
39 

I would like to call it accountable units, because I think leadership is key, but the way you are really going to get results is if you 

hold people accountable. So I want to go back to how have we broken this down—which is obviously an enormous task—but I go 

back to my private sector experience here. 

You have a large corporation. You are going to have individual 

divisions. Within the divisions or different companies, you also 

have individual departments. Each one of those departments, every 

one of those divisions and every one of those individual companies 

is accountable for its own successful audit. Sometimes those audits 

are done by totally different firms. 

Would that not be part of the process to do this successfully? 

Break this down into smaller component parts and hold those individuals accountable, and again, also put pressure on individual 

units. Here, you have the Navy, you have the Marine Corps. We 

have a clean audit. What is wrong with the rest of you branches? 

Set up just that type of pressure. 

Mr. SPEER. Yes, Senator, I would agree with you. We have broken it down both in terms of the fire, in terms of doing the Statement of Budgetary Resources first and then moving out broader 

into existence and completeness. I think somewhat slightly different approach in terms of services. One of the things we did, we 

followed up with again the Corps of Engineers. We also looked at 

it as we fielded a new system, our first exam. 

We decided to do an exam across five different business processes 

and did it at the first three installations that adapted the General 

Fund Enterprise Business System, a new system. The next year we 

broadened it out to 10 installations, did an audit of eight of their 

business processes. And this year we audited the whole Army 

across all business processes for the Statement of Budgetary Resources. 

So we have broken it off into pieces and get larger and larger to 

show success and identify where we can remediate and make a successful audit overall. 

Senator JOHNSON. And again, coming from the private sector, 

you are never going to get an unqualified opinion if you do not 

have prior years’ experience. And because we are not doing audits, 

is that a bit of a problem in terms of a clean audit? So why not 

say, let us start auditing so you have that prior year experience? 

Mr. SPEER. I believe so, Senator, and I think my earlier statement is if you are not ready, you know you are not ready, you will 

not get the benefit out of it. We believe we are starting to get closer 

and closer to ready. That experience, and some of my colleagues 

here talked about it, they are building the culture of an audit, 

making sure that people understand how to be audited and know 

that they are accountable. 

That is the lacking we had for many years in the Department of 

the Army, people who were not held accountable to ensure that 

they were auditable. It is part now of their business. It is part of 

the process, part of their controls that they are responsible for and 

they understand that now. That is part of the audit that builds 

that kind of accountability. 

So one of the things we have seen is we have seen competition 

between commands now. Hey, I want to show that I am better than 
40 

the other command and I am getting the results better. The U.S. 

Army Forces Command (FORSCOM), if you go to FORSCOM’s 

website during Exam 3, you go and click on the four-star general’s 

website and he would have by installation the results of their individual audits of their documents, whether they turned them in on 

time and whether they are right or wrong. 

Senator JOHNSON. Well, not to beat a dead horse, but once you 

start doing it, they will be accountable and they will get into line. 

Secretary Hale, you were talking about, as an example, 10 units 

that have not reported their cash or their budgetary outlays. How 

can that be? Tell me about that. Again, coming from the private 

sector, every division reports their cash position. How are those 

units not accountable for providing that kind of information on 

time? 

Mr. HALE. Well, they are accountable, but if it does not happen 

on time that we can report to the Treasury, we have to do something. We are down to less than 1 percent, in most cases, for those 

journal voucher entries. And it has to get lower than that. 

Senator JOHNSON. Again, I understand. The accounting department is going to have to account for it in some way. How is the 

management structure holding those individuals accountable who 

are not providing pretty basic information? 

Mr. HALE. And I think one of the benefits of the audit is it is 

raising the visibility to our commanders. I doubt they knew that 

these things existed. Some of them still do not, but they will if they 

flunk the audit, as Bob Speer has said and my other colleagues 

have said. This has now become part of the readiness of the military. 

The Vice Chiefs are asking questions of their commanders. And 

if we are having trouble with journal vouchers, they will be asking 

questions of them. Do any of you want add to this? 

Senator JOHNSON. Let me just say, you are making my point, 

that you should just go ahead and audit. 

Mr. HALE. We are ready to go. 

Senator JOHNSON. OK. But again, everything I am seeing is we 

are just talking about getting audit ready as opposed to just conducting the audit. 

Mr. HALE. It is a milestone on the road and more than that, but 

it is a milestone I believe we have to meet because if we do not, 

the auditor will just come in and, as Jamie said, give us a same 

date disclaimer, and especially if it is a firm-fixed price contract, 

we would have paid a lot of money for it. 

You should ask this question, if you are here, of the GAO and 

the IG. I think they will have to say that we do need to be audit 

ready before we can do an audit. 

Senator JOHNSON. There is one other area I want to talk about, 

because a number of people have mentioned how disruptive the 

government shutdowns, the budget dysfunction is in terms of being 

able to obtain an audit. I understand the disruption. I understand 

how incredibly difficult it is to manage under those circumstances. 

But again, in the private sector, there are all kinds of uncertainty. 

There are all types of disruptions, and yet, you still are able to 

audit your results. 
41 

Specifically, why does that really affect your ability to get an 

audit unless it is just a personnel issue? 

Mr. HALE. It slowed it down, no more than that, no less. I mean, 

we furloughed 650,000 people, both in their morale and their paychecks, and the time they had were affected. But I agree with you. 

We have to work beyond it. And I am hoping it never happens 

again. We need to work hard with the Congress and the President 

to make sure it does not. 

Senator JOHNSON. OK. Thank you. Thank you, Mr. Chairman. 

Chairman CARPER. Thank you and thanks for all your questions. 

I am going to ask just one quick question and ask for a very brief 

response from each of you. We have heard today from Secretary 

Hale that audits are not free. They can be very expensive in some 

cases. Do not want to waste money on an audit. I understand that. 

For each of our witnesses, starting with you, Secretary Hale, do 

you have the resources in this fiscal year, that is 2014, do you have 

the resources in this fiscal year 2014 and in the fiscal year 2015 

budget request from the Administration to actually conduct an 

audit? I do not want a long answer. 

Mr. HALE. Are they adequate, you are asking? 

Chairman CARPER. Yes. 

Mr. HALE. Yes, I believe they are. I mean, we have worked hard 

to do so. I will let my colleagues answer, but there is a sizable 

amount of money set aside over the whole 5-year period from fiscal 

2015 through 2019, which is our current and future years defense 

plan, to carry out this program. That is something that has never 

been the case in those first 15 years. I think they are, but I will 

let my colleagues respond. 

Chairman CARPER. Mr. Speer. 

Mr. SPEER. Yes, Chairman, they are adequate. As a matter of 

fact, we fenced them in to make sure that we did not touch the 

funds that we needed in 2015 to make sure we can continue on. 

That is part of our priority. 

Chairman CARPER. All right. Thank you. 

Ms. RABERN. Yes, sir, I would agree. The Department of Navy is 

in the same place. 

Chairman CARPER. OK. Dr. Morin. 

Mr. MORIN. I would agree as well. Again, we are setting aside 

fiscal year 2015 funds since the auditors will come on station in fiscal year 2015, and for fiscal year 2014, we have adequate funds to 

prepare. 

Chairman CARPER. Good. Dr. Coburn. 

Mr. HALE. Can I have a brief comeback to that? The area that 

I am concerned about are Defense agencies. We have not necessarily solved that problem fully and we are working it. 

Chairman CARPER. All right. Dr. Coburn. 

Senator COBURN. I have just one final question. Bob, your service 

has been remarkable. I want to tell you I appreciate it. I am concerned that who replaces you should have the management experience, the educational experience, the financial auditing experience 

to actually lead this organization. 

We have a good nominee, but he does not have any of those 

qualifications. Your ideal replacement, not in terms of individuals, 

but your ideal replacement, what qualifications would they have? 
42 

Mr. HALE. First and foremost, I would want somebody who is a 

leader. I think Mike McCord will do that. I would want somebody 

who knows the Defense financial management and Federal financial management. And it is not just audit. We have to worry about 

budget, too. I mean, that is part of the job of the Under Secretary 

of Defense, Comptroller. I think Mike knows that well. 

We have people—he will need help, and I think he would agree 

with this—on the details of audit and accounting and all these 

acronyms. I did, too. I am not an accountant or an auditor. But I 

think we have good people. One of them is sitting behind me, Mark 

Easton, my Deputy Chief Financial Officer, who knows this well. 

I think he will be there to help Mike and I think he will do a 

great job if he is confirmed. 

Chairman CARPER. Before we head to the next panel, two things. 

One, again, Mr. Hale, thank you. As we say in the Navy, fair winds 

and a following sea as you weigh anchor. To the others, I would 

say, for the work that is being done, we are appreciative of that. 

We do not mean to appear to be unappreciative. But for those of 

you who are at refusal speed, we want to keep going. We want to 

get this airplane in the air. And we have just seen from DHS again 

and again what a great example they have provided for all of us, 

including for you. 

If you are not drilling down with them, Jane Holl Lute is still 

reachable. Ophil Morris is still reachable, others are. They can be 

a great resource, use them. I am sure they would be happy to help. 

With that, there are going to be a number of questions we have, 

followup questions to ask of you. We just ask that you respond to 

those in a timely way. Again, thank you, and have a good day. 

Mr. HALE. Mr. Chairman, I am going to do our darndest to stay, 

as you both requested. I am running short of time. I do want to 

tell you that I have fairly frequent contact with the DOD IG and 

my Deputy Chief Financial Officer has regular contact with both 

the GAO and the IG, and I have talked to Gene Dodaro several 

times on this topic. But I will stay as long as I can. And my colleagues, I think, will do the same. 

Chairman CARPER. All right. We appreciate that. Thank you. All 

right. Our first panel is excused. 

Our second panel will come on, please. Welcome. Jon Rymer, Asif 

Khan, it is very nice to see you again. I am not going to give your 

introductions. We are running way late and I want to make sure 

we have time to hear from you and to ask questions, so I am just 

going to—we will do all of that for the record in terms of introduction. Delighted to see you. Thank you for being here and thank you 

for helping us as we deal with these difficult and challenging 

issues. Mr. Rymer, why do you not lead off, please? Thank you. 
43 

1The prepared statement of Mr. Rymer appears in the Appendix on page 92. 

TESTIMONY OF THE HON. JON D. RYMER, INSPECTOR 

GENERAL, U.S. DEPARTMENT OF DEFENSE 

Mr. RYMER. Yes, sir. Thank you, Chairman Carper, Ranking 

Member Coburn, and distinguished Members of the Committee. 

Thank you for this opportunity to appear before you today to discuss the role of the Office of the Inspector General in the Department of Defense efforts to reach audit deadlines of 2014 and 2017. 

Hearings such as this are an important means of providing visibility to the Congress, the Department, and the taxpayer of the efforts to achieve financial accountability. These efforts, however, 

have been underway at the Department for over 20 years. 

In my prepared statement,1 which I request be submitted for the 

record, I discuss areas requiring continued focus—— 

Chairman CARPER. Let me say, both of your entire statements 

will be made part of the record. 

Mr. RYMER. Yes, sir. 

Chairman CARPER. Just feel free to go ahead and summarize. 

Thank you. 

Mr. RYMER. But to emphasize, in that statement, I emphasize 

that data quality, timeliness, internal controls, and Enterprise Resource Planning Systems are critical. I would also like to highlight 

some of the achievements we have observed in the last few years. 

Achieving auditable financial statements is a team effort which will 

require extensive cooperation among all stakeholders. 

While the Department has the ultimate responsibility to produce 

auditable financial statements, the Office of Inspector General, 

under the IG Act, is responsible for providing independent and objective oversight of the Department’s efforts to improve its financial 

management and to provide an opinion on the financial statements. 

Independent accounting firms provide support and work under 

the supervision of my office. As the Department produces auditable 

financial statements, the Government Accountability Office will ultimately rely on the work of my office to develop its opinion about 

the financial statements of the United States. 

Transforming the financial management of the Department has 

proven to be a complex and difficult undertaking. The Department’s senior leadership have recognized some of the difficulties related to the Department’s financial management data, problems 

with internal controls and related financial systems. For example, 

to work around difficulties in obtaining adequate supporting documentation for prior year balances, the Department has asserted 

audit readiness on its Schedule of Budgetary Activity versus the 

full Statement of Budgetary Resources. 

While this incremental approach is a step forward, it does not 

meet the statutory requirements because the schedule is a subset 

of the information required by the Statement of Budgetary Resources. 

Through our oversight role, we will continue to work with the 

Department and GAO on moving toward auditable financial statements. The Department must maintain its commitment and may 

actually need to increase its efforts to meet the 2014 and 2017 

deadlines. 
44 

1The prepared statement of Mr. Khan appears in the Appendix on page 102. 

The Department’s efforts cannot just be an exercise to get a clean 

opinion. Rather, it needs to be about obtaining quality data that 

can be relied upon to make critical decisions regarding the operations of the Department. This concludes my opening remarks. I 

look forward to answering your questions. Thank you. 

Chairman CARPER. Thank you, sir. Mr. Kahn. 

TESTIMONY OF ASIF A. KHAN,1 DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. KHAN. Mr. Chairman, Ranking Member Coburn, thank you 

for the opportunity to discuss the challenges faced by the Department of Defense in improving its financial accountability. Given the 

Federal Government’s continuing fiscal challenges, it is a more important than ever that Congress, the Administration, and Federal 

managers have reliable, useful, and timely financial and performance information to help ensure fiscal responsibility and demonstrate accountability, particularly for the government’s largest 

department. 

Today, I will first discuss the effects of ongoing financial management weaknesses on DOD management and operations, and then 

DOD’s actions to improve its financial management and achieve 

audit results. My testimony is based on our past and ongoing work 

at DOD. 

DOD faces continuing challenges in establishing sound financial 

management processes and operations that can routinely generate 

timely, complete, and reliable financial and other business information for day to day decisionmaking. Operational impact of these 

weaknesses include, first, DOD’s inability to properly account for 

and report DOD’s total assets which are about 33 percent of the 

Federal Government’s reported total assets, including inventory of 

$254 billion dollars and property, plant, and equipment, with an 

approximate value of $1.3 trillion. 

Second, its inability to accurately estimate the extent of its improper payments because of a flawed estimating methodology that 

also limits corrective action. Finally, reports of Antideficiency Act 

violations, 75 violations reported from fiscal year 2007 through fiscal year 2012 total nearly $1.1 billion. 

To correct its financial management weaknesses, DOD has numerous efforts underway. Congress has played a major role 

through its oversight and mandates. Important progress has been 

made, but key challenges remain. For example, in August 2013, we 

reported that DOD’s audit readiness efforts would benefit from a 

risk management strategy to help program managers and stakeholders make decisions about assessing risk, allocating resources, 

and taking actions under conditions of uncertainty. 

DOD has identified several risks. However, they were not comprehensive. Without effective Department-wide risk management, 

DOD is vulnerable for not achieving its audit readiness goals. DOD 

is monitoring its component agencies’ progress toward readiness. 

As the September 30, 2014 date for asserting audit readiness on a 

Statement of Budgetary Resources approaches, DOD has empha-
45 

sized asserting audit readiness by this date over ensuring the effectiveness of its processes, systems, and controls. 

Nevertheless, DOD reports milestone dates that have slipped and 

timelines that have been compressed, making it questionable 

whether the corrective actions necessary for audit readiness will be 

completed by September 2014. 

Our ongoing work at the Army and DFAS illustrates this issue. 

While the Army asserted audit readiness on various assessable 

units of its SBR, preliminary results from our ongoing review indicate that the Army did not complete key tasks to ensure that its 

SBR will be audit ready as planned. The deficiencies and gaps in 

Army’s efforts demonstrate a focus on meeting scheduled milestone 

dates and asserting audit readiness before completing actions to resolve extensive control deficiencies. 

DOD has identified contract pay as a key element of SBR. DFAS, the service provider responsible for disbursing nearly $200 billion 

annually and the Department’s contract pay, has asserted that its 

processes, systems, and controls over contract pay are audit ready. 

However, preliminary results from our ongoing assessments indicate that DFAS also has numerous deficiencies that have not been 

remediated. Until DFAS corrects these weaknesses, its ability to 

process, record, and maintain accurate and reliable contract pay 

transaction data is questionable. 

Timeframes are important for measuring progress, but DOD 

must not lose sight of its ultimate goal of implementing lasting financial management reform. Regarding business information systems, DOD has identified several multifunctional enterprise resource planning systems as critical to its financial management improvement efforts. 

In a report on four of these systems, we found deficiencies in 

areas such as data quality, data conversion, system interface, and 

training that affect their capability to perform essential business 

functions. 

DFAS personnel, who are major users of the systems, have reported difficulty in using them to perform day-to-day activities. 

Without the intended capability of these systems and trained users, 

DOD’s goals of establishing effective financial management operations and becoming audit ready could be jeopardized. 

The commitment of DOD leadership to improving the Department’s financial management continues to be encouraging, but implementation of DOD’s audit readiness strategy Department-wide 

is an ambitious undertaking that will require the commitment and 

resources and efforts at all levels in all components and across all 

DOD financial and business operations such as those in the high 

risk functional areas of contract management, supply chain management, infrastructure management, and weapon systems acquisition. 

To support this Committee’s oversight, GAO will continue monitoring and reporting on the Department’s financial management 

improvement efforts. Mr. Chairman, this concludes my prepared 

statement. I will be happy to answer any questions that you and 

the others may have. 

Chairman CARPER. Thank you, Mr. Khan. Our colleagues have 

heard me quote more than a few times Dr. Alan Blinder, who was 
46 

the Vice Chairman of the Federal Reserve for a number of years 

when Alan Greenspan was Chairman. Dr. Blinder is back now 

teaching economics at Princeton. 

I asked him once at a hearing before the Finance Committee last 

year when he and others were testifying on deficit reduction, and 

the question before them was, what do we need to do to make real 

progress, additional progress on deficit reduction? Dr. Blinder said 

the 800-pound gorilla in the room is healthcare costs in this country. Medicare and Medicaid eating us alive, making our companies 

uncompetitive given how much we spend and how relatively little 

the job pays and other expenses. 

So in the Q and A, I asked him, Well, you point this out as a 

big problem, the 800-pound gorilla in the room, costs of healthcare, 

what should we do about it? And I will never forget what he said. 

He said, Find out what works and do more of that. That is all he 

said. I said, you mean find out what does not work and do less of 

that? He said yes. 

For the folks who have been before us today and for the Department of Defense at large, I have said this several times. I am just 

going to keep saying it. We have an idea of what works because 

we have seen the Department of Homeland Security go through 

this successfully. I asked them repeatedly, What can you learn 

from from the Department of Homeland Security and some answered and some did not. 

What can they learn from the Department of Homeland Security? 

What can the Department of Defense take for action and improve 

their opportunities to actually get to refusal speed and carry on beyond that? You want to go first, please? 

Mr. KHAN. Senator Carper, I am somewhat familiar with the Department of Homeland Security. One of the key elements is leadership. While DOD has leadership at the highest level, I think it is 

very important for the key tenets of accountability and audit readiness to go down the second layer and it becoming institutionalized. 

That is what the example was at DHS, where it was not only at 

the top levels, but it was institutionalized as the components who 

did all the heavy lifting to get audit ready. 

Chairman CARPER. All right. Thank you. Mr. Rymer. 

Mr. RYMER. Yes, I would agree with Asif. The issue that I see 

is, as someone said earlier this morning, about driving accountability down through the ranks. I think there is no question there 

is commitment at the executive and the leadership levels, but I 

think it must be made apparent that readily accessible, believable 

numbers are important day to day in running a business operation 

or running a military unit. So I think it is driving that accountability down and driving that understanding down. 

Chairman CARPER. OK. I think a lot about culture, and what you 

are essentially saying is really a culture change. I like to say there 

are three things we need to do to continue making progress on deficit reduction, and this is really from the Bowles-Simpson Commission. No. 1, entitlement reform that saves these programs for the 

long haul, saves money, does not savage old people or poor people. 

That is No. 1. 

No. 2, tax reform that lowers the top corporate rates, but it actually generates some revenues for deficit reduction. And No. 3 is lit-
47 

erally to look at everything we do and say, How do we get a better 

result for less money? It is really a culture change. And it cannot 

just be at the secretarial level or the deputy secretary. It needs to 

be pushed down to the others. 

We are an oversight Committee, as you know, and we are an authorizing Committee for Homeland Security Department. We are 

an oversight Committee for the whole government. And I am going 

to ask you with my next question to help us be a guided missile 

as opposed to an unguided missile. 

You have heard the previous panel talk about progress that is 

being made, some areas where maybe it is not so much the case. 

Make us, as we proceed doing our oversight mission going forward 

as we approach September 2014 and beyond, make us a guided 

missile in some of the stuff that you heard here, some of the testimony that you heard here that maybe you do not feel entirely comfortable with that should raise caution flags for us. But just direct 

us to that, if you will. Direct us to points of concern, please. 

Mr. RYMER. I think the biggest concern that I would have, and 

it is an ongoing concern, are the Enterprise Resource Planning Systems. The reliability of data or the unreliability of data certainly 

complicates the audit process, makes it extraordinarily difficult to 

get done. If we cannot take information from systems on its face 

value, if we have to spend an excessive amount of time verifying 

data, that, in many cases, makes audits undoable. 

So the continued focus by not just the financial leadership, but 

by the operating leadership, and the IT leadership of the Department on implementing those systems as those systems become 

operationally accurate is critical. So I think the focus has to be on 

improvement in IT capabilities, not just financial management. 

Mr. KHAN. I agree with Mr. Rymer. I mean, just for the record, 

these weaknesses are long-standing weaknesses like you and Senator Coburn mentioned. These are long-standing weaknesses. Getting an auditor in at this point in time is not going to reveal any 

new information. I think what is more important is to make corrective actions to rectify these weaknesses so there could be an efficient and effective audit. 

The issue of system certainly is an important one. The other one 

is also the capability of the workforce. I think Secretary Hale had 

mentioned that they have invested a fair amount of money in training programs. It is going to be important for the workforce to be 

trained, to get audit ready. It is going to take about 2 years to get 

that done and be running against the time for that to happen. 

Chairman CARPER. All right. Thank you. One last question and 

then I will yield to Dr. Coburn. Three years ago in, I think, 2011, 

Dr. Coburn and I chaired a similar hearing. We asked whether the 

Department of Defense would meet Congressionally mandated 

goals of being able to audit all of its finances by 2017. 

What is the likelihood that the Department of Defense and the 

military services will actually meet that 2017 audit goal? Also, 

what should the Department do in order to increase their chances 

of meeting those audit deadlines? I think you just talked about it 

a little bit, but just go ahead. Anything you would like to add or 

take away? 
48 

Mr. KHAN. Yes. I mean, it looks increasingly unlikely that DOD 

is going to be able to meet the auditability goal for 2014 on the 

complete Statement of Budgetary Resources for the reason I mentioned earlier on. There is not enough time to make corrective actions to have an efficient audit of the entire SBR like the NDAA 

asked for. 

Some of these time slippages are also going to impact the 2017 

data as well. More importantly, like Mr. Rymer mentioned, the system issues are going to get in the way if they are not implemented 

successfully before then. And the other one is the workforce issue. 

They have to be trained and be ready to support an audit. 

Chairman CARPER. Good. Thank you. Mr. Rymer, just very briefly, please. 

Mr. RYMER. I would agree it is going to be difficult, but I would 

not say impossible. I mean, I have to look back and I think it is 

obvious that the Department can, with the right focus and continued focus, the Department can change the course of history. So I 

will not say anything is impossible. But it will be a very difficult, 

in my view, a very difficult road over the next 3 years with a lot 

of attention on system improvement. And to me the unpredictable 

part, is how much improvement we have in the systems. 

Chairman CARPER. With that thought, 3 years, 4 years ago, I 

would not have bet my paycheck that the Department of Homeland 

Security would become auditable, not just auditable, but actually 

get a clean audit, and it has shown that it can be done. Again, 

leadership is the key in making sure we have the right resources. 

Dr. Coburn, I may have to slip out of here, as I said earlier. My 

thanks to you very much for being here. It is a good hearing. 

Senator COBURN [presiding]. Let us take a little case study, the 

ERP program that the Air Force canceled, that I called for them 

to cancel 21⁄2 years before they canceled it. And let us talk about 

accountability. Has anybody done an after-the-fact scrub of that? 

You all are talking about these ERP programs are going to be big. 

If they have complications, it is going to markedly impact 

auditability. Has there been an after-the-fact review of that and 

was anybody held accountable? 

I noticed that we settled for $150 million to the contractor. So 

to me, that says we did not know what we want, we were not managing the project right. Otherwise, we should have had the contractor paying us. What have we learned from that and what has 

happened inside in terms of the Inspector General’s Office looking 

at that? And what does GAO see in terms of that as a prime example of how not to do it? 

Mr. KHAN. Senator Coburn, we have not done a followup study 

on ECSS. That is the Air Force system you had mentioned. One of 

the lessons learned is not to have too big a system be put out there 

in one increment. You should implement them in smaller chunks 

so there are various gates which are tried and tested before you 

move forward. That was one of the key elements. 

Senator COBURN. So continuous improvement. 

Mr. KHAN. Absolutely. That was one of the elements that was 

lacking. Based on the study that we had done several years ago, 

on your request, they were not following best practices on cost and 
49 

schedule. That is an early indicator that there are problems with 

a particular program. 

Mr. RYMER. Sir, I am not familiar specifically with the Air Force 

situation, but I can tell you that we have done a number of audits 

of the ERP implementation, continue to do audits of the ERP implementation, and it seems to me that what the Department is trying to do is, find a way to connect over 140 feeder systems to these 

ERP systems. 

There seems often to be a reluctance in changing those entrylevel systems because that creates a ripple effect of significant 

amounts of training and volatility of record keeping. So I think 

what we have to do is learn from each implementation effort. The 

one other thing I would mention is that a lot of the core systems 

or the legacy systems, 140 systems that are out there, were really 

built for purposes other than financial management. And I think 

that is sort of the core takeaway that I have learned in the 7- 

months that I have been the IG. 

Those systems were built to account for people and account for 

things, not to always account for dollars. So what we are doing now 

with these ERP systems is essentially trying to build an IT structure that is also accounting for dollars, not just the movement of 

people and equipment like the Department has historically tried to 

manage. 

Senator COBURN. Some of the times when we bring in a big system, what I have noticed, especially in the Defense Department— 

not exclusively—is we modify a proven system that we are buying 

to fit our needs, rather than modifying, much as you said, General 

Rymer, modify the system so that—and once you modify a proven 

system, you create holes, defects, and problems. 

And so, the decisionmaking process and the knowledge about 

how to buy IT—buying IT is hard. The other thing is, is you have 

to really know what you want before you order it, and I think some 

of the biggest problems is, is we do not know what we really want. 

And we place a contract and then all of a sudden we are changing 

what our needs are during the contract. 

You mentioned, Asif, that a lot of the timelines have slipped. Can 

you give us some details on that? 

Mr. KHAN. Based on the declaration by Secretary Panetta back 

in 2011, the timelines were compressed. I mean, the timelines before the declaration were made was way beyond—well, somewhat 

beyond 2014, so they were pulled back. One of the timelines that 

I want to highlight, and Dr. Morin did not mention, was the Air 

Force timeline. That is in the first quarter of 2015 for achieving the 

audit readiness for their SBR. 

So the point I was getting at, it is a big question about the compressed timelines and timelines getting extended, whether or not 

the work is going to be done to make the corrective actions to reach 

audit readiness. 

Senator COBURN. OK. Secretary Hale, Mr. Rymer, said that the ADA violations were a very small percent, 20 cents on $1,000 of the 

Department’s total budget. Do you agree that it is an insignificant 

level? 

Mr. RYMER. I would not say it is an insignificant level, sir. I do 

not know specifically the amount, sir, but I do not think it is an 
50 

1The information submitted by Mr. Rymer for the Record appears in the Appendix on page 

138. 

insignificant level, and any ADA violation, I think, is significant in 

and of itself. 

Senator COBURN. What are the primary causes of their violations? 

Mr. RYMER. I would say fundamentally that the basic ADA violation is using money that is not appropriated for a particular use. 

Senator COBURN. Right. That is management. 

Mr. RYMER. It is management and accounting and financial 

record keeping, yes, sir. 

Senator COBURN. Are some of the ADA violations that have been 

seen erroneous, in other words, bad reporting that says they spent 

money on something that was not appropriated? In other words, 

are they false ADA violations? 

Mr. RYMER. I am not aware of intentional violations, if that is 

what you are asking, sir. 

Senator COBURN. No, just accidental. In other words, paid it out 

of the wrong account or paid it—— 

Mr. RYMER. I would say that is probably the nature of most of 

them, yes, sir. 

Senator COBURN. So it is, again, financial integrity and accounting systems that are leading to this? 

Mr. RYMER. Systems. A good deal of it could, yes, sir, be system 

problems. 

Senator COBURN. You all have talked about this. Mr. Rymer, can 

you talk to me about which ERPs right now do you think are most 

at risk of being unable to support an audit? 

Mr. RYMER. No, sir, I cannot give you that. I will be happy to 

supply that for the record.1

Senator COBURN. Can you supply that for the record? 

Mr. RYMER. Yes, sir, I will. 

Senator COBURN. I made the point earlier with Secretary Hale. 

Hagel ought to have on his desk every day every major acquisition 

program, once a week at least, where they are on their timelines, 

where they are on their budgets, where they are in terms of 

changes of requirements. I mean, if you really want to manage 

that—and it is not for him to know it. It is that if everybody else 

works together to prepare that, they are going to know it and fix 

it so he does not have to say anything. 

So it is this upward mobility of financial information. That is 

why you want an audit. I mean, who cares if we have an audit. If 

you have great financial systems and you know they are right, the 

audit is just a confirming nature. So the whole purpose for getting 

an audit is to change the financial systems within the DOD so that 

they have a system that they can utilize, to actually hone and improve and make more efficient everything that they do. Would you 

agree with that? 

Mr. RYMER. Yes, sir, I would. I spent a good deal of my early career, in the banking industry and I can tell you that certainly that 

industry relies on financial data—I remember every day getting a 

balance sheet. I knew exactly where my business was every morn-
51 

ing. And I think we need to get to the level in the Department 

where the availability of financial information is critical. 

And financial information is used in the decisionmaking process 

more often, I believe, than it is now, and I think it is probably not 

used as much simply because it is not there at someone’s fingertips. 

Senator COBURN. You have reported that without fully deployed 

ERPs, the DOD will be unable to produce reliable financial data 

and auditable financial statements without resorting to heroic efforts such as data calls or manual workarounds. 

Can you explain what these manual workarounds would look like 

and why they are not ideal? And did the Navy have any financial 

workarounds in their last audit? 

Mr. RYMER. I would say, sir, that the inability to produce reliable 

data in a timely fashion is a red flag in and of itself. Given the fact 

that we were working on a Schedule of Budgetary Activity, as opposed to a Statement of Budgetary Resources, I do not think we 

have really made that distinction well enough today, although it 

has been talked about. I would like to point out that Statements 

of Budgetary Resources means—that it is something management 

is asserting and it is auditable. The Schedule of Budgetary Activity 

is just a schedule. Some of the difficulty we had with the Marine 

Corps audit was, we were auditing a schedule. We were not auditing a statement. 

This means that starting points were difficult to establish, in 

some cases reliability was difficult. But what it really means, sir, 

is because we were working on a Schedule of Budgetary Activity 

that had no Office of Management and Budget (OMB)-required 

deadlines, or delivery dates. There are, I think, within the Department 10 OMB reportable units that would trigger the November 15 

audit report date. 

Certainly the Marine Corps is not even a reportable unit and the 

Schedule of Budgetary Activity is not a report that has to be sent 

up. So what we did was essentially to show the Marine Corps what 

it takes to finish the race. We essentially left the audit open for 

what I believe is an extraordinarily long amount of time to allow 

them to get the data, to learn where the data was and how difficult 

it was to get. 

Senator COBURN. Were those workarounds? 

Mr. RYMER. Well, yes. The systems could not provide data as we 

needed it, essentially the Marine Corps needed to spend a great 

deal of time researching on who owned and could provide the support for the transactions and, sometime had to develop the information. 

Senator COBURN. So, but what that taught them was, is, Here is 

what you are going to have to do to perform. 

Mr. RYMER. Yes, sir. 

Senator COBURN. So here are where the problems are, here is 

where we are going to direct our efforts, right? 

Mr. RYMER. Yes, sir. 

Senator COBURN. Going back to Senator Johnson, do the audit to 

find out what it is? 

Mr. RYMER. Right. 
52 

Senator COBURN. And that is exactly what you did with the 

Navy, correct? 

Mr. RYMER. With the Marine Corps. 

Senator COBURN. I mean, with the Marine Corps. 

Mr. RYMER. Yes, sir. 

Senator COBURN. Let me go to Senator Johnson. 

Senator JOHNSON. Thank you, Senator Coburn. I agree. You need 

to use the audit as a tool. My background is in manufacturing 

where you realize you have to have a process that is in control in 

order to produce a good product. I want to talk about accountability 

in a manufacturing setting because that is the kind of accountability I am trying to talk about in driving this process here. 

I’m not so much talking about when something goes wrong and 

you hold somebody accountable by firing them. I am talking about 

accountability up front to maintain and keep the process in control. 

In my plastics manufacturing business, the most significant thing 

we ever did in terms of improving quality and maintaining quality 

is we required every operator to attach their initials to every roll 

of plastic they produced. They were going to be accountable. If that 

was not high enough quality, if that piece of plastic was rejected, 

they knew they were going to be held accountable. It was amazing 

how that worked in terms of quality product. 

And so, that is the point I am trying to drive in terms of what 

is the level of accountability? What is the report that is generated 

by audit ready? How do you hold anybody accountable for not being 

audit ready? Who is being held accountable? At what levels? General Rymer. 

Mr. RYMER. Well, sir, as I said a moment ago, in my view—and 

I spent a good deal of time in the active and reserve components 

of the Army, so I think I can speak to some of this firsthand—is 

that when, at the lowest level, data is entered, whether it is financial data or payroll data, when it is entered, it should be complete, 

and commanders—the first level supervisors, in my view, should be 

looking at data to make sure it is complete. 

What we find oftentimes is that it is not. We may see a number 

not accompanied by a description and then we have a difficult—— 

Senator JOHNSON. I understand. That is a detail problem. But 

again, I am talking about this overall issue of how do we actually 

get this management information system up and running and 

being be able to use an audit as a tool. When we are talking about 

audit ready, how do we hold anybody accountable for not being 

audit ready other than, I guess, the Secretary of Defense saying, 

Well, you are still not audit ready? How do we hold those individual component parts, accountable units, accountable? 

Mr. RYMER. Well, it ultimately has to become a personnel process 

as well. It has to be built into the performance expectations of 

managers and everybody else. 

Senator JOHNSON. Is there a report that is being generated that 

says that your unit, your service is not audit ready? 

Mr. RYMER. Nothing other, sir, than the disclaimers that we 

issue after the audit is complete. 

Senator JOHNSON. Precisely. That is my point about what an 

audit would bring. 

Mr. RYMER. Yes, sir. 
53 

Senator JOHNSON. It is going to be a report that holds people accountable so you can work through that process to actually squeeze 

efficiencies out of this process, prevent the problems of the 

Antideficiency Act. You need the audit. The sooner we do it, the 

better, from my standpoint. 

Let us talk about those reportable units. In the private sector— 

again, that is my background—you get little companies and they go 

through an audit. Sometimes those little companies then get 

bought by larger organizations and we do not necessarily throw out 

that audit firm. That audit firm continues to audit that unit. You 

can have an assembly of hundreds of individual divisions all being 

audited, all being held accountable, but in the end, you do need information flowing up to the center so that the consolidated set of 

books can be audited as well. 

That is basically what you are talking about in terms of 140 different feedable systems into an ERP system, which, by the way, I 

have seen, whether the Material Resource Planning (MRP) or ERP 

systems, be a disaster in the private sector. It is incredibly difficult 

unless you really look at the component parts and understand exactly what information needs to feed in to that overall system. 

That is what I want to talk about, where are we breaking down, 

in terms of component parts in the Department of Defense, to make 

this a manageable process? It has been going on for 20 years. It 

does not seem like it is a manageable process yet. Is that part of 

the problem? General Rymer. 

Mr. RYMER. Well, I would start, sir, that last year we conducted 

12 financial statement audits in the Department of Defense. 

Senator JOHNSON. Let me stop you right there. How many of 

those do you think there should be? How many different component 

part audits do you believe there should be in order to drive accountability down? Should it be 12? Should it be 100? Should it be 

1,000? 

Mr. RYMER. Well—— 

Senator JOHNSON. Can I tell you what my bias would be? About 

1,000. 

Mr. RYMER. 1,000 sounds like a good number then, sir. [Laughter.] 

Senator JOHNSON. Do you understand my point? 

Mr. RYMER. Yes, sir, I do. 

Senator JOHNSON. OK. Is that off base? Does that seem reasonable to you? And again, I am not really looking for—— 

Mr. RYMER. No, sir. I mean, one thing that Mr. Hale was saying 

and I would agree with, audits are incredibly expensive and we do 

need to make sure that the scope of work is meaningful—that there 

is a bang for the buck. 

Senator JOHNSON. How much are we spending trying to get audit 

ready? Do you get my drift? You were spending all kinds of time 

and energy to get this audit readiness to do what? Where is the 

accountability? When are we ever going to get the audit? 

So I guess I would argue, I would rather spend money on the 

audit, realize what a disaster a particular unit is, or how successful 

a particular unit is. Then you can lift up the best practice and 

show, Hey, look here in the Marines, they are doing it. Hey, Army, 

why are you not doing it? Or even within the Army, the different 
54 

divisions. This commander over here, he can do it, why can you 

not? Why are we not utilizing this as a real management tool? 

But again, getting back to the component parts, I do not want 

you using my answer. Just think about it. Should we be talking 

about hundreds, thousands, tens? I mean, what would be the appropriate level to have individual audits to drive that accountability? 

Mr. RYMER. Well, sir, one way to look at it might be a unit, who 

commands the unit, who owns the unit, does that person actually 

have control over the numbers? Are they managing with the numbers? So look at it organizationally. Is it 10? Ten is the OMB requirement for audits of DOD financial statement. Right now, I 

think 10 reportable units, if I am not mistaken. Ten, I think, probably is too few, but frankly, we are conducting a lot more than 10 

audits in financial management, but they are not necessarily financial statement audits. 

I would explain that there is a lot of financial auditing that are 

not necessarily financial audits, attestation audits, that are going 

on. So there is financial accountability beyond just the financial 

statement audits. 

Senator JOHNSON. Well, again, try to and look at a private sector 

model and transfer that over to the Department of Defense and 

think, how can we break this up into accountable component parts 

and then utilize that process in terms of figuring out whether the 

audit should occur, how many audits, how would those feed into 

the 10 big OMB audits and then in the end, an overall audit for 

the Defense Department. 

Get off of this idea that we are not going to conduct an audit 

until we know we are going to have a clean audit, and instead, use 

an audit as a real management tool, which is what it really should 

be. Thank you, Senator Coburn. I thank the witnesses. 

Senator COBURN. Well, thank you all again. I have a lot of questions still to ask, but I am not going to ask them. I am going to 

let you go eat lunch. The record will stay open for 15 days, until 

May 28, and I would very much appreciate responses to questions, 

especially both of you, and we will move from there. My hope is is 

that we will have another little followup on this in September or 

October on how it is going. 

The other thing that I think is really important, and, General, 

I hope you will do this. I know GAO is going to be looking at this, 

this ERP is a big deal. If it flubs, everything flubs. And so, that 

ought to be right on the top target list. 

Mr. RYMER. Yes, sir. There is quite a bit of work going on. What 

we will do is, I will make sure we get with your staff and give you 

a summary of all the ERP work that we have done and that is ongoing. 

Senator COBURN. All right. Thank you both for your service. The 

meeting is adjourned. 

[Whereupon, at 1:14 p.m., the hearing was adjourned.] 
(55) 

A P P E N D I X 
56 
57 
58 
59 
60 
61 
62 
63 
64 
65 
66 
67 
68 
69 
70 
71 
72 
73 
74 
75 
76 
77 
78 
79 
80 
81 
82 
83 
84 
85 
86 
87 
88 
89 
90 
91 
92 
93 
94 
95 
96 
97 
98 
99 
100 
101 
102 
103 
104 
105 
106 
107 
108 
109 
110 
111 
112 
113 
114 
115 
116 
117 
118 
119 
120 
121 
122 
123 
124 
125 
126 
127 
128 
129 
130 
131 
132 
133 
134 
135 
136 
137 
138 
139 
140 
141 
142 
143 
144 
145 
146 
147 
148 
149 
150 
151 
152 
153 
154 
155 
156 
157 
158 
159 
160 
161 
162 
163 
164 
165 
166 
167 

Æ