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81–312 PDF 2002

S. Hrg. 107–617

NOMINATION OF HON. MARK W. EVERSON

HEARING

BEFORE THE

COMMITTEE ON

GOVERNMENTAL AFFAIRS

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

ON THE

NOMINATION OF HON. MARK E. EVERSON TO BE DEPUTY DIRECTOR

FOR MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET

JULY 17, 2002

Printed for the use of the Committee on Governmental Affairs

(

(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS

JOSEPH I. LIEBERMAN, Connecticut, Chairman

CARL LEVIN, Michigan

DANIEL K. AKAKA, Hawaii

RICHARD J. DURBIN, Illinois

ROBERT G. TORRICELLI, New Jersey

MAX CLELAND, Georgia

THOMAS R. CARPER, Delaware

JEAN CARNAHAN, Missouri

MARK DAYTON, Minnesota

FRED THOMPSON, Tennessee

TED STEVENS, Alaska

SUSAN M. COLLINS, Maine

GEORGE V. VOINOVICH, Ohio

THAD COCHRAN, Mississippi

ROBERT F. BENNETT, Utah

JIM BUNNING, Kentucky

PETER G. FITZGERALD, Illinois

JOYCE A. RECHTSCHAFFEN, Staff Director and Counsel

KEVIN J. LANDY, Counsel

JENNIFER E. HAMILTON, Research Assistant

RICHARD A. HERTLING, Minority Staff Director

ELLEN B. BROWN, Minority Senior Counsel

MASON C. ALINGER, Minority Professional Staff Member

DARLA D. CASSELL, Chief Clerk

(III)

C O N T E N T S

Opening statements: Page

Senator Lieberman ........................................................................................... 1

Senator Thompson ............................................................................................ 2

Senator Voinovich ............................................................................................. 3

Senator Akaka .................................................................................................. 5

Senator Fitzgerald ............................................................................................ 14

WITNESS

WEDNESDAY, JULY 17, 2002

Hon. Mark W. Everson to be Deputy Director for Management, Office of

Management and Budget .................................................................................... 6

Biographical and professional information ..................................................... 23

Pre-hearing questions for the record and responses with attachments ....... 31

Questions for the record and responses .......................................................... 77

(1)

NOMINATION HEARING OF HON. MARK W.

EVERSON TO BE DEPUTY DIRECTOR FOR

MANAGEMENT, OFFICE OF MANAGEMENT

AND BUDGET

WEDNESDAY, JULY 17, 2002

U.S. SENATE,

COMMITTEE ON GOVERNMENTAL AFFAIRS,

Washington, DC.

The Committee met, pursuant to notice, at 2:01 p.m., in room

SD–342, Dirksen Senate Office Building, Hon. Joseph I. Lieberman, Chairman of the Committee, presiding.

Present: Senators Lieberman, Akaka, Thompson, Voinovich, Bennett, and Fitzgerald.

OPENING STATEMENT OF CHAIRMAN LIEBERMAN

Chairman LIEBERMAN. The hearing will come to order. Good

afternoon, Mr. Everson. Welcome everyone to the hearing today.

We are considering your nomination to be Deputy Director of

Management for the Office of Management and Budget, which is

the third highest ranking position at that Department and one that

gives you responsibility for establishing management policies for all

executive agencies in the areas of finance, human capital, procurement, and information technology. These duties will, as you well

know, take on added significance in the coming months as a result

of the intention that the President and members of both parties in

Congress have of establishing a new Department of Homeland Security, consolidating a number of existing agencies, and creating

some new programs to respond to the threat of terrorist attacks.

That means that the careful management of these agencies and

programs will be needed more than ever if we are to minimize

overlap and maximize efficiency. So in your new position, you will

have a genuine opportunity to help in doing just that.

I also wanted to mention that as Chair of the President’s Council

on Integrity and Efficiency, you play an important role in interacting with IGs on behalf of the administration. This Committee

has a longstanding role in ensuring that Inspectors General are

able to do their jobs independently and with adequate funding because they are so central to the principles of good, efficient, consumer-oriented government.

I think your current portfolio as Controller at OMB has probably

acquainted you with the inadequate financial systems and controls

now in place at too many Federal agencies. As you know, the General Accounting Office has identified financial management at the

2

Department of Defense, the Forest Service, the Federal Aviation

Administration, and the IRS as high risk because of systemic problems there.

One of the most significant problems is the outdated financial

systems that many agencies have, which do not meet the most

basic accounting requirements and deprive Federal managers of

timely and accurate information that they need for daily decision

making. This Committee has been particularly concerned about improper payments that agencies make that have come in at extraordinarily high estimates in recent years and we count on you, and

I know you share our concern to do your best to eliminate this type

of waste, which really is unacceptable.

Finally, I want to commend the administration and thank the

administration for recognizing the importance of including the government’s ability to communicate electronically with the public and

to communicate within itself among agencies and for working with

this Committee to recently pass an electronic government bill out

of the Senate. Our work, of course, is far from complete and I hope

that the administration’s cooperation with our Committee is extended to the House, where consensus on a bill has not yet been

achieved, but I would guess we can play a role in bringing that

about.

Mr. Everson, I have seen your responses to the Committee’s prehearing questions and I appreciate the care with which you have

answered our questions. Again, I welcome you to this Committee

today. You have achieved a promotion more rapidly than I think

anyone else in the administration. I believe you are the first to

come back twice for a hearing here, so we welcome you and look

forward to working with you in the coming years.

Senator Thompson.

OPENING STATEMENT OF SENATOR THOMPSON

Senator THOMPSON. Thank you, Mr. Chairman, and thank you

for scheduling this hearing. I want to add my welcome to Mr.

Everson also.

We know that this is one of the most important jobs in government. We know that, over the years, the management function of

OMB has slipped and has not been given the priority that it ought

to have and that it deserves, and we have seen the results of that.

We have seen that in the important areas of information technology development, financial management, human capital, overlap

and duplication, that our Federal Government has performed very

poorly. Many of these functions are on the GAO high risk list, as

you pointed out. And even more troubling, so many of these areas

in which we are having such problems government-wide are areas

that are extremely crucial as far as homeland security is concerned.

The management problems of the Federal Government are longstanding and daunting. They are extremely important, and I am

glad that we have Mr. Everson to take over those responsibilities.

Having been there now for a while, you understand them even better than you did before.

The administration has put an unprecedented emphasis on improving both the efficiency and the effectiveness of the Federal

Government and the President’s management agenda has laid out

3

an array of things that need to be done and possible solutions. The

OMB has tasked agencies with accelerating their financial reporting, requiring them to move up the release of their financial statements from 6 months to 2 weeks after the end of the fiscal year.

In addition, the administration has set an ambitious agenda for integrating performance into the budget and for conducting publicprivate competitions to ensure that taxpayers are receiving the best

value for their dollar.

All these are good goals, things that need to be done, and I think

the administration has made a wise choice in selecting Mr.

Everson. It has been clear from the meetings that I have had with

Mr. Everson that he has extensive experience in management, not

just in financial management. He has a master’s degree in accounting from New York University Business School and a bachelor’s degree from Yale. He has 26 years of experience in both business and

government, holding positions of leadership in the Department of

Justice, U.S. Information Agency, the American National Can Company, Sky Chefs International, and now OMB.

So it is clear that he has management experience both inside and

outside of government and detailed knowledge of how the OMB operates. I look forward to supporting his nomination and to working

with him on addressing some of these problems that we are all too

aware of.

Thank you, Mr. Chairman.

Chairman LIEBERMAN. Thanks, Senator Thompson.

Senator Voinovich, do you have an opening statement.

OPENING STATEMENT OF SENATOR VOINOVICH

Senator VOINOVICH. Yes, I do. Thank you, Mr. Chairman. It is

a pleasure to be here today for the confirmation hearing of Hon.

Mark Everson, the President’s nominee for Deputy Director for

Management at the Office of Management and Budget. I congratulate Mr. Everson on his nomination to what I believe is one of the

most important posts in the Executive Branch of government. Welcome back to our Committee.

As the Chairman has said, you are no stranger to this process.

It was 9 months ago that you were here for the Controller’s position at the Office of Management and Budget.

Your willingness to endure the process twice in less than 1 year

demonstrates that you are truly a committed public servant——

[Laughter.]

And I thank you for your dedication to your country.

I assume this is your family?

Mr. EVERSON. Yes, it is, sir.

Senator VOINOVICH. I would like to welcome them and I would

like to thank your wife and your children for the sacrifice that they

have already made so that your dad and husband can serve his

country, and thank you for the continued sacrifice that you are

going to make so that he can continue to make a difference for the

American people and help our President do the job that we want

him to do.

It will come as no surprise to you that I believe human capital

management to be one of our government’s biggest challenges. Mr.

Everson, you and I have discussed that at length and I think you

4

understand that these challenges are enormous. Furthermore, if

they are not tackled immediately they will continue to be the subject matter of future hearings of this Committee. After you are confirmed, human capital will be on your watch.

Mr. EVERSON. Yes.

Senator VOINOVICH. So the things that are going to happen are

going to be attributed to you, and you know you have a very severe

human capital crisis in the Federal Government.

I think it is evident from your rise from Controller to the Deputy

Director for Management, that you have the confidence of the

President and his team, which is also very important for your success.

Mr. Chairman, I know that Mr. Everson is working with OPM

Director Kay James. It is vital that the teams at OMB and OPM

work together to get the job done. It appears the chemistry between the agencies is pretty good, so I am optimistic that we will

be moving forward with some real progress in the human capital

area.

I just want to thank you for being here today and I hope, Mr.

Chairman, we can move the nomination forward as quickly as possible.

[The prepared statement of Senator Voinovich follows:]

PREPARED STATEMENT OF SENATOR VOINOVICH

Good morning and thank you Mr. Chairman. It is a pleasure to be here today for

the confirmation hearing of Mark Everson, the President’s nominee for Deputy Director for Management at the Office of Management and Budget. I congratulate Mr.

Everson on his nomination to what believe is one of the most important posts in

the Executive Branch. Welcome back to our Committee.

As you know, Mr. Everson is no stranger to the confirmation process. In fact, just

over nine months ago, our Committee held his nomination hearing for the Controller’s position at the Office of Management and Budget.

Mr. Everson, your willingness to endure this process twice in less than one year

demonstrates that you are truly a committed public servant and I commend you for

your dedication to our country.

It will come as no surprise to you that I believe human capital management must

be a top priority for OMB. For too long, our federal government has neglected its

employees. Mr. Everson, I encourage you to spend as much time as is necessary to

get a handle on the human capital management challenges before you. These problems, which will only worsen in the coming years, will require your serious and sustained attention if they are to be successfully addressed.

Given Mr. Everson’s swift rise from Controller to Deputy Director for Management, it is clear that he has the trust and confidence of the President to perform

his new role. I am certain he will be able to work well with OMB Director Daniels,

OPM Director James, and the President’s entire Management Council to accomplish

the goals set forth in President Bush’s Management agenda.

Mr. Chairman, I support Mr. Everson’s nomination and hope we can move it expeditiously through the Committee and to the floor for final passage before the August

recess. Thank you, Mr. Chairman.

Chairman LIEBERMAN. Thanks, Senator Voinovich.

Mr. Everson, would you like to introduce your family now?

Mr. EVERSON. Certainly, sir. I am very pleased we have here

today my really—it is a larger group than in October, but—— Chairman LIEBERMAN. We noticed.

Mr. EVERSON. You remember Nanette, my wife, and she has actually joined the administration. She has taken the afternoon off to

be here. She has become Associate Counsel to the President. She

is doing the ethics work. So between the two of us, I give the red

5

marks and she gives the ethics guidance within the White House,

so we are not all that popular sometimes.

Our son, Leonard, was not here last time. He was overseas in

Scotland. He has returned and we are very proud of him and

pleased he is here.

You might remember Emma, who was here.

Chairman LIEBERMAN. I do.

Mr. EVERSON. She got a new dress, but she is here.

And then we are especially thrilled that Marcella, who is our sister-in-law, is here with my two nieces, Elia and Bella, and then,

most importantly, Max Michael, who is the newest addition. They

are in from Germany, so they went through our new rigorous

screening processes and border control a few weeks ago.

Chairman LIEBERMAN. Welcome and wilkommen. It is nice to

have you all here. It is a beautiful family.

Mr. EVERSON. Thank you. Thank you for that opportunity.

Chairman LIEBERMAN. Senator Akaka.

OPENING STATEMENT OF SENATOR AKAKA

Senator AKAKA. Thank you very much, Mr. Chairman.

I would also like to add my welcome to you, Mr. Everson, and

your lovely family, to this Committee.

Mr. Everson, as OMB Controller, you know that sound judgment

is vital to the government functions that we rely on every day here

in Congress. As we consider the creation of a Department of Homeland Security, agencies need appropriate management guidance.

For this reason, I offered an amendment to S. 2452, the National

Homeland Security and Combatting Terrorism Act. This amendment, which was adopted, requires OMB to provide specific guidance on actions agencies need to take to implement the National

Homeland Security Strategy.

Mr. Everson, I look forward to hearing your perspective on how

this would be accomplished. I am also interested in how you believe

agencies should strike the proper balance between new homeland

security responsibilities and their critical existing functions.

I believe you’ll agree with me that sensible management also requires transparency of costs in government and among Federal contractors. Regardless of whether they are Federal employees or contractors, we need to ensure that we collect accurate information

about those who perform the work.

Another issue of great concern to me is OMB Statistical Policy

Directive 15, which governs the racial and ethnic data collection by

Federal agencies. This was revised in 1997. As background, Native

Hawaiians were disaggregated from the Asian Pacific Islander

category and a new category entitled ‘‘Native Hawaiians and other

Pacific Islanders’’ was created. The Directive gives agencies until

January 1, 2003, to make all existing record keeping or reporting

requirements consistent with its standards. Given the upcoming

implementation date, I look forward to working with you to ensure

that all agencies are informed of the new standards and understand its requirements.

Mr. Everson, I am confident that you appreciate the importance

of government management, and I want to wish you well.

Mr. EVERSON. Thank you, sir.

6

1 Biographical and financial information appear in the Appendix on page 23.

Pre-hearing questions for the record and responses with attachments appear in the Appendix

on page 31.

Questions for the record and responses appear in the Appendix on page 77.

Senator AKAKA. Thank you very much.

Chairman LIEBERMAN. Thanks, Senator Akaka.

Senator Bennett, do you have an opening statement?

Senator BENNETT. No, thank you, Mr. Chairman. I just welcome

Mr. Everson here and look forward to an opportunity to chat with

him about the management side of Management and Budget.

Chairman LIEBERMAN. Thanks, Senator Bennett.

Let us proceed. For the record, Mr. Everson has submitted responses to a biographical and financial questionnaire. He has answered pre-hearing questions submitted by the Committee and additional questions from individual Senators and has had his financial statement reviewed by the Office of Government Ethics, in

which his wife, to the best of my knowledge, was not involved.

Without objection, this information will be made part of the hearing record, with the exception of the financial data, which is on file

and available for inspection in the Committee’s offices.1

In addition, the FBI file has been reviewed by Senator Thompson

and me pursuant to Committee rules.

Mr. Everson, as you remember from your last visit here, our

Committee rules require that all witnesses at nomination hearings

give their testimony under oath, so would you please stand and

raise your right hand.

Do you solemnly swear to tell the truth, the whole truth, and

nothing but the truth, so help you, God?

Mr. EVERSON. I do.

Chairman LIEBERMAN. Thank you. Please be seated.

Mr. Everson, do you have a statement that you would like to

make at this time?

TESTIMONY OF HON. MARK W. EVERSON TO BE DEPUTY DIRECTOR FOR MANAGEMENT, OFFICE OF MANAGEMENT AND

BUDGET

Mr. EVERSON. Yes, Senator, I do. Good afternoon, Mr. Chairman,

Senator Thompson, and Members of the Committee. As you know,

I am Mark Everson. I am already the Controller and I am very

pleased to be here today as you consider my nomination to be the

Deputy Director for Management.

In your pre-hearing questionnaire, you asked what would be my

priorities as the Deputy Director for Management. I will just touch

briefly on each of those four priorities. One of them is implementation of the President’s Management Agenda. The second is the establishment of the Department of Homeland Security, making sure

that it functions correctly. Third, strengthening the role of management within OMB, and also, finally, strengthening the President’s

Management Council.

In terms of the management agenda, just to give you a brief update, as part of the mid-session review that we released earlier this

week, we did for the first time present a progress report on how

the departments and agencies are doing in terms of implementing

both the five government-wide initiatives and also the nine agencyVerDate 11-MAY-2000 13:21 Dec 02, 2002 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6601 81312.TXT SAFFAIRS PsN: SAFFAIRS
7

specific initiatives. You will see from our evaluations that we feel

that there is a great deal of progress being made in some instances.

You might recall, we have this red-yellow-green grading system.

We apply it both as to the status against standards for success,

that is, against the long-term goals, but also on a progress side to

say, are you actually moving, because it recognizes, just as was indicated, in the case of, say, DOD, it is going to take a long time

to make movement here. What we have done is we have graded out

on the progress side.

NASA has got five greens. That is the top. A number of the departments, Commerce, Energy, Education, Labor, and Treasury,

ended up with four. There are some disappointments, though. The

Agriculture Department ended up with three reds. That means

that in our view, there has not been any significant progress on

three of the five initiatives.

Overall, though, it came out where one might expect. About half

the scores were green. That means they are moving forward in a

way that we think will get them where they need to go. I look forward to working with the Committee as you provide the oversight

on how we are doing here and I am sure we will be in very close

touch on that.

The Department of Homeland Security—I know I am in a weak

position here today to ask favors from the Committee, but I would,

if possible, like to respectfully nudge you towards providing a little

more latitude in the areas of management flexibility in terms of establishing the new Department. I would like to state, as the President stated yesterday in the leadership meeting, that in no way,

shape, or form do we have any intention of gutting civil service protections, whistleblower protections, any of the things that employees currently enjoy.

We do believe, however, that because of the magnitude of the

task, bringing together organizations that include 18 different

unions, they have all kinds of different management systems, financial systems, IT systems, we need to have some latitude here

both in the personnel area to make the Department more effective

and also in the areas of reorganization, transfer authority, procurement, as well as property. So to us, that is important to make the

Department as effective as possible.

In terms of the President’s Management Council, I took that over

on an acting basis in January after Sean O’Keefe went to become

Administrator at NASA. I think we are being successful in trying

to make that Department, or that organization a little more operational. We have restructured it a bit. We have got an Executive

Committee that consists of the deputy secretaries of several of the

Departments and also Kay James, Clay Johnson, and Albert Hawkins from the White House.

In addition, we have three working Subcommittees that are within the structure, one for human capital—Kay chairs that; another

for e-Government, which Cam Finley, Deputy Secretary of Labor,

chairs; and a third for budget and performance integration that is

chaired by Bill Hansen. This is providing, I think, more of an interaction between us at OMB or OPM as central policy makers and

the departments who are accountable for getting things done, so I

think that is a good step.

8

The last priority, strengthening management within OMB, I can

only report to you that in my 11 months within the structure, I

have seen a steady increase in the attention to management within

the operation. I know that Mitch Daniels feels that way, Nancy

Dorn, and the other senior people. It is getting its fair slice as we

work on this whole series of issues, budget, management, and regulatory.

Before I close, I just want to take a moment to thank you, Mr.

Chairman, for your leadership on this homeland area. I think your

role as a principal architect of all this is a singular contribution to

the Nation. A legacy will be left, as the President indicated yesterday, and you have been a very real part of it, along with your colleagues here on this Committee.

I would also like to thank Senator Thompson for your, sir, dogged role on management issues in general. It has been a real

breath of fresh air, I think, within the government, the work you

have done, the championing you have done in these last years, and

if you will pardon my expression, you will be a tough act to follow.

When I testified before you last time, I mentioned my family. As

you have all indicated, they have been a great source of support.

They occasionally grow frustrated with the hours, but as a rule, I

could not do it without them and I know that is the case going forward. I just want to give you my personal commitment that if you

do confirm me for this new position, I will give you my level best

and we will just see how that goes.

Chairman LIEBERMAN. Thanks, Mr. Everson. Thanks for a good

opening statement, for your kind words, and for your quite appropriate tribute to your family.

I am going to start by asking you certain questions that we ask

of all nominees. First, is there anything you are aware of in your

background which might present a conflict of interest with the duties of the office to which you have been nominated?

Mr. EVERSON. No, sir.

Chairman LIEBERMAN. Do you know of anything, personal or otherwise, that would in any way prevent you from fully and honorably discharging your responsibilities as Deputy Director for Management of OMB?

Mr. EVERSON. No, sir.

Chairman LIEBERMAN. Do you agree without reservation to respond to any reasonable summons to appear and testify before any

duly constituted Committee of Congress if you are confirmed?

Mr. EVERSON. I do.

Chairman LIEBERMAN. Thank you. Let me proceed with questions. We have a vote that is supposed to go off around 2:30, so I

am going to be selective in my questions. I know you have been

grilled abusively by our staff, and I have received the results of

that questioning.

I want to ask you if you would describe the role you would like

to take in information management and e-Government issues.

Mr. EVERSON. We feel this is a very important area. It was indicated in several of the opening remarks, the systems area. Our systems are woefully deficient in the government. The President’s

agenda item for this, where we are trying to work across agencies

and break down the traditional organizational structures where

9

processes and systems are put in that only pertain to Defense or

Commerce or whatever agency it is and do not get any of the leverage that you need for businesses that are standard or processes

that are standard, such as payroll processing, we think a lot needs

to be done in that area.

I think you know that my boss, Mitch Daniels, established a separate office within OMB to spearhead that. That is led by Mark

Forman, and I do think we are making a great deal of progress in

this area.

If confirmed, I will supervise that office, and if that office is

transformed, as under your legislation, becomes really the co-equal

to the financial and the procurement offices, I would continue to do

so.

We think it is critical and it will get a great deal of my attention.

My clear intention was, in changing the PMC, that we showcase

this one and we get the right cooperation amongst the departments. Central to this and eliminating redundancies and reducing

investment needs is to get the departments to sign in here. I think

with the able leadership of Cam Finley and the participation we

are getting in some of the departments, we have got some opportunities here.

Chairman LIEBERMAN. I appreciate that answer. As I think you

know, early on, I advocated the creation of a Federal Chief Information Officer, who would be responsible for ensuring better IT

management and promoting e-Government initiatives, and a lot of

that was based on counsel that we received from the private sector

about how the IT systems that are working best are where there

is a separate Chief Information Officer, within the company.

There was some disagreement with that approach from within

the administration. We worked out the compromise that we did,

and I wanted to ask you whether you would, as you go forward

overseeing this, keep your own mind open to whether we might not

be better served with a separate CIO?

Mr. EVERSON. I am pleased to do that. If I could respond through

reference to what we have proposed for the Department of Homeland Security, the CFO Act of 1990 did a very good job of establishing deliverables and expectations as to what financial management had to do for the government. I do think, however, there has

been a certain fracturing of management since that time. We have

CFOs in one part of the department, CIOs, procurement officers,

and Chief Human Resource Offices in some cases.

What we tried to do with the new proposal is to put it all together under one Under Secretary for Management because we

think you need to have an integration of the management issues.

You are entirely correct. In the private sector, frequently, there

are CIOs who are directly under the Chief Executive Officer.

Frankly, I do not see that as a workable model in most of these

departments and agencies, given the way—given the responsibilities the secretaries and the deputies have. I think we are better

off having a very strong management voice that is making sure

that you have an integration of all those functions.

I am shocked, coming back into government from industry. In industry, usually, the staff guys get together and have arguments

with the operating people. Here, the staff people do not even get

10

together. They are all islands of expertise and they are not actively

coordinating. That is the dilemma you have on this very issue, sir.

Chairman LIEBERMAN. OK, and we will keep talking. Thank you.

Senator Thompson.

Senator THOMPSON. Thank you very much. Mr. Everson, you

mentioned that homeland security is your second priority listed. It

is on all of our minds right now as we are getting ready to mark

up a bill and so forth.

From your standpoint, from a government management standpoint, as we proceed to put together a big new department, with

170,000 employees, that brings various agencies together, what do

you see our greatest challenges as a government, as a Congress, as

a Committee will be in dealing with that? What guidance from

your time on the inside could you give us in terms of ranking areas

of importance, things that we particularly ought to pay attention

to, things that you and the OMB ought to pay attention to? This

is going to probably be the most daunting management problem

that we face, at least in terms of importance to the country. Do you

have any ideas that you could share with us?

Mr. EVERSON. Certainly, Senator. We have, I would tell you,

three broad objectives as we approach the creation of this Department. The first is actually to, of course, accomplish the creation of

an effective Homeland Security Department.

The second objective is to make sure that as we do that, because

this will take time, we continue in the interim to enhance homeland security and to not take our eye off the ball on the day-to-day

challenges and issues that are out there.

The third is not to ignore the other, the collateral, the other missions that are important of these agencies that would come into the

Department. As you know, there are many important and other

vital missions at the Coast Guard or at FEMA that need to be attended to.

So everything we are trying to do is measured against those

three standards. That argues for, in our view, a deliberate transition process. If you go to the construction of the statute, we create

the Department in our proposal 30 days after enactment, but then

provide a 1-year transition period to bring in the different components according to a measured schedule of when you would be

ready to do that.

To do it effectively, we feel, again, that you need to have the latitude, the flexibilities, both on a short-term basis to stand up the

Department, but moreover, to make it effective. We cannot take the

attitude that whatever solution is created, that is going to be it. It

has to be changed in response to emerging threats, because those

will clearly require us to adjust, but also because of the experience

that we gain as we go along and see what we have done that needs

to be adjusted.

Senator THOMPSON. As we integrate these new agencies in the

Department, is it important to apply the tools we have been trying

to gear up for some time now, such as the Results Act and other

things that we have been using and integrate them into the new

Department?

Mr. EVERSON. Absolutely. I was at a presentation this morning

where I was asked, would the OMB scorecard be used in the new

11

Department? Absolutely. We need to measure program effectiveness in the new Department just as we would in any existing element of the government.

Senator THOMPSON. If not more so.

Mr. EVERSON. That is exactly right. We recognize there are some

underperforming elements that will go into the new Department.

The INS is the one that is most frequently cited.

Senator THOMPSON. Let me ask you this. With regard to some of

these traditional areas of deficiency that I mentioned a few minutes ago, information technology, human capital, financial management, what do you see as the most difficult problem, the most systematic problem that we have in our government? And rank it also

in terms of importance to us. Is there any one thing out there

among all those difficulties that you feel that we, as a Congress,

as an administration, really need to get a hold of for the sake of

the good of our country?

Mr. EVERSON. I think Senator Voinovich has put his finger on it

and it is very much in this human capital area. I think that we

have a recognition that e-Government, technology, needs to be harnessed. There is a clear consensus on that. But we seem trapped

in a very difficult relationship where we are afraid to change. You

used the word, Senator, ‘‘anxiety’’ yesterday with the President.

Clearly, there is a great deal of anxiety about making change.

So we need to take some of these systems—the GS schedule established 50 years ago. Any business that is still working with the

same personnel systems as five decades ago has long since gone out

of business. We need to take fresh approaches in the personnel

area. That would be, first and foremost, what I would say.

Senator THOMPSON. All right, sir. What about, going down my

own favorite list here, things such as improper payments? I think

the GAO has recently determined that we are probably at $20 billion a year, at least, and maybe much more than that. Are we making any progress in that area? I believe the House has just passed

a bill that would require these agencies to set forth and disclose

their improper payments. We have not done that here yet. Does the

administration have a position on that?

Mr. EVERSON. Robert Shea told me that if he came to work for

me, you would never ask another question on improper payments,

but—— [Laughter.]

Senator THOMPSON. Well, he has not solved the problem yet.

Mr. EVERSON. No, he has not. But in all seriousness, I think that

we are starting to gather some steam on this. Last year, we went

out to the agencies and requested that they develop plans. This is,

in essence, what the House bill that you referred to does. It codifies

what OMB is doing in terms of developing targets.

We are making some progress in some of these areas. The other

thing we are doing is we are increasing the measurement. I would

suggest to you that the studies that GAO has done in the past that

identify about $20 billion in erroneous payments actually, believe

it or not, and this is a shocking sort of thing to say, they do not

capture all the true activity out there because they only measure

some programs.

We are refining those measurements and we are also identifying,

frankly, two things that need to be done, areas where we will work

12

with States, such as in the food stamp area, to try and improve

their response, and finally, we are trying to develop certain statutory changes that are necessary for the sharing of information. So

I think we are moving forward.

Senator THOMPSON. Thank you very much, Mr. Chairman.

Chairman LIEBERMAN. Thanks, Senator Thompson. Senator

Voinovich.

Senator VOINOVICH. I am pleased that you understand that if you

do not have the right people, with the right skills that you are not

going to get the job done. I would like you to share with us where

you already think you are in that area.

As you know the Internal Revenue Service was facing severe

management challenges and we gave them additional tools to get

the job done. The FAA was also having problems, so we gave them

separate tools to get the job done. We also gave GAO special authority to move forward. Homeland Security poses its own unique

challenges. We have Defense Secretary Rumsfeld talking about the

human capital crisis that he has in the Defense Department in our

national security.

How do you expect to deal with the human capital problems in

an expeditious manner?

Mr. EVERSON. Obviously, Senator, this is one of the greatest

challenges we have. Our priority at this time, I would suggest, is

to try and develop in the new Homeland Security Department a

model that will at once provide enhanced homeland security

through a better-equipped workforce, and also, we believe, down

the road, be a model for the rest of government.

If I could just sort of digress into Homeland for just a minute or

two, the President made it clear yesterday that we are very anxious to work with the unions to develop a flexible personnel system.

We are doing that now. Kay James and I have a further negotiating session scheduled with the union leadership for Monday.

Furthermore, Governor Ridge will be seeing Mr. Sweeney early

next week. That is an appointment that we have now scheduled for

Tuesday.

Chairman LIEBERMAN. Thank you, Mr. Everson.

Mr. EVERSON. I did not want to make a direct reference to our

conversation, but—— [Laughter.]

We have got to get both sides to come together on this, clearly,

because going back, and I made reference, Kay James has done a

study. You have seen it, a white paper on the pay systems. That

is only a piece of the problem that confronts us.

The approach we are trying to take here with Homeland is to

say, let us put out something here that clearly protects the rights

of the employees. We feel we reference that in our bill. Apparently,

we did not satisfy or calm all those anxieties. We are more than

willing to explicitly delineate those protections.

But we also feel, at the same time, while we would also recognize

the right to collective bargaining, we need to protect the President’s

existing right to limit that in instances of national security. I am

sure you are aware of the Morella amendment that passed in Government Reform last week. We are strongly opposed to that.

So we can construct something recognizing those two centerpieces, but still moving forward with the President’s proposal on

13

flexibility. We need to take it as a whole. I feel that if we cherry

pick this and do not come up with something that is overall flexible, it just may not meet the unanticipated needs as we go down

the road.

Senator VOINOVICH. I would just like to make one other comment. As you know, I have worked very hard with the administration on an overall piece of legislation that will deal with some of

the real problems that you have got across the board. Our Committee is dealing with the challenges facing our proposed Department of Homeland Security.

It would seem to me, Mr. Chairman, that what we ought to be

looking for something that would make these various new flexibilities available to all of the agencies. Then we could single out certain areas where we know we have a strategic need. Perhaps starting with Homeland Security and the Defense Department. Then we

could sit down with the unions, who are very concerned about this,

as you well know, to see if there are what kind of compromise we

could negotiate so they could go to their membership for their

input, because they have got to have some cover.

I am really concerned that these tools are needed now. If we just

deal with homeland security and don’t give the other agencies the

flexibilities they need, then we are only compounding our problems.

Because all of the needs of our agencies are important. I mean, the

FBI, for example, they have been to see me. If they do not get another compensation system, I do not know how they are going to

be able to get the job done. They need some flexibility.

So it seems to me that as we move down the road, we ought to

be looking at the big picture and trying to figure out something

that gives the unions comfort that they are not giving away the

store, and at the same time, perhaps the administration might

come through with some money and flexibility. The unions are concerned about pay comparability and compression, and health care.

It is going to be very difficult, in my opinion, for us to get the

unions to go along with this without them seeing some money. As

Jerry Maguire said, show me the money.

Chairman LIEBERMAN. Well said.

We have a few minutes left on a vote. If you want to ask some

questions, Senator Fitzgerald, I would be inclined to yield the gavel

to you with the hope that you will not do anything too wild while

you are in charge of the Committee.

Senator FITZGERALD. So that we could go vote and then come

back?

Chairman LIEBERMAN. I was thinking that I would let you close

the hearing, if you want to ask some questions, or if you——

Senator FITZGERALD. Yes. We are so short on time, I think we

are right up against it. Could I come back and take it and——

Chairman LIEBERMAN. Yes, definitely. I am happy to recess the

hearing at this point with the understanding that Senator Fitzgerald will come back, perhaps himself, and ask some questions,

and then I will close the hearing.

In the meantime, I thank you very much. It is my intention to

try to move your nomination through both the Committee and the

Senate as quickly as possible. I look forward to working with you.

Mr. EVERSON. Thank you, sir.

14

Chairman LIEBERMAN. For now, the Committee stands in recess.

[Recess.]

OPENING STATEMENT OF SENATOR FITZGERALD

Senator FITZGERALD [presiding]. We will call this meeting back

to order, and Mr. Everson, thank you very much for your patience.

It is good to see someone who at least for a while lived in Illinois,

and I guess your mother still lives there.

Mr. EVERSON. Still there.

Senator FITZGERALD. I guess I can call you an honorary constituent in that case. You lived there in the late 1980’s, early

1990’s?

Mr. EVERSON. Absolutely. I would be pleased. We moved around

so much that, Illinois, it seemed really like the center of where we

were, and when we went back from France, it was really our preference, in fact, to go back to the Chicago area for a whole host of

reasons, but it did not happen.

Senator FITZGERALD. Well, welcome to this Committee and congratulations on your appointment. Congratulations to your family.

How many kids do you have? Have you introduced your family to

the Committee?

Mr. EVERSON. I introduced them, yes. We have two children. We

do have a constituent of yours in addition who is not here today.

We actually have a foster daughter who is a Cambodian refugee

who is living in Bolling Brook with her family, her husband and

their two daughters. They are not here, but this is my sister-in-law

and her three children, in addition to Emma and Leonard, who are

our children.

Senator FITZGERALD. Wonderful. Welcome, and congratulations.

Your background and qualifications are superb. Your educational

credentials, also your credentials in the corporate world are great.

It sounds like you will be able to do a very good job at the OMB.

I did want to ask you a few questions, and I appreciate you waiting for us to get through that vote so I could have this opportunity.

There are a couple of issues I want to address. It strikes me as we

have this hearing that we have just spent a week on the Senate

floor, last week, debating rules or regulations and laws that would

govern the accounting industry in America, but we were really only

concerned with corporate America.

I think that sometimes we fail to consider the accounting rules

that we apply in the Federal Government. Actually, I think the

Wall Street Journal had an editorial once that was entitled ‘‘The

Federal Enron.’’ They were referring to the Federal accounting

standards.

Mr. EVERSON. Yes.

Senator FITZGERALD. I have been struck by the fact that the first

2 years I was in office, it was under the prior administration, the

national debt was going up steadily. I think it went up about $200

billion during my first couple of years in office, and yet every year,

the Federal Government was claiming a surplus. I thought it was

odd that the national debt could be going up if we are running surpluses.

After investigating this, I found out that the way the Federal

Government was claiming a surplus was that we have a general

15

fund and we would raid 150 or so trust and pension funds, take

all the revenue out of the trust and pension funds, mix it in with

the general fund and say the general fund is running a surplus.

But we were borrowing from the trust and pension funds, putting

notes, promissory notes or government bonds in those funds and

the national debt was going up. If somebody in the private sector

were to reach into their employees’ pension fund and loot it, they

would go to jail, without question. But Washington does it all the

time and they do not really talk about it. They ignore it.

The fact of the matter is, we do not use anything close to Generally Accepted Accounting Procedures, although I am afraid that

in the last couple of years, the Federal Financial Accounting Advisory Board prevailed on the independent group, the AICPA, the

American Institute of CPAs, to call what we do in the Federal Government GAAP accounting, which I thought was somewhat outrageous.

In any case, I want to ask you a couple of questions about governmental accounting. There is, as I alluded to, a Federal Financial

Accounting Standards Advisory Board.

Mr. EVERSON. Yes, sir.

Senator FITZGERALD. My understanding is that, recently, an

agreement was entered into by the OMB, the Treasury Department, and the GAO to restructure that board and I was interested

to see the addition of a majority of non-Federal Government members to the Board. I hope that will increase the independence of the

Board. But I have one strong concern, and that is the fact that any

one of the Comptroller General, the Secretary of the Treasury, or

the Director of the OMB may single-handedly object to any standard proposed by the Board and prevent that standard from being

implemented.

Now, we were talking about the independence of the Financial

Accounting Standards Board that governs the private sector all last

week. We never really discussed the independence of this Financial

Advisory Board, this Financial Accounting Standards Advisory

Board, and I wanted to get your thoughts——

Mr. EVERSON. Yes.

Senator FITZGERALD [continuing]. On whether that Board is independent, should be independent, what do you think, and what do

you think the OMB and the administration’s position is on the

independence of that Board?

Mr. EVERSON. Thank you. I am glad you raised the general subject and then the specific matter, the FASAB. On the general subject, we agree that there is a very significant need to integrate the

budget and the financial information such that the accounting information is consistent with the budgetary information. If you look

at the 2001 financial statements of the government, which were

issued in March—it is shocking that it takes 6 months to issue

these statements, but——

Senator FITZGERALD. And you do want to move the date up, do

you not, to December 15?

Mr. EVERSON. Absolutely. As was referenced before, we have set

an objective that would move the financial statements for the government that are now prepared 6 months after the close of the fiscal year to December 15 in fiscal year 2004. That would require the

16

agencies to report 45 days after the end of the fiscal year instead

of 5 months. So that is a tall order, something that was actually

discussed at the PCIE, that is the IG group, yesterday. People are

diligently working on it. I am confident that just by setting this

marker here, we are going to make very significant improvements

in controls in financial statement preparation.

But part of this is to get financial information that is consistent

with budgetary information. If you look right now, we reported a

deficit for our financial statement purposes of $500 billion for the

2001 reporting year, in contrast to a surplus of over $100 billion

plus.

The difference there was that the accounting standards, the

GAAP standards, which, as you say, are a little bit different from

the private sector standards and need to be improved, they recognize the cost, the effective changes in cost for future benefits,

health and retiree benefits, that were granted to our veterans and

our military employees at the end of 2000. Pardon me, when it was

actually in the fiscal year 2001 reporting. For budget purposes, this

was counted as $10 billion worth of cost. When it comes through

and you do it on an actuarial basis, it came out to almost $300 billion of cost, and that is a cost that the government is going to have

to swallow in the out years.

That is just one example of where the way we budget and score

things does not—it is not consistent with what good financial

management—— Senator FITZGERALD. We are using cost accounting, are we not,

as opposed to accrual?

Mr. EVERSON. We are using financial—we are recognizing— there, you are looking at the present value of the obligations you

have already incurred for both your veterans and your current employees at DOD. That was the big impact there. It was a benefit

that was granted that picked up all of—— Senator FITZGERALD. If we had full accrual accounting, our numbers would recognize those costs, correct?

Mr. EVERSON. They do not recognize it on a budgetary basis. The

financial statements do. That is the distinction. And all the debate

that you have up here and that we have is for the budgetary purposes, but it is only showing part of the picture, is what we would

say.

Turning to the FASAB, we recognize there has been a deficiency

in the stature of that organization, if you will, and in the independence of it. It was running with a five-four government-private sector relationship, or pardon me, it might have been six-three, in

fact, and we decided to split, to swap that around to make it a sixthree majority of non-governmental, as you say, retaining the same

relationship between Executive and Congressional Branch representation.

Whereas before you had four Executive Branch agencies plus

GAO and the Congressional Budget Office, so that there was a twoto-one representation, we have inverted that so that we will have

six private sector or non-governmental representatives, then two

Executive Branch agencies, one being OMB, one being Treasury.

We set the policies on the accounting and financial standards generally. Treasury, as you know, implements them as they are our

17

bookkeeper, or they prepare the financial statements, and then

GAO, which does the auditing and looks at a lot of the standards,

too. So we retain that same ratio for the government participation.

You are right, there is still a right to veto on the part of any one

of the principals, that is something that I do not think really we

would see exercised because of the avalanche of criticism that we

provided, but it is a complicated legal issue. We are very committed

to the independence, particularly Secretary O’Neill. He really felt

this——

Senator FITZGERALD. I would encourage you to think about that

and take my concerns back to Mitch Daniels——

Mr. EVERSON. Yes.

Senator FITZGERALD [continuing]. Because what if Global Crossing or Enron had a veto over the rules set by the Financial Accounting Standards Board? I mean, it is problematic and you really

do want that board to be independent——

Mr. EVERSON. Yes.

Senator FITZGERALD [continuing]. And to clamp down on practices that maybe should not be allowed and to have the ability to

enforce them. So I would encourage you to think about it, although

I do compliment you for increasing the number of outside members.

I think that will be helpful.

Mr. EVERSON. Thank you.

Senator FITZGERALD. Back on the accounting issues, the accounting around here is crazy. You alluded to us not taking into account

the increase in unfunded liabilities when we pass a program for

veterans or for some other group, and that you are using internally

some different numbers than we are using up on the Hill.

Mr. EVERSON. Not internally, for the financial—the preparation

of the financial statements. I had meant to but did not bring up

the financial report of the government, which is on a GAAP basis,

but it is a government GAAP which does have—it does not pick up,

for instance, right now, all of the property in the same way, and

I think this is the whole benefit of getting this outside——

Senator FITZGERALD. Well, is it not correct that when we consider whether we have a budget deficit or surplus, we take all the

cash out of 150 or so different government trust funds and pension

funds, such as the Federal Employees Pension Fund, the Military

Retirees Pension Fund, the Social Security Trust Funds, the two of

them——

Mr. EVERSON. Right.

Senator FITZGERALD [continuing]. The Medicare Trust Funds,

even the State Unemployment Insurance Trust Funds, which we do

not own, we just manage for the 50 States. We take all the cash

that——

Mr. EVERSON. There is the on-budget surplus and the additional

surplus, exactly right. You get into this argument that was so prevalent during the campaign and then more recently of the lockbox

and what is in the—where are you in terms of what are you using

from all those other pieces. That is exactly right.

Senator FITZGERALD. There is no money in any of those trust

funds, is that not correct?

18

Mr. EVERSON. I do not know all the answers in terms of which— the various trust funds. Some have positive balances and some are

borrowed out.

Senator FITZGERALD. When they have balances, the balances are

an asset balance and they have government bonds—— Mr. EVERSON. There are IOUs from other—you are exactly right.

This is where you get into the interaction of all the debt and what

is debt held by the public, which is that net position that is on the

financial statement.

Senator FITZGERALD. Does anybody in the administration favor

cleaning up this? I mean, this is really—I think it is an outrage

that we raid all the pension and trust funds that the government

manages, we spend it on other programs and put IOUs in there.

Mr. EVERSON. We are looking. We are strongly in favor of greater

transparency, and I think we do have a—we have a fair amount

of transparency here, because in these financial statements, we do

have a great deal of disclosure. There is discussion about—let us

go back to, say, Social Security. Should you put that future obligation on the balance sheet? Right now, that is not on the balance

sheet of the government. What should you put on the balance

sheet?

That is the kind of issue that will very much be targeted for discussion and to be addressed by the newly-reconstituted FASAB.

That starts to get to that linkage of the very question you are getting to. We, for sure, want to get more integration of the budget

and the financial statements to recognize those costs and to clarify

the accounting so that you get past what right now is a discussion

that is based on 10-year projections, many of which are faulty, 5-

year projections——

Senator FITZGERALD. I hope you do all that——

Mr. EVERSON. Yes.

Senator FITZGERALD [continuing]. But I also hope you go one step

further and rethink this whole idea that all these trust funds can

be phony. If they are phony and they are not real trust funds and

they have no money in them, maybe we should not call them trust

funds or pension funds.

Congress has passed laws to make it illegal for private corporations to raid their pension funds. It would be illegal if somebody

at ABC Corporation went into their employees’ pension fund, took

that money out, spent it on other programs, and then put a corporate bond in there. They would get in trouble for that.

Similarly, we passed laws making it illegal for State and local

governments to raid their pension funds for their retirees.

Mr. EVERSON. Sure.

Senator FITZGERALD. It would be a very serious infraction for a

State to dip into its State Employees Pension Fund, take that

money out, and spend it on something else. Now, often, States do

not put the amount of money into the pension fund that they

should, but I am not aware of any that actually raid it and spend

it on other programs. But we do this all the time—— Mr. EVERSON. Yes.

Senator FITZGERALD [continuing]. In the Federal Government, a

whole variety of pension and trust funds—— Mr. EVERSON. Yes.

19

Senator FITZGERALD [continuing]. And really, they are nothing

more than an accounting sham and I am very concerned that it is

misleading the American people about the financial condition of the

government. You guys have done such a good job under Mitch Daniels. I think he has great experience and really, from everything I

can see, thinks the right way about it.

Mr. EVERSON. Yes.

Senator FITZGERALD. I wonder if you would not take that concern

back——

Mr. EVERSON. I will carry this back, and I think there is a great

deal of discussion. Dave Walker from GAO, as you know, he raises

these issues of the long-term health of all these funds. It is very

serious.

Senator FITZGERALD. I have talked to people in Mr. Walker’s office who have defended the whole practice, and it was shortly after

I came into the U.S. Senate, and I just thought they sounded bizarre to me. I think to anybody outside the beltway, our practices

sound bizarre. I think there has been too much incestuousness in

all these government accounting people talking to themselves. We

would not allow this anywhere else in America.

Mr. EVERSON. I am glad you surfaced this sentiment and I will

certainly take it back for discussion within our shop.

Senator FITZGERALD. Thank you. Along the same lines, my understanding is, right now, since about 1990 when we passed the,

was it the Chief Financial Officer Act, we have required the 24

largest departments and agencies and a few others that are specified by Congress to have audits. Prior to the early 1990’s, I guess

there were no audits for the Agriculture Department, the Defense—just no audits, nothing.

We have begun in the last decade or so to require audits, but we

do not do it for all the departments, just the 24 largest, and I have

actually introduced a bill that would require all executive agencies

with a budget authority in excess of $25 million to prepare audited

financial statements and subject those statements to an independent audit. I estimate that, based upon current budgets, 19 additional Federal agencies would be covered under the bill, including

the SEC. Is it not ironic, the SEC does not get audited. It may

audit companies in America, but it does not face any audits, the

Federal Trade Commission and the Federal Communications Commission.

I guess that there has been legislation like this introduced by

Congressman Toomey in the House, and that has been fairly well

received. I wonder if you could comment on your opinion about the

CFO Act generally and to what extent that you feel the information

it requires has been helpful to the OMB in its quest to improve

government financial management.

Mr. EVERSON. I mentioned, and I think you had stepped out of

the chamber for just a minute, but that I believe the CFO Act was

a very significant contribution to improving Federal management.

It set up, and the follow-on Act set up a series of deliverables, if

you will, or expectations requirements for agencies to better manage their finances and other areas of their operations. So I think

that is positive.

20

My reservations about the Act and the whole series of management legislation that took place really pertained to two issues, one

being the sort of the fracturing of responsibility for management

within the government. After the CFO Act came along, you had a

focus on CIOs. You have human resource officers in some instances, procurement officers, and some of these are split off such

that you do not see the management people talking to each other.

They are operating in some of these departments as independent

agents.

That, to the degree to which you say we are going to solve problems by making chief human resource officers or CIOs or chief procurement officers without having it all integrated in the department, it does not get to where you need to get, which is to integrate

the management stuff. That is not a problem with the expectations,

though, that you have established in the Congress on what needs

to be done. That is a management structuring question.

On another element that is complicated, we have had a proliferation of different reporting mechanisms. There is FFMIA, FMFIA,

there are a couple different things that are out there where you

have moved away from the private sector standard of reporting on

material weaknesses, which I think is the right standard, and you

get some things that are not complying with systems requirements

or some things that are general control weaknesses.

It is sometimes hard for an agency head to figure out what thing

to fix next because you have got to report on four or five different

grids of overlapping areas, if you can understand my point. Each

statute provides a different mechanism or a slightly different prism

through which to view these problem areas, and we—— Senator FITZGERALD. Would you have recommendations, how we

might be able to——

Mr. EVERSON. We are looking at it, whether there needs to be

some sort of rationalization that would say, look at material weaknesses. Material weaknesses, if identified by auditors and known

by management, that will sweep in all the areas of concern. So

there may be a need to do some rationalization.

As to your bill, we have said that we support what has gone on

in the House because we think that subjecting it to the audits is—

and I guess the threshold, at least that I am familiar with, $25 million, we are all for that. We are not so sure—I am not sure—pardon me, I am not familiar with the specificities of the bill that you

have got. We do not want to mandate that a small agency would

have to be FFMIA compliant on systems, because from a government-wide point of view, the reason we need compliance is so that

when you pull together those financial statements, they are all on

a consistent basis. But if it is some $40 million agency, if they have

got something that serves their purposes, that ought to be good

enough as long as the numbers are good.

Senator FITZGERALD. But you support the audit requirement?

Mr. EVERSON. Yes, absolutely.

Senator FITZGERALD. That it be audited and—— Mr. EVERSON. Yes, sir, we do.

Senator FITZGERALD. Now, on the audits that we have had, I

guess this year, we have had no change in the number of departments that were receiving clean audits. I think 18 of 24 CFO Act

21

agencies were able to obtain an unqualified audit opinion for their

2001 financial statements. The 18 were different in that FEMA deteriorated and so did NASA. NASA got a disclaimer of opinion. But

there was some improvement by the DOJ and the DOT, and I certainly would compliment them. They got clean opinions.

The Education Department got a qualified opinion. I gather that

the USDA got a disclaimer again, but there may have been some

improvement in their prior practices. We still have the DOD getting a disclaimer. We still have other agencies getting terrible opinions, but we are giving them more money. There is not really any

teeth in the Act. What is the downside if you go on year after year

getting a disclaimer of opinion?

Mr. EVERSON. I think that through our initiative to improve financial management, we are bringing greater focus on this and

there will be accountability within the management teams of these

departments to achieve those results. A lot of it has to do with the

elimination of material weaknesses, which in many instances departments have pushed off. The easiest thing to do is to just sort

of extend the due date for getting these things resolved.

I would characterize looking behind the numbers as you just did

in your analysis. I think we would characterize it as modest but

important improvement that was made this year. The slippage in

NASA, for instance, I think it largely related to you had a change

in auditors there, so it was a first time through. NASA did not

meet the documentation standards that the new auditor put forward. I am totally confident that both there and FEMA, with very

aggressive remediation plans they have in place, that they are

going to get back to where they were before.

Senator FITZGERALD. What steps does OMB take to hammer on

these agencies?

Mr. EVERSON. We sit down with the agencies. We have an annual meeting, which is a very broad series of discussions well before the audit takes place. It involves the department, ourselves,

GAO, Treasury, and the Inspector General of the department. The

Inspector Generals, as you know, they are responsible for overseeing that audit in the departments and agencies. In many instances, it is contracted out, but in others, it is not. And then we

follow up as needed, depending on whether it is a problem agency

or not.

I would characterize what has happened so far as real improvement. The Agriculture situation you mentioned, their problems now

principally relate to the Forest Service, but they took two or three

big entities and were able to get opinions on them at this point, at

this time for the first year. You mentioned two big departments,

Justice and Transportation. That is good news. That is progress.

I am rather encouraged in this area. The one that is going to

take the longest is going to be DOD, and that is going to take a

while yet. But our standards for success here, if you go to the

standards for success that we have articulated, and we developed

these with GAO and Treasury as to financial management, they

are broader than just the audits. They run to things like systems

that provides information that supports day-to-day decision making. That is a high standard. You do not just get that with the

audit.

22

Senator FITZGERALD. Do you feel there should be any budgetary

or appropriation consequence to an agency that really does go on

year after year and you do not see the improvement in their——

Mr. EVERSON. I think there should be a management, in terms

of change of management. That should be the first step. We have

looked carefully. We have authorities, as you would be aware,

under Clinger-Cohen to stop or change systems. If people are not

executing their systems correctly, we can step in there and will not

hesitate to do so, as the facts may demand.

But one of the things we are trying to do is get people to move

quicker. I am a little struck, coming back into government, by the

reluctance to get issues resolved. Part of the split we have here is

when a system is starting to be deployed and it is coming out as—

it is not working as well in, say, the first module, people just stop.

They wait——

Senator FITZGERALD. Now, you were a CFO, is that right, in——

Mr. EVERSON. I had lead responsibility for all the finances at Sky

Chefs, that is correct, and at Pechiney, I had the internal budgeting and reporting for management reporting——

Senator FITZGERALD. Now, in the corporate world, it was no big

deal. They have an unqualified opinion——

Mr. EVERSON. That is exactly right. Well, it was a baseline, and

that is what we are trying to get to here. You do not get—we are

saying you need that and you need that, but it is a minimum. It

is a floor, not a ceiling.

Senator FITZGERALD. I know Secretary Evans told me that when

he was visiting with his predecessor at the Department of Commerce, they were bragging that they had gotten an unqualified

opinion, and he could not understand why that entitled you to

bragging rights, because in the real world, that would just be what

was ordinarily expected and, in fact, you would be in big trouble

if you could not get an unqualified opinion.

Mr. EVERSON. We could not agree with you more, and frankly,

it is not that hard to get, if all you have to do is get it 5 months

after the end of the fiscal year.

Senator FITZGERALD. Yes.

Mr. EVERSON. You just keep running the numbers until you finally nail them down.

Senator FITZGERALD. Mr. Everson, thank you so much for being

generous with your time. Congratulations to you and your family.

I look forward to working with you and we hope that—I am sure

you will have a good relationship with this Committee.

Mr. EVERSON. Yes, sir.

Senator FITZGERALD. If we can be helpful in any way, please let

us know.

I am going to say that this completes this hearing. The record

will remain open for the rest of today in case any Committee Members want to submit written questions—we hope not too many will

do that to you, as I am sure you have other work to do—and any

written statements that they want to provide. The record will be

open until the close of business today. With that, the Committee

stands in recess. Thank you.

[Whereupon, at 3:30 p.m., the Committee was adjourned.]

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