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56–508 CC 1999

VULNERABILITIES TO WASTE, FRAUD, AND ABUSE:

VIEWS OF THE DEPARTMENTS OF DEFENSE,

STATE, AND VETERANS AFFAIRS

HEARING

BEFORE THE

SUBCOMMITTEE ON NATIONAL SECURITY,

VETERANS AFFAIRS, AND INTERNATIONAL

RELATIONS

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

MARCH 2, 1999

Serial No. 106–5

Printed for the use of the Committee on Government Reform

(

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

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

DAVID M. MCINTOSH, Indiana

MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida

STEVEN C. LATOURETTE, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

BOB BARR, Georgia

DAN MILLER, Florida

ASA HUTCHINSON, Arkansas

LEE TERRY, Nebraska

JUDY BIGGERT, Illinois

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

JOHN T. DOOLITTLE, California

HELEN CHENOWETH, Idaho

HENRY A. WAXMAN, California

TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

GARY A. CONDIT, California

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

CHAKA FATTAH, Pennsylvania

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

HAROLD E. FORD, JR., Tennessee

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

DAVID A. KASS, Deputy Counsel and Parliamentarian

CARLA J. MARTIN, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON NATIONAL SECURITY, VETERANS AFFAIRS, AND INTERNATIONAL

RELATIONS

CHRISTOPHER SHAYS, Connecticut, Chairman

MARK E. SOUDER, Indiana

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

DAVID M. MCINTOSH, Indiana

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

LEE TERRY, Nebraska

JUDY BIGGERT, Illinois

HELEN CHENOWETH, Idaho

ROD R. BLAGOJEVICH, Illinois

TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

GARY A. CONDIT, California

JOHN F. TIERNEY, Massachusetts

THOMAS H. ALLEN, Maine

EDOLPHUS TOWNS, New York

BERNARD SANDERS, Vermont

(Independent)

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

LAWRENCE J. HALLORAN, Staff Director and Counsel

J. VINCENT CHASE, Chief Investigator

SAMANTHA SHERMAN, Professional Staff Member

JONATHAN WHARTON, Clerk

DAVID RAPALLO, Minority Counsel

(III)

C O N T E N T S

Page

Hearing held on March 2, 1999 .............................................................................. 1

Statement of:

Toye, Nelson, Deputy Chief Financial Officer, Department of Defense;

Stanley Soloway, Deputy Under Secretary of Defense for Acquisition

Reform; Edward A. Powell, Jr., Assistant Secretary for Financial Management, Department of Veterans Affairs, accompanied by Mark

Catlett, Deputy Assistant Secretary for Budget, and Frank Sullivan,

Deputy Assistant Secretary for Finance; and Bert Edwards, Chief Financial Officer, U.S. Department of State, accompanied by Patrick

Kennedy, Assistant Secretary of State for Administration ....................... 2

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

Blagojevich, Hon. Rod R., a Representative in Congress from the State

of Illinois, prepared statement of ................................................................ 15

Edwards, Bert, Chief Financial Officer, U.S. Department of State, prepared statement of ........................................................................................ 45

Powell, Edward A., Jr., Assistant Secretary for Financial Management,

Department of Veterans Affairs:

Information concerning remediation ........................................................ 77

Prepared statement of ............................................................................... 32

Soloway, Stanley, Deputy Under Secretary of Defense for Acquisition

Reform:

Information concerning operational and maintenance savings ............. 59

Information concerning overrun and costs .............................................. 55

Prepared statement of ............................................................................... 21

Toye, Nelson, Deputy Chief Financial Officer, Department of Defense,

prepared statement of ................................................................................... 5

(1)

VULNERABILITIES TO WASTE, FRAUD, AND

ABUSE: VIEWS OF THE DEPARTMENTS OF

DEFENSE, STATE, AND VETERANS AFFAIRS

TUESDAY, MARCH 2, 1999

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON NATIONAL SECURITY, VETERANS

AFFAIRS, AND INTERNATIONAL RELATIONS,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

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

2247, Rayburn House Office Building, Hon. Christopher Shays

(chairman of the subcommittee) presiding.

Present: Representatives Shays, Mica and Tierney.

Staff present: Lawrence J. Halloran, staff director and counsel;

J. Vincent Chase, chief investigator; Samantha Sherman, professional staff member; Jonathan Wharton, clerk; Earley Green, minority staff assistant; and David Rapallo, minority counsel.

Mr. SHAYS. I would like to call this hearing to order.

Last week the General Accounting Office [GAO], and the Inspector Generals identified high risk programs and significant management challenges at the Departments of Defense, Veterans Affairs

and State. They cited longstanding financial management and procurement weaknesses at DOD, inefficient health care infrastructure and slow benefits processing at the VA, and the need for enhanced security and information systems at the Department of

State.

Today, we invite those three important departments to address

the same subjects. We do so for two reasons. First, these hearings

give the subcommittee an opportunity to survey key issues with

our oversight partners, and refine our agenda for this Congress.

Second, this broader perspective helps us discern common problems

that might yield governmentwide solutions.

While each department faces unique challenges, all three have at

their disposal the same powerful set of tools that can, if energetically applied, help fix broken systems, improve program performance and increase accountability. The Government Performance and Results Act, which requires clear performance goals and

measurable results, offers troubled agencies and high risk programs an incremental but inevitable path out of bureaucratic thickets and inefficiencies once thought intractable.

As the Results Act process matures, performance measures will

have a greater impact on administration budgets, on authorizations

and on appropriations, and on Congress as well. So we ask the deVerDate 11-MAY-2000 10:52 Sep 13, 2001 Jkt 010199 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 E:\HEARINGS\56508 pfrm01 PsN: 56508
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partments to describe their Results Act compliance efforts and to

identify the key indicators by which they, and we, will measure

their performance in the years ahead.

We welcome all our witnesses today, and it is my understanding

that we will have two statements from the Department of Defense,

and given the size of the budget that seems reasonable, and then

one testimony from the Veterans Affairs and one from State. But,

all of our witnesses at the table will be invited to respond to questions, and let me just introduce our witnesses.

From the Department of Defense, Nelson Toye, Deputy Chief Financial Officer, and then we have Stanley Soloway, Deputy Under

Secretary of Defense for Acquisition Reform, speaking about acquisition.

And then from the Department of Veterans Affairs we have Edward A. Powell, Jr., Assistant Secretary for Financial Management,

accompanied by Mark Catlett, Deputy Assistant Secretary for

Budget, and Frank Sullivan, Deputy Assistant Secretary for Finance.

Department of State, we have Mr. Bert Edwards, Chief Financial

Officer, U.S. Department of State, accompanied by Patrick Kennedy, Assistant Secretary of State for Administration.

Our practice is that we swear everybody in beforehand, and if

you would stand and raise your right hands, please.

[Witnesses sworn.]

Mr. SHAYS. For the record, all our witnesses responded in the affirmative.

Now, is anyone missing from that list? OK. We are going to start

with you, Mr. Toye, and we will go from there. And if you would

bring your microphones somewhat closer.

STATEMENTS OF NELSON TOYE, DEPUTY CHIEF FINANCIAL

OFFICER, DEPARTMENT OF DEFENSE; STANLEY SOLOWAY,

DEPUTY UNDER SECRETARY OF DEFENSE FOR ACQUISITION

REFORM; EDWARD A. POWELL, JR., ASSISTANT SECRETARY

FOR FINANCIAL MANAGEMENT, DEPARTMENT OF VETERANS AFFAIRS, ACCOMPANIED BY MARK CATLETT, DEPUTY ASSISTANT SECRETARY FOR BUDGET, AND FRANK SULLIVAN, DEPUTY ASSISTANT SECRETARY FOR FINANCE; AND

BERT EDWARDS, CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT OF STATE, ACCOMPANIED BY PATRICK KENNEDY, ASSISTANT SECRETARY OF STATE FOR ADMINISTRATION

Mr. TOYE. Thank you, Mr. Chairman. With your permission, I

ask that my formal written statement be included in the record,

and at this time I would like to provide a summary of the statement.

I want to thank you for the opportunity to be here today to discuss ongoing financial management reform within the Department

of Defense. I welcome the opportunity to address what we have

done and what we are doing to improve financial management

within the Department.

I want to begin by stating that financial management reform

within the Department continues to be a high priority. The Department’s ongoing financial management reform initiatives represent

the most comprehensive reform of financial management in the DeVerDate 11-MAY-2000 10:52 Sep 13, 2001 Jkt 010199 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 E:\HEARINGS\56508 pfrm01 PsN: 56508
3

partment’s history. Our objective is to put into place policies, systems and practices that will enable us to produce accurate financial

information in a timely manner.

While we are proud of the significant progress that the Department has achieved to date, we are very well aware that much more

remains to be accomplished. Today I want to briefly address the

challenges we face, the progress we have made, and our short-term

and long-term strategies for lasting reform.

First, our challenges. The size and complexity of the Department

alone makes financial management reform a big challenge. Compare us, for example, with General Motors, the No. 1 Fortune 500

company for 1998. GM had approximately $178 billion in annual

revenues and $228 billion in assets. In contrast, the annual budget

for the Department of Defense is over $260 billion and we have

over $1 trillion in assets.

Beyond size, our complexity is equally challenging. We maintain

over 500 bases in 150 countries and territories throughout the

world. Additionally, the Department of Defense has hundreds of

appropriations and accounts managed by 4 military services, 14 defense agencies and numerous other subordinate organizations.

Additionally, the standards that the Department now is asked to

comply with are still evolving. As the Department strives to comply

with standards that only recently have been established, still more

changes are occurring. In fiscal year 1998 alone, four new auditable

financial statements were required for DOD’s reporting entities.

New reporting requirements also continue to be imposed. This is a

significant challenge for the Department of Defense because it is

akin to hitting a moving target. Despite these challenges, we have

made significant progress.

First, the Department has consolidated over 330 financial management field sites scattered throughout the world into 5 centers

and 18 operating locations. This was completed in July 1998, almost 2 years ahead of the Department’s original schedule.

Second, to remedy the problem of numerous and incompatible financial management systems, we have embarked on a major

streamlining effort. As of October 1998, we had reduced the number of finance and accounting systems by 66 percent. However, we

are not simply reducing the number of finance and accounting systems. Our objective is to replace old, outdated, noncompliant systems with more modern systems that can meet today’s standards.

In addition to consolidating operations and reducing systems, the

Department has over 150 other initiatives underway to improve

and streamline financial management and to improve the timeliness and accuracy of its accounting data. Despite these accomplishments, the Department still faces significant obstacles in transforming its financial operations, but we are getting the job done

one step at a time.

The Pentagon of today is not the Pentagon that our fathers

knew. In this new Pentagon it is no longer adequate to keep just

a checkbook balance of the Department’s funds. Increasingly, the

Department of Defense is being judged by new standards, as generally accepted accounting practices prevalent in the private sector

are being applied to the Federal Government.

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So how is the Department going to improve financial management? We are moving toward our goal with both a long-term and

a short-term strategy.

The Department’s systems were not designed to meet current

commercial-type standards and therefore are not capable of complying with recently enacted standards. To overcome this problem,

the Department is taking a two-track approach. The first track is

to improve or replace the Department’s current systems with systems that will meet current standards. But the Department does

not expect to have financial systems that can produce fully

auditable financial statements prior to the year 2003. Because of

the desire and indeed the necessity to achieve progress before that

date, the Department has undertaken a second track that is an interim effort, and includes the use of contractors to address many

of the Department’s more significant problems. As a result, the Department expects to make progress each year toward resolving its

financial management challenges. Financial management within

the Department is a work in progress. There have been notable

successes, but it is impossible to reverse decades-old problems and

inefficiencies overnight and implement necessary reforms without

several years of initiatives.

In summary, the Department of Defense faces significant financial management challenges in the near term. To be successful in

our reform efforts, we need a dedicated effort from the Department’s financial community and the cooperation of every community that feeds data to the Department’s financial management systems. We are getting both. This is a Departmentwide management

initiative involving participation across all functional areas. Success should enable us to generate better financial data for decisionmakers and ultimately get more ‘‘bang for the buck’’ out of the defense budget.

Mr. Chairman, this completes my oral testimony, and I will be

happy to answer any questions for the record.

[The prepared statement of Mr. Toye follows:]

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Mr. SHAYS. Thank you, Mr. Toye.

Let me just mention at this time that we have Mr. Tierney from

Massachusetts with us. And I don’t know if the gentleman would

like to make a comment, but I would like to do some bookkeeping

while we have a Member here.

I ask unanimous consent that all members of the subcommittee

be permitted to place any opening statements in the record and

that the record remain open for 3 days for that purpose. Without

objection, so ordered.

[The prepared statement of Hon. Rod R. Blagojevich follows:]

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Mr. SHAYS. And I also ask further unanimous consent that all

witnesses, which is your request, be permitted to include their

written statements in the record, and without objection, so ordered.

Let me now ask Mr. Soloway to make his statement.

Mr. SOLOWAY. Thank you very much, Mr. Chairman. It is a

pleasure to be here.

A little over a year ago Secretary Cohen launched the Defense

Reform Initiative [DRI], a broad-based and ambitious program to

fundamentally change the way in which the Department of Defense

operates, internally and externally. His call for major departmental

reform followed the completion of a comprehensive review of our

national military strategy and defense posture. Although it was

founded on four initial pillars—elimination, re-engineering, consolidation and competition—the DRI is now the Department’s overall

framework for change and reform in all aspects of defense.

For the purposes of today’s hearing, allow me to briefly touch on

our progress in each of these areas.

Base realignment and closure or BRAC is our No. 1 priority.

Only through BRAC can we right size the Department and reduce

unneeded infrastructure to free up the funds we need to meet the

challenges of the 21st century. As such, we will be seeking congressional approval for two more rounds of base closure.

Second, re-engineering, which includes both internal business

processes and acquisition reform. In truth, real reform began to

take shape some 6 years ago in a vital and rewarding partnership

between the Department and the Congress which resulted in passage of the Federal Acquisition Streamlining Act [FASA], and the

Clinger-Cohen Act, both of which signaled the common vision and

commitment of the Congress and the Department.

At the same time, within the Department, internal change had

already begun. Then Secretary of Defense William Perry created a

new demand for performance specifications rather than design-specific military specs and standards, and then Under Secretary of Defense-Comptroller, now Deputy Secretary John Hamre, had put

into motion a substantial series of internal management reforms.

The DRI embraced and expanded on all of these, and helped create within the Department a critical partnership committed to

change and reform that encompasses all aspects of defense. For example, through the DRI the Department has put in place its first

ever Financial Management Improvement Plan. We are working toward continuous improvement in the business practices associated

with the Defense Working Capital Funds. We have increased, as

well, our focus on electronic commerce, the electronic mall on the

internet, and of course the purchase card. By the year 2000 we will

be obtaining over 90 percent of our low-value purchases with the

card.

Acquisition reform has opened the door to important new flexibility and decisionmaking as well as a new focus on performance.

Many programs, including the Defense Acquisition Pilot Programs,

are reaping major benefits for both the user and the taxpayer.

For example, the program costs of the Joint Air-to-Surface Standoff Missile or JASSM have been reduced 44 percent, and the unit

costs of the Joint Direct Attack Munition or JDAM have been reduced by approximately 60 percent from the estimated cost. Cycle

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time for the JDAM has been reduced 35 percent with a 30 percent

reduction in program staffing.

In addition, the Single Process Initiative, where we seek to replace non-value added government specifications on contracts with

commercially proven, performance-focused processes, is proving to

be a real success as well. Overall, the Defense Contract Management Command reports that the Single Process Initiative has now

gone past the half billion dollar mark in savings and long-term cost

avoidance, and we have only just begun.

We are also developing new strategies for reducing the long-term

operations and support costs of both our new and existing systems,

which today represent an enormous drain on our budget. As Congress has directed, for instance, we have identified 10 weapons systems as pilot programs for reduced total ownership cost and are

pursuing a range of management actions to achieve that critical

goal.

These are but a few ways in which our acquisition world has

changed for the better. However, we have a long way to go and our

commitment to acquisition reform remains unabated. It is driven

by our continued commitment to implementing best business practices, as well as our very real need to access the full range of technology and technology suppliers to help meet the challenges of the

future. The barriers to doing so remain significant and must be removed. As such, the Department will be proposing a series of legislative initiatives designed to help us overcome those barriers.

The third area is consolidation, where the story is shorter and

simpler. At the outset of the DRI, Secretary Cohen made clear his

commitment to re-engineer and reduce headquarters staffs. To

date, the Department is right on target to reduce the Office of the

Secretary of Defense by 33 percent by the end of this fiscal year;

the Joint Staff by 29 percent by fiscal year 2003; the defense agencies by 21 percent by fiscal year 2001; and the DOD field and related activities by 36 percent by fiscal year 2001.

Competition is also a pillar of defense reform, and on that important topic I would like to make just a couple of brief comments.

First, the key word here is competition. Our goal is to exploit the

many advantages of the competitive environment to the benefit not

only of the American taxpayer but the warfighters, our customers

in the field. Competition saves money and can improve quality.

Hence, our goal is not outsourcing, it is competition.

Second, we must recognize that with innovation and creativity

come vastly different ways of doing business. When many of the

rules and statutes governing competitive sourcing were put in

place, we were contemplating very clear choices. Today, particularly as we seek to access the best and most contemporary technologies, the choices are more complex and sometimes lead us to

solutions that are virtually impossible to directly compete between

the public and the private sectors.

It is the Department’s hope that the Congress will continue to

work with us in support of implementing such innovation, while we

at the same time seek to provide appropriate assistance in cases

where the best solutions for the taxpayer and the warfighter result

in adverse impacts for our work force.

19

Third, what we seek is not just lower costs but the best overall

value. We have collectively agreed that in selecting commercial

suppliers, low cost does not always equal the best value to the government, and it is time for our statutes to recognize that fact for

public-private competition as well.

And fourth, as I stated earlier, one of our overarching goals in

acquisition reform is our ability to access the full range of technologies and suppliers that exist for any given requirements. So too

must this be our goal in competition. Our competitions must be

fair, clear and conducted in such a manner that all parties, public

and private, walk away, win or lose, feeling like they have been

given a fair shake.

The Department has also fully embraced the principles of the

Government Performance and Results Act, as evidenced by its fiscal year 2000 GPRA performance plan. In the fiscal year 2000 plan,

DOD has established two corporate level goals.

Shape the international environment and respond to the full

spectrum of crisis by providing an appropriately sized, positioned

and mobile force.

And prepare now for an uncertain future by pursuing a focused

modernization effort that maintains U.S. qualitative superiority in

key warfighting capabilities. Transform the force by exploiting the

revolution in military affairs and re-engineering the DOD to

achieve a 21st century infrastructure.

Our two corporate goals form the basis for using GPRA as a

management tool. The performance goals are supported and evaluated by quantifiable output, which is assessed by using performance measures or performance indicators. Performance measures

and indicators quantify the output of the defense program for key

measures associated with providing a ready force and preparing for

the future. The Department’s plan includes 41 performance measures and indicators, all of which have baselines and goals.

Mr. Chairman, members of the committee, the Department of

Defense is changing the way that we do business, and the Defense

Reform Initiative provides the overarching framework to enable us

to achieve these many and crucial goals.

Yesterday, Secretary Cohen and Deputy Secretary Hamre reiterated their commitment to stay on course in the pursuit of real

change in the Department. In so doing they also explained how the

defense reform umbrella has expanded well beyond the initial four

pillars to include quality of life initiatives, logistics reform and

homeland security, all in an effort to tie together the many elements of reform and the reality that each is an important part of

the Defense Department we envision for the future.

At their press conference they also unveiled a new CD–ROM designed to communicate accomplishments to date and describe the

challenges ahead. Further, the CD–ROM includes score cards for

most major areas of reform that will enable us to track the

progress that we are making. In this regard the Secretary and Deputy Secretary have firmly restated our commitment to performance

measures and meaningful results. With your permission, Mr.

Chairman, I would like to submit for the record a copy of the CD–

ROM as well as a text version. Every Member of Congress did reVerDate 11-MAY-2000 10:52 Sep 13, 2001 Jkt 010199 PO 00000 Frm 00023 Fmt 6633 Sfmt 6602 E:\HEARINGS\56508 pfrm01 PsN: 56508
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ceive a copy of this CD–ROM yesterday prior to the press conference.

In closing, it is fair to recognize that defense reform is not yet

a way of life in the Department. We are, however, making real

progress. As we continue to move forward, to encourage and adopt

more and more innovation and creativity, mistakes will be made.

And just as we have learned from those that we have already seen,

so too will we continue to learn from our mistakes as we continue

down this complex and difficult road.

Defense reform would never have been possible without the support, encouragement, and partnership we have enjoyed with the

Congress, and we are counting on that continuing partnership, that

shared commitment to creating a Department of Defense that is optimally prepared to meet the challenges ahead.

I thank you for your time, and we will be happy to answer any

questions.

[The prepared statement of Mr. Soloway follows:]

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Mr. SHAYS. Thank you. Now we will hear from the Department

of Veterans Affairs, Mr. Powell, who is accompanied by Mr. Catlett

and Mr. Sullivan.

Mr. POWELL. Thank you, Mr. Chairman and Congressman

Tierney. I am pleased to appear before you to testify on the actions

we are taking at the Department of Veterans Affairs to address the

management issues identified by the General Accounting Office

and the VA’s Inspector General. I have submitted my full statement to the subcommittee and request that statement be made a

part of the hearing record.

The VA is facing two major management challenges: improving

the infrastructure of our health care system and resolving the

shortcomings in our benefits claims processing. I believe this supports what you have already heard from our IG and the GAO.

These challenges are not new, nor are they easily conquered. Indeed, we have been dealing with both issues for a long time. By

their very nature, they may never go away completely. We will always be looking to identify and implement better ways to deliver

our services and benefits.

This morning I wish to update you on a few of the initiatives underway at VA which demonstrate our commitment to providing

first class service to veterans and managing the resources entrusted to us.

VA has long been regarded as a leader in the Federal debt management community. Over the past year, we have been moving

closer to our goal of consolidating all major VA debt programs into

one centralized automated collection system. We have made significant progress toward automating the billing and payment processing of first party medical receivables, and have laid the groundwork for consolidating the management of all debts at our Debt

Management Center in St. Paul, MN. Debt collection is a high priority for the Department, and we expect to see continued success

in this area in fiscal year 1999.

VA has completed the year 2000 renovation of its entire mission

critical computer software applications. This includes all payment

related applications and applications supporting health care. We

have placed 97 percent of these applications into production and

have verified their ability to successfully process year 2000 dates.

At the same time, all VA offices are verifying the readiness of their

physical plants and workplace equipment, as well as other software, to ensure that they will continue to operate after December

31, 1999.

We are collaborating internally and with other Federal entities

such as Treasury and the U.S. Postal Service in preparing and implementing business continuity and contingency plans. These plans

will ensure that payments to veterans, fiduciaries, employees and

vendors are made without interruption on January 1, 2000 and beyond.

It was gratifying to learn Congressman Horn awarded VA an ‘‘A

minus’’ for our progress in preparing for the year 2000. We are confident we can raise that grade to an ‘‘A’’ in the next reporting cycle.

My top priority as the chief financial officer is to obtain an unqualified opinion on VA’s fiscal year 1999 financial statements. We

31

are down to one qualification, and we fully expect to resolve that

issue before the end of this fiscal year.

VA has made significant progress toward developing and implementing a results-oriented framework for managing and evaluating

our programs. Major advancements are highlighted in our fiscal

year 2000 performance plan which was delivered to Congress on

February 1. Foremost among those advancements are a greater emphasis on outcomes; a greater focus on highest priority goals and

measures; increased attention to validation and verification of data,

and the identification of total budget resources for each program.

Our medical care program deserves particular note in this area.

The results of the Government Performance Project just conducted

by Syracuse University gave VA’s Veterans Health Administration

an ‘‘A’’ for managing for results. As a side note, VHA received the

only ‘‘A’’ among the 15 Federal entities evaluated.

During the last year the issue of data validation and verification

has been a major focal point for the Department. Our fiscal year

2000 performance plan includes a very frank discussion of VA’s

problems with data quality. However, it also identifies the actions

we are taking to resolve those problems. We are working closely

with VA’s Office of Inspector General on a series of detailed performance audits.

At GAO’s invitation, we met with their staff last month to discuss our data validation and verification efforts. GAO is preparing

a best practices report on this topic. They have identified VA as

one of the agencies they intend to commend in their report.

Finally, we have had notable success in identifying the total

staffing and funding associated with each of our programs. We expect to make additional progress in this area as activity-based costing methodologies are implemented throughout the Department.

Mr. Chairman, the Department of Veterans Affairs is fully aware

of the challenges we face. We are proud of the progress we have

made, but understand we have much work yet to do. I assure you

we are approaching our challenges thoughtfully and resolutely, and

look forward to continued success.

This concludes my opening statement. I would be happy to answer any questions you or the Members may have.

[The prepared statement of Mr. Powell follows:]

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Mr. SHAYS. Thank you very much, Mr. Powell.

Now we will hear from Mr. Edwards, who is accompanied by Mr.

Kennedy.

Mr. EDWARDS. Thank you, Mr. Chairman.

Last week you heard from the GAO and the various Inspectors

General, and I was responsible for the State Department’s provision of information to the GAO’s National Security and Internal Affairs Division which prepared the report ‘‘Major Management Challenges and Program Risks—Department of State.’’ Together, Mr.

Kennedy and I have responsibility for many of the issues in the

GAO report and the Inspector General’s letter and testimony last

week.

I think it is significant in his transmittal accompanying the GAO

report Comptroller General David Walker stated, ‘‘The State Department has made progress in addressing the many challenges

that GAO has identified. State is now devoting substantial resources to developing a strategy to enhance its information technology capacity and security as well as its financial management

systems. In fact, State received an unqualified opinion on its most

recent financial statements.’’

We would like to review today the challenges identified by the

GAO and several additional ones in the letter to Secretary Madeleine Albright, that the subcommittee sent to her. I would like to

review those in the order that the GAO report identified them.

The first challenge was enhancing the management of security

programs for our overseas personnel and property. Clearly the

bombings in our embassies in Nairobi and Dar es Salaam last August have refocused attention on the safety of our people and our

facilities. Congress worked quickly to enact an emergency supplemental appropriation to address State’s immediate needs from this

tragedy.

The 1999 emergency supplemental provides a total funding of

$1.4 billion for a total of six different program areas. In order to

document how we are managing the emergency supplemental, we

have established a coding structure in our financial management

system to report obligations and expenditures against these six activities, and have established a monthly reporting internally to

monitor our progress. Our objective is to expend these security

funds both wisely and promptly. However, the scope of our financial needs to address these worldwide security requirements is

daunting.

As a result of our negotiations with OMB on the fiscal year 2000

budget, the President has proposed $36 million in additional funding to begin planning on up to eight embassy construction projects

to be commenced beginning in fiscal year 2001. In addition, the

President’s budget proposes an advance appropriation for the construction of $3 billion for the fiscal years 2001 through 2005, with

$300 million in 2001 and increasing by $150 million a year through

2005.

Subsequent to the budget submission, the Accountability Review

Board, which was chaired by Admiral Crowe, substantiated the Department’s facilities and security deficiencies and recommended

$1.4 billion per year for construction for 10 years to meet these

42

needs. We are continuing our discussions with OMB on appropriate

funding for security upgrades and facility relocations.

Finally with respect to physical security, most experts agree that

a principal factor is setback. The farther a facility is from potential

blasts, the less damage results. Lack of this setback is a problem

for 88 percent of our embassies and consulates; 229 of our 260

posts lack our 100-foot setback standard. We are addressing this

through a vigorous program to expand the setback around our facilities through adjacent property acquisitions, street closures,

bollards and barricades, and other devices.

The second GAO challenge was improving our information management systems. Certainly no other management area at State

has received more extensive attention than information management. As the GAO report indicates, within the past 6 months a

number of substantial achievements have been attained.

First, we created a separate Information Resources Management

Bureau under a new Chief Information Officer who has 25 years

of experience in information technology.

Second, we have implemented a total of six major improvements,

and those are in my statement and I won’t read them for you to

enumerate those, but these are all very major information technology accomplishments.

Third, we have instituted a capital planning process. Our Information Technology Program Board and our Information Technology

Review Board have met numerous times over the past year to rigorously review and approve over 100 projects totaling over $200

million in funding. Furthermore, we will complete final enhancements to our capital planning process to fully comply with OMB’s

Circular A–11 guidance in time for the next budget cycle.

Fourth, we have created an IT tactical plan that has been favorably cited by GAO and OMB and other agencies which describes

in detail how we are carrying out over 70 key modernization

projects this year and next year.

Fifth, we have created an IT vision paper which contains a number of groundbreaking goals for the years 2001 through 2005. This

paper was featured in an article in Government Computer News

this past month.

Last, we have enhanced our security program in a number of

ways. We have a Departmentwide security infrastructure working

group. We have appointed a Department-level information systems

security officer; we have published a critical infrastructure protection plan; we have installed a state-of-the-art intrusion protection

software; and we have developed a network security architecture

plan. All of these are in accordance with GAO standards and guidelines.

With respect to the Y2K issue, the Department is confident our

program to achieve compliance will succeed and our systems will

be ready before the year 2000. At the Department’s monthly Y2K

Steering Committee meetings chaired by Under Secretary Cohen

and attended by all Assistant Secretaries with mission critical systems, and also attended by John Koskinen, chairman of the President’s Council on the Year 2000 Conversion, Mr. Koskinen noted

the great strides the Department has made toward meeting OMB’s

goals.

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Briefly, State has 59 mission critical systems, and at our February 19, 1999, meeting we reported that we had the following results: 21 legacy systems are compliant; 18 systems completed repairs and replacements by the February 19 meeting and are now

compliant; 16 additional systems will complete implementation and

be compliant by March 31, 1999; two systems will complete implementation in April; and two systems will complete implementation,

one in May and one in the July or August timeframe.

The systems that are beyond March 31, that will be completed

in April and May, are sister systems to nearly identical systems already implemented elsewhere in the Department, and the July/August system is the last of a multiple system installed at a number

of locations.

To summarize, over 90 percent of our mission critical systems

will be compliant by March 31, the OMB deadline; 95 percent by

April 30; 98 percent by May 31; and 100 percent by this summer.

Moving on to financial management systems—and in your opening statement, Mr. Chairman, you cited that issue—I am happy to

say, when I was asked to join the Department last year as the

CFO, I was pleased to learn that we had made sufficient progress

to permit our financial management systems to produce auditable

financial statements, and we received an unqualified or clean opinion from our Inspector General and the IG’s CPA contractor. We

were only 1 of 11 agencies last year which received such an unqualified report, and we expect a similar result for the fiscal year

1998 audit which is now in the wrap-up stage as we speak this

morning.

In addition, our Foreign Service Retirement and Disability Fund,

which is a separate pension system covering 13,000 retired Foreign

Service employees and 11,000 active Foreign Service officers, has

received an unqualified clean report for the past 5 years.

Finally, State also operates the International Cooperative Administrative Support Services, the ICASS system, which manages

and allocates over $700 million annually in overseas support costs

for the 35 agencies which have employees in our embassies and

consulates. ICASS is separately audited, and also received an unqualified or clean auditor’s report in fiscal year 1997, and we expect the same this year.

Our independent auditors and the Inspector General have identified a number of areas where we can achieve improvements, and

we are working to resolve these issues. In addition, our 1998 Federal Managers’ Financial Integrity Act report will show that the

Department has successfully resolved eight material weaknesses

during the past 3 years, and we only have two remaining to be resolved.

I am going to ask one of my colleagues to distribute our 1997 accountability report to accompany this testimony. This is an experimental program authorized by the Government Management Reform Act, and provides in a single document information mandated

under a total of seven different laws, including our audited financial statements and our GPRA comments. And also that report

would be repeated for 1998. It is in process, and we expect that to

be issued in June 1999.

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The third GAO challenge was effectively managing our visa process. We have an increasing number of visitors entering the United

States each year. Our accountability report on page 10 shows that

for nonimmigrant visas we have—— Mr. SHAYS. I am going to ask you to summarize your last three

points.

Mr. EDWARDS. I will be happy to do that, Mr. Chairman.

Our visas are constant, but we have a visa waiver program covering 12 million visitors in addition to the 7 to 8 million who get

visas, and this of course has impacted our economy favorably with

a total of 20 million visitors a year.

The fourth GAO challenge was effectively reorganizing our foreign affairs agency. Mr. Kennedy, who is here with me, prepared

for the State Department that report which was filed by the President in late December, and can speak to your questions on that.

Last, with respect to meeting GPRA standards, we have filed a

1999–2000 performance plan which amends the earlier 1999 plan.

We have made major efforts to improving our GPRA standards. We

have the same issues that my colleagues spoke about earlier, and

that is identifying appropriate baselines and benchmarks so we can

link our expenditures to our performance outcomes.

In summary, Mr. Chairman, the State Department faces

daunting challenges, both in foreign policy and in improving our information technology and infrastructure. The GAO official who prepared the January report, who you heard from last week, acknowledged that State has been administering foreign affairs for too

many years on the cheap. Particularly in the area of security, we

must obtain the additional funding to have safe facilities for our

employees, employees of other agencies in our embassies, and for

visitors to our facilities. We need the continued assistance of Congress to obtain these resources, and I would be pleased to answer

questions you and your colleagues may have at this point.

[The prepared statement of Mr. Edwards follows:]

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Mr. SHAYS. Thank you very much for accommodating our needs.

All of your statements were very helpful. I realize that they are

general in nature and somewhat short. I don’t want Defense and

VA and State to think that our common practice is going to be to

bring you up in a line and you have to listen to everybody else’s

presentation. The purpose of today’s hearing is to help us focus; to

help guide this committee in the next 2 to 4 years; where this committee is going to go in utilizing our very small resources and what

we are going to focus in on.

At this time I would ask Mr. Tierney if he has questions.

Mr. TIERNEY. Thank you.

Mr. Soloway, just a question generally. You talked about competition to a large extent and what you thought the benefits on

that are. Perhaps it is my perspective on this thing, but it seems

to me that the only area that we think that less competition is better for the consumer is in the military industries, where we are encouraging consolidation and merger so we have less people bidding

on contracts. Has there been any rethinking on this particular direction?

Mr. SOLOWAY. I think if you look at the most recent history in

terms of the Department’s position on those consolidations, we

have actually taken a stand on several, the most obvious being the

Lockheed case not too long ago. We are now in the process of reviewing the most recent in the shipyard business with the General

Dynamics/Newport News proposal which has been in the media

over the last several weeks. So the Department is taking a very serious look at making certain that we can maintain competition, and

to inject and intercede where we believe that competition is being

threatened.

And so from that perspective I think we are taking a very serious

look at it, but I think it goes beyond—my comments about competition go beyond that. First of all, in the areas beyond that major tier

of contracting, the prime contractor that we all talk about every

day, the competition continues to be fierce. For instance, more than

half of our money goes to buying services, much of it in the information technology world, and that is a very robust marketplace

where there is no issue of a lack or limit on competition.

Second, the competition that I was referring to more specifically

in my testimony is our commitment to competing those positions

within the Department that we deem to be commercial in nature,

in other words, positions that may well be able to be performed by

commercial contractors versus having it done by government employees. Those competitions almost always are going to involve

public-private competitions, where we have a process through OMB

Circular A–76 which provides a methodology for those competitions.

The history of that has demonstrated to us that just the injection

of competition into that process achieves roughly a 20 percent savings at minimum, as high as in the 40 to 45 percent range, and

that is a figure which has been pretty well documented in most of

the studies that I have seen inside the government and outside. We

have committed to competing upwards of 200,000 positions over the

next several years and expect those positions to yield savings in exVerDate 11-MAY-2000 10:52 Sep 13, 2001 Jkt 010199 PO 00000 Frm 00056 Fmt 6602 Sfmt 6602 E:\HEARINGS\56508 pfrm01 PsN: 56508
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cess of $11 billion, money which we have already planned for in the

out year budgets.

So the competition comes in many different levels. But to your

specific question, I think the Department has made clear, particularly with the recent history, that we take seriously this question

of competition and are reviewing it on a case-by-case basis very seriously.

Mr. TIERNEY. Is that something that you think that this committee ought to take a look at?

Mr. SOLOWAY. You are asking an agency official to tell you to

look at something that we are doing.

I don’t think that it is necessary at this point, because I do think

that the Department is taking a thoughtful and aggressive approach to it. As you acknowledge, there has been a tremendous degree of consolidation in our traditional supplier base.

Mr. TIERNEY. Encouraged by the Department, I might say.

Mr. SOLOWAY. The initial phases definitely were. As indicated in

the Lockheed case of this past year, it reached a point in some

areas where the vertical integration became a matter of grave concern in the Department, and of course the Department of Justice

intervened and said that we couldn’t support those consolidations.

So I think that our approach at this point is a very thoughtful one,

and I don’t know that there is any need to take it beyond that at

this point.

Mr. TIERNEY. Mr. Powell, we talked during the hearings last

week about the prospect of taking some of your older buildings,

your older assets, and finding a use for them, but at the same time

moving a lot of the Veterans Administration service delivery to outreach clinics or something closer to the veterans. Does your Department have a particular plan in place, or where might we go with

that concept of what we do with the older, more costly to maintain

buildings and move to a more service-oriented regional delivery?

Mr. POWELL. To the best of my knowledge, this issue has not

come to my office. VHA may be working on those plans because

they are much closer to the issue. We are very concerned with the

enhanced use opportunities that would allow us to effectively utilize our facilities. If we have underutilized buildings we can lease

or sell within our facilities we should optimize their use. Obviously,

we do have facilities which are not currently engaged.

Mr. TIERNEY. Is it the plan looking forward, then, to maintain all

of those buildings and go out to the community-based outreach clinic concept?

Mr. POWELL. I don’t mean to be evasive. We have not discussed

that particularly as a specific plan. I do know if it is a priority for

VHA, so I will get back to you on that.

Mr. TIERNEY. Mr. Edwards, there was talk also last week about

the identification of the number of personnel for which we are responsible which are located overseas and the cost of maintaining

and providing security for them. Is there any plan in the works of

making some identification, some thought of addressing whether or

not there are too many people, too widely scattered, or has that

been addressed at all?

Mr. EDWARDS. As part of the security supplemental, we have established an Overseas Presence Advisory Panel, and they will be

54

commencing their activities. March 9 is the initial meeting. The

purpose of this group of distinguished individuals, led by an attorney from New York and some people from within State, Admiral

Crowe has agreed to join the panel, they will be looking at how we

should structure our posts overseas from the standpoint of having

larger embassies perhaps serving a group of surrounding countries,

and specifically the new facility in Nairobi will be a test case of

that. As you know, we are rebuilding an entire new post.

So the overseas presence has been a matter of concern; and of

course our concern is that the growth of overseas people in our

posts are largely in agencies other than the State Department, so

we have the security of those people equally on our mind because

they are, in essence, guests in our facilities. So we are taking a

look at that. That panel has agreed to complete its work in June

of this year with a draft report, so we are moving forward to examine that very issue.

Mr. KENNEDY. This is something of particular interest because

only about one-third of all of the U.S. Government civilian employees assigned in our embassies and consulates abroad are actually

from the State Department, the other two-thirds are from other

agencies. And so this is a crosscutting look at the U.S. Government’s presence overseas, not just State Department.

Mr. TIERNEY. Is State picking up the cost of security and maintenance for those individuals?

Mr. KENNEDY. We pick up a significant portion, and that is why

we are interested in having the panel look at our presence overseas

and how additional cost-sharing methods might be appropriate.

Mr. TIERNEY. Thank you. Mr. Soloway, in your written testimony

you had noted a number of acquisition programs in which cost and

turnover time had been reduced. Can you speak to the cost of the

F–22 program for me in that regard?

Mr. SOLOWAY. I don’t mean to be evasive, but if you have specific

questions about the program, I can take them for the record and

I would be happy to get back to you. I don’t have the details on

the F–22 program with me.

Mr. TIERNEY. I would like for you to get back with the amount

of overrun and costs, and is it going beyond its original projected

return dates.

[The information referred to follows:]

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Mr. SHAYS. Let me just say as a policy that the staff will make

sure that the requests—you can give it to the committee and you

can CC the Member, but we want to make sure that information

does come in. And so if you make sure that the committee gets it

and we will make sure you get it, but we are not going to ask frivolously for information and then forget to see that we get it. We will

followup.

Mr. TIERNEY. My last question, Mr. Soloway, is in regards to

your weapons acquisition process in general. There are comments

from the Inspector General that there were concerns there that

there were premature commitments made to a number of technologies, moneys being applied before the technology was really

ready at that point.

Have you looked, has your Department looked at the national

missile defense proposals to determine that in fact the latest request from the Department of Defense isn’t doing just that with respect to putting money where technology is prematurely stated?

Mr. SOLOWAY. Specifically with regard to NMD, I think the Department is continually evaluating whether or not the money is

being well spent, whether or not the technology is capable of

achieving the performance requirement set forth, and that is an ongoing process. It is a continual discussion within the leadership of

the Department, both military and civilian.

In the broader sense of the term, taking it out of the missile defense area, the question of technology maturity and when we make

buy decisions or no-buy decisions is something that we have looked

at very extensively, because what we have found historically is that

we have sometimes set a technology requirement way out here and

then spent 40 or 50 percent of the money trying to get the last 10

or 15 percent of the way, rather than having a more flexible technology requirement, accessing technologies that were more immediate and being able to field systems more quickly and more quickly efficiently. That is an ongoing process in terms of reducing cycle

times and focusing on the technology availability question. But

with regard to missile defense, that is something that is an ongoing

discussion in the Department and it is continually evaluated.

Mr. TIERNEY. Are you saying that the Inspector General’s concern is not well placed because the real problem is setting the goals

too far out?

Mr. SOLOWAY. If we are not talking about the missile defense

question specifically, but more broadly about how we make acquisition decisions, I think a criticism would be to say that sometimes

we have established requirements that are simply unreachable in

an appropriate or reasonable amount of time.

And what we have going now, for instance, we have a team right

now that is a rather unique relationship between the Joint Staff

and the acquisition side, the civilian and military side, co-chaired

by my boss, Dr. Gansler, who is the Under Secretary for Acquisition and Technology, and General Ralston, that is looking specifically at the impact of the requirements process on acquisition and

how we can have a more flexible, iterative process, so we don’t

have this historic sort of over-the-transom, this is what we need,

and the acquisition technology folks try to figure out how to go get

it and it takes 15–20 years.

57

We have been very open about the fact that it takes us 15–18

years to field a system not only drives cost, but it means that we

often end up with systems that are not in fact reflective of contemporary technology, that technology passes us by because we have

made those decisions way early. By making the system more

iterative, more reflective of what is really out there in the technology world, we believe that we can substantially reduce cycle

time and reduce costs, also field systems with better technologies

quicker. I think that is a fair criticism of our history.

Mr. TIERNEY. Thank you.

Mr. SHAYS. All of you I think can speak to information systems

and facilities, and I will be asking you questions about both. And

all of you in one way or the other have acquisitions, but obviously

DOD has more significant purchases.

The first question I want to ask relates to facilities—500-plus

bases, give or take, owned by the DOD. When we look at base closure I want to go two stages, Mr. Soloway. What number do we

hope to get those bases down to?

Let me just tell you that I am going to be asking the other Members on the same issue. I am interested to know about your facilities, how many facilities you actually have, and then I want to

have you speak to whether you’ve done assessments as to whether

all of those facilities are needed or not. Mr. Soloway.

Mr. SOLOWAY. The additional BRAC rounds that we are requesting, we do not have a specific number of facilities because that will

be determined by the commission itself. I can tell you what our

projections are in terms of savings and what we think that we will

gain, if that is what you are looking for, or I can give you some

history.

Mr. SHAYS. Why don’t you start that way. But that raises another question. Let’s start. I’m sorry.

Mr. SOLOWAY. Well, the request for two additional rounds of

BRAC which would be a fiscal year 2001 and 2005 request, we expect the savings to approach about $23 billion beginning fiscal year

2008 through 2015.

Mr. SHAYS. Is that an annual expenditure savings?

Mr. SOLOWAY. No, that would be a cumulative savings between fiscal year 2008 and 2015 for approximately $23 billion, with a

steady state of savings of about $3.6 billion a year after that.

Mr. SHAYS. That is your goal, and then you decide to see how

many bases you have to close to meet that goal?

Mr. SOLOWAY. We don’t decide how many bases to close. That is

a determination by the Base Realignment and Closure Commission.

Mr. SHAYS. I understand that. I am not looking to strain at gnats

and swallow camels here, but it does beg the question. If you know

what you are going to save, how are you going to know what you

are going to save if you don’t know what you are going to close?

Do you basically say this is your goal and then you tell BRAC, and

then they have to decide what they have to do to reach that goal?

Mr. SOLOWAY. The savings that we have identified are based on

two previous rounds. We are asking for two more rounds, so it

would be a similar scale.

Mr. SHAYS. How many bases did we close in the last two rounds?

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Mr. SOLOWAY. We have closed, total, we have closed 97 major

bases and we have realigned 55, and we have had 235 smaller

bases either closed or realigned.

Mr. SHAYS. How many bases did we open up?

Mr. SOLOWAY. I am not aware that we have opened up any, but

I can check on that. That is the cumulative total. What we have

looked at in establishing the savings estimate were the average

cost savings that were contained in the President’s budget for fiscal

year 2000 based on the BRAC rounds in 1993 and 1995.

Mr. SHAYS. What I wrestle with is, the cold war is over but the

world is a more dangerous place in the sense that in the past we

were able to have a deterrent. So obviously we had a nuclear threat

that seemed more frightening on a scale, but now we have the potential of a nuclear attack by a rogue nation or individuals, and we

have a tremendous number of hot spots around the world. And so

in some cases, a number of our soldiers and sailors and Marines— the Marines always tell me I cannot call them soldiers—— Mr. SOLOWAY. You forgot the airmen.

Mr. SHAYS. And the airmen. Thank you. I have not met with

them yet for them to tell me that. So they are being spread out to

more hot spots and so on. But we are also manning a number of

bases, and I wonder if that is not to our detriment. So, obviously,

I am sympathetic to the need to begin to consolidate. I know we

have to weigh—not concentrate too much, of our forces like we did

in Pearl Harbor and then regret it later on when it was such a

tempting target.

But what I am hearing from you then, and then you can qualify

the response, I am hearing that you have a sense of what you are

going to save and yet we do not know the number of facilities we

would close.

Can I infer in this that there is not a document in DOD where

the generals and admirals and so on have gotten together and said,

Listen, in our world, if we did it without BRAC, this is what we

would do?

Mr. SOLOWAY. I can’t tell you for a fact. I don’t have operational

responsibility for base closure. But what I would be happy to do is

take that for the record and find that out for you.

Mr. SHAYS. I am not going to ask you to do that. We will get that

from other sources.

Mr. SOLOWAY. Let me, if I could comment on your other statement in terms of the threats we face. I think that if you look at

the strategic documents that have come out of the Department, not

just the Quadrennial Defense Review but the Joint Vision 2010,

which is the Joint Chiefs’ of Staff view of the future defense requirement and the threats we face, I think we are very, very aware

of the increasing nature of the threat that we face, but it is a very

different threat. And what we are really trying to do and what

Joint Vision 2010—which came out of the Joint Chiefs—talks about

and Secretary Cohen talks about, the Revolution in Military Affairs, is really right-size, and reorient ourselves so that we are optimally prepared to deal with that new type and new form of threat.

It is not, for instance, a single, large conflict that we look at it.

Is multiple, concurrent conflicts. As you mentioned, we are concerned about the threat posed by rogue nations and terrorist

59

groups and so forth. We are also concerned about nuclear, chemical, and biological warfare. As I mentioned in my testimony, the

whole concept of homeland security and how we protect the Nation

from those kinds of threats is something that we are very focused

on.

So I don’t believe that it would be appropriate to characterize the

BRAC process, and I am not suggesting you have, but the interpretation could be that we are doing this without regard to the changing threat but just as a money-saving venture. This is actually partially about right-sizing and identifying resources we can save, but

it is also about reorienting the Department to more efficiently meet

the war-fighting need or the more war-fighting mission that we

have, and that is something that we will be very focused on and

very concerned about.

Mr. SHAYS. I concur in that. And I would just say to you that I

was trying to acknowledge the fact that it may be destructive for

our military to have so many bases and spread our manpower resources so thinly and our financial resources, trying to keep all

these bases open. But if you cannot give me a sense of the number

of bases, you have given me a number of what you try to save.

What would be the percent of the current or projected operational

maintenance money that you would save through these two BRAC

closings? You have given me the amount. Is it going to be a 1 percent, 2 percent overall savings?

Mr. SOLOWAY. I would have to go back and pull the budget figures again. I haven’t looked at it from that perspective, sir, to be

honest with you.

[The information referred to follows:]

Operations and Maintenance savings represent approximately 52% of the total

savings generated in the previous two BRAC rounds, based upon the FY 2000 budget data. One could make the case that this is an indication of future BRAC results.

However, only a detailed BRAC analysis can determine this data.

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Mr. SHAYS. I would ask you to do that. In other words, our committee has to decide whether we want to dip our toe in this issue

of base closures, because it is so controversial and would require

us to utilize some resources. One opportunity is for our committee

to begin to look at what the requirements are and try to put a

number on it. In an ideal world, what we should be doing is closing

to meet all the threats that we face. I just do not know if we want

to get into it.

Mr. SOLOWAY. I would be happy to get that for you. But I will

reiterate again, I think the key point that there is nothing we can

do in terms of change and reform that will more directly affect,

both from a financial and an operational standpoint, our ability to

meet those threats than to pursue additional rounds of base closure.

Mr. SHAYS. I know the Secretary is very determined that we proceed. And I think Congress is a little reluctant, but I do know that

we need to proceed.

As it relates to the veterans’ affairs, when you say 500 bases, is

it 500 major bases? For instance, when we went out to Seattle a

few weeks ago, it is basically a weather station that is under the

command of the admiral in the Center, but do I consider that one

of your bases?

Mr. SOLOWAY. We have closed 97 major bases.

Mr. SHAYS. In your statement you had 500.

Mr. SOLOWAY. I don’t believe so. Maybe Nelson did.

Mr. TOYE. That’s 500 installations. And an installation could be

a major installation, but not necessarily.

Mr. SHAYS. Thank you. That would not necessarily be, when you

go to Idaho for the pilots, that is not necessarily a base. It is owned

by the government, but would you consider that a base, or an installation?

Mr. TOYE. The 500 number includes DOD-owned and operated

installations. And some of those installations may have at one

point in time been a major installation and in the current environment may no longer be a major installation.

Mr. SHAYS. Could it also be a bombing practice range?

Mr. TOYE. It could be, yes.

Mr. SHAYS. Thank you very much.

How many facilities does the VA have?

Mr. POWELL. We have 172 hospitals and approximately 400 of

the outpatient clinics, with 89 more opening this year. We don’t

own those facilities, Mr. Congressman, we lease those.

Mr. SHAYS. You said 400 outpatient clinics?

Mr. POWELL. Right. Those are leased, however.

Mr. SHAYS. I am delighted the VA has those outpatient clinics.

But Mr. Tierney has made reference to what we heard from the Inspector Generals at the GAO last week, and one of the points was

that the 172 hospitals are really providing service in a facility that

is not designed for the needs of today’s health care. You had representatives here. I am sure that is an issue you all discussed.

What was your reaction to that?

Mr. POWELL. Actually, if I could revisit Congressman Tierney’s

question just a bit, we are seeking new legislation this year for the

authority to dispose of excess property. Our capital asset disposal

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plan as an agenda item will allow us to retain most of the revenue

from the disposition of these properties, which we could then apply

for other internal uses. This allows us to manage these decisions

much more effectively at the local level where decisions regarding

which properties to use versus renovate, et cetera, is made at the

local level and comes up through the chain that way. We feel that

is an appropriate way to deal with that.

We continue to make significant improvements in our capital investment process, which requires much better documentation than

we have ever had before, and allows for us to conduct a much more

critical assessment of any new proposal capital investment. We

have a much more formal process now of identifying where we

spend our capital dollars, particularly with regards to facilities.

Mr. SHAYS. The legislation that you are bringing forward, is it

going to allow for the VA to use the sale of an asset for operating

expenditures or for another asset? I am happy to have anyone answer the question.

Mr. POWELL. It is generally for operating and nonrecurring costs.

And 10 percent of the proceeds, as I understand it, would be set

aside for homeless programs.

Mr. SHAYS. I just wonder, the wisdom of taking a capital asset

and then transferring it into an operating cost. Is that what you

are basically saying?

Mr. POWELL. Yes, sir.

Mr. SHAYS. Again, the reason why we are asking this question

in a general way, we are not going to nail down all the answers.

It is just to begin to see if Mr. Tierney and I and others want to

get into this whole issue. And it is a big issue because I know the

service groups and veterans like their facilities, and we like the

veterans.

But the question is: Is there a better way to provide them health

care? And we need to be willing to ask that question. And one of

the questions we may ask ourselves to undertake is a very thorough study of really how well does the VA—with the infrastructure

it has had for decades and decades and decades and decades, does

it meet the need of today’s veterans?

Is there any study that the VA has undertaken, or has the VA

had any dialog that is trying to reappraise the facilities that we

have and to see if some of them should be sold and some of them

should be converted and so on? Is this anything that the VA is beginning to undertake?

Mr. POWELL. That issue has not come to the Secretarial level yet.

One consideration is to convert from our high-maintenance fixed

assets to leased facilities. This would reduce ongoing operating

costs, which is really the objective. The combination of these locally-based decisions and the allocation of resources through the

VERA model, encourages local officials to pay more attention to

how their facilities are utilized for and how to best serve their client’s needs, in this case the veteran.

Mr. SHAYS. Do we have any statistics to say how many veterans

are alive today from World War II versus, say, 10 years ago or 20

years ago?

Mr. POWELL. I’m sure that we do, sir. I’ll have to get that specific

number for you. I don’t have it with me.

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[NOTE.—The information requested was not provided at the time

of print.]

Mr. SHAYS. I am just curious to know what that peak period was.

I realize that we had a larger group, but they were healthier. Now

we may have a smaller group, but they are not as well. So I realize

these are all factors. But I would like to see that. So that would

be a request that I am making.

As it relates to the State Department, how many facilities?

Mr. KENNEDY. Mr. Chairman, the State Department has about

265 embassies, consulates, and missions overseas, plus another two

dozen or so, consular agencies, which are small one-person facilities

staffed by a locally hired American, mainly in major tourist centers, who are the first line of intervention if an American is injured

or in jail, such as in tourist resort areas in Mexico for example.

We also have some 30 facilities throughout the United States, including passport agencies in Connecticut and Massachusetts, diplomatic security field offices and three major regional centers: One

in Fort Lauderdale, FL, which provides support throughout Central

Latin America and the Caribbean; a major finance center and new

passport production facility in Charleston, SC; and a major passport and immigrant visa processing facility in Portsmouth, NH.

Those latter two, if I might, are products actually to our benefit

of the Base Closing and Realignment Commission, because as DOD

closed the former Pease Air Force Base in New Hampshire and the

Charleston Naval Station, the State Department, looking for ways

to economize, streamline, and create efficiencies in economies of

scale, picked up, with Congress assistance, facilities in those two

locations.

Mr. SHAYS. Let me ask you this: The 265 of the embassies primarily, are they also the residences of the Ambassadors?

Mr. KENNEDY. No, sir. I said there are 265 cities in which the

United States has diplomatic and consular representations. If you

added in the other leased facilities, the number comes up, Mr.

Chairman, to 12,000. When you add in the embassies, annexes,

consular operations, warehouses, and the residences of U.S. Government personnel overseas, it could come to as much as 12,000.

Mr. SHAYS. Are all the residences leased?

Mr. KENNEDY. Some are owned, Mr. Chairman. Some are leased.

We own about 2,000 properties and lease another 10,000.

Mr. SHAYS. You cannot go to 10,000?

Mr. KENNEDY. 2,000 owned, 10,000 leased, for a total of 12,000

properties.

Mr. SHAYS. I am making an assumption that is 12,000 separate

locations. One of the things I was thinking of doing is having my

staff go and see all these facilities.

Mr. KENNEDY. Mr. Chairman, seriously, we always welcome congressional staff visits.

Mr. SHAYS. Seriously, you try to say that and try to feel that

way, but I do not know if you always welcome us. You would be

crazy if you did.

Mr. EDWARDS. Many of those 12,000, of course, would be individual apartments and homes in which State Department as well as

other U.S. Government employees at the embassies are living. So

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it sounds like an enormous number but most of those would be individual residents’ units.

Mr. SHAYS. It is just so that technically we are responsible for

the safety of the people in those facilities. When we went to Colombia—and this was after they lost the 700, their DAS building was

destroyed about 8 to 10 years ago. It was their FBI building. They

lost 700 people and 70 were killed. And we went down there—a

delegation from Congress, to visit with some of the Colombians,

who are truly fighting a drug war. I mean, for them it is not theory. But when we saw, for instance, the Ambassador’s home—it

was a lovely home and it was kind of in a valley, there were probably 80 structures above it so that any sniper could just knock off

whomever they wanted. So I could say, that is just one little home.

I mean, obviously it is a home, but it is a facility that many people

use. So that is why I was thinking of that.

Let me go back to Mr. Tierney, and then I am going to talk about

information systems when we get back.

Mr. TIERNEY. I only have one other question.

Mr. Powell, I do not mean to beat a dead horse and I hope I am

not on an area that you do not have any information on, but I am

sort of fascinated by the prospect of properties, VA hospitals and

the like, that if they are too expensive for us to maintain or if they

are not serving the purpose of providing medical care in today’s environment, has there been any process or consideration to dealing

with the surrounding communities where they are located and

some public-private partnership type of thing of trying to create

long-term care facilities or assisted-living facilities, all of which

there is a considerable need for, that would help with the financial

end of things and serve our needs with another 1.3 million veterans who are going to be over the age of 85 over the next 10 years,

and help the surrounding areas with their similar demographic

problems?

Mr. POWELL. Yes, sir. We have a number of projects that we are

looking at under the category of ‘‘enhanced use.’’ We are looking at

partnerships with, for example, State veterans organizations where

we can allow facilities that we aren’t currently using to be converted for long-term care, or other programs that may be run by

the State veterans groups. We have a number of those projects that

are in the process of being identified. Hopefully, they will be approved for that type of conversion.

Mr. TIERNEY. And do you go beyond that, too, to look into some

private partnerships with people that might come in and renovate

an entire thing and then lease back at a favorable rate for our veterans’ use?

Mr. POWELL. Yes, there are a number of those that we look at

from time to time. Again, most of that is driven from the local level

and it is something that we encourage.

Mr. TIERNEY. Thank you.

Is there anything that any one of you feels compelled that you

should share with us that we have not asked you?

Mr. KENNEDY. Mr. Tierney, if I could add something on the property issues. The State Department does have the authority to sell

its properties overseas and to retain the proceeds of sale and to

66

turn those proceeds toward new properties. And this is a stewardship we take very, very seriously. For example, last year we sold over $58 million worth of property and purchased another $58 million worth of property. We try to

identify properties which are obsolete or not serving their highest

value and then take those assets and sell them, avoiding several

million dollars of lease cost every year. But obviously those lease

costs repeat and mount every year, so the savings become significant.

Another example would be in Singapore several years ago, we actually sold the United States Embassy, which is a very old, small

building, but on a very, very valuable downtown lot, and took those

proceeds and were able to build an entirely new embassy, Ambassador’s residence, Marine guard quarters, without having to request a single dollar in appropriated funds, because we were taking

an asset and converting that asset to its highest and best use. And

this is something we do very, very rigorously.

Our Office of Foreign Buildings examines properties overseas.

We even availed ourselves of what we call the Real Estate Advisory

Board to help with this process. And that membership, to make

sure we draw on real estate professionals from the intelligence

community, the General Services Administration, and the U.S.

Postal Service, so that we can look at properties and decide the

best way to convert a fixed asset to its highest and best use so we

do not have to come back to the Congress for additional appropriations.

Mr. TIERNEY. That is interesting. I am glad you shared that with

us.

I assume there is not the same kind of authority with the Veterans Administration. I assume that you do not have that same authority to be able to sell and buy properties without coming back

to us for approval on that. But do you have advisory groups that

help you deal with your real estate issues?

Mr. POWELL. No, sir, we don’t. That is one of the issues in our

enhanced use proposal we would like you to look at.

Mr. TIERNEY [presiding]. Let me ask you a question for the absent Mr. Shays.

The GAO testimony last week indicated that the Results Act Performance Goals and Measures should provide us and you with clear

indicators of progress and problems. The VA testimony today indicates that the Department has made significant progress in identifying performance targets and collecting valid data to measure

progress. VA has focused on a small number of goals and performance measures VA leaders identified as critical to the success of the

Department.

Would each of you please identify the three performance measures in your fiscal year 1999 plan that you see as critical to your

Department’s success?

I will give you time to prepare if you want. But State is ready

to go?

Mr. EDWARDS. We have had some very interesting challenges on

GPRA, because in many cases our programs are designed to have

things not happen versus supposed to happen. But certainly in our

accountability report we have some very solid data on issuance of

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passports, issuance of visas, which of course is a service to Americans and to people who are coming here to visit or to emigrate. So

we have those data. And it is clear that we’re delivering an increasing number of passports and visas with a decreasing number of

personnel. And we are using some very high technology to minimize fraud.

At our new plant, I guess not too far from your district, Mr.

Tierney, in Portsmith, NH, we have a new passport system where

your photograph is actually part of the printed material. It is not

an embedded photograph. And there are about four different vendors involved in producing that passport. So the chance of fraudulent passports, once we get that system in throughout the Nation,

is very, very much diminished. So we can measure our effectiveness there.

We can measure land mine removal. But the problem is we don’t

know how many land mines there are. There are still land mines

from World War I, believe it or not.

And we are faced in Central America with the Hurricane Mitch

aftermath of land mines floating down mud rivers, and people putting their hands in the mud and the mine going off, because these

mines were in fields and roads which were devastated. That hurricane, as you may recall, is probably the most severe hurricane in

the Western Hemisphere since Europeans have been here.

So we have some very, very difficult tasks and we’re struggling

to be able to measure each of our 16 objectives and 3 diplomatic

readiness objectives, and we have a way to go. But we are committed, as a service agency, to find a way to measure that to show

that there is payoff for the dollars that we’re spending.

Mr. TIERNEY. Thank you.

Mr. SOLOWAY. Congressman, as I mentioned in my testimony, we

have two overall corporate goals, if you will. The first one really focuses on force structure and strategic issues. The second one is

more directly related to what you are interested in, which is the

reengineering and performance management within the Department.

Let me just mention a few of the performance measures that we

have established that we are tracking and that would obviously be

included in our GPRA reporting: Our annual procurement spending, which is investment in new systems; the percentage of the

DOD budget that is spent on infrastructure, which of course we are

trying to reduce; public-private competitions, which is that number

of positions that we are able to effectively compete and thereby

achieve efficiencies whether the work is done, one, by in-house government workers or by contractor; and where we are going in terms

of cost growth and cycle times with our major defense acquisition

programs.

If there were some key ones, those would be the ones that I think

are really the highest on the list. As I mentioned, I think there are

about 41 that we’ve established.

Mr. TIERNEY. We will not ask you to go through all those, but

thank you.

Mr. POWELL. The VA performance plan, that was submitted with

the budget on February 1st, lists slightly over 100 different outVerDate 11-MAY-2000 10:52 Sep 13, 2001 Jkt 010199 PO 00000 Frm 00071 Fmt 6602 Sfmt 6602 E:\HEARINGS\56508 pfrm01 PsN: 56508
68

comes that we are looking at, with 24 that the Department considers as key.

I happen to be very interested in three that really measure outcomes, and deal with the quality of what we deliver.

One is the accuracy of the processing of VBA claims. The other

two relate to health care, which are issues that are also very important to Dr. Kizer. The first of these is the Chronic Care Index,

which really consists of 14 medical aspects and gets to the issue of

quality of patient care. The other issue would be the Prevention

Index, which consists of nine medical interventions measuring how

well the VA follows nationally recognized primary prevention and

early detection. Both of those go to the essence of serving the needs

of our community.

Mr. TIERNEY. What progress are you having on the claims issue?

I know that I can report, hopefully, that I am hearing less in this

last year than I heard several years ago on that. What has the Department done to try to address the backlog in the claims?

Mr. POWELL. Again, this is a little out of my purview as CFO.

We do have the balanced score card that Under Secretary Joe

Thompson has been talking about, and there are now published, on

a web site, monthly updates on performance. I know too that the

Veterans Benefits Administration has a number of initiatives underway to try to reduce the backlog but I’m not familiar enough

with those to give you an answer. I can get that answer back to

you.

Mr. TIERNEY. No. I can go to another source. Thank you.

Mr. SHAYS [presiding]. As it relates to information systems, all

three of you have your challenges, obviously, in this area even if

we did not have the Y2K problem. But let me first ask as to it relates to the Y2K problem. I want you to give me what would be

the worst-case scenario from each of your stand-points on what

could happen if we did not address this issue properly, and then

I make assumptions that you try to take the worst case first to deal

with that.

But, for instance, let me just go backward and start in reverse

order and start with State. What could be the worst inconvenience

or the worst challenge that could happen if we are not getting a

handle on the Y2K problem for State?

Mr. EDWARDS. Well, there is no question, since we are a very

labor-intensive organization, the inability to pay our people both

domestically and to pay not only our people, but Americans and

SFNs overseas. So we’ve remediated all four, our three overseas

and our domestic payroll system, and we’ve also remediated our retirement system.

As I indicated in my comments, we have 13,000 retirees that we

pay at State that aren’t in an OPM-administered plan. Not only

would it be devastating to us but you’d hear about it almost immediately if we failed to pay them.

Mr. SHAYS. One of the problems could be, they did not get paid

at all or they got paid an amount that was not commensurate; they

could have received a $10,000 check when they deserved a $2,000

check, these kind of scenarios. They might be disappointed if you

solved the problem.

69

Mr. EDWARDS. Not getting any check at all, Mr. Chairman, would

probably be the problem of processing.

Mr. SHAYS. I am being serious here. Is the problem that they

would not get any check if you did not solve it, or they might get

an inaccurate amount?

Mr. EDWARDS. If the system crashed, you would not get the output—which would be principally not checks but electronic transfers

into their bank accounts. We pay almost everybody, even overseas,

electronically.

Mr. SHAYS. I am going to ask others. But what I am trying to

understand is, do we even know? Is the issue that it would be inaccurate, or it is just that they would get nothing, or don’t you know?

Mr. EDWARDS. Well, in the Y2K bugs that we had, it would be

very difficult right now to know, since we’ve remediated the systems and they are essentially compliant, what would happen. But

normally when you have a meltdown of a system, the output stops,

so that means you wouldn’t get the electronic transfers.

Mr. KENNEDY. On the substantive side, Mr. Chairman, in addition to our administrative process, the State Department provides

a number of services to the public such as passport services, and

visa services to foreigners, which is why we put the remediation,

the Y2K compliance issues of those systems, at the head of our list,

and why they have been remediated.

I’ll give you one example. We maintain a data base of criminals

and terrorists who, when they apply for a visa at a U.S. facility

abroad, that visa is denied. But that is a large data base that we

work on jointly with the Immigration and Naturalization Service

and other law enforcement officials.

So we have taken great steps to make sure that when somebody

comes in, applies for a visa, and we run their name against our

name check system in a highly, as I said, computerized and automated process, we want the right answer to come up, either a

record or clean.

So that is an example of something we take very seriously, because we do not want to admit any criminal or terrorist elements

into the United States because our computer process has somehow

been flawed by the Y2K bug. And that system is remediated, and

we are in the process of installing the modern hardware around the

world. The only reason it is not fully certified is not because the

hardware and software hasn’t been approved, but it’s just that we

are in the process of literally putting the new terminals at all of

our 260 locations. This will be complete by July of this year. But

the system is tested and in place at a number of posts.

Mr. SHAYS. Right.

You still have Wang word processors in some State Department

facilities?

Mr. KENNEDY. That is a system that will be completely phased

out by July of this year.

Mr. SHAYS. One of the things that I have heard from people who

work in our embassies, from the Ambassadors on down, is that we

have not yet developed a system for them to communicate through

e-mail quickly from State to overseas; that they cannot communicate quickly from one embassy to another.

70

Is there a plan in place to begin to totally—and would you say

is it just a plan or is it a possibility that it is done?

Mr. KENNEDY. We have begun already implementing that. And

we will have one system in place that is commercially based, robust, Y2K compliant, completely installed around the world by July

of this year.

Mr. SHAYS. That will allow an ambassador in France to talk to

the Ambassadors in England?

Mr. KENNEDY. Yes, sir. But there is a complication there, and

that is a complication that most other agencies do not have, and

that is level of security required.

The State Department essentially maintains three separate systems and that is because no one, including the National Security

Agency, has been able to certify a firewall that would allow us to

combine national security, classified information, and what we call

sensitive but unclassified information. An example of that would be

the anti-terrorism data base we maintain, and then the internet.

So we have deployed three enclaves to deal with these problems.

And our Chief Information Officer and his colleagues are in constant communication with DOD and the National Security Agency,

looking for that magic firewall that would allow us to merge all

three systems together, on one terminal, on the Ambassador’s desk.

But, yes, if the Ambassador wishes an unclassified terminal on

his desk and wants to work in that world, we will have that in

July. The classified systems are taking a little bit longer because

of the complexity of ensuring that we never expose national security information to those who should not be privy to it.

Mr. SHAYS. Thank you.

Defense, it seems to me if we just talk about the computers in

the airplanes, the computers in the air traffic control, there are a

hundred different ways that you all must have to focus your time

and energy on. But in different areas, what would be the worstcase scenario if we do not succeed? I realize we are making

progress.

Mr. SOLOWAY. I think, Congressman, the question of progress is

key here, because certainly Defense is one of those agencies that

was viewed with great concern both by ourselves and by the Congress and others looking at it as recently as this past fall, where

we had a number of mission-critical systems that had not yet

passed muster, and there was great concern as to whether or not

we were going to be able to overcome the problem.

I think what is important to note is that now, today, about 83

percent of our systems have not only been fixed but tested. We will

be at 90 percent in the March-April timeframe and 100 percent by

October. So we have made, I think, dramatic progress.

In fact, Deputy Secretary Hamre, who is testifying right downstairs this morning on Y2K, made the comment yesterday that he

himself, as I think he testified before Congress earlier this year,

had been deeply concerned about whether or not we are going to

be able to overcome the problems associated with the Y2K bug, but

now has tremendous optimism that we will be able to get there.

Really where our focus is now, in addition to continuing our attention to that last 17 percent, which is not unimportant, but really

a lot of our attention now is focused on working with our NATO

71

partners and also with Russia on the early warning systems and

so forth, because, as has been reported in the media, there has not

been perhaps as much aggressive addressing of these issues overseas as here. And so that is, in addition to our focus on our own

problems, a much increased level of activity, if you will, with regard to overseas allies to ensure that we don’t have any problems

in that regard.

I don’t have, nor does Mr. Toye, operational responsibility for information systems. That is under the purview of our CIO. Dr.

Hamre has personally directed the Y2K efforts in the Department.

So I can’t give you specifics in terms of a worst-case scenario. But

I can tell you I think from a progress standpoint, we are substantially ahead of not only where we were, but where we thought we

would even be by now, or well on track, and much of our attention

now has been focused overseas.

Mr. SHAYS. Some of the systems are basically run by DOD. But

a system, for instance, in a fighter jet would be the manufacturer’s

challenge, not your challenge?

Mr. SOLOWAY. It is a common challenge. It is a joint challenge,

sir.

Mr. SHAYS. I realize that. But let me just try to understand who

has that responsibility, rather than year 2000 no one having it. Is

it the manufacturer’s responsibility?

Mr. SOLOWAY. That’s a very good question. Specifically, from a

legal standpoint, I don’t know the answer to that. I do know that

we have been working with our suppliers to ensure that systems

are updated and are capable of overcoming the Y2K problem in

those cases where they face it. And as we look at—certainly with

mission-critical systems, our guidance systems and targeting systems and so forth clearly would fall into that category.

I don’t know from a legal standpoint who has those responsibilities. I know that we are certainly requiring that anything new

that we purchase clearly would be compliant when we purchase it.

But in terms of actual legal responsibility for legacy systems from

a legal standpoint, I would have to hesitate to answer and would

probably take that for the record and get back to you.

[NOTE.—The information requested was not provided at the time

of print.]

Mr. SHAYS. Mr. Horn, his subcommittee, is doing an extraordinary job and, as you point out, have created each of the departments and we have really deferred to them. The one area where

they have not gotten as much involved is areas where there is—

particularly with the intelligence community, because of the nature

of the information, but it impacts DOD. I know they have been focusing on DOD—and I am happy that he has done this and it is

not on our shoulders. His Government Management, Information,

and Technology Subcommittee is focusing on that.

I just want to get a handle as to whether we are leaving anything out as it relates to DOD. As I think of all the number of

areas that you have to focus in on, did you have a method in which

you went through each area to know if you were able to comply or

not? In other words, what is the structure in which you begin to

even know if you have a handle on this?

72

Mr. SOLOWAY. The Deputy Secretary, Dr. Hamre, took personal

charge of this at the Secretary’s request, and he conducts monthly

meetings of the Y2K Steering Committee that involves the very

senior leadership for covering the entire Defense Community, going

through from a community-by-community perspective, if you will,

the systems that they have in place, the challenges that they face,

the progress that they are making, and so forth. So it has been

managed at the very most senior levels at the Department.

You are correct, of course, we have systems that cut across many

areas. We have 500 that support the intelligence community. But

internally it has been managed as a very senior level effort to make

certain that it is very clear in the field that this is an absolute top

priority and to make certain that the leadership has its arms

around the full scope of the problem.

We have looked at our Defense Finance and Accounting System,

the intelligence, the readiness issues, and all of those things as

they relate to one another and each individual system. It has been

organized at the most senior levels of the Department.

Of course, our money—our senior civilian official, and our Chief

Information Officer, Mark Langston, have had direct responsibility.

But it has been managed and overseen personally, as I said, by Dr.

Hamre, who is downstairs testifying again on the topic.

Mr. SHAYS. Before I recognize Mr. Mica, let me just ask each of

you, what is the key information system challenge that you have

that is not related to Y2K? And Defense could probably give me

two. But put your heads together. What is the key information

challenge that you are faced with? Actually, let me ask each of you.

I think it would be easier that way. The two key issues.

Mr. KENNEDY. Mr. Chairman, I think that of the two major challenges to the State Department, the first is obtaining qualified information technology professionals in sufficient numbers that can

do both the domestic jobs and deploy to our many overseas locations to provide the national security services we provide.

I believe the second challenge that we have is to stitch together

both all our locations and all our systems across 24 time zones

around the world, including operating in countries that have the

highest degree of information technology capability, just as in the

United States, down to the Third and Fourth World, operating

across all systems, across all levels of technological competence

overseas and around the globe, which is our second major challenge.

Mr. SHAYS. It is very difficult for government, given the pay level

sometimes, to bring in the quality of competence that we need. But

even in industry in the area that I represent, we have 1,900 information system type jobs available, unfilled, because we do not have

the people to fill them. And that is the private sector competing

with price. And you have limits that way, correct?

Mr. KENNEDY. We have limits. And we just had a big job fair last

weekend, and we did get a rather large and qualified turnout because we were emphasizing the ability to serve and work for the

U.S. Government overseas. So the salary levels worked against us,

but we do have potential inducement of talking about offering people an opportunity to serve their country abroad.

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Mr. SHAYS. And you also have the ability to hire some people

with high skills overseas, I would assume.

Mr. KENNEDY. Yes.

Mr. SHAYS. But in this country, hiring Americans, from the moment that person comes to that job fair—what is the earliest that

you could, even if you knew then that you wanted them?

Mr. EDWARDS. We made 50 offers Saturday, and we started the

background investigations yesterday.

Mr. SHAYS. So how long would it take you to get them?

Mr. KENNEDY. We would say probably 90 days, sir, because of

the need to conduct the rigorous national security background investigation pursuant to statute and Executive order.

Mr. SHAYS. It is interesting, because I was thinking 90 days from

the government’s standpoint was pretty good. So congratulations.

Larry Halloran, my counsel, was saying, ‘‘my God, 90 days is 3

months, and think of that person having to wait and all the other

people are going to be tempted to apply!’’ Mr. KENNEDY. It is a real burden. But because of the information

that the State Department processes and handles, especially everything that moves through the conduit of our Information Technology System, we have to take those steps. It is a challenge and

a burden that we accept, and we try to streamline as much as we

can.

Mr. SHAYS. Your first answer on the people was not a surprise

I was not expecting. I was happy to ask the question.

Mr. SULLIVAN. I believe that our critical problem is ensuring that

all of our systems at VA are seamlessly integrated. We have been

struggling with this for a while. We are coming close with the

interfaces we developed. But that’s not the answer. We need to look

at the newer technology and see how we can better seamlessly integrate these systems.

Mr. SHAYS. And you are working with three time zones.

What is the second problem? Besides the integration, what would

be the second challenge to information systems?

Mr. SULLIVAN. I can speak from the finance side. I think our

other biggest challenge is to get data on a more timely basis to our

management decisionmakers out there. We haven’t been doing a

very good job of that at all, and a lot of it is because of our legacy

system and some of it is because we need to reengineer some of our

processes up front.

Mr. SOLOWAY. Congressman, I have two and then Mr. Toye has

two more. But being a reformer, I would like to break the rule and

add another to build on your comment.

First and foremost I think the biggest challenge we have is

cyber-security. As Dr. Hamre and I think others reiterated several

times, we are very concerned about the security of our systems as

we more and more use the internet and so forth and our ability to

maintain truly secure fire walls and so forth. That has clearly got

to be our No. 1 priority.

The second one, actually I want to build on your point about people. Our ability to recruit and retain true technology skills is a very

serious challenge and one that concerns us greatly. It is very difficult to compete with the commercial world. We do not always

have the opportunity to offer people the opportunity to go and serve

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in embassies overseas or what have you. And we certainly don’t

have internally the structure to maintain that technological refreshment that is needed. That’s a major concern.

But it leads me to really the second big area, which is in our

business logistics information systems. Logistics is a huge costeater in the Department of Defense and we are still living with

variable logistic systems. And if you analyze supply chain management, if you look at velocity of systems and so forth, it is really the

information technology which is the first step, the absolute key to

improving efficiency, reducing cost, getting materials and supplies

to the field more quickly and so forth.

So we face enormous challenges in modernizing our logistics and

information systems with truly contemporary technologies so we

can better serve the folks in the field.

Mr. SHAYS. Thank you. Mr. Toye.

Mr. TOYE. Within DOD, financial systems, or the lack of adequate systems, is indeed the biggest single impediment to improving financial management. Our systems were not designed to meet

current standards. They were designed to track the Department’s

execution of the budget as appropriated by the Congress, and they

do those things very well. And at one point in time, that may have

been good enough, but it certainly is not good enough in today’s environment.

So our first priority is to overhaul or replace our financial systems. And we have a plan that we are executing, as was mentioned

earlier, that will not be completed until the year 2003. But even

upgrading our financial systems by itself is simply not good

enough. A substantial portion of the information that ends up in

our financial reports comes from what we call feeder systems.

These are systems in non-financial areas that provide information

to DOD.

We need to, and we are working with those other communities

in DOD, to get them to make the changes in their systems to ensure that the information that they pass to the financial systems

also will meet today’s current standards. That is a long-term effort.

It is a significant effort, but it is the most effort and it needs to

be accomplished to bring financial management to the point where

it should be.

Mr. SHAYS. Thank you very much.

Mr. Mica, it is great to have you here.

Mr. MICA. Thank you, Mr. Chairman, and thank you for the opportunity to ask a few questions. I think my questions are going

to divert here to the Department of State. And I guess we have got

the Chief Financial Officer, Mr. Edwards, here to answer.

Mr. Edwards, first I want to address the question of the security

of our diplomatic facilities and posts overseas. I know Rear Admiral

Crowe had recommended, I guess, some $14 billion be expended

over 10 years for that purpose. It is my understanding also that I

think this year there has been a recommendation of a lower

amount; if we had to do that over 10 years, it would be about $1.4

billion or something like that.

What is the dollar amount you all are recommending?

Mr. EDWARDS. Well, as I indicated in my statement, the President’s budget recommends an advance appropriation of $3 billion

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for 2001 through 2005, and that is ramping up from $300 million

in the first year to $900 million.

Mr. MICA. $3 billion for 2001?

Mr. EDWARDS. Through 2005. Fiscal year 1999, we got an in- crease over our previous construction budget of $36 million, and

that is to do the advanced planning on the first, up to eight embassies or other facilities for that advance appropriation that would

come in 2001.

Mr. MICA. How are you picking or prioritizing the facilities for

upgrades?

Mr. EDWARDS. Well, we had a very extensive examination following the embassy bombings. Each of the Ambassadors notified

Washington of their immediate needs. We sent out teams of diplomatic security and our building people, to a total of 36 posts which

were clearly at the high end of risk.

So we have now come up with quite a number of posts for each

of those 5 years that we would either relocate, rebuild, or otherwise

reinforce weaknesses, so that in the event the appropriation is approved we are ready to spend the money appropriately.

Mr. MICA. Has the State Department issued any kind of advisory

as to small measures that can be taken to prevent death or damage, to your knowledge?

Mr. KENNEDY. Mr. Mica, my name is Pat Kennedy. I am the Assistant Secretary for Administration, and I supervise our Office of

Foreign Buildings and also was the Acting Assistant Secretary for

Diplomatic Security for some period of time. And the answer to

your question is an emphatic ‘‘yes.’’ We have a series of standards in place. We have notified our

posts. We have made funds available to them for everything from

what is called ‘‘shatter-resistant window film,’’ which the trade

name usually used is Mylar, and telling them how to do it and

making the money available to them.

If I might give you one example that combines two things we

have done, both making that available and a rigorous training program: There was a bomb blast about 2 weeks ago in the capital city

of the country in which there was a local problem, not against the

United States. There was a noise in the street. Some of the local

nationals working in the embassy started to go to the windows to

look out. The Americans who had been through the training said,

‘‘No. No. Get away. Move inside.’’

When the bomb exploded moments later, all the windows were

blown out, but no one was hurt, for two reasons: One, the Americans had pulled everyone toward the inner part of the building and

when the windows shattered the Mylar treatment kept——

Mr. MICA. That is exactly what I am talking about, some commonsense things.

This subcommittee in its previous life did quite a bit of work on

force protection, particularly after the Kobar Towers incident, and

we found some simple things. Of course, we spent a third of a billion dollars on enhancing our force protection, and we have been

out looking at what was done.

It is interesting when you have a problem how you throw money

at it. We bought every kind of gadget in the world. I remember

going to Saudi Arabia with Mr. Hastert, who is now the Speaker,

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and saw every kind of equipment you could possibly imagine, most

of it foreign produced, which is kind of interesting to address the

foreign protection problem; but some simple measures that we were

advised, like the Mylar on windows and the other advisories that

folks can do. Because I am not going to criticize you for not spending a lot of money. I think that sometimes the small amount can

do a lot of good.

And we overreact on some of these, I think. I think even Admiral

Crowe is an overreaction. With $14 billion, I do not know how

many embassies we could harden. But that does not give us any

protection when we have American schools, we have American facilities, we have American tourists, we have American businesses

all throughout the world.

I just got back from visiting South and Central America. And

when you take precautions in one area, they will come after you

in other areas, we have seen in Tanzania and Kenya. So just some

commonsense things and not spending the entire Treasury on

things that may look good and satisfies people’s wish lists would

be desirable.

Mr. Chairman, if I may, I have some questions in a couple of

other areas.

As a financial officer, I have been involved in the narcotics effort;

and one of the reasons we are having such a problem right now in

the United States is the diversion of some of the funds, particularly

State Department funds, from the Andean strategy. In particular,

I was told about $40 million was taken out of the Andean strategy

and diverted at one point several years ago to Haiti.

How does this happen? Who is making the decisions in diverting

some of these funds in that manner?

Mr. EDWARDS. Well, it can come about several ways. First of all,

if our base funding isn’t sufficient to do everything we want, we

have to, for example, absorb salary increases and FICA tax increases and so forth, we have to start reducing programs.

Mr. MICA. This is taking money out of a program specifically appropriated by Congress and putting it into another area.

Mr. EDWARDS. Well, if the Congress would appropriate it directly

for foreign assistance in a program as you have described, that’s

where the money obviously would go.

Last year in the accountability report, we have a citation of drug

interdiction. We had a major year in fiscal year 1997 of

inderdicting drugs coming into the country, and I think the street

value of those drugs was something in the billions of dollars if you

took the tons of drugs interdicted, and priced it out at street values.

Mr. MICA. That does not address my question specifically. And

I will get my subcommittee staff to give your subcommittee staff

the specifics. But I want to know how that $40 million, thereabouts, were diverted.

Mr. SHAYS. So let me just say that that would be a request that

we would have and we will followup on that.

Mr. EDWARDS. We can certainly respond to that question on that

specific issue, Mr. Chairman.

[The information referred to follows:]

77

Responsibility for Y2K system remediation depends on the system status. Remediation of operational systems unique to the Department are the responsibility of the

owning Service or Agency. They may use the developing contractor, other commercial organization, or may rely on organic resources to effect the required changes.

For commercial systems in use by the DoD, the owners must rely on the commercial vendors to effect the change.

Mr. MICA. The Haiti money particularly bothers me, because

some of that money was spent for institution building as far as

their police and judicial system, and now we are told that Haiti has

become a center for drug trafficking. So you diverted money out of

an Andean strategy to stop drugs at their source, and money was

used in Haiti for institution building and they were barely certified,

I think with reservations, the other day by the President, because

the programs that we diverted money for have basically failed.

I have the same problem with the money that we were trying to

get and resources to Colombia. Colombia has now turned into the

major producer of cocaine in the Western Hemisphere, and this administration and the State Department have blocked equipment,

helicopters, material, resources, from going into Colombia.

They had, I know, some disagreements on human rights and our

pattern of conduct of the past administration. But I am wondering

if you can give us an update—it does not have to be now, but to

the committee—on what you are doing now to see that there is a

new government in place, and hopefully a new attitude by the administration to give resources to Colombia, which is now the major

producer of cocaine in the entire world. The major. We have turned

it into the major.

It is also the major producer of heroin in the entire world. Since

none of that equipment went down to eradicate the crops, they

have poppy fields growing from one end of Colombia to the other

and they are producing heroin in unbelievable quantities of high

purity.

So I am anxious, Mr. Chairman, and I would request the subcommittee, and will submit a letter and request to see what is

being done to expedite the finances, resources.

Mr. SHAYS. Would the gentleman yield? This is a good opportunity to acknowledge the fact that Mr. Mica’s subcommittee has

jurisdiction over the whole drug effort in this country, both domestically and overseas; and instead of our saying, well, State and

DOD report to this committee solely, you report to us on every

issue except the drug issue.

So what I am going to do is, even with the first question, because

I think it really is important to get right to the committee of jurisdiction. Mr. Mica and I, by the way, serve on each other’s subcommittees as well, so I think this is a very important question.

It is good that he used this opportunity now when you are before

us. And we will send a memo to your committee, in fact, just making sure. And we would like this information sent to the committee.

The title of the committee now is what?

Mr. MICA. It is Criminal Justice, Drug Policy, and Human Resources. Only a shadow of its mere former.

Mr. SHAYS. If you would send that information directly to that

committee. You do not need to send it here. I am not going to ask

you to do it twice.

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Mr. MICA. And through the committee, Mr. Chairman, I will redraft those questions very specifically and address them to the

agencies, with your permission.

Mr. SHAYS. Exactly. So you just have been given a public notice.

Mr. EDWARDS. We will be happy to respond, both in writing and

also have our Assistant Secretary in that area meet with your subcommittee.

Mr. MICA. I have two other questions in a couple of areas.

One, I was recently in discussions with a member of the Ukraine

Parliament who came to us with allegations that the United States

foreign assistance, foreign aid to Ukraine, is being given and going

into the pockets of basically thugs that are in charge of the

Ukraine activities.

Is there some kind of an enhanced oversight mechanism for

grants, assistance, aid projects in the emerging Eastern Bloc nations?

I was appalled by what I heard. In fact he said that—he is a

member of parliament. He is also a banker, and he can document

this corruption with our money. He said it would be better if we

terminated all of the assistance for his country because it is actually—it is hindering their development. Do we have any kind of an

enhanced check or oversight IG inspection of these activities?

Mr. KENNEDY. Mr. Mica, we deal with this on four levels. There

is an Agency for International Development [AID] mission in the

Ukraine that is on the ground and immediately responsible for program development. It has Washington oversight.

Mr. MICA. I was told that it is corrupt from bottom to top, and

all of our assistance programs there have been subverted.

Mr. KENNEDY. Mr. Chairman, this is not specifically within the

State Department’s jurisdiction because it is an Agency for International Development program, but the State Department does

have a policy coordinator for assistance to the countries of the

former Soviet Union.

Mr. MICA. Can your IG go in, or does he not have that authority?

Mr. KENNEDY. The AID IG, sir, would be the relevant authority.

Mr. SHAYS. I am sorry to interrupt. The AID will be under State

when, October?

Mr. KENNEDY. The Administrator of AID, effective April 1, will

be under the foreign policy authority and direct control of the Secretary of State, but pursuant to the legislation it retains its status

as an independent entity with its own IG.

Mr. SHAYS. So it is just for administrative purposes, but the bottom line is that we oversee that subcommittee.

Mr. MICA. I would like to start with the Ukraine and maybe we

can work on. But I had an investigator from the International Relations Committee and an investigator from my subcommittee of

the Government Reform Committee, listen to this detail of corruption with our funds that was absolutely appalling, and I think we

have the responsibility to followup in some fashion, whoever is in

charge, whenever. And maybe we can start right there, and we will

be glad to give you additional details after the hearing.

Mr. KENNEDY. The Secretary is concerned about the best use of

all overseas funds, especially for sustainable development. And I

will take this up with the coordinator for the Newly Independent

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States and pass this on, and your offer to share this information

to the AID people as well, sir.

Mr. MICA. Possibly in your jurisdiction or oversight, is it true,

and I don’t know if this is accurate, did a Japanese firm get the

new passport contract to produce the passports?

Mr. KENNEDY. An American firm won the contract. However, this

American firm does buy some of its materials from Japanese

sources. And that competition was an open competition and we

brought in evaluators, I believe it was from the National Institute

of Standards and Technology, to evaluate the process we are using,

which is a photo digitalization process to literally spray the picture

onto the passport book, to eliminate the threat caused by criminal

and other terrorists who are trying to extract the picture from

under the laminate. So an American contract was awarded to—— Mr. MICA. You said some of the material?

Mr. KENNEDY. I would have to get back to you.

Mr. MICA. I need to get back with Mr. Traficant. He has some

interest in this Buy American provision. It is interesting that I was

told that Americans will soon be walking around with Japanese

content passports.

Mr. KENNEDY. The passport booklets, themselves, Mr. Mica, are

produced by the Government Printing Office.

Mr. SHAYS. May I ask the gentleman, my sense is that we have

reciprocal agreements with our allies, that they get to bid on certain things that we do and we bid on certain things that they do.

In this case it could have been a foreign corporation that could

have won this bid or not, but didn’t?

Mr. KENNEDY. I am not a contracting specialist, but I believe, sir,

that you are correct.

Mr. SHAYS. I’m sorry?

Mr. KENNEDY. General Agreements on Tariffs and Trade do permit cross-bidding.

Mr. SHAYS. We have that same issue in Defense as well, where

we bid on things that are used by our allies.

Mr. SOLOWAY. There is a globalization in industry in general,

and if we want to access the most contemporary technology there

is a need to access that full global marketplace.

Mr. SHAYS. But Mr. Traficant is rightfully concerned that we

have as much U.S. participation as possible. Do you have another

question?

Mr. MICA. I do, but I think I have done enough damage.

Mr. SHAYS. You can go ahead.

Mr. MICA. Are you going to keep the record open?

Mr. SHAYS. Sure.

Mr. MICA. I would prefer to do that.

Mr. SHAYS. But as it relates to the drug issue, would you report

to Mr. Mica’s committee. I also serve on that committee.

AID, we are going to be doing some looking at that; and Mr. Mica

can join, as he sits on this committee, to pursue that. I am happy

that he mentioned it, and we need to get a handle on that.

I am going to conclude, but let me just say if there is anything

that any of you had wished—anything in particular that you

wished that we had asked, this would be your opportunity to put

it on the record.

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I thank you. This was a general hearing in nature, but it is helpful in helping us sort out where we go. I thank you very much. This

hearing is now closed.

[Whereupon, at 12:10 p.m., the subcommittee was adjourned.]

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