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[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]

 VULNERABILITIES TO WASTE, FRAUD, AND ABUSE: GENERAL ACCOUNTING OFFICE 
     VIEWS ON NATIONAL DEFENSE AND INTERNATIONAL RELATIONS PROGRAMS

=======================================================================

                                HEARING

                               before the

                   SUBCOMMITTEE ON NATIONAL SECURITY,
                   VETERANS AFFAIRS AND INTERNATIONAL
                               RELATIONS

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 7, 2001

                               __________

                           Serial No. 107-22

                               __________

       Printed for the use of the Committee on Government Reform

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

                                _______

                  U.S. GOVERNMENT PRINTING OFFICE
76-249                     WASHINGTON : 2001

___________________________________________________________________________
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                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida         EDOLPHUS TOWNS, New York
JOHN M. McHUGH, New York             PAUL E. KANJORSKI, Pennsylvania
STEPHEN HORN, California             PATSY T. MINK, Hawaii
JOHN L. MICA, Florida                CAROLYN B. MALONEY, New York
THOMAS M. DAVIS, Virginia            ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
JOE SCARBOROUGH, Florida             ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio           DENNIS J. KUCINICH, Ohio
BOB BARR, Georgia                    ROD R. BLAGOJEVICH, Illinois
DAN MILLER, Florida                  DANNY K. DAVIS, Illinois
DOUG OSE, California                 JOHN F. TIERNEY, Massachusetts
RON LEWIS, Kentucky                  JIM TURNER, Texas
JO ANN DAVIS, Virginia               THOMAS H. ALLEN, Maine
TODD RUSSELL PLATTS, Pennsylvania    JANICE D. SCHAKOWSKY, Illinois
DAVE WELDON, Florida                 WM. LACY CLAY, Missouri
CHRIS CANNON, Utah                   ------ ------
ADAM H. PUTNAM, Florida              ------ ------
C.L. ``BUTCH'' OTTER, Idaho                      ------
EDWARD L. SCHROCK, Virginia          BERNARD SANDERS, Vermont 
------ ------                            (Independent)

                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
                     James C. Wilson, Chief Counsel
                     Robert A. Briggs, Chief Clerk
                 Phil Schiliro, Minority Staff Director

 Subcommittee on National Security, Veterans Affairs and International 
                               Relations

                CHRISTOPHER SHAYS, Connecticut, Chairman
ADAM H. PUTNAM, Florida              DENNIS J. KUCINICH, Ohio
BENJAMIN A. GILMAN, New York         BERNARD SANDERS, Vermont
ILEANA ROS-LEHTINEN, Florida         THOMAS H. ALLEN, Maine
JOHN M. McHUGH, New York             TOM LANTOS, California
STEVEN C. LaTOURETTE, Ohio           JOHN F. TIERNEY, Massachusetts
RON LEWIS, Kentucky                  JANICE D. SCHAKOWSKY, Illinois
TODD RUSSELL PLATTS, Pennsylvania    WM. LACY CLAY, Missouri
DAVE WELDON, Florida                 ------ ------
C.L. ``BUTCH'' OTTER, Idaho          ------ ------
EDWARD L. SCHROCK, Virginia

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
            Lawrence J. Halloran, Staff Director and Counsel
                 Tomas Costa, Professional Staff Member
                           Jason Chung, Clerk
                    David Rapallo, Minority Counsel

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 7, 2001....................................     1
Statement of:
    Walker, David M., Comptroller General of the United States, 
      accompanied by Stephen P. Backhus, Director, Health Care; 
      Jess T. Ford, Director, International Affairs and Trade; 
      Henry L. Hinton, Jr., Managing Director, Defense 
      Capabilities and Management; Gary L. Jones, Director, 
      Natural Resources and Environment; Allen Li, Director, 
      Acquisition and Sourcing Management; Katherine V. Schinasi, 
      Director, Acquisition and Sourcing Management; Jeffrey C. 
      Steinhoff, Managing Director, Financial Management and 
      Assurance; David R. Warren, Director, Defense Capabilities 
      and Management; and Joel C. Willemsen, Managing Director, 
      Information Technology.....................................     3
Letters, statements, etc., submitted for the record by:
    Walker, David M., Comptroller General of the United States, 
      prepared statement of......................................     9

 
 VULNERABILITIES TO WASTE, FRAUD, AND ABUSE: GENERAL ACCOUNTING OFFICE 
     VIEWS ON NATIONAL DEFENSE AND INTERNATIONAL RELATIONS PROGRAMS

                              ----------                              

                        WEDNESDAY, MARCH 7, 2001

                  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 10:05 a.m., in 
room 2154, Rayburn House Office Building, Hon. Christopher 
Shays (chairman of the subcommittee) presiding.
    Present: Representatives Shays, Kucinich, Otter, Putnam, 
and Clay.
    Staff present: Lawrence J. Halloran, staff director and 
counsel; J. Vincent Chase, chief investigator; R. Nicholas 
Palarino, senior policy advisor; Robert Newman and Thomas 
Costa, professional staff members; Jason M. Chung, clerk; David 
Rapallo, minority counsel; and Earley Green, minority assistant 
clerk.
    Mr. Shays. This hearing of the Subcommittee on National 
Security, Veterans Affairs and International Relations is now 
in session.
    The hearing is entitled, ``Vulnerabilities to Waste, Fraud, 
and Abuse: GAO's Views on National Defense and International 
Relations Program.''
    This morning the subcommittee welcomes an important 
witness, David M. Walker, the Comptroller General of the United 
States. As head of the General Accounting Office [GAO], he is 
an invaluable partner in our oversight of Federal departments 
and programs.
    Recent updates to the GAO performance and accountability 
and high-risk series of reports provide Congress and the new 
administration a detailed road map for reform. Those reports 
sound a warning that long-simmering management weaknesses, 
cultural inertia, and fiscal excess pose an immediate threat to 
our ability to meet national goals. It is a warning we ignore 
at our peril, as today's mere challenges and risks inexorably 
drive tomorrow's crisis.
    At the Department of Defense [DOD], unjustifiably 
optimistic planning assumptions feed an over-subscribed weapons 
system acquisition menu, stretching development cycles and 
inflating costs. Leakage from cold war business systems and 
inventory controls drains resources needed to defend our global 
interests in a shrinking world.
    Operation and maintenance costs for aging equipment and 
unneeded infrastructure sap our ability to recruit, train, 
house, and arm a modern mobile force.
    At the Department of Defense, human capital management 
deficiencies seen in varying degrees Government-wide yield a 
U.S. presence abroad increasingly ill-suited to new diplomatic 
missions. Those posted overseas remain vulnerable to cyclic 
feast or famine funding of Embassy security measures.
    We will hear similar findings of financial system 
weaknesses and a lack of result-oriented management at the 
Department of Veterans Affairs. This extensive body of work by 
the GAO demands our attention. These are not abstract or 
academic conclusions, but a thorough and thoughtful analysis of 
the systemic challenges and risks confronting those charged 
with stewardship of national programs and public resources.
    As we undertake our oversight mission to improve the 
effectiveness and efficiency of national defense, international 
relations, and veterans' programs, the fundamental issues 
discussed today will guide our work.
    Again, we welcome Mr. Walker and we look forward to his 
testimony.
    We are joined by Mr. Putnam, the vice chairman of the 
committee, and Mr. Otter, as well.
    Would either of you like to be recognized, or should we 
begin?
    Mr. Putnam. Not at this time.
    Mr. Shays. OK.
    Mr. Walker, if you would stand, what we'll do is we'll 
administer the oath to you and anyone else who might possibly 
be asked to respond, so if everyone would just stand and raise 
your right hands, please.
    [Witnesses sworn.]
    Mr. Shays. For the record, they all have responded in the 
affirmative.
    To our transcriber, if we have one of you step forward, 
we'll have them give you their card.
    Mr. Clay, welcome to our hearing. I'm happy to recognize 
you, or we can begin with the testimony.
    Mr. Clay. Let's just begin.
    Mr. Shays. OK. Thank you.
    You're on. And let me just say, Mr. Walker, you are our 
only witness, and so the 5-minute rule won't apply. What we'll 
do is we'll just keep ticking the 5-minutes to give you a sense 
of where we are at, but you go until you have made your points.

   STATEMENTS OF DAVID M. WALKER, COMPTROLLER GENERAL OF THE 
  UNITED STATES, ACCOMPANIED BY STEPHEN P. BACKHUS, DIRECTOR, 
HEALTH CARE; JESS T. FORD, DIRECTOR, INTERNATIONAL AFFAIRS AND 
    TRADE; HENRY L. HINTON, JR., MANAGING DIRECTOR, DEFENSE 
 CAPABILITIES AND MANAGEMENT; GARY L. JONES, DIRECTOR, NATURAL 
RESOURCES AND ENVIRONMENT; ALLEN LI, DIRECTOR, ACQUISITION AND 
     SOURCING MANAGEMENT; KATHERINE V. SCHINASI, DIRECTOR, 
  ACQUISITION AND SOURCING MANAGEMENT; JEFFREY C. STEINHOFF, 
MANAGING DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE; DAVID R. 
WARREN, DIRECTOR, DEFENSE CAPABILITIES AND MANAGEMENT; AND JOEL 
    C. WILLEMSEN, MANAGING DIRECTOR, INFORMATION TECHNOLOGY

    Mr. Walker. Thank you. It will take about 10 minutes or so, 
Mr. Chairman. I think I can cover some very important 
information in that period of time. I appreciate that.
    Mr. Shays. Great. Well, we'll roll it.
    Mr. Walker. Sounds great. Thank you.
    Thank you, Mr. Chairman and members of the committee. I'm 
pleased to appear before you today in order to discuss a number 
of major management challenges and program risks dealing with 
the Department of Defense, Department of Veterans Affairs, and 
Department of State. Obviously, we will be happy to answer any 
questions related to these or any other departments that are 
within your jurisdiction.
    As you mentioned, Mr. Chairman, my remarks, to a great 
extent, are based upon the most recent GAO performance, 
accountability and high-risk series update, which was issued in 
January of this year. I would like to commend you at the outset 
for holding these hearings. Quite candidly, Mr. Chairman, I 
don't think there is enough oversight going on, and I think 
that these reports, the performance, accountability and high-
risk series that we have provided and which we update every 2 
years, provide an outstanding framework for such oversight 
hearings, and I'm pleased to have a chance to cover these 
departments with you here today.
    Mr. Chairman, we are facing three key transitions at the 
present point in time. We have a new administration, a new 
107th Congress, and we are at the dawn of a new millennium. The 
world has changed dramatically in the last decade, and it will 
change even more in the decades to come.
    We face increased globalization, rapid technological 
advances, shifting demographics, changing security threats, a 
variety of quality of life considerations. All of these are 
prompting a fundamental need to reassess our approach to 
Government. They are requiring us to fundamentally reassess 
what Government does and how Government does business in the 
21st century.
    This is especially important from a budgetary standpoint, 
as well, and I would like to set the framework for this 
performance and accountability issue by providing a brief 
budgetary framework, which I think is important for you to see.
    While everybody knows that the short-term budget surpluses 
have improved, meaning for the next 10 years, the simple fact 
of the matter is that the long-term budget situation has gotten 
worse, primarily due to escalating health care costs and the 
effects of the demographic tidal wave associated with the aging 
of the baby boom generation.
    I would like to commend to you, if I could, this first bar 
graph that I have used before the Finance Committee, the Budget 
Committees, and Ways and Means from time to time. What this 
will show you is the line graph represents Federal revenues as 
a percentage of the economy--year 2000, which obviously was 
last year; 2030 and 2050--based upon CBO projections and based 
upon the Social Security and Medicare trustees' best estimate 
projections of the cost of those programs.
    As you can see, we have a surplus right now, but if we save 
every dime of the Social Security surplus or every penny, and 
if Congress decides to spend the on-budget surplus, meaning 
either through tax cuts or spending increases or a combination 
thereof, this is the picture that we will face in the year 2030 
and 2050--a cut of discretionary spending by roughly one-half 
by the year 2030, and a decapitation of discretionary spending, 
as well as member expenditures.
    The point is simple, and that is we need to be prudent 
about what happens with the surplus today. Second, we need to 
reform entitlement programs. And, third, we need to make sure 
that every Government department, agency, and program is 
operating as economically, as efficiently, and effectively as 
possible, because we are going to face increasing budget 
pressures in the future due to known demographic trends.
    In fact, one of the things that has happened to DOD, for 
example, since 1962, the significant decline in the budget 
allocation to DOD has almost dollar-for-dollar been re-
allocated to health care, social security and interest on the 
debt since 1962, and health care costs are only going one way, 
and that's up.
    And so, with that, I think it is important to recognize 
that there are long-range budget challenges that we face, which 
means we have to focus on what Government does and how 
Government does business in the 21st century. My testimony will 
focus on how Government does business, because the answer to 
what Government does is fundamentally a decision for elected 
officials.
    What I would like to do, Mr. Chairman, is to get right into 
the issues for these specific departments and agencies, and I 
will put up a board to be able to help in that regard.
    As you know, in our overall reports on Government 
performance and accountability, we've said that there are 
basically five things that need to be done to maximize 
Government's performance and accountability. First, to give 
high priority to implementing the existing management reforms 
that were enacted in the 1990's; second, to fundamentally 
reassess and re-engineer the Federal Government's approach to 
people or human capital strategy; to attack areas subject to 
higher vulnerability for fraud, waste, abuse, and 
mismanagement, which is our high-risk list--there are 22 
different programs or functions on that; to address other 
challenges, the other balance of the 93 in our performance and 
accountability series; and to engage in a number of other 
actions designed to better position us for the future.
    If I can, let me talk about these three departments and 
agencies and provide an overview that may prompt some 
questions.
    First, DOD. I'm a Teddy Roosevelt fan, TR, and, as you 
know, Teddy Roosevelt used to have a saying, ``Speak softly and 
carry a big stick.'' Arguably, the State Department is the 
department that speaks softly; the Defense Department is the 
department that carries the big stick. And, obviously, VA is 
the department that takes care of those who have defended us in 
the past, and I think it is important to keep that in 
perspective.
    Let's start with DOD. I don't think there is any question 
that the Department of Defense and the military forces that it 
is responsible for are the best in the world. We are an ``A'' 
on effectiveness as it relates to fighting and winning armed 
conflicts when those forces have to be brought to bear.
    At the same point in time, the Department of Defense is a 
``D-plus'' as it relates to economy and efficiency. In fact, 
the Department of Defense has 6 of the 22 Federal high-risk 
areas its confines. It also is experiencing challenges with 
regard to human capital, which is a Government-wide challenge; 
computer security area, which is also a Government-wide 
challenge; it has other information technology challenges; 
serious financial management challenges; faces a number of 
excess infrastructure challenges; the acquisitions process is 
fundamentally broken; the contracts process has got problems; 
and logistics, as well.
    And let me touch on a few, just to give you an example.
    In the human capital area DOD is having increasing 
difficulty in attracting an adequate number of recruits. It is 
having problems with pilots. It is having problems with its 
acquisitions work force. It is having problems with regard to 
information technology and a variety of other areas. It was 
down-sized significantly in the 1990's, but it was done so in a 
way where there was not effective work force planning, and, as 
a result, over 50 percent of DOD's work force is over 50, and a 
significant percentage of its work force is going to be 
eligible to retire in the civilian work force within the next 4 
years. There are major succession planning challenges, as well 
as major challenges with regard to attracting and retaining 
skilled personnel, both in the uniformed as well as the 
civilian area.
    With regard to information technology, computer security is 
a major challenge for the Government, as a whole, but 
particularly DOD. In fact, if we can hold up one chart that 
relates to information technology, as well as financial 
management, this is a diagram of just the major systems that 
DOD has only dealing with contractor and vendor pay.
    If you wonder why they have a problem accounting for 
things, it is because they have so many free-standing, 
independent legacy systems that nonnot communicate with each 
other. As a result, it is no wonder that they have extreme 
difficulty in being able to account for the over $300 billion 
worth of resources that they are provided each year. This also 
provides challenges in conjunction with contract management. It 
also illustrates challenges associated with logistics and 
inventory management.
    For example, in the logistics area, they may have the item 
but they may not know where it is, or how many they have. Now, 
what's the result of that? They may order it when they don't 
need it. They may not be able to access it when they need it 
for operational purposes.
    We are talking about significant sums of money here.
    With regard to financial management, it is a basic tenet of 
accountability. The Department of Defense is provided over $300 
billion a year. That is taxpayer money. There needs to be 
accountability over the use of that money, and there is a 
fundamental problem at DOD with regard to that, and I hope and 
pray that by the end of my 15-year term, which is about 12\1/2\ 
years from now, that the Government will obtain a clean opinion 
not only on DOD's financial statements but also on the Federal 
Government's consolidated financial statements. I can assure 
you that it won't happen on a consolidated basis until DOD is 
in a position to get a clean opinion on its financial 
statements, because it is so large, so material, and the 
problems are so fundamental.
    Infrastructure--DOD has an estimated 23 percent excess 
infrastructure. That's money that could be used for readiness. 
That's money that could be used for quality of life support for 
out troops.
    Now, we all understand that there are difficulties 
associated with base closures, but there is significant excess 
infrastructure there. Inter-agency coordination, the need to 
coordinate more with State with regard to drug interdiction, 
anti-terrorism; also with VA with regard to health care, 
dealing with the health care needs of the veterans and retired 
dependents population.
    In the acquisitions area, DOD's practices are fundamentally 
inconsistent with commercial best practices. The result? 
Billions wasted, significant delays and compromised performance 
standards. DOD already has wants that far exceed projected 
resource availability. We need to be following commercial best 
practices for acquisitions unless there is a clear and 
compelling reason from the national security standpoint not to. 
Unfortunately, DOD all too frequently is motivated by, ``Get 
the money, spend the money, hit the milestone that was set 
years ago, irrespective of the results of the testing, 
irrespective of whether or not one might question whether there 
should be a delay in order to further assess.''
    This, as I said, results in billions wasted and a lot of 
other adverse consequences.
    From the contracting standpoint, DOD faces challenges with 
regard to not having enough people with the necessary skills 
and knowledge to effectively manage outside contractor 
activity. There are inadequate incentives for contractors to 
pay, to reimburse when there are overpayments, and there is 
inadequate accountability when they fail to do so.
    Logistics, I have already addressed this area.
    Health care--one example on health care would be the issue 
of--recently Congress decided to expand DOD's responsibility 
for providing health care to some of its retirees. One of the 
issues that we need to look at in Government is, while that 
coverage might need to be provided, who is in the best position 
to provide it? Should it be DOD or should it be VA? The fact of 
the matter is, the type of care provided by most DOD physicians 
is acute care--broken bones, the types of injuries that you 
might expect from the uniformed force and a younger force. At 
the same point in time, retirees, to the extent that they have 
to take care of retirees, the type of care provided to retirees 
is fundamentally different, and, quite frankly, in many regards 
you might argue that the VA might be in a better position to 
provide that type of care.
    I might note that VA has a bunch of excess capacity at the 
same point in time, and therefore that might help to soak up 
some of that excess capacity.
    I'll touch on a few issues just with State and VA and then 
summarize, Mr. Chairman.
    At State you see a number of challenges they've faced. 
Probably most fundamental is in the human capital area--a real 
problem from the standpoint of attracting and retaining an 
adequate number of Foreign Service officers. Believe it or not, 
they still have, by and large, an ``up or out'' policy--that if 
you don't end up getting promoted to a certain level within a 
certain timeframe, you're out. Now, I question whether or not 
that makes sense in today's world. Most professional services 
firms threw out that policy 10 to 20 years ago, and I think it 
is time for the State Department to re-look at that policy, as 
well.
    With regard to infrastructure, State faces challenges with 
regard to infrastructure. We're in every major country on 
Earth, and--really, every country on Earth. At the same point 
in time, we are facing challenges with regard to Embassy 
security. Maybe the time has come where we need to think about 
do we need to have physical presence everywhere? Should we be 
considering a regional structure, hub-and-spoke concept with 
regard to our infrastructure around the world as a way to 
enhance security, improve economy, especially in a time of 
significant technological capabilities?
    With regard to VA, clearly VA faces major human capital 
challenges dealing with nurses and a variety of other health 
care positions. They also face excess infrastructure. Take 
Chicago, for example. VA has four hospitals in Chicago. Now, 
the difficulty is that the veterans' population is actually 
going down, so we have this excess capacity. There is an 
opportunity, if the Congress so desires, to be able to take 
resources that could be achieved from the reduced cost and the 
additional asset recovery from that excess capacity and to 
redeploy those resources for quality of care to our Nation's 
veterans. That's an area that needs to be focused on, as well.
    Again, what are they there for? Quality of care. And I 
think we need to re-look at our asset allocation in that 
regard.
    The disability programs with regard to VA continue to be a 
fundamental challenge in how long it takes to be able to 
process these claims, and I think the time may well have come, 
as well, to kind of reassess the definition of disability in a 
knowledge-based economy.
    A number of Members of the Senate and a number of Members 
of the House are disabled veterans, and yet they are continuing 
to make major contributions to our country, and I think the 
definition of disability is something that probably needs to be 
looked at not only just for VA, but, frankly, for the 
disability insurance program under OASDI, as well.
    If I can, Mr. Chairman, let me just summarize and then go 
to Q and A.
    While our short-term budget situation looks better, our 
long-term budget situation is worse. This is the time that we 
need to be asking what should Government do and how should 
Government do business in the 21st century. There are 
tremendous opportunities to improve economy, efficiency, and 
effectiveness in these three critically important departments. 
The fact of the matter is that every dollar that is wasted is a 
dollar that is not available for legitimate needs for the 
missions of these departments and agencies.
    In some cases, we're talking about nothing less than a 
fundamental cultural transformation in how these agencies do 
business, focused much more on results rather than activities, 
and in order to accomplish that we're going to have to have 
committed and sustained leadership from the executive branch, 
targeted resource allocations to address some of these 
fundamental problems, and much more active and ongoing 
oversight from the Congress than historically has been the 
case.
    And that's why, again, Mr. Chairman, I must commend you for 
having this hearing, and I hope that many of your colleagues 
will end up emulating you and following up with regard to a 
number of other areas.
    Mr. Chairman, I could speak for some time on this issue, 
but what I'd rather do is just to go to your Q and A's so I can 
make sure that I am focusing on the issues that are of most 
interest to you and the other members of the committee.
    Mr. Shays. Thank you.
    Mr. Walker. Thank you, Mr. Chairman.
    Mr. Shays. Thank you, Mr. Walker.
    [The prepared statement of Mr. Walker follows:]

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    Mr. Shays. We have been joined by Mr. Kucinich, who is the 
ranking member of the committee. I'm going to call on him in a 
second. But first I'll provide Mr. Putnam the opportunity to 
ask some questions.
    Mr. Putnam, let me just do the UCs. We have this 
housekeeping thing we need to get taken care of.
    I ask unanimous consent that all members of the 
subcommittee be permitted to place an opening statement in the 
record and that the record remain open for 3 days for that 
purpose.
    Without objection, so ordered.
    I ask further unanimous consent that all witnesses be 
permitted to include their written statements in the record.
    Without objection, so ordered.
    Mr. Putnam, you have the floor.
    Mr. Putnam. Thank you, Mr. Chairman.
    And thank you, Mr. Walker. I heard your presentation in the 
Budget Committee and now again this morning, and I'm always 
intrigued by your insight into the operations of Government.
    When we talk about the Department of Defense, certainly you 
are aware that the President has called for a top-to-bottom 
review of operations looking for inefficiencies and looking for 
better ways of conducting the Nation's business.
    Is it your impression that the direction that the President 
has given will reveal the inadequacies that we can address to 
make the Department of Defense a high-performing agency, high-
performing department, or will something more comprehensive be 
necessary?
    Mr. Walker. I think it is in the early stages, Mr. Putnam. 
My view is two-fold. No. 1, the President has announced the 
intention to fundamentally reassess national security strategy, 
then to look at national military strategy, then to be able to 
take a look at how that will impact, what type of platforms do 
we need, what type of force structure, what type of deployment, 
etc. That's clearly important because that's the fundamental 
part of the strategic plan. What's the mission? How are you 
going to accomplish your mission?
    But, in addition to that, the President has also noted his 
interest, as has Secretary Rumsfeld, in trying to deal with 
some of the systemic problems that have been years in the 
making at the Department of Defense dealing with the overall 
business process, in general, and financial management, in 
particular.
    The jury is out as to how they are going to go about 
approaching that. Clearly, there has to be a lot more attention 
from the top on a sustained basis than there has been in the 
past, and, quite frankly, there has to be a lot more active and 
ongoing congressional oversight in order to make things happen.
    We are talking about problems that have been years in the 
making and are going to take years to correct, and we may need 
to be looking for different mechanisms for reporting to the 
Congress and to the executive branch, where they lay out a game 
plan, where they have key milestones, and where there is 
periodic reporting back and accountability for hitting those 
key milestones, or for reporting why they are not hitting the 
milestones and what they are going to do in order to try to get 
back on track. That has not been the case historically, and I 
think ultimately it may have to be the case in order to get the 
problem solved.
    Mr. Putnam. As your GAO report has indicated, Congress has 
allocated and Department of Defense has redirected substantial 
expenditures for improving recruitment, improving retention. 
What is your opinion on the success of those measures and how 
we can improve our military forces' recruitment and retention 
rates?
    Mr. Walker. Well, first, the services did better this past 
year than the year before, and yet they're still facing serious 
challenges. A lot of the reasons they did better is because 
they allocated a lot more resources into recruitment. 
Unfortunately, they have not really effectively come up with 
measures in order to ascertain what is working and what is not 
working, and that's something that they need to do. It's not 
just a matter of putting more money on it, but it is trying to 
be able to measure which type of activities are generating 
positive outcomes, if you will, and so they need to do more in 
trying to track their actions and their resource investments 
with the type of results that they get from them. They have not 
done a very good job on that to date, and that's something they 
need to work on.
    Mr. Putnam. Thank you.
    Thank you, Mr. Chairman.
    Mr. Shays. Thank you.
    What we're going to do is do 5 minutes first round and then 
we'll do 10 minutes the second and 10 the third and whatever.
    Mr. Kucinich. If you'd like to have a little extra time to 
read any part of your statement, we're happy to do that, or we 
can put it in the record.
    Mr. Kucinich. Thank you, Mr. Chairman. I'll submit the 
statement for the record, but I have some questions that will 
derive from the statement.
    Thank you very much, Mr. Walker, for being here.
    There are 26 areas that you designated as high-risk 2 years 
ago, 6--more than any other agency--belong to Department of 
Defense. Now, within those six areas you highlighted billions 
and billions of dollars that were unaccounted for or wasted 
because of duplication or fraud or simply thrown away. You 
mentioned, for example, the Department of Defense could not 
match $22 billion worth of expenditures to the items they 
purchased. You also mentioned that the Navy had no financial 
information on $7.8 billion of inventory aboard ships, and that 
it wrote off as loss over $3 billion worth of in-transit 
inventory.
    Now, these same six DOD areas were deemed high-risk in your 
report of 4 years ago, as well as many agencies on your list 
who have come and gone. You know, you've had many agencies come 
and go, but DOD appears to be a fixture, and it appears that 
we're not limited only to the high-risk reports in finding 
evidence of DOD waste.
    In May 2000, a different GAO report found that the DOD has 
nearly $37 billion of equipment it doesn't need.
    In March 2000, the DOD Inspector General reported that, of 
$6.9 trillion in Pentagon accounting entries, $2.3 trillion 
were not supported by enough evidence to determine their 
validity.
    Indeed, no major part of the Defense Department has ever 
been able to pass an independent audit.
    It seems to me that, you know, as you come before Congress 
regularly to update us on the status of the Department of 
Defense in one category after another, that it might be time to 
ask some more fundamental questions, and that is: how does the 
lack of consistent financial management and accountability for 
the trillions of dollars which the American people spend on 
defense, how does that equate with the entire concept of 
national defense? I mean, how do the American people know that 
the entire Department of Defense isn't failing in its effort?
    You know, we see some materiel. We see planes that 
occasionally fall out of the sky. But what do we--what about 
the concept of national defense, in light of this report and 
reports of the last few years?
    Mr. Walker. Well, first, Mr. Kucinich, I think it is 
important to know that some people view some of these issues 
as, ``Well, you know, they've got some management problems 
and''----
    Mr. Kucinich. How do you view them?
    Mr. Walker. I think they are serious and I think they are 
very important. They are important from several standpoints.
    No. 1, I think there is a basic responsibility for any 
department, no matter what the department is, to provide 
adequate accountability over taxpayer resources, especially 
when you are talking about the amounts of money involved here.
    No. 2, we are going to be, after the demographic tidal wave 
hits, under increasing budget pressures, and therefore we are 
going to need to make sure that we are getting the most out of 
every dollar that is invested.
    No. 3, I think that you've got a situation where, for 
example, if you don't have an adequate inventory control 
system, then you are buying things you don't need, you can't 
access things when you do need to use them for operational 
purposes, and so these problems have real consequences.
    Candidly, I think, Mr. Kucinich, is that, while people have 
placed more attention on this in the last several years--and, 
in fairness, I have to say that. There has been more attention 
placed on trying to deal with some of these issues, especially 
in the financial management area, and there has been some 
progress made.
    I think we really need to significantly increase the amount 
of attention and the amount of accountability associated with 
dealing with these systemic and longstanding problems in order 
to get the job done.
    Mr. Kucinich. Well, let me ask you this: are we dealing 
with a bureaucracy that is just too big? Should--is this an 
argument, if we're going back over the years, Mr. Chairman, is 
this an argument for restructuring the departments and breaking 
them down into smaller departments that might be more easily 
manageable?
    I mean, when you look at this contracting vendor pay system 
that you put up there, it is incomprehensible. And is this an 
argument for restructuring our whole approach to defense so 
that we can have a manageable system here?
    It seems that we have--there's a sense in which the system, 
itself, is inherently unmanageable. Would you comment on that?
    Mr. Walker. First, I think that what really needs to be 
done first is to get to complete the national security 
strategy, the national military strategy, which is the 
quadrennial review, which will be the framework for what DOD is 
supposed to do. And then the question is how best to accomplish 
it.
    My personal opinion is, before you get into those issues 
about how many services you need and whether you want to spend 
all----
    Mr. Kucinich. I didn't ask how many services are needed; 
I'm asking----
    Mr. Walker. Right.
    Mr. Kucinich [continuing]. Whether or not you think, based 
on the years that GAO has been studying this, that there isn't 
an argument, a prima facie case here for creating a whole new 
structure and to cut through this obvious inability of the 
Department of Defense to function, given its size. Is it too 
big?
    Mr. Walker. I think that something that could be done short 
of that is, for example, you might end up forming some type of 
a task force to address a number of these fundamental problems, 
the task force could be comprised of high-level people within 
the Department and outside the Department who could end up 
focusing on specific things that have to be addressed, have 
milestones that have to be hit, that have periodic reporting 
within the executive branch and the legislative branch and hold 
them accountable for it. That has not happened.
    I think if we are really going to get to the root cause of 
these problems we're going to have to do something along those 
lines in order to increase the visibility and the 
accountability over making progress in this area.
    In some cases there will need to be some targeted 
investments as it relates to systems to modernize these systems 
and to come up with integrated information systems rather than 
continuing to try to spend--throw a lot of money at legacy 
systems that we're never going to be able to effectively get to 
where we need to be.
    Mr. Shays. Mr. Walker, I am going to ask some questions.
    Mr. Walker. Sure.
    Mr. Shays. And we're trying to not stop for the vote. It's 
just a journal vote.
    When I look at this chart, you know, I'm inclined to say it 
is not very clear to me, but, one, it would be helpful for you 
to get some of the points there and tell me what they do, just 
to bring some sense to it for me. And then I'd love to know 
what best business practices would be at GE. Would GE's look 
more complex or would it look less complex?
    Mr. Walker. Well, it would be less complex because 
basically what you have here--and I would say somebody can get 
more detail, but let me give you an overview first.
    Mr. Shays. While you're doing that, would you give her card 
so she--the transcriber.
    Mr. Walker. Jeff Steinhoff.
    Mr. Shays. OK.
    Mr. Walker. As you know, Mr. Chairman, DOD has 500 bases in 
over 137 countries, a number of services, and historically what 
has happened is each has done its own thing. Each has created 
its own systems, and therefore you have a number of 
independent, free-standing information systems that are not 
integrated, that don't talk to each other, which is one of the 
reasons that you have a lot of these reconciliation problems.
    Jeff, I would ask you to provide some more perspective.
    Mr. Steinhoff. Yes. Basically, the systems are nonstandard, 
and each service has its own coding structure.
    I testified, Mr. Chairman, before you last year on this, 
and we had the one example where I believe there were 66 
characters to enter one transaction, and those characters and 
the way they would be set up would differ by service. There's a 
lot of rivalry between the services and a cultural issue that 
each entity develops its own systems.
    So you end up with what are here 22 major systems that 
can't communicate between each other. They weren't designed to 
work together. You have 80 percent of the basic financial 
information coming from non-financial systems. Many of those 22 
are non-financial systems. And that information was never 
really derived to provide the degree of control you want.
    So you've got a lack of standardization, you've got a very 
complex environment, you have these 22 major systems, and you 
have a host of other systems that are feeding into those 22 
systems.
    In fiscal year 1999, the Defense Financial Accounting 
Service processed $157 billion of payment transactions, and $51 
billion of those, or $1 in $3, was an adjustment to a previous 
transaction. You would find no business in the world that would 
be entering one-third of their transactions as adjustments. So 
they have a great deal of trouble getting it right and getting 
the information from system to system, and it is a very 
difficult process. They have to work through processes you 
would not see in the private sector.
    Mr. Shays. If something wasn't auditable--if you had an 
auditable system but you needed to improve it because it was 
too much paperwork or so on, but you had an auditable system, 
something you could verify, you would try to keep the old and 
then move forward with the new.
    What makes sense in terms of keeping the old here? In other 
words, I'm told that we can't verify practically any 
transaction.
    And I'll come back to you.
    Mr. Walker. Let me make a general comment and then have 
Jeff relate the detail on DOD.
    We have that in certain departments and agencies right now. 
We have departments and agencies right now that get clean 
opinions on their financial statement. But the way that they 
get clean opinions on their financial statement is they 
undertake heroic measures whereby they are doing a bunch of 
manual activity and coming up with a bunch of different 
adjustments months after the end of the year in order to put 
the auditors in a position to say that, all right, the numbers 
as of 6 months ago are accurate and the numbers for the year 
that ended 6 months ago are accurate; however, they can't tell 
you the numbers for today. That is part of the problem.
    A lot of people look at the clean opinion as the end game. 
It is an important milestone. But you need to deal, as you are 
pointing out, Mr. Chairman, with the underlying problem. You 
need to deal with the systems. You need to integrate the 
systems. You need to make sure that you've got the proper 
controls in place. You need to focus on your processes, your 
controls, before you end up designing a new system because you 
want to have an efficient and effective process that is being 
automated before you end up going out and abandoning what you 
already have. So you have to run them parallel.
    Mr. Shays. Yes. I may be getting a little off subject, but 
I'm going to come around. What I'm trying to understand--and 
you touched on it somewhat, but what I'm trying to understand 
is basically we were told at one time--and I'm embarrassed to 
use this number because I think it is wrong, but we were told 
there were 7 trillion transactions--trillion, not bill, 
trillion--and you're nodding your head. And that, to me, is 
incomprehensible.
    What that says to me, though, is that almost all the 
transactions basically are not able to be digested in a way 
that you can verify it.
    So what my question really was, if the system is so bad, 
why even bother to maintain any records or keep any system? Why 
not just start totally fresh? And that's--that may seem like a 
naive question, but that's my question.
    Mr. Walker. Can I come back on that and then have Jeff 
answer? It is better to have something than nothing. On the 
other hand, you shouldn't be investing a whole lot of money 
trying to improve all of these legacy independent systems.
    Mr. Shays. OK.
    Mr. Walker. You need to do what you can with what you have, 
but you need to go to something totally different. You need an 
integrated system that tears down a lot of these walls and 
barriers, that builds in a number of effective controls, and 
that you only have to enter the data once.
    One of the reasons we have so many different transactions 
is because we have multiple parties entering the same data into 
different systems, which leads to a lot of the reconciliation 
problems because some do it better than others.
    Jeff.
    Mr. Steinhoff. Basically, what you have is you have a 
world-class systems challenge that goes far beyond the 
financial system and really gets to all the management systems 
in Defense.
    What has happened over the years is billions and billions 
of dollars have been spent on enhancing systems. There have 
been a number of legendary systems failures where they have 
invested large sums of money only to have to stop the systems 
development, so there has been a recognition for a long time of 
problems. It has never been done in a disciplined fashion. Each 
service and components within services sort of do their own 
thing. They have their own idea of what's needed and how to 
operate. You don't have an overall systems architecture for the 
department on which to really place a platform for these 
systems, so, as Mr. Walker pointed out, they are not integrated 
or tied together.
    Right now, for example, there are huge initiatives ongoing 
to overhaul the logistics systems, which are a very important 
part of the vendor pay and contracting process and the 
accountability side. There are different systems initiatives, 
depending on what service you are in. And the services might 
have multiple initiatives ongoing. At the same time, there's a 
lot of financial management initiatives. These type of 
initiatives have never been managed in an orderly manner, and 
you've got to have leadership at the top where top management 
is vested in this.
    Defense had some success in the year 2000 crisis when they 
addressed that challenge by vesting it at the top of the 
organization.
    Mr. Shays. I'm going to want shorter answers.
    Mr. Steinhoff. OK.
    Mr. Shays. And I'd love to make sure they key onto my 
question.
    Mr. Steinhoff. OK.
    Mr. Shays. And then you have a lot you want to tell me, in 
addition.
    Is this system causing the problem or the result of the 
problem?
    Mr. Walker. It is part of the cause of the problem. The 
fact that you have a number of independent systems that have 
been created that are not integrated, that is one of the 
primary causes of the problem.
    Mr. Shays. OK. But now answer this question. I don't know--
give me what CAPS is, or STARS, or something. Tell me the 
logical transaction that I would understand it, and then tell 
me what's illogical.
    Mr. Steinhoff.
    Mr. Steinhoff. I'd have to provide that to you. I can't 
really address the specifics of a transaction.
    Mr. Shays. Do you have one of the charts?
    Mr. Steinhoff. Yes.
    Mr. Shays. You have one of the charts there.
    Mr. Steinhoff. Yes.
    Mr. Shays. Here you go. You know what? Since I don't know 
any of them, you could just make it up and I'd--[laughter.]
    Mr. Steinhoff. We don't do that nowadays, sir.
    Mr. Shays. That's true. I was testing.
    Mr. Steinhoff. There are plenty that do do it.
    Mr. Shays. I was testing you.
    Mr. Steinhoff. The STANFIN system is the standard financial 
system.
    Mr. Shays. Which one? Which one? Tell me----
    Mr. Steinhoff. STANFIN.
    Mr. Shays. Tell me where I'm looking. If 12 is----
    Mr. Steinhoff. The bottom corner.
    Mr. Shays. No. This looks like a clock, so it's 4.
    Mr. Steinhoff. Southeast corner.
    Mr. Shays. No. You guys can talk southeast. I'm----
    Mr. Steinhoff. It's 5.
    Mr. Shays. I'm 4. OK.
    Mr. Steinhoff. And what you have is you have----
    Mr. Shays. Now, what is that?
    Mr. Steinhoff. It's called ``STANFINS.''
    Mr. Shays. And what is it?
    Mr. Steinhoff. That's the Standard Financial System.
    Mr. Shays. OK.
    Mr. Steinhoff. And you have information coming to that 
system, and also to this DJAS system, which also deals with 
standard financial data.
    Mr. Shays. And I see nothing going out. And, unfortunately, 
I'm going to have to temporarily adjourn. When Mr. Kucinich 
gets in, he's going to start taking the gavel and just proceed.
    Mr. Walker. OK.
    Mr. Shays. So we're at a recess.
    [Recess.]
    Mr. Kucinich [assumes Chair]. Chairman Shays has asked me 
to reconvene, and so he will be back from the vote, but in the 
meantime I think we can continue with the questions.
    And what I'd like to know, Mr. Walker, there were some 
statements that you made in your comments, and I would like to 
go back over them. You said that, while the Department has 
improved its strategic planning process, its strategic plan is 
not tied to desired mission outcomes. And you further state 
that DOD ``employs overly optimistic planning assumptions in 
its budget formulation,'' and that, as a result, ``DOD all too 
frequently has too many programs for the available dollars.'' 
Finally, you point out that this optimistic planning, ``Makes 
Defense priorities unclear because tough decisions and 
tradeoffs between needs and wants are avoided.''
    Now, just by itself this assessment is devastating, but, 
taken in the context of what we talked about earlier as far as 
the Pentagon's accounting problems, this is kind of a 
nightmare. If the Pentagon is not considering mission outcomes 
and thinking realistically in planning programs and spending, 
on what basis could it possibly be making decisions?
    Mr. Walker. What is happening, Mr. Kucinich, is that all 
too frequently the decisions that are being made are being made 
by independent, free-standing units--for example, the Army 
versus the Navy versus the Air Force, each independently coming 
up with what they think they need in order to be able to 
achieve what they believe is their role, function, and mission 
in the broader context.
    What needs to happen, to a much greater extent than has 
happened historically, is we need to start at the top. What is 
the national security strategy? What is the national military 
strategy? What does that mean from the standpoint of platforms, 
forces? Those requirements--there's interaction, obviously, but 
those come down and have to get coordinated within an overall 
budget context.
    If you look at the sum of all the----
    Mr. Kucinich. Has that ever been done.
    Mr. Walker. Not effectively. The answer is no, not 
effectively.
    Mr. Kucinich. Has it been done rhetorically?
    Mr. Walker. In theory it----
    Mr. Kucinich. Done in theory?
    Mr. Walker. In theory it has been done, in practice it 
hasn't been done.
    Mr. Kucinich. But we don't fund in theory, we fund in fact.
    Mr. Walker. And then what happens, Mr. Kucinich, is you 
take the individual wants of the services--take weapons 
systems. You add up all the wants and the cost of the wants, 
and they clearly exceed what the funding is available and 
projected to be available. There has to be a process to 
identify that up front in the aggregate to be able to make 
those tradeoffs earlier on than historically has been the case, 
because the failure to do that means that you have a huge 
expectation gap. You've got the services trying to come up here 
and get money for a bunch of things that they don't have the 
funding for and they may not ever get it. And, therefore, that 
means that you end up--you spend a lot of money on something 
that may not ever become operational or you have to buy a lot 
less quantities than otherwise you think you needed to achieve 
your mission. It is fundamentally broken.
    Mr. Kucinich. Well, I think every member of the committee 
would support my statement when I say we all appreciate the job 
which the men and women who have committed themselves to 
service in the armed forces do. I mean, it is a great honor to 
serve one's country in any capacity, and we appreciate the work 
of the men and women. That's why it is confounding to see 
circumstances where we may be wasting billions of dollars on 
materiel and we have men and women who serve our country 
fighting for decent housing and not having--some of them on 
food stamps. I mean, it is tough to see that contradiction, 
especially in a report such as yours.
    I wonder how many people work for the GAO on tracking 
what's going on at the Department of Defense?
    Mr. Walker. We have about 3,100 people that work for the 
GAO, and we have more than one team that focuses on the 
Department of Defense. We have a Defense Capabilities and 
Management team, which is several hundred people. We have an 
Acquisition Sourcing and Management Strategies team where we 
have several hundred people, so it depends. I mean, we have a 
number of projects going on at any one point in time.
    Mr. Kucinich. Who interprets that web of contract and 
vendor pay systems? How many people? How many people did it 
take to come up with that analysis?
    Mr. Walker. I don't know how many people, but I can tell 
you this--I don't know if it is interpretable. That's the whole 
point. I think the whole point is what we have here is a 
situation where a single transaction, which I think this 
illustrates, has to be entered multiple times because, rather 
than having an integrated information system, which is what 
most modern corporations would have now, where you enter the 
data once, it goes to a number of other subsystems, it has to 
be entered independently, which by definition means a lot more 
activity, a lot more opportunity for error.
    Mr. Kucinich. So does this--would you go over again what 
this actually represents? Does this represent----
    Mr. Walker. This represents the major information systems 
that the Department of Defense has dealing solely with 
contractor and vendor pay--in other words, for paying 
contractors and paying vendors.
    Mr. Kucinich. Right.
    Mr. Walker. That's how many different systems they have. 
The arrows illustrate where all the data has to be entered into 
these different systems in order for them to do what their 
intended job is.
    Mr. Kucinich. Do you ever wonder how you can have so many 
systems here and have so much lack of accountability 
simultaneously? Does that ever--is there some kind----
    Mr. Walker. I'm not, you know----
    Mr. Kucinich. Is there some kind of principle, mystical 
principle of management and accounting at work here that we 
mere mortals cannot perceive?
    Mr. Walker. Candidly, I think what has to happen, Mr. 
Kucinich, is, as Mr. Steinhoff mentioned a few minutes ago, we 
need to recognize that these challenges, the six high-risk 
areas--financial management, information technology, 
acquisitions management, etc.--the six that we've laid out are 
important, they deal with billions of dollars. Those are 
dollars that could be used for readiness. Those are dollars 
that could be used for quality of life. And we need to elevate 
these issues to the highest levels of the Department of Defense 
to look at it from a strategic standpoint at the very top. We 
need to have reporting and accountability mechanisms within the 
executive branch, as well as to the legislative branch, to 
demonstrate that there is a plan with key milestones that 
progress is being made, and if it is not, then what is the 
problem and what are you going to do to address it. That has 
not historically occurred. And if we are going to solve the 
problem, we are going to have to do something along those 
lines.
    Mr. Kucinich. How often do you issue reports?
    Mr. Walker. Well, we issue reports every day. We issue our 
performance accountability and high-risk series, which is the 
basis for this hearing, every 2 years. We will issue an update 
every 2 years.
    Mr. Kucinich. Would it be--do you think it would be more 
helpful to Congress if you provided even more-frequent updates 
on this, because 2 years can slip by before we ask these 
questions again. You know, obviously, 4 years have slipped by 
before we got to this moment, and we find ourselves in the same 
place.
    In a way, despite all these efforts that are being made, it 
kind of sounds like a variation of the old placard,``The 
hurrier I go the behinder I get.'' And I'm just wondering how, 
Mr. Chairman, would the GAO recommend the Department of Defense 
undertake a path toward trying to straighten out this intricate 
web of accounting and financial management practices.
    Mr. Walker. Well, I know that Secretary Rumsfeld has stated 
publicly that it is his intention to make financial management 
one of his top priorities. The question is how is he going to 
go about accomplishing that. I think that one of the things 
that needs to happen is that it is going to have to be elevated 
to at least the deputy secretary level. There is going to have 
to be some type of task force mechanism, or whatever, that 
forces all these different silos to come together for the 
greater good, that has an overall strategic plan with key 
milestones on how they are going to address this. There has to 
be accountability within the executive branch, not just within 
DOD, but to the Office of the President, OMB, etc. And there 
has to be accountability to Congress, and I think it has got to 
be more frequently than every 2 years.
    Mr. Shays [resumes Chair]. Let me do this. Thank you for 
taking over.
    Mr. Clay, you have the floor and you have a good 10 
minutes, plus, if you'd like it.
    Mr. Clay. Thank you, Mr. Chairman.
    Mr. Walker, you mentioned in your testimony that it's 
either GAO or DOD thinks you have about 27 percent excess 
infrastructure. You are advocating that there be another round 
of realignment and base closures, correct?
    Mr. Walker. We have said in the past, Mr. Clay, that we 
think there is excess capacity; that if you could address that 
excess capacity you could free up the resources for readiness, 
for the troops, and for other priority purposes.
    Mr. Clay. Let me ask you about the previous round of base 
closures. You--is the property being sold, or what's happening 
to the excess property that went through the closure process?
    Mr. Walker. I'm going to ask Mr. Hinton, who is head of 
Defense Capabilities and Management team, to come up, because 
he was here when the last round occurred and I was not.
    Mr. Hinton. It is still evolving, Mr. Clay. Some of this is 
staying within the public sector, some of it is going to the 
private sector, but not as much as DOD had estimated would be 
sold has been sold. You know, going through base closures has 
been a bit of a problematic economic issue for some of the 
communities. But what we've seen through our work is that there 
has been recovery over a period of time in those communities 
that have been affected, and progress has been made. We have 
been periodically looking at those areas where the bases were 
closed and what has been happening since then, so there has 
been--well, there was a lot of anxiety at the time the closure 
decisions are made. Over time we have seen the economies 
rebound.
    Mr. Clay. Well, let me bring your attention to a site in my 
district. It's the old ADCOM site in St. Louis.
    Mr. Hinton. Yes.
    Mr. Clay. You know, between GAO and DOD, the buck just 
keeps getting passed on who is responsible for the site. Now, 
it needs to be cleaned up. I think GAO or DOD has neglected the 
facility, which is in the heart of an economically depressed 
community, the local community, and I would like to see it 
cleaned up. It is a 60-year-old ammunitionsite that, at its 
height, provided ammunition for World War II. And so the local 
community is trying to redevelop that site. We would like some 
assistance from GAO to help us clean up the site, to help 
repair it for future development.
    Can you all take a look at this issue and then report back 
to me on what is possible?
    Mr. Hinton. Yes, sir. We would be happy to come up and meet 
with you and your staff and see what it is we can do. As you 
know, one of the criteria that is considered when they go 
through base closure decisions is the impact on the 
communities, and one of those is the environmental impact----
    Mr. Clay. Sure.
    Mr. Hinton [continuing]. And that's exactly what you are 
referring to, and I think we could come up and see what we 
could do to help you out.
    Mr. Clay. I mean, is that GAO's policy is that they do take 
a look at economically depressed areas and try to determine 
whether it is possible to assist those local communities in 
getting the land prepped and for future development?
    Mr. Walker. Mr. Clay, our job, as you know, is to work for 
the Congress to get the facts on various of these issues and to 
present it to the Congress such that you can consider that in 
conjunction with your Constitutional responsibilities, and such 
that the Department of Defense and other agencies can consider 
it with regard to setting their priorities and what their 
actions are.
    I think one point you mentioned is, if you do end up having 
a base closure, whether and to what extent you can end up 
utilizing that property for development and for other purposes 
to a great extent has to do with what is the environmental 
condition of that property.
    To the extent the property has been used, you know, 
previously to store ammunition and things of that nature, there 
are obviously costs that have to be incurred in order to clean 
that up, in order to be able to rectify that situation, and 
there are potential liabilities that a developer would be 
concerned about, making sure that it is being taken care of or 
that they don't unduly expose themselves to liability if the 
Government is not willing to assume that responsibility.
    So we have done work on that where we've gotten the facts, 
where we've laid out the facts, but obviously we are not 
directly involved in the cleanup or making the related 
decisions.
    Mr. Clay. Well, I would like to hear from your staff on 
this issue and would like to meet with you. It is of serious 
concern to us in the St. Louis community and we'd like to sit 
down with you.
    Let me also ask you about your outside contractors. Have 
you been able to get any refunds on contractors? You talked 
about over-charging of contractors. Were you able to----
    Mr. Walker. Last year, as I recall, there was about $900 
million in funds that were refunded by contractors to the 
Department of Defense due to over-payments. That is down from 
historically what it has been, but it is still too high.
    Part of the problem here, Mr. Clay, is not just the issue 
of the systems and the controls that we've talked about before, 
but, believe it or not, right now we have some perverse 
incentives. We have a situation where the Government ends up 
having to pay penalties if it doesn't promptly pay. On the 
other hand, if the contractor has been overpaid, they do not 
have an affirmative responsibility to tell the Government that 
they have overpaid. In addition to that, if they don't end up 
telling the Government and if they don't refund the money 
within a reasonable period of time, they are not charged any 
interest.
    Therefore, we have an unlevel playing field, which is 
something that I think we need to take a look at, and we would 
be happy to converse with you or any other Members that are 
interested in that if you so desire.
    Mr. Shays. Would the gentleman yield just a second?
    Mr. Clay. I'm finished, Mr. Chairman.
    Mr. Shays. OK. Just with this latter point, if you could 
give us some guidance as to whether Mr. Horn's committee or 
another--Mr. Horn would be dealing with that. I mean, this is--
we saw this in the medical area. It just blew my mind. And we 
weren't able to, on major bidding on medical, we weren't able 
to charge the competitive rate. We were only allowed to change 
the rate if it was--the term, not just excessive, ``grossly 
excessive.'' If we were paying an excessive rate, we did not 
have the legal rate to change it, only if it was grossly 
excessive.
    And when you tell me what you just told me now, I kind of 
would have thought by now we would have been dealing with it.
    This is in Defense. You're saying if a contractor is paid, 
they don't have to notify they were overpaid. They don't have 
to return the money. And only if they are found out do they 
have to return the money without interest.
    Mr. Walker. Correct.
    Mr. Shays. Is that your statement?
    Mr. Walker. That's my understanding. That's correct.
    Mr. Steinhoff. That's right.
    Mr. Shays. Now, if Mr. Horn doesn't take this up, we need 
to take it up. Staff could just make the particular note on 
that.
    Mr. Walker. That would be great, Mr. Chairman. I will 
follow it and find out if he is planning to. If not, I will get 
back to you. Either way, I'll get back to you.
    Mr. Shays. Great. Thank you.
    Now, when--I guess, Mr. Clay, the one beautiful thing about 
GAO--and there are many--is that it reports to all of Congress 
but particularly to this committee, not to this subcommittee 
but to the Government Reform Committee. That's the primary 
committee it reports to. And they can be of tremendous service.
    Since this has a particular concern to your District, 
please let our staff know in a meeting and we can followup, as 
well, and add a little impetus, as well.
    Mr. Clay. I'd appreciate that.
    Mr. Shays. We'll be happy to help you out, as well.
    Mr. Clay. Being a freshman Member.
    Mr. Shays. You are no more a freshman Member. And the mere 
fact he would say that proves to me he's not a freshmen. The 
freshmen don't want to admit it. The ones who really know what 
they're doing play off on it.
    Mr. Clay. Thank you.
    Mr. Shays. Thank you. I'm sorry. I'm going to get you back, 
Mr. Steinhoff. Just I want to--I have a feeling this is Mr. 
Horn's area, that he's going to focus a lot of time and 
attention. But I just want you to--you gave me--at 4:30 you 
gave me the StanFins, and that seemed to be reporting 
documents, too. It didn't seem that it provided information 
anywhere else, unless I'm wrong here.
    Mr. Steinhoff. Let me try the MOCAS one.
    Mr. Shays. Which one? Tell me which one?
    Mr. Shays. This is the upper left-hand corner.
    Mr. Shays. Oh, no, you can----
    Mr. Steinhoff. It's 11:00
    Mr. Walker. It's 11:55.
    Mr. Shays. It's 11. OK.
    Mr. Steinhoff. Or 11.
    Mr. Shays. OK.
    Mr. Steinhoff. And I will say that----
    Mr. Shays. And what does that stand for?
    Mr. Steinhoff. It is the----
    Mr. Shays. I'm not testing you.
    Mr. Steinhoff [continuing]. Mechanization of Contract 
Accounting System.
    Mr. Shays. OK.
    Mr. Steinhoff. This is the major system that is used for 
contractor payments. The system was developed back in the 
1950's and 1960's. They've had many initiatives to overhaul the 
system, and this system reports out data to nine other systems 
and brings in data from five systems, not always in standard 
formats. And this is the system that causes or is part of the 
cause of overpayments, the kind of overpayments you just 
mentioned. This is a system that deals with the need to re-
enter transactions many times.
    Mr. Shays. OK. And tell me what doesn't have to be here. 
Just give me an example of something that doesn't need to be 
here.
    Mr. Steinhoff. It probably all needs to be here with the 
current system they have.
    Mr. Shays. OK.
    Mr. Walker. What needs to happen, Mr. Chairman, I believe, 
is that, rather than having all of these independent and free-
standing systems that independently require data entry--in 
other words, in order for these systems to operate in the 
example that Mr. Steinhoff gave, if you want that data in a 
particular system you have to enter it separately in each 
system for that system to accomplish its stated purpose.
    What has to happen is that you may need that information, 
but you should only enter it once. We need to look at the 
enterprise architecture for the Department of Defense on what 
it takes, not only from the standpoint of financial management, 
but also mission performance, and we need to design a system 
that provides all this information where you can reduce, 
ideally to one, the number of data entries in order to be able 
to get this information.
    Mr. Shays. I'm just going to have counsel ask a question or 
two.
    Mr. Walker. Sure.
    Mr. Halloran. In that regard, at 1, the standard 
procurement system, GAO is doing some work for the subcommittee 
on that subject, and my understanding is that it is meant to be 
standard, it is meant to bring some standardization and replace 
some of these major systems. How many and to what extent? And 
can you give us a flash briefing on where that stands?
    Mr. Walker. Joel Willemsen, who is head of our information 
technology area, will address that.
    Mr. Shays. Identify your name again, please.
    Mr. Willemsen. Yes.
    Mr. Shays. Thank you.
    Mr. Willemsen. Mr. Chairman, we are doing work for your 
subcommittee on the standard procurement system, a DOD effort 
that began about 7 years ago to replace approximately 76 unique 
procurement systems throughout the Department.
    What we are finding----
    Mr. Shays. Some of these, right?
    Mr. Willemsen. In part some of those, in part additional 
systems at various components throughout the Department of 
Defense.
    The goal is laudable. Let's try to standardize. Let's try 
to have common data elements so that we can avoid the situation 
that Mr. Walker talked about--entering data repeatedly and then 
not being able to aggregate them in an accurate form.
    What we are initially finding as part of the ongoing work 
for you is that, even with the standard procurement system, 
there appears to be multiple versions of the system throughout 
the components within the Department of Defense, raising 
additional concerns again about standardization, the ability to 
aggregate accurately, concerns about cost.
    This was initially intended to be a commercial, off-the-
shelf system with some customization, but, to the extent that 
individual components now want to address their own parochial 
needs, that will further enhance customization of various 
versions.
    Mr. Walker. What has to happen in part is that there is a 
natural human tendency that everybody thinks that they are 
special and that they have special needs, both individuals and 
organizations. But what has to happen, as I mentioned before, 
is that we need to elevate a lot of these issues to the highest 
levels of the Department of Defense such that there can be some 
discipline to assure that there is commonality and that we are 
focusing on what there is a universal need for and resisting 
attempts by these individual silos to basically take something 
that was intended to be standard and make it customized to 
where, in effect, we have not accomplished the intended 
objective.
    Mr. Shays. Mr. Walker, you have opportunity to appear 
before a lot of committees, and I want to take advantage of 
your being here.
    I am--I don't use the word ``frustrated'' often, but I--it 
is a bit frustrating because there is so much we could be 
asking you. And I don't mean to just focus on this to the 
extent of excluding other things, but I do want to at least get 
a certain threshold of information so I feel like I can go on.
    Is it conceivable that--this just deals with contract and 
vendor pay. It doesn't deal with paying benefit of employees 
and things. Is it conceivable that this chart is made--we think 
it is complex looking at it and DOD has provided it and we can 
laugh at it, but if they really were--is this accurate, or 
would it be even more complex if they, you know, gave us some 
of the nuances here? I mean, are there--you mentioned there are 
other units. I don't know how to refer to them. Other units, 
other agencies, other departments, other subsystems?
    Mr. Willemssen. Other components within the department.
    Mr. Shays. Other components?
    Mr. Willemssen. Yes. I mean----
    Mr. Shays. And so the answer to the question is there--are 
other components in here, it is more complex than this?
    Mr. Willemssen. These represent the major systems.
    Mr. Shays. OK.
    Mr. Willemssen. So there are many other systems that are--
--
    Mr. Walker. Subsystems.
    Mr. Willemssen. Subsystems.
    Mr. Shays. OK. Fair enough. So it really is more complex 
than even this.
    Mr. Willemssen. Right.
    Mr. Shays. When I was on the Budget Committee for 10 years, 
and yet on this committee, I didn't learn until I was in the 
Budget Committee about the $7.6 trillion of unsubstantiated 
transactions or unaccounted transactions. I can't get a handle 
on $7 trillion. If you had said $7 million I would say that it 
was outrageous, or $7 billion I'd say that's crazy, but $7 
trillion is almost beyond my comprehension.
    I don't know how you could even have that many 
transactions. Are you basically--in figuring that out, are we 
basically multiplying every transaction they could have and 
saying none of them are accountable? How do we get to that 
number, $7.6?
    Mr. Walker. That's dollars, isn't it, Mr. Chairman, the 
$7.6.
    Mr. Shays. Right. I'm sorry.
    Mr. Walker. The dollars.
    Mr. Shays. But it is 7.6 in dollars, excuse me, in a $300 
billion budget.
    Mr. Walker. I believe what it is--and I would ask others to 
jump in--is that it is illustrative of the fact that you can 
take a single transaction and, because of how their systems are 
designed, have to enter it multiple times----
    Mr. Shays. Right.
    Mr. Walker [continuing]. In multiple systems, which gives 
you that multiplier effect. And then that's how you can have 
such a huge number.
    Mr. Shays. OK. That seems clearer. It also seems self-
evident, even to someone like myself, that if you have so many 
transactions you open the way up for lots of error and you 
increase your cost significantly and your information would be 
less accurate.
    Mr. Walker. You increase cost, you reduce accuracy, you 
undercut accountability, and a number of other things.
    Mr. Shays. Is it possible some of that is by design?
    Mr. Walker. It is possible that some of it is by culture.
    Mr. Shays. OK. Same thing.
    Mr. Walker. People want to be able to control their span of 
control, they want to own their information. That's very 
possible. And if there's not direction from the top that forces 
things to be looked at from an enterprise perspective, from a 
Department-wide perspective, then people are going to end up 
doing what they think they need or what they want.
    Mr. Shays. So the real issue, then, if we are trying to be 
change agents, is not to bring in the best systems but to 
figure out how to change the culture, and that introduces--I 
mean, there must be people who--I mean, I know there are who 
have expertise in trying to change culture. But is it--so I 
guess what I'd be interested to know is how are we going to 
change this. And have you been asked to recommend how we change 
this? You've commented on it, but have you been asked to----
    Mr. Walker. There has been increasing interest on behalf of 
a number of Members in saying how are we going to break out of 
this current situation, and there have been a number of Members 
that have asked us to take a look at do we have any specific 
recommendations.
    I alluded to, for example, the possibility of needing to 
establish some type of high-level group within the Department 
that would be--not only comprised of people within the 
Department, but other stakeholders outside the Department--for 
example, OMB--to be able to develop operational plans with key 
milestones for addressing some of these systemic problems that 
would end up reporting within the executive branch on their 
progress, and it would also report to the Congress.
    We'd be happy to work with you on that, Mr. Chairman, but I 
think we are going to have to have a different approach and 
we're going to have to have more transparency and we're going 
to have to have more accountability, both in the executive 
branch as well as the legislative branch, if we are going to 
solve this problem.
    Mr. Shays. Now, I would have thought that the 1993 Results 
Act would have led to some solution.
    Mr. Walker. Well, part of the question is how do they 
develop this strategic plan. Is it bottom-up or is it top-down? 
In addition, what mechanisms do you have in place to reconcile 
the differences of opinion between the various different units 
within the Department of Defense?
    Clearly, the Results Act can be a tool to help in this kind 
of situation.
    Mr. Shays. Do we have----
    Mr. Walker. But you've got to hold people accountable and 
you've got to have it in the Results Act, in fact, I don't know 
that DOD's updated plan even has a resolution of all these 
high-risk areas within its plan, which would be a fundamental 
problem if it doesn't.
    Do you recall?
    Mr. Steinhoff. I don't believe that the plan does cover all 
of the areas. They do have many plans. They have a 900-page 
financial management plan. They've got lots of plans that don't 
tie together.
    Mr. Walker. If I can, Mr. Chairman, I think you've hit on 
an excellent point. One of the things that we have recommended 
is that, as part of the strategic plan, anything that we deem 
to be high risk should be part of that strategic planning 
process as part of GPRA. They ought to have specific ways that 
they are going to address each area and get that off the high-
risk list.
    Mr. Shays. When we had our hearing last week on the 
degradation of national security as it related to our doing 
security checks, there was all the requests coming in and then 
there was the issue of whether the office could handle all the 
security background checks, both the new and old. But one thing 
that wasn't happening was that they are not getting 
consistently requests from the different branches because the 
branches have to pay money every time they have these requests.
    But then what we learned is there is no one, so we had the 
office that was working on this issue, but the people who 
weren't in the room were 16 or 17 different units that utilize 
these services--more than 16--in DOD, and what was clear was 
that there was no central urging on the part of the Secretary's 
office, itself.
    So are we saying here that we're not sure the Secretary is 
buying into this--I mean, his office past, now, present, in 
dealing with this issue?
    Mr. Walker. It is too early to say what Secretary Rumsfeld 
is going to do here. I do know that he is on record as having 
said that the financial management issue will be one of his top 
priorities. That's a positive sign. But it is not just a matter 
of if it is a high priority as how are you going to end up 
effectuating these changes, given past history, given the 
cultural challenges, and the other things that we've described.
    Mr. Shays. Well, he knows the culture. He has been there a 
while.
    Mr. Walker. That's correct.
    Mr. Shays. And it hasn't changed much. But he is going to 
have to and his office is going to have to actively, I gather, 
convince all these different components and all the branches 
and the sub-branches, sub-units within the branches, to give up 
the desire to just design it perfectly for themselves.
    So one of the things I am getting from this hearing is a 
reinforcement of what I learned last week--that some of these 
major crisis areas are going to take the Secretary's office to 
buy in big time.
    I want to recognize Mr. Kucinich, but beforehand I just 
want to finish up.
    It strikes me that if we had $7.6 trillion that we can't 
really follow consistently, that--is this $7.6 down to $4?
    Mr. Steinhoff. In order to prepare their fiscal year 1999 
financial statement, the DOD made 17,000 entries or adjustments 
valued at $7.6 trillion resulting in a financial report that 
couldn't be audited. Of that amount, $2.3 trillion were found 
by the Inspector General to be unsupported.
    The numbers for this year are not good, a bit better. It 
was $4.5 trillion this year, approximately 2,000 entries for 
1.1 trillion could not be verified; they were not supported.
    Mr. Shays. So we went from $7.6 of total dollars, non-
supportable $2.3----
    Mr. Steinhoff. Right.
    Mr. Shays [continuing]. This past year?
    Mr. Steinhoff. It is $4.5 trillion, 21,000 entries or 
adjustments to prepare financial reports, and $1.1 trillion was 
found by the Inspector General to be unsupported.
    Mr. Shays. OK. Mr. Walker, if you were running a company 
where you had this kind of inability to have supported 
document, would you be removed from your job or would you be 
sent to jail? What would happen? In that range, what would 
happen?
    Mr. Walker. At a minimum I think my job would be at risk, 
and if I was a public company I would say my stock price would 
probably tank.
    Mr. Shays. And you'd have a lot of lawsuits.
    Mr. Walker. Shareholder suits, in all likelihood.
    Mr. Shays. Yes. Well, OK, I have enough here to know what I 
think our committee needs to do. We, one, need to work with Mr. 
Horn, but also to just see where this is in the Office of the 
Secretary in terms of their concern.
    But what's going to start to happen is I support, for 
instance, national service, and three out of the seven audits--
out of the seven different areas, three were auditable, two 
were close to being auditable, and two weren't. Some people 
voted against national service because they said until it could 
be totally auditable it wasn't going to get their support. But 
they obviously wouldn't use the same criteria with Defense, and 
that's what I think Defense has been able to get away with. We 
need national defense so we're just going to do it anyway. In 
other words, we're going to keep putting money in. We're not 
going to--this is going to be not as high profile.
    Mr. Walker. There has got to be a consequence. There has 
got to be accountability. And that is not only within the 
executive branch, but that is also from the legislative branch.
    Mr. Shays. Mr. Kucinich.
    Mr. Kucinich. Thank you very much, Mr. Chairman.
    I want to direct attention to issues relating to compressed 
schedules that were implemented by the Ballistic Missile 
Defense Organization, and I think that I remember in some of 
your material that you comment that the compressed schedule 
implemented by BMDO has made the program vulnerable to delays, 
and I just wonder what effect has this schedule had on costs.
    Is there anyone there that knows?
    Mr. Walker. I will be happy, Mr. Kucinich, to provide it 
for the record.
    Mr. Kucinich. OK, if you could, because General Kadish was 
in front of the committee at one point and he stated that cost 
estimates for the program have gone up over $10 billion to $40 
billion from an estimate of $28.7 billion 1 year earlier, and 
the BMDO has more recently quoted an even higher figure when 
contacted by my office.
    Mr. Walker. Mr. Kucinich, if I could make an important 
point that relates directly to your question, we have found in 
our best practices work with regard to acquisitions that there 
are certain fundamental systemic problems within the Department 
of Defense about how they go about designing, testing, and 
procuring major weapons systems, and it is not just weapons 
systems, it is other platforms, as well, that aren't weapons 
systems, like trailers, for example.
    Many times what will end up happening is that they will not 
prove the technologies and they will not adequately test the 
technologies before they go into production stage, and what 
that causes----
    Mr. Kucinich. Is that what happened with the V-22?
    Mr. Walker. In all likelihood, yes.
    Mr. Kucinich. Is that what happened with the V-22?
    Mr. Walker. Yes, Mr.----
    Mr. Kucinich. And is that--would the going ahead and 
beginning production of the Comanche helicopter before adequate 
operational testing began, would that be another example?
    Mr. Walker. It is a systemic problem whereby people will 
set milestones, get the money, spend the money, hit the 
milestones, in many cases will end up compromising the testing 
or compromising or waiving performance standards, and the 
result of that is escalating cost, delays and reduced capacity.
    Mr. Kucinich. You know, Mr. Chairman, it just occurs to me, 
is GAO ever involved in kind of, like, counseling of these 
Departments at the beginning, at the inception of this process? 
Because if we--you know, here we are doing a grisly post-mortem 
of a system that is so convoluted as to defy human 
comprehension, but is there a point at which an entry-level--
you give some guidance to any of these Departments?
    Mr. Walker. Yes, there is, and let me tell you what we are 
doing, Mr. Kucinich. I have been joined by Katherine Schinasi, 
who is the lead on our best practices work in this area. But 
let me just say for the record we believe in constructive 
engagement. We believe in trying to work with these departments 
and agencies to help solve the problems. I mean, what we are 
here to do is----
    Mr. Kucinich. Do you believe they are listening to you?
    Mr. Walker. Well, sometimes they do. Some do a better job 
than others. And one of the key areas that we've done work on 
here is that we have looked at commercial best practices for 
world-class enterprises in the private sector and how they go 
about designing new systems and new platforms. Obviously, they 
are not designing the same thing the Department of Defense is, 
but, on the other hand, there are certain commercial best 
practices.
    We have provided those to the Department of Defense. We 
have done work to demonstrate how the Department of Defense's 
approach to this issue is fundamentally at odds with what 
prevailing commercial best practices are, and we've 
demonstrated that results in the additional cost, compromised 
performance standards, etc. We are trying to get them to adopt 
commercial best practices unless there is a clear and 
compelling national security reason to take shortcuts because 
we face a threat that we have to take higher risk to address. 
We then may have to do some things quicker than otherwise we 
might like in order to meet a threat.
    Katherine, I would like you to maybe expound on that a 
little bit.
    Mr. Kucinich. OK. I----
    Mr. Walker. Mr. Kucinich, did you want to come back on that 
or----
    Mr. Kucinich. Go ahead, please.
    Ms. Schinasi. Yes. As Mr. Walker said, you asked about how 
well they are doing. I think we see at the policy level and at 
some of the higher levels, what it is that we have been talking 
about.
    Mr. Kucinich. You know, Mr. Chairman, I'm just wondering if 
there is a--sort of like a--before we enter into the 
contracting process, is there, like, a checklist that GAO 
provides for guidance for the Department of Defense? You do 
have such a thing?
    Ms. Schinasi. That is some of the work that we have been 
doing, and you raise the point that is very important, and that 
is before you start a program, you need to make sure that 
everything is in order, because once you start that program, 
you lay down point estimates of costs that are 20 years out, 
that you have no way of knowing whether you can make or not.
    Mr. Kucinich. Mr. Chairman, I think what would be helpful, 
and our committee--of the many services I expect this committee 
to do for the American taxpayer, it might be helpful to take, 
let's say, one system, you know, whether it would be the F-22 
or FAD or V-22 or Comanche or whatever, and follow it through 
from its thought to the discussion phase to talking about the 
possible going forward with it all the way down, from one--from 
the initial idea all the way through to procurement and 
operation.
    It would be interesting to do that just to kind of get an 
idea of how this system works with one single acquisition, just 
one item. It might be instructive. You may have already done 
that.
    Mr. Walker. If I can, Mr. Chairman, let me take 2 minutes 
max and I'll give an illustration on a system that is let's 
just say not as controversial as some of the other ones that we 
might talk about, and also this is a historical example so it 
is not before the Congress at the present point in time.
    This is a trailer. It has been referred to as a ``war 
wagon'' by some of your colleagues. We used this as an example 
before the Armed Services Committee a year ago as to what the 
systemic problem is.
    What happened here is that the Army several years ago, 
noted that it had some extra money left over at the end of the 
year. The Army had its want list, and one of the things that it 
wanted was a new trailer to be able to use with the Humvee, so 
it decided that it would end up contracting for a trailer. And, 
since the Army is unique, they did not go out and look at what 
was commercially available on the marketplace. They decided 
that they needed to design a special trailer, so they issued a 
contract but they did not do adequate testing, which is a 
common problem in many of these systems, before they went into 
a production phase with the contractor.
    The result is that roughly 12,000 of these were produced at 
a cost of roughly $11,000 each--that's real money. When they 
were produced they hooked them onto the Humvee and one of two 
things happened. Either, A, they didn't stay hooked, which is a 
hazard, or, B, they did but they did damage to the Humvee, and 
so, as a result, all but about 300 were in a warehouse for an 
extended period of time.
    Now, in fairness to the Army, they have decided not to 
procure any more of these any time soon and they have taken 
steps to try to be able to deal with this problem such that 
they will not damage the Humvee or will not come unhooked 
during operation.
    This trailor is clearly not something where there would be 
a clear and compelling national security reason to hurry up on, 
and yet, nonetheless, they hurried up on it. That is part of 
the culture.
    Now, the question is who is accountable for this. What 
consequence, if anything, occurred as a result of this? I would 
be willing to bet there was no accountability for this.
    Now, this is not a lot of money for DOD in relative terms. 
Well, in my terms it is. It is, however, over $100 million. 
They are going to be able to use this because they are making 
some modifications. But think about applying this same concept 
to systems where we're talking over $100 billion over a life 
cycle.
    This is a systemic problem. We have come up with proposed 
solutions. The Department of Defense has told us they agree 
with us conceptually but in practice they are not being 
followed.
    Mr. Kucinich. Mr. Chairman, I appreciate your indulgence, 
and I just want to, as I conclude here, just go back to some 
really more fundamental questions.
    Are the people of this country getting the defense they are 
paying for?
    Mr. Walker. We have the world's best military forces. We 
could get more for the dollars that the taxpayers are investing 
for readiness, the quality of life of our troops, and a variety 
of other factors if we dealt with some of these systemic 
problems.
    We could also recognize that we could close the delta 
between wants, needs, and what we are ultimately going to be 
able to afford to pay for if we deal with some of these 
systemic problems.
    Mr. Kucinich. Well, but, you know, with all due respect, 
while I give credit to the men and women who serve in the armed 
forces and I appreciate your similar respect for them, you 
don't mean to say that the Department of Defense is doing 
better than other agencies with respect to their financial 
management and accounting?
    Mr. Walker. On financial management, your colleague, 
Congressman Horn, gave them an F last year. They'll----
    Mr. Kucinich. What do you give them?
    Mr. Walker. They're failing on financial management.
    Mr. Kucinich. Are they worse than any other agencies that 
you know of?
    Mr. Walker. Probably so.
    Mr. Kucinich. You know, the--just to say that we are the 
best, you know, doesn't really address the issue, though. I 
mean, you are addressing the issue definitively when you say 
that $1 out of every $3 that is spent is hard to account for. 
That's pretty serious. And, as good as our defense is--and I 
think the American people would respect that we are a very 
powerful Nation--when you have so much fraud, waste, and 
mismanagement, you know, you have to raise the questions.
    And I'd conclude with this, Mr. Chairman, and that is that, 
you know, we are into financial management and accounting here, 
but I think also another interesting field of endeavor that we 
could look to for support of an analysis is philosophy 
because--and perhaps quantum physics.
    In quantum physics, when you look at holography, if you 
look at it you catch a wave, just one wave that reflects on the 
whole design, the whole pattern. And you've given us a number 
of waves, so to speak, on this interference pattern we call 
this Department of Defense. Pretty grim.
    You know, Napoleon and I think Clauswitz both argued about 
a type of warfare and analyzing warfare that say that if there 
is a weakness in a line anywhere that is where you can create 
chaos along the entire line.
    It appears that you have disclosed a type of weakness in 
our national defense which cannot but help to resound 
throughout the entire defense structure from one end to the 
other, which goes to the reasons why planes fall out of the 
sky. These things don't just happen.
    And so when we look at the design, Mr. Chairman, and these 
design questions, we really, I think, have to stay focused on 
what has been created here and ask the more fundamental 
question about should the structure be different, not should we 
defend our country or not. There is no one who is going to 
argue that question. But we have a system here that appears to 
be highly vulnerable, and if it is vulnerable, Mr. Chairman, if 
it is vulnerable at the accounting level, then it has to be 
vulnerable at the operational level. There is no way to 
separate the two. They are, in fact, aspects of the same 
process. And I defy anyone to refute that, either in principle, 
philosophy, or in fact.
    Mr. Shays. Mr. Walker, I am going to come back to this for 
the last time.
    Mr. Kucinich. Thank you.
    Mr. Shays. Thank you.
    Mr. Shays. The $7.6 trillion--and I just want to understand 
what that $7.6 trillion represents and I'll get off it, but I 
just am having a hard time understanding why the $7.6 went to 
$4.5. I think I understand it, but, Mr. Steinhoff, first of 
all, what does the $7.6 figure represent? It's multi-year 
expenditures, so it is not a $300 billion budget that we're 
talking about?
    Mr. Steinhoff. It was the attempt that DOD had--let's take 
this as being fiscal year 1999----
    Mr. Shays. OK.
    Mr. Steinhoff [continuing]. And they were trying to prepare 
a set of consolidated financial statements. DOD did not have 
what is called a ``general ledger accounting system'' that 
brings in all the accounts.
    Mr. Shays. So it is for a particular fiscal year?
    Mr. Steinhoff. Yes, this is for fiscal year 1999.
    Mr. Shays. OK. And----
    Mr. Steinhoff. Mr. Walker mentioned the heroic effort 
before. This was their attempt at a heroic effort.
    Mr. Shays. So they had to redo the books to a tune of $7.6 
trillion to get the unsupported transactions down to $2.3 
trillion? Is that what you're saying?
    Mr. Steinhoff. No. In order to prepare their financial 
reports--I'll give you a simple example. They would go out and 
they would call around. They call this a ``data call.'' They 
would call various commands and say, ``How much property do you 
have'' and a command might report in, ``Oh, I've got $100 
million worth of property,'' so they would record that 
transaction.
    Then they would go around to a bunch of commands and get 
these numbers, record all those transactions. Those are all 
individual entries.
    Then they would roll it up to the next level and they'd 
say, ``OK, from all these levels how much did we get?'' Well, 
here's another $400 million worth of transactions. They would 
keep rolling up the number until they had what they called a 
``consolidated number.'' So that's why you have $7.6 trillion 
that really defies logic. They have a $300 billion budget. 
They've got about $1 trillion of assets. How could they have 
$7.6 trillion? But it's just rolling up the same numbers over 
and over again and entering them in different systems.
    Mr. Shays. Why did the number come down to $4.5? And what's 
the ultimate number? Do we want it down to zero? I mean, in 
other words, I'm missing what the number really represents.
    Mr. Walker, do you understand what my dilemma is?
    Mr. Walker. I think I understand. Let me take a shot.
    They had to end up executing a number of transactions. Many 
times they had to execute the same transactions multiple times 
to be able to account for it in the different systems that they 
had, and when they did that, in the end of all the transactions 
that they made, there were a subset of those transactions that 
they did not have adequate documentation to be able to support 
them.
    In other words, somebody in the field said, ``I've got 
this. You need to put us down for this,'' but they didn't have 
supporting documentation for it, and so they are going based 
upon assertions rather than based upon fact and hard evidential 
matter.
    Mr. Shays. There's no secret number that if you have a $3 
billion budget you should have so many dollars worth of 
transaction? There's no number?
    Mr. Walker. No.
    Mr. Shays. OK.
    Mr. Walker. But it is a lot lower than theirs, I can assure 
you.
    Mr. Shays. Well, it's got to be. But you had 1,700 
adjustments when you had $7.6 trillion to get unsupported 
transactions at $2.3, and now you have $4.5 trillion and you 
had 2,100 adjustments. You even had more adjustments to then 
get to the number of $1.7 unsupported.
    Mr. Steinhoff. It is probably--you probably--it is hard to 
compare it and say 1 year is better than the other in absolute 
terms. It appears that 2000 is better than 1999.
    Mr. Shays. Right.
    Mr. Steinhoff. However, no one really knows and they 
haven't analyzed if there is, in fact, an improvement. They 
don't know whether they really had all the transactions. The 
Inspector General basically stated they could not determine 
that the numbers were fairly stated, so in neither year could 
DOD really prepare an auditable financial report. It is just 
that there is a difference between the 2-years in the amount 
and dollar value of adjusted transactions they processed.
    Mr. Shays. Let me just ask you, is the key number the $4.5 
in this last year or the $1.7?
    Mr. Steinhoff. I think both numbers are key. I think there 
is no reason that they should have $4.5 trillion of these type 
of adjustments, and the $1.1 trillion that's unsupported is the 
more serious number, but they shouldn't have either number. 
They shouldn't have a system that operates in that manner. The 
books should be kept during the year and you should have very 
few adjustments at year end.
    Mr. Walker. The $1.1 trillion is a much more serious 
number.
    Mr. Shays. The $1.7?
    Mr. Steinhoff. The $1.1.
    Mr. Walker. Which year are you talking about, Mr. Chairman?
    Mr. Shays. For fiscal year 1999.
    Mr. Steinhoff. It is $4.5 trillion and $1.1 trillion for 
fiscal year 2000. The fiscal year 1999 numbers were $7.6 
trillion and $2.3 trillion.
    Mr. Walker. For 2000. Right. And that's for 2000. The $1.1 
trillion is obviously much more serious because you've got the 
transaction but you don't have the documentation to support it, 
so you don't really know if it is right or it is not right. 
You've entered transactions, you don't know if it is right or 
not.
    I guess the bottom line is this is not the way to do 
business and we shouldn't be spending a whole lot of time and 
resources trying to make these systems work. We need to move 
forward, dealing on a much higher level, come up with an 
enterprise architecture that deals with it more comprehensively 
rather than trying to fix this.
    Mr. Shays. I have a little better sense of this. I just--it 
just blows my mind that the unsupported documentation is 
basically--transactions are almost three times what the budget 
is. In an annual budget of $300 billion, you have nearly----
    Mr. Walker. But, of course, transactions aren't just for 
expenditures, they are also for assets. As you know, we have a 
balance sheet----
    Mr. Shays. OK.
    Mr. Walker. You've also got the activity for the year, 
which are your revenues and costs.
    Mr. Shays. Right.
    Mr. Walker. So there could be balance sheet transaction, 
too.
    Mr. Shays. Just talk to me a little about inventory. Have 
we made progress with keeping track of inventory? Which 
direction are we headed?
    Mr. Walker. This is Dave Warren.
    Mr. Warren. Yes, we have made some progress to reduce the 
level of inventory; however, there are significant problems 
that still exist.
    Mr. Shays. Would you expand on that?
    Mr. Warren. We still continue to buy too much inventory, 
perhaps $1.6 billion last year.
    Mr. Shays. Now, each branch, each unit, they all have 
different ways of keeping track of it? Do we have some 
standardization in terms of our inventory?
    Mr. Warren. Basically done on--as the chart would show, a 
separate manner for each one.
    Mr. Shays. OK. And is there one person in DOD that is 
responsible to get a handle on this? Is anybody empowered, or 
is it--are we going back to the different branches and sub-
units within the branches to try to get a handle on it?
    Mr. Warren. Goes back to the individual services. OSD 
provides overall guidance, policy guidance; however, it is the 
individual services that implement.
    Mr. Shays. So, Mr. Walker, this again is one of your crisis 
issues, right?
    Mr. Walker. It is one of the high-risk areas. That's 
correct.
    Mr. Shays. All right, high-risk areas. Tell me, this 
obviously isn't news to you, but what is coming through is a 
theme that says, ``We're not seeing a lot of progress.'' This 
is of concern to you, but it is not showing up, evidently, in a 
central way in DOD. It is still being handled in a very 
fragmented way.
    If that is the case, we are still going to end up with 
charts like we had before. I mean, isn't that true?
    Mr. Walker. That's true, and that's why I think what has to 
happen is it needs to be elevated to the highest levels of DOD. 
We need to have a task team or some structure that is focused 
on resolving these six high-risk areas. It needs to be an 
integral part of their strategic planning. It needs to involve 
other people in the executive branch, including OMB and other 
players that have a stake here. And it needs to provide 
periodic reporting back to the Congress to make sure that 
satisfactory progress is being made.
    Providing policy direction, quite frankly, just doesn't get 
the job done. I mean, we're talking about the need for 
sustained attention at the highest levels. It is very tough 
work. You can't rely on the individual services to do it. The 
job is just not going to get done if you do that. They have a 
role to play, but you've got to drive it from the top.
    Mr. Shays. With DOD it is usually the policy of the 
Secretary to come to the full committees and not the 
subcommittees, and I'm just struck by the fact that in what we 
are starting to look at it is really going to take action from 
the Secretary, and it may mean, one, that we get the full 
committee to do exactly what we are doing right now and get the 
Secretary to come and sit next to you and hear it up front, or 
maybe a proactive meeting where we go with you and others to 
see the Secretary, you know, with Members of Congress, 
themselves, and maybe Inspector Generals in some cases to say, 
``We need some central focus on these key issues.''
    And it might be helpful for you to not necessarily write a 
report--I mean, I almost think the report you should be writing 
is not that it is not happening, but why isn't it happening. I 
mean, that would be the more interesting report. How come these 
things continue to fester? And it may be that when you ask your 
people to look into that issue that you will then have a plan 
of action that can, you know, bring change.
    Mr. Walker. Well, I have corresponded with Secretary 
Rumsfeld, and he has agreed to meet to talk about a number of 
the challenges that we see at the Department, and I think that 
is an encouraging sign. He obviously has to get his team in 
place. The Department of Defense, as well as many other 
departments, don't have their second and third-level key 
players in.
    From a practical standpoint, the Secretary has to care 
about this. The Secretary has to support any related effort. In 
reality, it is probably going to be driven by the Deputy 
Secretary. But it has got to be at that level. You have other 
players who will contribute, but if you get it below that level 
you're just not going to get the job done.
    Mr. Shays. The Deputy Secretary is basically the Under-
Secretaries in the other departments, the person who really 
runs the operations, is focused on the operational side of DOD?
    Mr. Walker. Well, the Deputy Secretary of Defense, which 
typically assists in policy, but deals with operations issues, 
as well.
    Mr. Shays. OK. We talked a little about financial 
management. In terms of the inventory, what I'm hearing from 
you, Mr. Warren, is that it is pretty much the same and people 
are trying to get a handle on it in a very fragmented way?
    Mr. Warren. Yes. For example, there is an overall effort at 
the Department level to come up with a logistics architecture. 
That is an OSD initiative. Within the individual services, 
there are 400 initiatives underway. The overall architecture, 
however, is not linked to those 400 initiatives, and that's an 
example very similar to what we shared in the financial 
management area.
    Mr. Shays. So it is destined to fail?
    Mr. Warren. Pardon?
    Mr. Shays. It is destined to fail?
    Mr. Warren. I would say the likelihood is very great. Yes, 
sir.
    Mr. Shays. So we've done inventory and the financial 
management. If you don't mind, I'd like to just get in another 
area.
    The whole issue of bases, you said--was the 23 percent 
over-utilization excess bases, excess--what was the 23 percent?
    Mr. Walker. DOD has stated that they believe that they have 
23 percent excess base capacity--in other words, more base 
capacity than they need.
    Mr. Shays. What is the significance of that?
    Mr. Walker. Well, the significance of that, it means that 
they are spending money every year to maintain bases and 
capacity that they don't need. For every dollar that they spend 
on this, it means a dollar that is not available for readiness, 
for quality of life for the troops, or to close the delta on 
the major weapons systems to the extent that they need those 
weapons systems.
    In addition to having to pay to maintain these facilities, 
it also means that there is asset recovery that potentially we 
could be achieving through the disposition of these properties 
that don't have significant environmental problems such that we 
could save the cost that could be redeployed and we could 
recover the asset values that could then be redeployed for 
whatever purpose that Congress felt was appropriate.
    Mr. Shays. Is it possible, besides not closing bases 
because of political questions, that we are not closing them 
because of environmental problems, as well?
    Mr. Walker. There are environmental issues associated with 
some of these properties. There is no question about it, as was 
mentioned by Mr. Clay. I mean, I don't know all the facts in 
that particular circumstance and I will provide it to Mr. Clay, 
but there are bases that have been closed that, if they have 
significant environmental problems, if you are going to develop 
that property or if a developer is going to step forward and 
want to be able to assume any risk. They are going to have to 
be reasonably assured that, A, the environmental situation has 
been taken care and that, second, that their liability is going 
to be limited, you know, in some way in case there is something 
that is pre-existing their ownership that has not been 
effectively resolved. And so yes, this is an issue that has to 
be looked at.
    There have been success stories, though. I mean, for 
example, Cameron Station down in Alexandria has been 
successfully redeveloped. In addition, in Charleston they've 
done a lot in Charleston, and in other areas. So it is facts 
and circumstances.
    Mr. Shays. We have weapons systems that turned out to be 
more expensive, No. 1. And, No. 2, we have such a large number 
of weapons systems that if we added up the entire cost it would 
clearly break the budget, so what we do is we stretch it out 
beyond the 5-years so it doesn't show up in a 5-year budget.
    Have you been asked and/or have you done a report that adds 
up all these weapons systems to figure out what they would 
cost, and what they would cost if we logically did it in a way 
that didn't add to the cost? In other words, we stretch it out 
it makes it more expensive, but if we logically funded this 
program, logically funded all of these, this is what it would 
add up to be.
    Mr. Walker. I believe that we have--Katherine, please. 
Katherine Schinasi.
    Ms. Schinasi. We've not looked at the total picture of 
cost, but we have taken parts--for example, looking at the 
tactical Air Force. You know, if you bought out the systems 
that you originally planned, what would that cost you?
    But what we find often when we look at these programs is 
that the total program cost stays the same but the quantities 
that you are able to get for that total program cost are 
significantly diminished because of the unit cost increases.
    Mr. Shays. And so--OK. And how do I say your last name?
    Ms. Schinasi. Shanasi [phonetic].
    Mr. Shays. That's why I called you Katherine, not because 
you are a female.
    Ms. Schinasi. Katherine is fine.
    Mr. Shays. No, it isn't.
    Mr. Walker. I did the same thing, Mr. Chairman, at first.
    Mr. Shays. I know you did. Schinasi.
    Ms. Schinasi. Yes.
    Mr. Shays. OK. It's a nice name.
    Ms. Schinasi, you are saying, though, so the overall cost 
doesn't go up, but what we purchase goes down, but that 
obviously has impact because if we wanted so many planes we 
have to find another plane somewhere else.
    Ms. Schinasi. Right.
    Mr. Shays. So----
    Ms. Schinasi. On the original--the way we look at it is 
that we cut a deal originally and we say, ``For this much money 
we are going to get this much product.'' The parameters of that 
deal change as you go through a system. With almost every 
program that we look at, that original deal about ``we're going 
to get this much for this much'' falls apart.
    Mr. Walker. Part of it is because the reason that we 
articulated before, is that what happens is you design a system 
that is very advanced with unproven technologies in order to 
sell it. The contractor then will bid based upon that, but then 
what ends up happening is there is not enough testing done, or, 
if testing is done, the performance requirements many times 
aren't met and so they are waived, and before you know you're 
not getting nearly as much as you thought you were going to 
get, they can't do nearly what you thought they were going to 
do, but, in addition to that, they are costing you a lot more 
per unit than you thought you were going to have to pay, which 
is another problem because we have an aging fleet.
    I mean, if you look at the average age of, for example, 
TACAIR--tactical aircraft--it is a real challenge.
    Mr. Shays. That's a good lead-in.
    Mr. Halloran. Yes. Could we stay with that for a second, 
because you did say you had costed out the entire tactical air 
plan so far. Could you be more detailed than that in terms of 
what those projections are? And, in the same vein, the 
acquisition reform has been--there are many offices and many 
plans for acquisition reform.
    Ms. Schinasi. Right.
    Mr. Halloran. Many attempts at it. What have--and I know 
that GAO has some recent work on the aging fleet that says that 
the current TAC airplanes might not even solve the aging 
problem. What kind of breakthrough acquisition reform proposals 
are you considering or recommending?
    Ms. Schinasi. I'll take the reform piece and then I'll turn 
to the other piece of it.
    When we look at the reforms, what we've seen is that, 
although a lot of initiatives have been proposed, there's 
really not much that goes to the issue that we talked about 
earlier, which is the culture and the environment. What you 
need to do is change the incentives that exist for people to 
behave the way they behave. It is a very rational system when 
looked at in one way because people act rationally, when 
programs are begun, programs are a revenue generator for the 
Department, and so you want to start that program to be able to 
attract the funds to your service.
    And so you make decisions based on very little knowledge, 
if any, and you are overly optimistic and you under-estimate 
cost.
    Mr. Halloran. So would you call it a fundamental problem 
unaddressed in acquisition reform--that is, the launching of a 
program prematurely? I mean, I think of the commercial----
    Ms. Schinasi. Yes.
    Mr. Halloran [continuing]. Work you've done, that no 
company would launch a toaster before they knew it was going to 
make toast.
    Ms. Schinasi. That's right. And we talk about the need to 
understand what your requirements are and to be able to make 
tradeoffs between those requirements and the technologies that 
either you have in hand or you know you will have in hand, and 
it is not until that point that you really are able to set the 
baselines that allow you to get what it is that you say you 
need.
    Mr. Walker. I think there is another problem and it has to 
do with the culture that the chairman talked about before and 
the fact that things tend to go more bottom-up rather than top-
down in some of these critical decisions.
    In some cases there is what I would call an, ``I have a 
dream,'' philosophy on behalf of some of the services. I mean, 
we are a country that has tremendous capabilities and 
resources. With enough time and enough money, we can do just 
about anything, but the question is what we need to do again is 
say, ``All right, what is national security strategy? What is 
national military strategy?'' How does that translate with 
regard to the number of platforms we need, the type of 
platforms that we need, the number of forces, the role of the 
forces, the deployment of the forces?
    We need to do more of that top-down to say, for example, if 
you take TACAIR, we clearly can't afford all three of these 
TACAIR systems. All right? So the first question you have to 
say is, ``Well, which ones do we need based upon national 
security strategy, national military strategy,'' because what 
will happen if we don't do that is you'll get a little bit of 
all three but not enough of any. You may get some that you 
don't need but not enough of what you really do need. That's 
how the system works.
    Mr. Shays. That sounded very poetic. I need to do an op-ed 
piece, and I am going to liberally quote you.
    Mr. Walker. Feel free, Mr. Chairman.
    Mr. Shays. OK. Plagiarize, rather.
    So the bottom line here, though, is the Secretary must know 
this because this is what we are looking at right now. I mean, 
he--I mean, we all know it, frankly, so, I mean, our moment of 
truth is occurring right now. And if we are going to have a tax 
cut and we are going to have those other things, there is 
tremendous incentive to just get a handle on it.
    Mr. Li. Mr. Chairman.
    Mr. Shays. Yes?
    Mr. Li. On the issue of the tactical fighters, and 
specifically as it relates to the original question that you 
raised in terms of how big is the breadbox, I can at least tell 
you a part of that breadbox. Looking at tactical aircraft, the 
message that we gave a few weeks ago was that we are planning 
to spend over $300 billion, and after spending $300 billion our 
fleet will be older than it is today. That is the basic 
message. So----
    Mr. Shays. And why will it be older than it is today?
    Mr. Li. Because we will be able to buy fewer airplanes. The 
existing fleet that we have today is aging. We are going to 
have to keep some of those for mission purposes. And, as a 
result--as you know, as I have testified before you last year 
with regard to the F-22--that's a very expensive airplane and 
we are not going to be able to buy as many to replace on a one-
for-one basis. So we will have fewer of those airplanes.
    Mr. Shays. Right.
    Mr. Li. And so the issue now is let's understand that our 
fleet will be aging, despite our investment of over $300 
billion.
    Mr. Walker. But part of the issue there is coming back to 
national security strategy and national military strategy. How 
many air wings do we need? What type of platforms do we need 
for these various wings based upon likely threats that we may 
have to face during the lifespan of these systems?
    For example, the joint strike fighter is intended to be 
purchased in large numbers. If you purchased large numbers with 
interoperability, which is what joint strike fighter is 
intended to be, then you theoretically can end up meeting the 
needs of multiple services and you might be able to make more 
of a dent in the average age of the fleet because of the 
numbers and the average cost, if you will, associated with the 
platform.
    You are obviously not going to make progress on the average 
age of the fleet and the numbers with the F-22 platform, but 
that doesn't mean you don't need it. That's a decision that has 
to be made based upon reassessing strategy, the likely threats 
and utilization needs for that platform.
    Mr. Shays. One of the--before we get off defense, is there 
another area? We talked about management bases, inventory, and 
weapons systems. Is there another area in DOD before we go to 
State and VA? Is there anyone behind you that has something to 
share that we might need to----
    Mr. Walker. Well, I think all of the departments and 
agencies have problems in the people area, in the human capital 
area. When you get right down to it, there are three key things 
that you have to get right if you are going to maximize 
performance and assure accountability--people, process, and 
technology. DOD has a challenge in all three, and the people 
challenge is, in fact, our greatest challenge as it relates to 
performance and accountability within the Government.
    This is the systemic approach that has to be taken and the 
leadership commitment that is necessary to deal with these 
problems.
    Mr. Shays. I'm struck by one point that you seem to be 
making that I think it must be the challenge for DOD, and that 
is you talk about weapons systems that are basically designed 
in process and you are not sure in the end if they are going to 
be able to do what they are required to do. But in the process 
of doing that we are trying to speed up the--we are doing that, 
in part, to speed up the process, which was another reason why 
we do it. You gave a few others--political reasons, and so on. 
And that is so we don't end up with a weapons system that is 
basically obsolete by the time we are into production.
    I gather, though, that any weapons system we have would 
be--will be obsolete, in one sense--not obsolete compared to 
what our--I guess that's a bad use of the word, because it 
won't be obsolete versus our potential adversaries, because 
they won't even have it, but we could make--with the knowledge, 
technology we have at that point, we could make a better plane 
than the one we are producing, even though it is a new plane.
    Mr. Walker. Right. We could have done better, potentially. 
Part of the----
    Mr. Shays. I mean, yes, what I'm just basically saying is, 
if it takes 10 years to do it, by the time we produce that 
plane after 10 years the technology and materials and 
everything would have enabled us to have built a better plane, 
but then that would be 10 years later. I mean, what we know 
technology-wise would make that plane obsolete, but in terms of 
our adversaries that won't happen.
    Mr. Walker. Right. I mean, obviously, with the rapidly 
evolving technologies, then you are always going to face the 
challenge that by the time you have designed, produce, deploy 
any particular platform, you are going to have technologies 
available that, you know, potentially could make that platform 
better.
    I mean, we face that to a much greater extent today than we 
have in the past because of how rapidly the new generations of 
technology are coming out. That might argue to say there needs 
to be a certain investment on an ongoing basis with regard to 
R&D that could be considered, you know, not necessarily 
attached to a particular platform, to be able to take the 
advantage of that R&D, consider it for existing platforms as 
well as new platforms, given the rapid changes in technology.
    Mr. Shays. Let me try to--I'm going to try to, in 10 
minutes, cover other territory and let you go.
    Mr. Walker. Sure.
    Mr. Shays. But what I would like to suggest is that we know 
some hard things DOD has to do. There are big issues. But you 
also gave one or two suggestions that aren't as hard.
    I mean, for instance, a contractor who is given more money 
than they should be given, I would think that at least they 
would pay the interest, and if they knew it there should even 
be a penalty. There should be a penalty associated with 
accepting money they know they shouldn't accept.
    Now, that may be a harder one to pass, but our committee 
has been very successful with the same staff I have now when we 
oversaw HCFA and health care, and we were the major motivators 
for making health care fraud a Federal offense--State and 
Federal, it was a Federal offense. And we just didn't make it 
from State to State. It has made a wonderful difference.
    There are a lot of things our committee can do to push 
change, and if you've got some easy things we'll write them up 
in report and push the committees of cognizance. And I think 
you know we have a track record in doing that.
    My only point is, if you come up with some simple things--
``Why don't they?'' ``It has happened for years. We've never 
made--'' I'd love to know the things that we should have done 
years ago and that would be relatively simple. I have a feeling 
your people have a list of them. So that's one request.
    The other request is I would like to help you push DOD 
central, the Secretary's office, the central command people to 
take a more-active role in some of these things that we've 
talked about.
    Let me just quickly--with State Department, you made 
reference to the fact that it is up and out--excuse me, if you 
don't move up, you're out. Just elaborate on that a bit more.
    Mr. Walker. There historically has been a culture within 
many organizations in the private sector and some in the public 
sector, State being one, where you are expected to progress to 
certain levels within certain lengths of time, and if you don't 
end up doing that then the assumption has always been there is 
an adequate supply below who can do that, so we're going to 
force you out.
    However, I think the assumption that there is an adequate 
supply below, has been revisited in hte private sector, and it 
is time that it is revisited in the public sector. We have a 
very strong economy. We have slowing of work force growth. The 
amount of money that we invest in these Foreign Service 
officers is significant. I mean, the taxpayers have a 
significant investment.
    Mr. Shays. So we see people retiring in their mid-50's 
because they didn't move up?
    Mr. Walker. Well, even before that. I mean, they might end 
up leaving the Foreign Service even before normal retirement 
age because they haven't been able to make it to a certain 
level within a certain period of time, and yet they could be 
performing very well at the level that they are at now, so part 
of that is a cultural transformation in changing how we go 
about dealing with people issues.
    Mr. Shays. Do you have any sense from State that this is a 
concern to them and they've focused on this, or is this a 
concern to you but not them?
    Mr. Walker. I think it is becoming a concern to them. As 
you know, there was a recent report that was done, a national 
security report--I guess it was the Hart-Rudman Report--that 
talked about a number of the people challenges that are being 
experienced not just by the State Department but also by DOD. I 
am heartened to say that in the last year there has probably 
been more focus on these people issues in the last year than in 
the last 10 years, and so I think we are starting to get some 
attention.
    Mr. Shays. Can we deal with State with regional Embassies 
that people have to go to get visas and so on? What would you 
suggest? Just an office that would be in a country if someone 
needed to get a visa?
    Mr. Walker. Well, I think we need to fundamentally step 
back and say, ``What are we trying to accomplish? What do we 
need to do? And how can we best go about doing that in this 
modern age of technology?''
    A lot of things like visa processing, there are plenty of 
things that can be done remotely using technology to decrease 
the need for infrastructure and people in particular locations.
    Jess Ford has joined me, who can touch base----
    Mr. Shays. Do you want to speak to that? So we don't need 
an Embassy or we don't need a consulate's office to allow for 
someone to potentially get a visa? Don't they have to come in 
and be interviewed and that kind of stuff?
    Mr. Ford. Yes, they do--well, except for the countries 
where we have visa waivers. There's about 20-some-odd countries 
where we have waivers where that is not required. But what 
we're really talking about is the possibility of consolidating 
a lot of administrative functions, that you don't have to 
necessarily have a budget officer or a financial officer at 
every single post, particularly the smaller posts.
    Mr. Shays. So you could have an ambassador potentially 
representing or focused on three countries, that you have one 
structure. You might have a field office, but it is one 
Embassy?
    Mr. Ford. Right.
    Mr. Shays. Other countries must do that.
    Mr. Ford. They do.
    Mr. Shays. And the United States doesn't?
    Mr. Walker. No, but obviously we are the only super-power 
on Earth and----
    Mr. Shays. I understand.
    Mr. Walker. But these are things that we are looking at to 
try to make sure that people are at least considering. There 
are obviously pros and cons. But one of the cultural challenges 
that we face in Government is there is a tendency for people to 
say, ``Well, we want to do it the way we have been doing it,'' 
and there is a tendency not to look outside the box to say, 
``Well, what are we trying to accomplish?'' And, given all 
these changes in technology and given changes that are 
affecting us in a variety of ways, is there a better way to do 
it? Is there a more economical, efficient, effective way to do 
it? And that's what we are trying to spur is to get people to 
do that, not only at DOD but at State, VA, and other places.
    Mr. Shays. What else about State that you'd want me to just 
have the committee focus our concern on?
    Mr. Walker. Well, we've talked about Embassy security and 
we've got information that is noted in there.
    Mr. Shays. Information technology--we've gone to Embassies 
where they still have their computers in boxes after 6 months 
because they haven't had anyone to put them in and they can't 
connect--one Embassy in Europe can't connect to another Embassy 
in Europe. It just flows to the State.
    Mr. Walker. They have major issues with regard----
    Mr. Shays. And they still use Wang, right?
    Mr. Ford. Wang systems have pretty much been replaced now.
    Mr. Shays. In the last year?
    Mr. Ford. In the last couple of years.
    Mr. Shays. OK.
    Mr. Walker. The fact is they have major technology 
challenges and it is not just with regard to the hardware, 
itself, but it is also, as you say, the people to be able to 
upgrade and install and deal with those issues.
    They've had some challenges also with regard to security. 
We've all known and seen related stories in the paper over the 
last 6 months or so.
    Mr. Shays. Yes. We are really getting into the security 
side and I feel pretty comfortable that we begin to know at 
least the problem there.
    What other area?
    Mr. Walker. I think those are the big ones, Mr. Chairman.
    Mr. Shays. How about with VA before we go?
    Mr. Walker. Let me add one thing on State. State is an 
example of an agency who received a clean opinion on their 
financial statements for fiscal year 2000, which was just 
announced, so they have an unqualified opinion, but they have a 
number of material control weaknesses, they have a number of 
compliance issues, and they are also having to undertake a 
number of heroic measures in order to be able to get that clean 
opinion, and so they have a number of underlying problems they 
have to deal with, as well, because basically----
    Mr. Shays. Heroic measures don't mean manipulating the 
books, do they?
    Mr. Walker. Pardon me?
    Mr. Shays. Heroic measures don't mean manipulating the 
books?
    Mr. Walker. No. It just means doing a lot of things after 
year end manually.
    Mr. Shays. OK.
    Mr. Walker. You know that, frankly, if you had your systems 
design and your controls in place at the outset, you wouldn't 
have to do. It is a much smaller scale than the Department of 
Defense, but similar challenges.
    Mr. Shays. I wanted to note that Mr. Gilman has a question, 
the former chairman of the International Relations Committee, 
and we'll pass that on to you.
    Just quickly, what is the--what would I need to have our 
committee focus on in the VA?
    Mr. Walker. I think the issues on VA, they've got human 
capital challenges, no question. They've got excess 
infrastructure issues where there are amounts there that could 
be redeployed for quality of care for our veterans. They have 
some major challenges associated with the disability programs, 
not only the processing of the claims associated with 
disability but, as I mentioned before, it may be time, for the 
country as a whole to step back and re-look at the entire issue 
of disabilities. What is disability in a knowledge-based 
economy? How can we help some of these veterans be able to 
contribute to our society as they have in the past and probably 
want to do now? But if they can't, then obviously we want them 
to get their benefits. There is no question about that.
    Mr. Shays. I'd appreciate it if your staff--by the way, 
your staff is terrific, and we really appreciate what you do 
and what your staff does. I mean, we get quick responses. We 
get honest responses.
    Mr. Walker. Just the facts, Mr. Chairman.
    Mr. Shays. No bull. You can stop there. There's no bull. 
And you all have helped us, I think, do a much better job, and 
so we appreciate it a lot.
    If any of you want to stay around and just mention to the 
staff some other points we didn't touch on, I do think it is 
better probably for us to break up so you don't have to wait 
and finish up that way, so we'll adjourn. I thank you. I'm 
going to rush off.
    Mr. Walker. Thank you, Mr. Chairman.
    [Whereupon, at 12:20 p.m., the subcommittee was adjourned, 
to reconvene at the call of the Chair.]

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