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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

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida

STEVEN C. LATOURETTE, Ohio

BOB BARR, Georgia

DAN MILLER, Florida

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

DAVE WELDON, Florida

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

C.L. ‘‘BUTCH’’ OTTER, Idaho

EDWARD L. SCHROCK, Virginia

——— ———

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

JANICE D. SCHAKOWSKY, Illinois

WM. LACY CLAY, Missouri

——— ———

——— ———

———

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

BENJAMIN A. GILMAN, New York

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEVEN C. LATOURETTE, Ohio

RON LEWIS, Kentucky

TODD RUSSELL PLATTS, Pennsylvania

DAVE WELDON, Florida

C.L. ‘‘BUTCH’’ OTTER, Idaho

EDWARD L. SCHROCK, Virginia

DENNIS J. KUCINICH, Ohio

BERNARD SANDERS, Vermont

THOMAS H. ALLEN, Maine

TOM LANTOS, California

JOHN F. TIERNEY, Massachusetts

JANICE D. SCHAKOWSKY, Illinois

WM. LACY CLAY, Missouri

——— ———

——— ———

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

(III)

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

(1)

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.

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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.

3

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,

4

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.

5

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 ‘‘Dplus’’ 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,

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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 ac- countability. 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 121⁄2 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, retirVerDate 11-MAY-2000 09:54 Feb 05, 2002 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 C:\DOCS\76249.TXT HGOVREF1 PsN: HGOVREF1
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ees, 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 relook 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.

8

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

32

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.

33

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?

34

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

35

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

36

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 worldclass 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 ongoVerDate 11-MAY-2000 09:54 Feb 05, 2002 Jkt 000000 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 C:\DOCS\76249.TXT HGOVREF1 PsN: HGOVREF1
37

ing. 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.

38

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

39

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——

40

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 infrastrucVerDate 11-MAY-2000 09:54 Feb 05, 2002 Jkt 000000 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 C:\DOCS\76249.TXT HGOVREF1 PsN: HGOVREF1
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ture. 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

42

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 overcharging 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.

43

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.

44

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.

45

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

46

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 addressVerDate 11-MAY-2000 09:54 Feb 05, 2002 Jkt 000000 PO 00000 Frm 00050 Fmt 6633 Sfmt 6633 C:\DOCS\76249.TXT HGOVREF1 PsN: HGOVREF1
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ing 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,

48

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 subbranches, 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-support- able $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 putVerDate 11-MAY-2000 09:54 Feb 05, 2002 Jkt 000000 PO 00000 Frm 00052 Fmt 6633 Sfmt 6633 C:\DOCS\76249.TXT HGOVREF1 PsN: HGOVREF1
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ting 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?

50

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.

51

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.

52

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.

53

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 tril- lion 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.

54

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.

55

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, per- haps $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

56

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.

57

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

58

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.

59

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.

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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

61

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.

62

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 moreactive 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?

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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.

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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.

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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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