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THE DEPARTMENT OF DEFENSE: WHAT MUST BE

DONE TO RESOLVE DOD’S LONGSTANDING FINANCIAL MANAGEMENT PROBLEMS?

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY,

FINANCIAL MANAGEMENT AND

INTERGOVERNMENTAL RELATIONS

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

MAY 8, 2001

Serial No. 107–52

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 GOVERNMENT EFFICIENCY, FINANCIAL MANAGEMENT AND

INTERGOVERNMENTAL RELATIONS

STEPHEN HORN, California, Chairman

RON LEWIS, Kentucky

DAN MILLER, Florida

DOUG OSE, California

ADAM H. PUTNAM, Florida

JANICE D. SCHAKOWSKY, Illinois

MAJOR R. OWENS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

J. RUSSELL GEORGE, Staff Director and Chief Counsel

EARL PIERCE, Professional Staff Member

GRANT NEWMAN, Clerk

MARK STEPHENSON, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on May 8, 2001 ................................................................................. 1

Statement of:

Kutz, Gregory D., Director for Defense, State and NASA Financial Management, Financial Management and Assurance, U.S. General Accounting Office, accompanied by David R. Warren, Director for Logistics,

Defense Capabilities and Management; Robert J. Lieberman, Deputy

Inspector General, U.S. Department of Defense; and Lawrence J.

Lanzillotta, principal Deputy and Deputy Under Secretary for Management Reform, U.S. Department of Defense ................................................ 10

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

Horn, Hon. Stephen, a Representative in Congress from the State of

California, prepared statement of ................................................................ 4

Kutz, Gregory D., Director for Defense, State and NASA Financial Management, Financial Management and Assurance, U.S. General Accounting Office, prepared statement of ................................................................ 14

Lanzillotta, Lawrence J., principal Deputy and Deputy Under Secretary

for Management Reform, U.S. Department of Defense, prepared statement of ........................................................................................................... 43

Lieberman, Robert J., Deputy Inspector General, U.S. Department of

Defense:

Information concerning reports ................................................................ 57

Prepared statement of ............................................................................... 30

Schakowsky, Hon. Janice D., a Representative in Congress from the

State of Illinois, prepared statement of ...................................................... 8

(1)

THE DEPARTMENT OF DEFENSE: WHAT MUST

BE DONE TO RESOLVE DOD’S LONGSTANDING FINANCIAL MANAGEMENT PROBLEMS?

TUESDAY, MAY 8, 2001

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY, FINANCIAL

MANAGEMENT AND INTERGOVERNMENTAL RELATIONS,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

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

2154, Rayburn House Office Building, Hon. Stephen Horn (chairman of the subcommittee) presiding.

Present: Representatives Horn, Putnam and Schakowsky.

Staff present: J. Russell George, staff director and chief counsel;

Dianne Guensberg, detailee; Bonnie Heald, director of communications; Earl Pierce, professional staff member; Grant Newman, assistant to the committee; Alex Hurowitz, intern; Mark Stephenson,

minority professional staff member; and Jean Gosa, minority assistant clerk.

Mr. HORN. The hearing of the Subcommittee on Government Efficiency, Financial Management and Intergovernmental Relations

will come to order.

We are here today to continue our examination of how the executive branch departments and agencies of the Federal Government

account for the billions of tax dollars they spend each year. The

subcommittee began its examination of the government’s fiscal year

2000 financial statements with the release of the General Accounting Office’s audit report on March 30, 2001.

For the 5th consecutive year, the General Accounting Office was

unable to render an opinion on the reliability of the Federal Government’s financial statements. In addition, GAO auditors found

significant material deficiencies that adversely affected both the financial statements and the management of government operations.

According to the GAO, the Federal Government did not maintain

effective internal controls and its financial statements did not substantially comply with the Federal Financial Management Improvement Act of 1996, Public Law 104–208.

Encouragingly, an increasing number of agencies were able to

produce clean, auditable financial statements and made marked

improvements in their financial statements and processes. However, this progress was often achieved through difficult and costly

efforts. Despite that progress, the failures of a few agencies continue to tarnish the overall record of the executive branch.

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Most disheartening, however, is the abysmal lack of achievement

by two significant government departments and one agency. For

the 5th consecutive year, the Agency for Intergovernmental Development and two of the government’s largest departments, the Department of Defense and the Department of Agriculture, still cannot adequately account for the billions of tax dollars they spend.

All three, again, received the unacceptable grade of F in the subcommittee’s report card on Federal financial management.

Today we focus on what actions must be taken to resolve these

financial issues. In this hearing, we will focus on the Department

of Defense. The Department of Defense is cited as one of the primary reasons the Federal Government is unable to prepare

auditable financial statements.

Specifically, the General Accounting Office, headed by the Comptroller General, found the Department of Defense cannot properly

account for its assets; in particular, its property, plant and equipment, and inventories.

In addition, the Department cannot estimate the cost of cleaningup and disposing of extensive environmental contaminants, including unexploded ordnance and residual contaminants from training

ranges.

Finally, it cannot accurately document the net cost of its operations.

In fiscal year 2000, the Department of Defense spent $397 billion, 16 percent of the Federal Government’s total spending of $2

trillion. Government spending on national defense is second only to

that spent on human resource costs, such as Social Security, Medicaid, and Medicare.

Further, the Department of Defense controls an estimated $1

trillion in weapons systems and inventories. In fiscal year 2000, the

Department’s inventory, evaluated at an estimated $139 billion, accounted for 75 percent of the Federal Government’s total inventories of $185 billion.

Despite the Department’s enormous budget and inventory, its Inspector General has been unable to render an opinion on the reliability of the Department’s financial statements. Similar to findings by the General Accounting Office, the Inspector General reported that significant material deficiencies adversely affected both

the Department’s financial statements and its ability to manage its

day-to-day operations.

Further, the Inspector General found that the Department did

not maintain effective internal controls and that its financial systems and management systems did not substantially comply with

the Federal Financial Management Improvement Act of 1996.

Now we have a new administration which we hope will focus

close attention on the Department of Defense’s continuing failure

to address its longstanding financial management problems.

We welcome our witnesses today: Gregory D. Kutz, Director of

Defense, State and National Aeronautics and Space Administration

Financial Management Issues, Financial Management and Assurance, U.S. General Accounting Office; Robert Lieberman, Deputy

Inspector General, Department of Defense; and Lawrence J.

Lanzillotta, Principal Deputy and Deputy Under Secretary for

Management Reform.

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Gentlemen, we look forward to your testimony, your insight, and

your recommendations to end this intolerable financial situation at

the Department of Defense.

[The prepared statement of Hon. Stephen Horn follows:]

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Mr. HORN. I now yield for an opening statement to the ranking

member, the gentlewoman from Illinois, Ms. Schakowsky.

Ms. SCHAKOWSKY. Thank you, Mr. Chairman. Welcome to our

witnesses.

The subcommittee recently held a hearing on the consolidated financial management for the U.S. Government. It was clear from

that hearing that while there has been some improvement in financial management at many Federal agencies, at others serious problems remain.

The Department of Defense is perhaps the worst such problem

agency, both because of the sheer magnitude of the amount of

money involved and because of the seeming intractability of some

of these financial management problems.

The Department of Defense receives approximately one-half of

the discretionary budget of the United States each year. Its annual

budget is about $310 billion. It owns assets valued at over $1 trillion. It has about 3 million military and civilian employees.

Despite, and maybe in part because of, the huge sums of money

flowing through the Department, its financial management systems, practices, and procedures are hampered by critical weaknesses.

Since 1995, the GAO has designated the financial management

systems at DOD as ‘‘high-risk’’ because they are vulnerable to

waste, fraud and abuse. Again this year, as has been the case for

at least the last 5, the Defense Inspector General could not provide

an opinion on the agency’s financial statements.

No major part of the Department has been able to pass the test of an independent audit. Of about $7 trillion—that is trillion with

a T—in accounting entries at Defense, at least $1.2 trillion were

not supported by sufficient evidence to determine their validity.

DOD could not properly account for hundreds of billions of dollars of its asset holdings, including weapons systems and support

equipments. It lacks a complete and reliable inventory of its environmental liabilities, potentially understating by tens of billions

the reported $63 billion liability. Its inventory exceeds its needs by

nearly $30 billion.

DOD cannot reconcile payments to its contractors reliably. Between 1994 and 1999, defense contractors returned nearly $5.3 billion in overpayment.

These are not isolated incidents. Far from it. We have had literally decades of reports from GAO and from the Inspector General

at Defense on the history of financial management problems at the

Department.

Six years ago, in 1995, the DOD Inspector General testified before Congress that a turn-around in the Pentagon’s financial management practices might be expected by the year 2000. Well, it is

now 2001, and the IG is saying that the Department might have

financial statements which can be audited by the middle of the decade.

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This is not progress. I, for one, would support reducing the Pentagon’s appropriations until these fundamental issues are addressed.

Thank you, Mr. Chairman.

Mr. HORN. Thank you.

[The prepared statement of Hon. Janice D. Schakowsky follows:]

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Mr. HORN. I think most of you are regulars, so you know our little routine here. I will be swearing you in, and then the agenda is

the one we see in front of you, and we will just go down the line.

We would like it very much if you could summarize in 5 or, at

the most, 10 minutes. We have essentially an hour and a half, and

we would like to have a chance for questions on this. So once I call

on your name, your full statement is automatically in the record

all the rest of the day. We are going to be here until about 2:30— not with all of you, hopefully.

If you will stand and raise your right hands, please. Any who are

backing you up, please have them stand, too.

[Witnesses sworn.]

Mr. HORN. The clerk will note that all of you nodded your head

or affirmed to the oath.

We will start with Mr. Kutz, Gregory D. Kutz, Director for Defense, State, and National Aeronautics and Space Administration

Financial Management and Assurance of the U.S. General Accounting Office.

Mr. Kutz.

STATEMENTS OF GREGORY D. KUTZ, DIRECTOR FOR DEFENSE, STATE AND NASA FINANCIAL MANAGEMENT, FINANCIAL MANAGEMENT AND ASSURANCE, U.S. GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY DAVID R. WARREN,

DIRECTOR FOR LOGISTICS, DEFENSE CAPABILITIES AND

MANAGEMENT; ROBERT J. LIEBERMAN, DEPUTY INSPECTOR

GENERAL, U.S. DEPARTMENT OF DEFENSE; AND LAWRENCE

J. LANZILLOTTA, PRINCIPAL DEPUTY AND DEPUTY UNDER

SECRETARY FOR MANAGEMENT REFORM, U.S. DEPARTMENT

OF DEFENSE

Mr. KUTZ. Mr. Chairman and Representative Schakowsky, good

morning. It is a pleasure to be here to testify on the need for financial management reform at the Department of Defense.

With me is Dave Warren, a Director on our Logistics, Defense

Capabilities, and Management team.

The financial activity of DOD is enormous when compared to

other entities, with a reported $1 trillion in both assets and liabilities, nearly $350 billion in net program costs, and a workforce of

about 3 million.

To provide some perspective on the size of DOD, consider that it

had 30 times more employees, at least 4 times more in assets, and

spent $140 billion more than ExxonMobil in fiscal year 2000.

Currently, the United States is the world’s sole superpower, with

military forces that are second to none. However, the same level of

excellence is not evident in many of DOD’s business processes, including financial management.

The bottom line of my testimony this morning is that, although

incremental progress has been made in recent years, DOD financial

management reform has largely failed. As a result, substantial

waste and inefficiency exists and, in some cases, mission performance is placed at risk.

My testimony this morning has three parts: first, a brief discussion of DOD’s financial management weaknesses; second, the unVerDate 11-MAY-2000 08:44 Apr 30, 2002 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 C:\DOCS\77920.TXT HGOVREF1 PsN: HGOVREF1
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derlying or root causes of those weaknesses; and, third, the key elements necessary for successful reform.

First, some of DOD’s more significant financial management

weaknesses include asset accountability, budget execution accounting, environmental liability reporting, cost accounting, and financial management systems.

I would like to highlight several examples of the operational impact of some of these weaknesses. Clearly, asset accountability

problems—not knowing what you have or where it is located—can

impact mission performance. For example, during fiscal year 2000,

we found that Army managers lost accountability for and visibility

of about 62,000 missiles, rockets, and other ammunition that were

stored at four test facilities.

This inventory was reported in test facility records. However, the

items were excluded from the Army’s central visibility records for

nearly 2 years. These visibility records are used to manage inventory for readiness and procurement decisions, along with financial

reporting. These visibility items at the test facilities include handheld, ready-to-fire Stinger and Javelin missiles.

Loss of accountability has resulted in DOD purchasing items that

it already has. Also, shortages of spare parts—the direct result of

poor inventory controls—have resulted in aircraft being grounded

and the need to cannibalize good parts from aircraft in order to

complete repairs.

In the area of budget execution accounting, for years we have reported that DOD has overpaid contractors because of duplicate payments or otherwise erroneous. Private sector companies devote resources to collecting amounts due from customers for goods and

services provided. In contrast, DOD devotes resources to collecting

its own overpayments to contractors.

Mr. Chairman, given your interest in debt collection, you will

find the next example a telling one. From DOD’s Debt Collection

Office at the DFAS Columbus Center, we recently chose 10 cases

of amounts from contractors for overpayments. For these cases, we

attempted to collect the amounts due using DFAS’ own policies and

procedures.

Using only basic debt collection practices, we were successful in

facilitating full collection of five cases, including interest and penalties, for about $103,000. As this example demonstrates, many of

DOD’s financial management weaknesses could be solved if people

simply followed existing policies and procedures.

Going on to my second point, which relates to the underlying

causes of DOD’s financial and other management problems, we believe the underlying reasons for failed reform include a lack of toplevel leadership and accountability; cultural resistance to change,

including service parochialism; lack of results-oriented goals and

performance measures; and inadequate incentives for seeking

change.

In our executive guide on world-class financial management, the

leading organizations we studied, including General Electric, Boeing, and Pfizer, identified leadership as the most important factor

in making cultural changes and establishing effective financial

management.

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DOD has not traditionally established accountability for performance to specific individuals or organizations with the authority to

implement change. For example, the DOD Comptroller, also the

Chief Financial Officer, has direct responsibility for only an estimated 20 percent of the data relied on for financial management

operations.

DOD learned from the year 2000 computing crisis that active

leadership from the Deputy Secretary is the key to success. Such

top-level leadership will be necessary to transform the DOD culture

and reform financial management.

One of the goals of financial reform is for agencies to develop

timely, reliable financial information for decisionmaking purposes.

For financial management, the primary goal at DOD has been to

get an unqualified or clean audit opinion. This approach has resulted in millions of dollars being spent on contractors to perform

ad hoc work-around procedures designed to develop one-time numbers for annual financial reporting.

Although many agencies, including IRS, have successfully done

these work-arounds to get clean opinions, these costly procedures

do not result in lasting or meaningful change. In fact, what they

do is create the need to replicate the process annually in order to

maintain the clean opinion.

In the case of DOD, the financial management problems are so

severe that it may not be possible to get a clean opinion using

these work-arounds. The new DOD team will need to carefully balance the resources expended on short-term efforts to achieve a

clean opinion with the long-term efforts needed to truly reform Defense financial management.

My third part relates to the key elements necessary for reform.

Going forward, various approaches could be used to address the underlying causes of financial management weaknesses. Our written

statement discusses what we believe are seven key elements to successful reform. I will now discuss two of those seven.

First, financial management challenges must be addressed in a

comprehensive, integrated, DOD-wide business process reform. An

improvement strategy cannot be developed in a vacuum. Financial

management is a cross-cutting issue that affects all of an organization’s business processes.

Currently, DOD has 6 of the 21 agency-specific high-risk areas

in the Federal Government, including information technology and

logistics. In addition, our two governmentwide high-risk areas—

human capital strategy and computer security—are also relevant to

DOD. These interrelated management challenges must be addressed using an integrated, enterprise-wide approach.

Second, we believe effective oversight and monitoring of DOD’s

strategy and progress is critical. I commend the subcommittee for

holding a series of DOD financial management hearings over the

last several years. Oversight hearings like the one today shine light

on this serious matter and provide a constructive dialog for discussing progress made and actions needed.

The Defense Inspector General and GAO can contribute by providing our professional, objective, and constructive assistance in reforming financial management.

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In summary, reforming DOD financial management is a monumental challenge. Reform will require sustained, top-level leadership and a cultural transformation.

Without addressing the underlying causes of the current situation, DOD will continue to make incremental change but will not

achieve the dramatic improvements needed for effective financial

management. With hundreds of billions of dollars in annual DOD

spending, true financial management reform is needed to restore

public confidence that these taxpayer dollars are well spent in

meeting the Nation’s Defense objectives.

Mr. Chairman, this concludes my statement. Mr. Warren and I

would be happy to answer questions after the other witnesses have

given their testimony.

Mr. HORN. Thank you very much for that very helpful overview.

We will get back to that in the questions.

[The prepared statement of Mr. Kutz follows:]

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Mr. HORN. Our next speaker is Robert J. Lieberman, Deputy Inspector General of the U.S. Department of Defense.

Mr. Lieberman.

Mr. LIEBERMAN. Thank you. I appreciate the opportunity to be

here once again to discuss this significant challenge with the subcommittee.

First, to summarize the results of the audit of major DOD financial statements for fiscal year 2000, I must report, unfortunately,

that the extensive and costly DOD efforts to compile an audit of

the fiscal year 2000 financial statements did not overcome the impediments caused by poor systems and unreliable documentation of

transactions and assets. We were, therefore, unable to issue audit

opinions on the Department-wide funds, or on all but one of the

major subsidiary funds.

My written testimony describes some examples of the numerous

problems in these year-end statements. I will just highlight two of

them that I think are illustrative.

First, Department-level accounting adjustment entries used to

compile the financial statements totaled $4.5 trillion, at least $1.1

trillion worth of which were unsupported by reliable explanatory

information for the audit entries. This is somewhat of an improvement from last year, but remains a good indication of the need for

wholesale changes to the financial data reporting systems.

Another example pertains to the reporting of estimated liabilities

for environmental costs, basically clean-up costs. The estimate of

$63.2 billion for environmental liabilities could not be verified and

is obviously badly understated. Last year, the Department reported

$79.7 billion of liabilities for that category of cost and agreed with

us that that figure was understated by several tens of billions of

dollars. Yet it went down this year.

Further compounding the problem, the financial statements that

we were given to audit in December had a figure of $52.2 billion.

No one could explain how they got from $52.2 billion to the $63.2

billion that was ultimately sent to OMB.

So this demonstrates a number of problems and difficulties in

collecting information to put together credible environmental cost

estimates in the first place, and then difficulties in compiling those

estimates and getting them into financial statements in a timely

manner to be audited.

A listing of the financial audit reports issued thus far in the current fiscal year is attached to my statement. Most pertain to financial statements, and they describe dozens more similar problems in

financial reporting.

During the past year, DOD made some progress in addressing

major impediments to favorable audit opinions, but the pace of

overall improvement remains disappointingly slow. The level of

frustration is high. Although the DOD has put a full decade of effort into improving its financial reporting, it seems that everyone

involved, from Congress and the OMB to the audit community and

DOD managers, have been unable to determine or clearly articulate exactly how much progress has been made and how far we still

have to go.

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In my view, this is at least partially caused by the emphasis on

overall audit opinions for the year-end statements, as opposed to

focusing on the status of individual system modernization projects.

The DOD has been working to identify and evaluate critical systems against Federal financial management requirements and accounting standards. Although it would be unfair to characterize

this vital system’s improvement effort as futile, progress has been

very slow.

To facilitate oversight, and because of the successful results of

the Defense-wide Y2K initiatives, 2 years ago we recommended

that the DOD apply the same general management approach in

bringing its systems into compliance with Federal financial management requirements. The Under Secretary of Defense—Comptroller—formally put into place such a process in January 2001 to

implement that recommendation. We believe this initiative is really

important and offers by far the best hope for more effective management of this crucial activity. We realize that the incoming Defense financial managers may wish to alter various details, but we

hope that the basic approach will be followed, because we know it

works.

The Y2K approach is completely compatible with the notion of

holding Defense officials accountable by considering the DOD financial management improvement plan to be, in effect, a contract

between the Department, the Congress, and OMB. The plan offers

a potentially excellent vehicle for displaying the relevant performance goals and specific progress against those goals.

Each iteration of the plan has been more informative, but it remains a one-time status report, rather than a management tool

that is actually used for management oversight. In addition, there

are major problems with its accuracy, as described in our March

19, 2001, audit report and summarized in my written statement.

For the committee’s benefit, I would like to underscore that, according to the plan, it will cost about $3.7 billion to make the critical reporting systems compliant with standards by 2003. This huge

figure does not appear anywhere in the plan, but can be derived

by adding up 167 individual system cost estimates. Its size illustrates both the scope of the remaining challenge and the need to

treat CFO compliance as a very large Defense program or project

needing strong management controls and oversight.

We believe, incidentally, that the $3.7 billion figure is significantly understated.

In any event, success or failure in the systems modernization and

compliance effort will determine whether DOD ever achieves accurate financial reporting, both at year end and during the year,

whenever managers need financial information.

This concludes my verbal statement.

Mr. HORN. Thank you. You have been very dedicated with the

studies we have here. We will get into that soon.

[The prepared statement of Mr. Lieberman follows:]

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Mr. HORN. Our next witness is from the Department of Defense,

Mr. Lawrence J. Lanzillotta, the Principal Deputy and Deputy

Under Secretary for Management Reform in the Department of Defense.

We are glad to have you here.

Mr. LANZILLOTTA. Thank you, Mr. Chairman.

Mr. Chairman and members of the committee, it is my pleasure

to be here to discuss financial management within the Department

of Defense.

Let me begin by stating that financial management reform is one

of Secretary Rumsfeld’s top priorities, as he reflected in several

major actions he has already undertaken.

Shortly after being confirmed, he initiated a study of the Department’s financial operations, to include an examination of initiatives

under way or planned. The Secretary has begun assembling a senior leadership team that is committed to financial management reform across the Department, and he has recognized the Comptroller’s office and established Deputy Under Secretary positions to

focus more on financial management reform and on management

initiatives.

Additionally, Dr. Zakheim, the recently confirmed Under Secretary-Comptroller, stated during his confirmation hearing that financial management reform is his top priority.

The reorganization of the Comptroller’s office established my position as the Principal Deputy to the Comptroller and the Deputy

Under Secretary for Management Reform. It also established a new

Deputy Under Secretary who will specifically focus on financial

management issues, Ms. Tina Jonas, and another Deputy Under

Secretary who will focus on program budget issues, Mr. Wayne

Schroeder.

As Principal Deputy and Deputy Under Secretary for Management Reform for the Department, I give you my personal assurance

that reforming financial management within the Department of

Defense is my top priority.

Mr. Chairman, from the top down, the Secretary has in place a

cadre of leaders who are committed to improving financial management within the Department.

It is Secretary Rumsfeld’s intent to obtain timely and accurate

information as a routine matter of business. We have world-class

armed forces. We intend to achieve world-class financial management.

Accurate and timely management information is the lifeblood of

successful management decisions. Managers across the Department

require accurate and timely information on the cost of operations

and programs if they are to achieve the most effective use of taxpayers’ dollars.

The Department must have processes and systems that do more

than prepare accurate financial statements once a year. The Department’s management processes must be able to provide managers with current, reliable, and relevant information to facilitate

sound decisionmaking.

The most critical step in the Department’s effort to produce timely and reliable financial management information and to produce

auditable financial statements is having, within a coherent archiVerDate 11-MAY-2000 08:44 Apr 30, 2002 Jkt 000000 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 C:\DOCS\77920.TXT HGOVREF1 PsN: HGOVREF1
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tecture, compliant financial management systems and associated

feeder systems—such as inventory, logistics, property, and medical—that provide the majority of the Department’s financial information.

The lack of integrated systems, both financial and nonfinancial

systems, has been a major contributor to the Department’s inability

to produce such information. Without systems that comply with

prevailing Federal accounting standards, the Department would

not be able to produce reliable financial statements on a timely and

consistent basis.

Over the past decade, the Department has implemented a number of improvements to consolidate and overhaul financial management processes. Financial operations have been consolidated, the

number of non-compliant financial accounting systems has been

significantly reduced, and standard systems have been designated.

Nonetheless, much remains to be done.

The Congress and the American people must have full confidence

that the Department maintains the very highest standards in managing the Department. Secretary Rumsfeld is a proven industry

leader who is focusing on Department-wide management reform.

We have to improve our management information and financial

management processes. Financial management reform is part of a

much larger Department-wide management reform initiative. Business practices will be reengineered to adopt best practices from

both the private and government sector.

The Department is in the process of transforming our Defense

forces to meet the challenges of the 21st century. We must also

transform our management processes. As with any major Department of Defense transformation initiative, we will need widespread

support from the Congress and other governmental agencies to

achieve our shared goal. Transforming management processes will

allow the Department to obtain more timely and better information

to enable our Defense leaders to make more informed management

decisions.

In closing, Mr. Chairman, I would like to thank you and the committee for providing me this opportunity to address financial management reform and management reform within the Department.

Thank you.

Mr. HORN. Thank you very much for the statement.

[The prepared statement of Mr. Lanzillotta follows:]

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Mr. HORN. Now we go to questions. We will alternate with Members here. I will start with the first 5 minutes, and the ranking

member will have 5 minutes, and then we will go back and forth.

If others come in, they will have their crack at it.

Mr. Kutz, what you said is very well taken. We have a new Secretary in place. I, for one, have a lot of good impressions of the Secretary. I have known him for 30 years. If anybody turns that place

around, it will be Don Rumsfeld.

The question I would like to hear, to just get out here and see

if we are on the same wave length, you just sort of isolate, what

is the essence of the first three things on the financial side and

what are the first three things on the management side that really

ultimately relate to the management side?

What is your first three? Then I want to see if Mr. Lieberman

and Mr. Lanzillotta agree with that.

Mr. KUTZ. On the financial side, we have a combination of issues:

people, processes, and financial systems. My statement has examples of both people and processes that were not working properly.

The Department has policies and procedures that are not being

followed. That is something that can be fixed without a long-term

system reform. That is something that can be done in the shortterm.

The other major issue besides the people and processes involves

the financial management systems. That is where Mr. Lanzillotta

mentioned an enterprise architecture is needed to make sure that

all of DOD’s decentralized and in some cases duplicative systems

efforts that are going on will, at the end of the day, work toward

a system that will give the Department world-class financial management.

So it is the people, processes, and systems on the financial side.

On the other side, we have the logistics, and some of the examples

I mentioned earlier included inventory problems, which ties very

closely to financial management. We also have the acquisition process challenges with respect to contracts and the payment of contracts, the management of contracts, etc.

I would also say that computer security is another important

challenge that is closely linked to financial management and has

lots of issues beyond efficiency. It is a security of data issue that

needs to be addressed.

Mr. HORN. Mr. Lieberman, do you agree with that list, or would

you add a few things to it?

Mr. LIEBERMAN. I would add a few things to it.

To a significant degree, as mentioned in my written and oral

statements, the system modernization effort is the key to this

whole thing. But, beyond that, I think that we need to run this

whole effort as a program. I don’t feel that it has ever really been

run like a program with explicit goals and measurements.

We all know what the end state goal is: auditable financial statements and useful financial information. But the myriad of milestones, including interim milestones that are normally tracked in

a complicated program, have been very hard to nail down over the

years. I think we have gone far too long with too little structure

in this whole process.

47

Third, we are spending a lot of money on this process. I believe

the Department needs to revisit its priorities in terms of where it

puts its resources for corrective action.

I thoroughly agree with the GAO’s point that extraordinary efforts to put together financial statements will ultimately probably

fail anyway and do nothing to fix the underlying systems problems,

and should not be our highest priority. It is not the best way to

spend DOD money.

Last, I believe that the human factor here is very important. I

think a lot of the problems we are talking about are management

problems for the defense finance and accounting community in particular, but DOD as a whole has lots of workforce issues in terms

of drastically downsized organizations that cannot keep up with

their current workload, promises of process redesign to decrease

workload that have not quite come true, and major training challenges. Each and every individual involved with these processes

can do a better job in the first place so we are not continually trying to reconcile records that do not match and doing things the

hard way, retroactively, rather than doing it right the first time.

Mr. HORN. Mr. Lanzillotta, what do you think? What would you

add to it?

Mr. LANZILLOTTA. I don’t know if I would disagree with anything

that they have said. I think I would look at it in a slightly different

way. I think the Department has a lot of these problems that they

mentioned, but they all have to be addressed. I don’t know if we

can sit down and have the luxury to say we will take care of the

top three now and go to the next three.

In looking at that, we have already had some discussions prior,

not for this hearing but in the past. But I’m looking more—we have

a plan. We just need to upgrade our plan. We need to get the system architecture and get all the requirements for these systems together for modernization.

We just cannot concentrate on one or two systems right now. We

have to get a whole plan that shows where every one of these systems interact on the financial management and management information process. We have to identify more specific milestones. That

way, we can measure our progress, not just for the auditors to

come and measure the progress or people to come in and see but

for our management in the Department of Defense. They need to

know—the first responsibility is to them, our defense leaders. They

need to know how we are doing on this.

We have to also do a better job, as mentioned, on identifying the

resources it is going to take to fix this problem. This is not a Department of Defense problem; this is a shared problem with our

government. We have to be up-front. We have to say, this is what

the cost is for fixing this system. We have to develop measurable

matrixes we can measure against on these.

Our plan has to have—and I agree with Mr. Lieberman. We

might have some initial problems, as he is talking about, but it has

to be measured overall. We have to have accountability. Somebody

has to be responsible for fixing this.

We have systems in stovepipes right now. We have to make sure

they match. Then when somebody is developing their system, he

has to have the authority to allow us to reengineer the practices

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to make it work. We just cannot continue to do stovepipe development.

The last thing, I think Secretary Rumsfeld—the things are lining

up now that we have the leadership to do a structural change—not

only a structural change but a cultural change in the way the Department attacks these problems. I think that is key.

I don’t know if I can say, well, we just want to reestimate our

environmental liability and then look at another problem, asset accountability. I think we are probably past that. I think we are to

the point now that it just has to be done. I don’t want to quibble

with any of the comments on initial things or little facts. I think

it is just time for us to step up to the plate.

Mr. HORN. As I usually find out, the question period is too short,

so the gentlewoman from Illinois will have 10 minutes, and then

Mr. Putnam, who has come, he will have 10 minutes.

Ms. SCHAKOWSKY. Thank you, Mr. Chairman.

Let me ask first—in my opening statement, I said that the DOD

Inspector General testified in 1995 that by 2000 there would be

this turnaround; and now, Mr. Lieberman, the word is that by the

middle of the decade that there may be financial statements that

could be audited.

Though we have heard the magnitude of the problem, why is it

it would take that long? Do you expect that is the time you are projecting?

Mr. LIEBERMAN. I don’t remember exactly who gave that testimony, but I wrote it. At the time, we were severely criticized for

being pessimists, and we were labeled as defeatists. As it turns out,

we were wrong, because it took even longer than the 5 years we

were talking about back then.

The problem here is this large number of automated systems

that compile data on millions and millions of various kinds of

transactions that have financial implications, and all of this has to

be crunched together. The typical corporation can do that because

they design an integrated information technology construct in the

first place. Defense did not have that in place, and developing new

systems is a slow process in the best of circumstances. It always

takes several years.

I think, in retrospect, no one can deny that systems improvement

was too slow in the decade of the 1990’s. There are various reasons

for that. One is resources. This has never been a popular thing to

spend money on, and there was never a big push to do so.

Ms. SCHAKOWSKY. Are you saying there were insufficient resources in the Department on this?

Mr. LIEBERMAN. Yes. It was possibly the Department’s own fault.

They did not address it. Nobody ever knew what the projected cost

of this effort was. It has only been since the Congress has required

systems improvement cost estimates during the last 3 years that

we have begun to get a handle on how big the cost of this really

is.

Ms. SCHAKOWSKY. Are you saying that over the last 6 years there

has been steady progress? Can we look back at the annual reports

and say that, though it has been slow, we are getting there?

Mr. LIEBERMAN. There has been progress. I think it could have

been a lot faster than it was. Resources are part of the problem.

49

Management commitment is part of the problem. To get all the

parts in line to cooperate to do this has been a problem. It has been

viewed as the accountants’ challenge, and the rest of the Department has been very hard to capture in terms of getting on board.

Now, I think because of the fact that the Department itself

agrees that it will take until at least 2003—and I think that is optimistic—to fix these systems, there simply is no way we are going

to have credible financial statements until the systems are fixed.

So I think the middle of this decade is probably a pretty good bet

at this point for clean audit opinions.

Ms. SCHAKOWSKY. Mr. Kutz, the cultural thing in this, if there

were an accountant from Mars who might look at the Department

of Defense, they might think about the different branches of the

Armed Forces and all the repetitive or duplicative things we do as

being not the most efficient way to run a Department.

It says here, ‘‘These analyses can be narrowly focused, and do not

consider joint acquisitions with other services.’’ Is that the kind of

resistance you are talking about, the kind of efficiency that might

result from joint cooperation? How does one overcome these longstanding cultural problems?

Mr. KUTZ. This relates to the plan Mr. Lanzillotta mentioned. I

think that is a good example of the reflection of the parochialism

and narrowness of interest.

The financial management improvement plan is a very big improvement from the prior years’ plan. It has a lot of data and a lot

of good information. The problem is, however, the plan is not a

management tool at this point. It is a reflection of a data call of

all the different decentralized, stovepiped efforts that are going on

out there. Without an actual plan from the top that is driven by

someone in a senior management position, it is going to be very difficult to make the kind of long-term change in culture that we are

talking about.

I will let Mr. Warren address the acquisition issue specifically.

Mr. WARREN. I would just add that, as you said, that is a perfect

example. There is a real bias toward each service having their own

individual system, rather than, as has been mentioned here today,

an overall architecture which guides the management process of

the Department.

What that ultimately means is that funds are spent for multiple

systems, and they again, as has been said, often do not talk together, or do not provide the information and interchange, the information that is needed to provide not only financial management

information but also management information that is needed for

the day-to-day operation of other activities.

Weapons systems certainly is an area over time where that same

phenomenon has occurred. There are various examples out there

where multiple systems have been built that have similar capabilities, so that clearly is a problem.

I think at the heart of solving this—and, again, it has been mentioned by the other panelists—is getting central leadership, a toplevel commitment that you are going to go to an integrated system.

That person needs to have control of the resources to make that

stick, so these multiple systems are not put into place.

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Part of the reason that it occurs, quite simply, is because the

services have the money to do it.

Ms. SCHAKOWSKY. You mentioned the issue of systems, weapons

systems. I wanted to just ask you this. The issue of inventory control in the GAO’s high-risk report, which was issued earlier this

year—I was really shocked to learn that about half of DOD’s $64

billion inventory exceeds war reserve or current operating requirements. Specifically, you cited a figure of $29.6 billion.

Let me ask you if you can elaborate on that. Are we getting desensitized to these huge numbers? Are you saying that DOD essentially bought $30 billion worth of equipment that it does not need?

What are we going to do to correct this?

Mr. WARREN. Just to correct that, not that it necessarily does not

need, but it did not need at the point in time that it bought it,

based on its own requirements.

Once the items are purchased and are in the inventory, then I

think there is a very good argument to say that we need to take

a look at this from an economic retention standpoint and decide,

now that we have it, should we go ahead and retain some of it.

Ms. SCHAKOWSKY. I am concerned about the earlier decision.

Mr. WARREN. Correct. All things being equal, if they had accurate information in terms of forecast demands, in terms of systems

that were ultimately going to become obsolete, those items would

not have been purchased. Those are breakdowns in the systems

and in management processes within the inventory management

area.

That area has been on GAO’s high-risk list since 1990. We have

issued a number of reports on that area, as well as the Inspector

General.

At the heart of that system is a need for business process reform.

We have been advocating an overall logistics transformation plan

that would guide not only the inventory piece but there are many

other pieces: transportation, maintenance of major weapons systems, storage of items, disposal of items. These all go to make up

the logistics expenditures.

We think there needs to be a comprehensive plan that deals with

all of those issues. Again, as the other plan said, that needs to be

tied into what you are going to do in your financial management

area, so ultimately you come out and have an effective management system for all elements of the Department in your major

business areas.

Ms. SCHAKOWSKY. Thank you.

Thank you, Mr. Chairman.

Mr. HORN. Let’s pursue that just for a second before Mr.

Putnam——

Does GAO say, why don’t we just get one system in one place on

one aspect and get all those services to do that?

Mr. WARREN. We would say that would be certainly one approach

that could be used. In other words, we understand the enormous

challenge that would be involved in putting the entire—or dealing

with all of the various business functions at a single time.

Perhaps the approach would be to take one of your major business areas and come up with a model for success in terms of getting the results that you want, and then move forward and do that.

51

Perhaps financial management is the area to use in order to accomplish that.

But, in doing that, clearly whatever approach is used for that

model has to be integrated so that the other elements of the business processes within the Department are in fact considered as

those decisions are made.

Too often in the feeder systems that were mentioned, they will

go on and make improvements, for example, in their inventory accounting or control processes, without taking into consideration the

things that need to be done to provide accurate information to the

financial community.

Mr. LIEBERMAN. If I can add one thing, Mr. Chairman.

Mr. HORN. Go ahead.

Mr. LIEBERMAN. We have talked for a whole hour about systems,

and we have never mentioned the Chief Information Officer of the

Department.

One of the problems that remains is that 5 years after the

Clinger-Cophen Act the Department still has not effectively implemented that law and really established an information systems

czar to help all these different functional communities come together.

Mr. HORN. Mr. Lanzillotta has to leave at 11:20. By the way, you

are free to come back this afternoon, because if members have

questions we can then do it, from 1:30 to 2:30.

What do you think of that idea of incrementalism, let us get one

and get that done right? Who is the Chief Information Officer now?

Is that in your bailiwick, or what?

Mr. LANZILLOTTA. Mr. Chairman, no, that does not fall within my

responsibilities, although I recognize the need for such an office or

somebody within the OSD comptroller to try to get a handle around

all these financial management systems.

I do not disagree with the standardization of systems, but I don’t

want that to become the goal for the Department by itself. The goal

is to have accurate and timely management information.

Now, when GM or a large corporation merges with another corporation, they don’t necessarily make the new corporation conform

to their system. They look at the systems and make sure that they

can talk and that they are compliant.

I am not so much concerned with coming through and making

sure that we have a standardized system that does one thing or another, as long as we have systems that prove accurate and timely

and are compliant with financial regulations and that talk to each

other. Then, as time goes on, we may come later and replace those

systems with an integrated system.

I think the Department needs to focus to make sure that—we

have to play the hand we are dealt. This is where we are. We don’t

have the luxury of going back and stopping in our repair part system, our inventory system, our health care system, or any of those

systems, and say, OK, we are going to develop a single system, and

we are going to take time to institute it and get everybody trained

on it. We are playing the hand we are dealt.

Eventually, that is where we are going to go. But I think first

we have to get everything compliant, and it has to meet our management objectives. Then we can turn around and, as we replace

52

those systems, maybe we can come to a more efficient system that

is just one system for each category.

Mr. HORN. We will send you a few questions. I would like to

start in the page right here on which management systems are you

talking about. If you could just give us that.

Now, the gentleman from Florida, Mr. Putnam, will question you

for 10 minutes.

Mr. PUTNAM. Thank you, Mr. Chairman.

What are your management objectives?

Mr. LANZILLOTTA. I think Secretary Rumsfeld has one focus.

That focus is to provide, in the area of financial management—he

has many focuses—but in the area of financial management I think

that he wants clear, accurate, timely, compliant information when

he wants it. I don’t think he wants to wait until the end of the year

to find out about how these systems are doing, or inventory, or

anything else like that. He wants management information to

make management decisions now.

The fact that we have a clean opinion is kind of a matrix. It is

kind of a measurement on how well the systems are doing, but it

is not the goal. I think Secretary Rumsfeld’s goal and what he has

charged the people to do is—to include myself—is to make sure

that he has the management information, to know the cost of operations so when he is trying to make financial decisions on the readiness of his forces, he can do that.

Mr. PUTNAM. What will it cost to get to that system or that set

of systems or that network of systems or that web of systems that

would allow him to have clear, accurate, timely information at his

fingertips at his request?

Mr. LANZILLOTTA. Sir, I guess after a week here I really don’t

have that information, and I don’t know when I will. It’s going to

be terribly expensive, I know that. But it’s kind of like, you know,

we’re starting and building the system architecture and mapping

the data flow as it currently exists. We kind of have to take that

to find out where our rough spots are to see where we need to devote some assets and make it work. I’m afraid if I gave you a dollar

number, I know it would be absolutely wrong.

Mr. KUTZ. Congressman Putnam, the current amount being

spent on systems at the Department is about $21 billion a year,

which includes new systems development and legacy systems upkeep. I’m not sure exactly what the breakdown is between the two.

But in many respects there is not a shortage of money going into

IT. $21 billion is half of what the Federal Government is spending

on IT; governmentwide it’s about $44 billion. So it’s a pretty substantial investment being made right now and we’ve seen minimal

progress over the years.

Mr. PUTNAM. Was information technology logistics and those considerations, part of this tooth to tail review of Pentagon operations

and strategy? Did that play any part whatsoever?

Mr. LANZILLOTTA. Yes, sir, I think does. I think that you know

the creation of my position as management reform exists prior to

me taking this position April 30th. And I think that’s what the Secretary has in mind, is looking at that type of thing. You know, we

have some of those things that are working now. For my sake I

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hope there will be more in the future, and the Department has

taken this very seriously.

Mr. PUTNAM. Thank you. Tell me perhaps for the GAO, or whomever, if you have an estimate on the amount of improper payments,

duplicate payments, overpayments, payments made for goods and

services not delivered that have been made by the Defense Department.

Mr. KUTZ. For fiscal year 2000 what I know is that about $900

million was repaid by contractors for overpayments. I don’t believe

though that the Department knows how many dollars of improper

payments are made annually. No one knows in the Federal Government. There are estimates at certain departments, for example, the

earned income tax credit.

Mr. PUTNAM. $900 million.

Mr. KUTZ. $900 million. But that’s what they know. And much

of that is for contractors that identified the overpayments and voluntarily sent them back versus the Department identifying overpayments and asking for them to be sent back.

Mr. PUTNAM. So that was the Good Samaritan refund?

Mr. KUTZ. Much of that would have been the Good Samaritan.

Mr. PUTNAM. Are some defense agencies performing more efficiently or producing better financial statements or financial instruments than other agencies? Who’s performing at the top and who’s

performing at the bottom within the Department?

Mr. LIEBERMAN. Well, the Military Retirement Fund earned a

clean audit opinion and that’s been true for several years. So it’s

in the best shape in terms of the large reporting entities that make

up the overall departmental financial statements.

Some defense agencies are doing better than others. The Defense

Finance and Accounting Service itself got a clean opinion on its

statements for fiscal year 2000. However, that organization is not

that large in the overall DOD scheme of things. So these are significant steps forward, but they’re not giant leaps forward.

Mr. PUTNAM. What process is in place now to identify these improper payments or overpayments?

Mr. KUTZ. At the Department—I’m not aware of what process

they have to estimate what overpayments there are. There are controls intended to reduce overpayments that have been put in place.

And I believe one of the areas of improvement has been the reduction in the amount of overpayments at DFAS from what it was several years ago.

Mr. LIEBERMAN. There is one area where there is definite

progress on the systems front. A lot of the faulty payments problem

is because of the outmoded systems that we use in the payment

process as well as bad data in our systems. There is a system

called MOCAS, the Mechanization of Contract Administration

Services, horrible acronym, which has been our main data base for

facilitating the payment of contractors for the last 20 years. It is

being phased out now in favor of a new system, which should improve the efficiency of the payment process dramatically.

Mr. PUTNAM. Could you elaborate a little bit on what you described as the outmoded system?

Mr. LIEBERMAN. Well, MOCAS has 20-year-old technology. It is

not efficiently interoperable with a lot of other systems.

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Mr. PUTNAM. Hang on 1 second. How do you have a $21 billion

information technology budget that is—but yet you still have a vendor system that is 20 years old and obsolete? How do you reconcile

those two things?

Mr. LIEBERMAN. Well, the need to replace MOCAS was recognized several years ago and it takes several years to develop replacement systems. So the replacement system has been under development for the past several years and a good chunk of that annual IT budget goes into systems like that.

I think it’s unfair for us to sit here and give the impression that

DOD has not improved a lot of its systems over the past decade because it has. There are a lot of new systems coming online now

whose developments started in the middle of the decade, for example, that are quantum improvements over what they’re replacing.

Mr. PUTNAM. I think that the committee and the Congress recognize that nobody goes to work every day at the Pentagon thinking

of ways to waste the taxpayers’ money. But the budgets are so

enormous and the scope is so broad and everything about what

goes on in our Defense Department is by factors of 10 so much

larger than any other portion of the government. And so it is rather frustrating when all of us hear about supply shortages or training and operations budgets that are going to be depleted by August

31, and yet we’re spending half of what the entire Federal Government spends on information technology and nobody really can tell

us, at least not through an auditor’s eyeball, where it all went. And

so there is a frustration out there.

And it doesn’t mean that anybody is here to beat up on the Department of Defense or to beat up on the Pentagon. We certainly

recognize that you have a very difficult job, and all of us want to

support you in that effort. But good God almighty, $21 billion and

we still can’t pay our bills on time? I mean, there’s a cause for concern there. And I think that’s where the chairman is headed with

this.

Thank you, Mr. Chairman. I yield back the balance of my time.

Mr. HORN. Before Mr. Lanzillotta leaves let me ask this question

of GAO. Mr. Kutz, GAO recently issued a report on the Department of Defense’s inability to estimate the cost of removing

unexploded ordnance from its training ranges. What do you believe

the Department of Defense needs to do to determine the locations

and extent of contamination and what it will cost to clean up the

various Department of Defense training ranges?

Mr. KUTZ. The estimate that they have right now is about $14

billion in their financial statements, but there are estimates out

there and these are DOD estimates also that could be over $100

billion. What they need to do is what the Department of Energy

has done, is go through a disciplined process of inventorying and

costing out what it takes to remediate the environmental issues.

I had some experience with Energy in looking at what they did

in the mid-1990’s and DOD is clearly years behind where Energy

is in actually documenting and costing out what the issues are and

giving the Congress a good idea of what it’s going to cost for all

of the remediation.

There is a report that they issued or they issue annually that

talks about what’s being funded today. But that is woefully less or

55

significantly less than what actually is going to have to be done at

the Department. So this is potentially a $700 billion issue at DOD

versus what Mr. Lieberman said earlier, the $60 or $80 billion that

has been reported the last several years.

Mr. HORN. Well, on that point and whether it’s a management

tool or not, I can remember 3 years ago when we were talking

about cruise missiles in the former Yugoslavia, Serbia, etc., and we

were left absolutely speechless here. Now a couple of people knew

that you didn’t have the cruise missiles and you didn’t have an assembly line from the Gulf war and all of that. We couldn’t believe

it. I just wonder when the Secretary wakes up in the morning does

somebody give him an inventory on where we are on some of these

key things that the country might have to use either in its own defense or anything else?

I’d like to know, can you explain the significance of the DOD not

having the 62,000 missiles, rockets and other ammunition items in

its records? Our understanding is that you can’t really find what

kind of missile is in there or not. Are we just being misled or what?

What do you know about that, Mr. Lanzillotta.

Mr. LANZILLOTTA. Sir, I’ll give you what I know about it. I think

there’s a difference between things that are lost in the financial

records and things that are lost in the property accountability

records. I think when you go down to the unit and on the property

accountability you know they can tell and there’s been other reports on spot reports of this that there is a 99 or some high percentage of accountability at that level.

The problem is our financial systems don’t necessarily, because

they’re old and weren’t originally meant to track that, can go back

there and track that same data. And that’s the problem. The guy

knows down there where his missiles are and how many missiles

he’s got, but our financial systems need to be revamped, and that’s

part of the system’s problem, to make sure that same information

comes in.

Mr. KUTZ. The policies and procedures are there that the test facility in this case or the four test facilities were acquired by DOD’s

own policies to report these items into the central visibility records.

They just told us they didn’t do it.

Mr. LANZILLOTTA. There’s just no excuse for that.

Mr. HORN. I agree. So I hope there will be a series of things that

the Secretary of Defense, the Deputy Secretary, etc., all can know

that this is what we’ve got as of this date. And certainly the CINCs

that run a lot of the military things, they ought to have that on

their desk in the morning. I wonder, Mr. Lieberman, as I remember, the environmental unit on the base closures is part of the Office of the Secretary of Defense. Have you ever done the Inspector

General matter with them?

Mr. LIEBERMAN. Yes, indeed. We try to maintain a level of effort

of several audits a year on the Department’s environmental program. Many of those audits over the years have been requested by

56

that office. Others have been requested by Congress or are self-initiated. But I’d be happy to provide for the record a list of those reports going back over the last few years.

Mr. HORN. Well, and if you could send me the reports because

my feeling is that’s the slowest snail in the Pentagon.

[The information referred to follows:]

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Mr. LIEBERMAN. It’s a tough area. Cost containment historically

has been a real challenge. Motivating the services to fully identify

their problems has always been a problem, too.

Mr. HORN. But it just seems to me the Congress gave them the

money and they ought to be administering it so the contamination

can be moved at least into a brownfield situation and the community that is devastated by thousands of people being put out of

work can’t get anywhere and can’t bring in new industry or anything else because the Department of Defense, the Navy is one of

the worst snails I know, too. So when you stay around here you

begin to wonder, my heavens.

Mr. LIEBERMAN. I agree with you. Congress has been generous

in funding cleanup efforts. And there is a lot being done—there is

the usual mix of positive and not so positive information, but I’d

be happy to provide all that stuff to you.

Mr. HORN. Appreciate it. We’ll have some staff go through it.

Mr. WARREN. Mr. Chairman, we’ve also done a number of studies

in relation to the environmental cleanup and we’d be happy to provide those as well.

Mr. HORN. Great. I almost thought we had another speechwriter

there with Mr. Lieberman and you sitting next to each other. So

I was waiting for a speech. Mr. Warren, if you have anything else

to put on the deck, let us know.

Mr. WARREN. No.

Mr. HORN. OK. Anything else you’d like to say, Mr. Lanzillotta?

Mr. LANZILLOTTA. No, sir.

Mr. HORN. Thank you for coming. So we will maybe send you all

a few questions and we’ll put your responses in the record here.

Thank you very much.

[Whereupon, at 11:15 a.m., the subcommittee was adjourned.]

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