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THE DEPARTMENT OF AGRICULTURE: WHAT MUST

BE DONE TO RESOLVE USDA’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. 107–54

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:

Viadero, Roger C., Inspector General, U.S. Department of Agriculture,

accompanied by James R. Ebbitt, Assistant Inspector General for

Audit; and Patricia Healy, Acting Chief Financial Officer, U.S. Department of Agriculture ....................................................................................... 3

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

Healy, Patricia, Acting Chief Financial Officer, U.S. Department of Agriculture:

Information concerning accounting measures ......................................... 50

Information concerning employees at USDA .......................................... 49

Information concerning loans ................................................................... 34

Prepared statement of ............................................................................... 20

Viadero, Roger C., Inspector General, U.S. Department of Agriculture,

prepared statement of ................................................................................... 6

(1)

THE DEPARTMENT OF AGRICULTURE: WHAT

MUST BE DONE TO RESOLVE USDA’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 1:30 p.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;

Bonnie Heald, director of communications; Earl Thomas Pierce,

professional staff member; Grant Newman, clerk; Alex Hurowitz,

intern; Mark Stephenson, minority professional staff member; and

Jean Gosa, minority assistant clerk.

Mr. HORN. A quorum being present, this hearing of the Subcommittee on Government Efficiency, Financial Management and

Intergovernmental Relations will come to order.

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

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

morning we examine financial issues at one of the government’s

largest agencies, the Department of Defense, and one of its smaller

agencies, the Agency for International Development. This afternoon, we’ll focus on the financial issues at the Department of Agriculture.

The Department of Agriculture, along with the Department of

Defense, is cited as being one of the primary reasons the Federal

Government is unable to prepare reliable financial statements.

Similar to the Department of Defense and the Agency for International Development, the Department of Agriculture received a

failing grade on the subcommittee’s financial management report

card for fiscal year 2000. The Department’s Inspector General reported that significant financial problems continued to plague the

agency in fiscal year 2000. In addition to its inability to

appopriately value its loans, the Department of Agriculture was

unable to support its cash balances with the Department of the

Treasury and the amounts it reported as property, plant and equipment.

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The Inspector General also found that the Department’s internal

controls and antiquated financial systems were ineffective. These

systems will not be fully corrected until fiscal year 2003 at the earliest, when replacement systems are fully deployed in all of Agriculture’s agencies. These ongoing problems prevent the agency

from using financial data in its day-to-day management or for the

preparation of its financial statements.

The Department of Agriculture manages a wide spectrum of programs that affect millions of people, from making loans to farmers,

to administering major nutrition programs such as food stamps.

The Department’s net cost of operations for fiscal year 2000 was reported to be $75 billion, more than $32 billion of which was spent

for nutritional programs.

In addition, the Department administers $124 billion in loans

and loan guarantees. In many cases, it is the lender of last resort

or loan guarantor for businesses and families involved in agriculture.

Agriculture’s loan portfolio is valued at about $70 billion after allowances for loan losses are taken into account. Unfortunately, the

Department is unable to reasonably estimate its loan losses. Therefore, the government does not know the true cost of these programs. Furthermore, the government does not maintain a cost accounting system and has no plans to institute one, yet how can the

Department effectively control the cost of its operations without

such basic accounting information and systems?

Now we have a new administration which we hope will focus

close attention on the Department of Agriculture’s continuing inability to address its longstanding financial management problems.

We welcome our witnesses today, the Honorable Roger C. Viadero,

Inspector General, U.S. Department of Agriculture, and Patricia

Healy, Acting Chief Financial Officer, U.S. Department of Agriculture. We look forward to your testimony, your insight, your recommendations toward ending this intolerable financial situation at

the Department of Agriculture.

Now, some of you know how we conduct this thing, and when we

have you in the agenda here, and we simply go down the line on

that, and we have, for example, Mr. Viadero, the Inspector General. He’s accompanied by Mr. Ebbitt, Assistant Inspector General

for Audit; and the Acting Chief Financial Officer, Patricia Healy.

Your full text will be put immediately in the hearing record after

I call you in accord with the agenda.

No. 2, we’d like you to not read your statement. That’s in. We

know about it. But summarize it for us, somewhere between 5 minutes and 10 minutes; 10 minutes, let’s say, today. And what we

want to do is get the key things on the record besides the whole

text already being in the record. And, No. 2, what we’re interested

in is the chance for questioning, either between the Chief Financial

Officer or the Inspector General or simply with the Members here.

So we would like to spend most of our time this afternoon on the

questions and answers.

So if you’ll stand and raise your right hands, we’ll swear you into

office here for the testimony.

[Witnesses sworn.]

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Mr. HORN. The clerk will note that all three witnesses affirmed

the oath. And now we begin with the Inspector General, the Honorable Roger C. Viadero.

STATEMENTS OF ROGER C. VIADERO, INSPECTOR GENERAL,

U.S. DEPARTMENT OF AGRICULTURE, ACCOMPANIED BY

JAMES R. EBBITT, ASSISTANT INSPECTOR GENERAL FOR

AUDIT; AND PATRICIA HEALY, ACTING CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT OF AGRICULTURE

Mr. VIADERO. Thank you, Mr. Chairman, and members of the

committee. I’m more than pleased to be here to provide testimony

about the Department of Agriculture’s financial management. With

me today is James Ebbitt, the Assistant Inspector General for

Audit.

In order for government managers to administer their responsibilities, they must have reliable financial information at their fingertips, just as corporate leaders must have. One can readily imagine how long any company would stay in business if it did not

know its level of cash, how much money it owed, or how much it

was owed, or what its asset base was. Yet this is the environment

in which USDA has operated.

In the absence of shareholders demanding accountability, the

deep-seated financial weaknesses in the Department have persisted

throughout the years. Financial data do not represent meaningless

numbers on some obscure statements examined only by a few. It

represents the information needed to direct activities. Accurate and

timely financial information serves as the steering mechanism by

which programs can be managed in an effective, efficient and economical manner. Without this capability, the course cannot be

navigated. The vessel may be propelled in circles and drift aimlessly.

We issued a disclaimer of opinion on the Department’s financial

statements for fiscal year 2000. The disclaimer in this case means

the information needed to conduct the audit was not provided to us

so that we could conduct sufficient work to determine the reliability

of the $124 billion in assets and other amounts on the USDA financial statements. In addition, the extent of internal control weaknesses in the Department’s financial systems and operations means

the amounts presented are highly questionable.

The timeliness of the data is as important as the accuracy of the

data. Reliability of information is needed in real time to manage

effectively, not 6 months after the end of the fiscal year. Whereas

corporate America fundamentally closes its books daily, the Forest

Service provided us with draft financial statements in November.

Then they continued to modify them until February. Financial information that changes so frequently is of little utility. Similarly,

the Commodity Credit Corp. [CCC], was unable to provide us with

auditable statements until April 25th of this year. The Comptroller

General recently testified before this subcommittee on this very

crucial issue. Audit opinions are not the be all and end all. Viable

systems which produce timely and reliable financial information

are, though.

I do need to emphasize that although in the past things have

been bleak, we do have a brightening future. In fact, it’s rather

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bright. The most positive news we have is that the Central Accounting System [CAS], is in its next to last year of phase-out. Fiscal year 2001 will still be negatively impacted, however, in that a

potentially material percentage of the Department’s administrative

payments will still be processed through CAS.

The problems with CAS have been well chronicled. This system

is so inherently flawed that the books cook themselves. Starting

with the next fiscal year, October 1, 2001, the culmination of a

strategy launched in 1993 will be achieved with the implementation of a new system. The new system, entitled the Foundation Financial Information System [FFIS], will be operational for all of

the agencies’ administrative payments. The implementation of

FFIS has not been without problems. A critical decision at the outset of the implementation of FFIS, to retain the legacy of feeder

systems, has hindered implementation.

Two USDA agencies, the Forest Service and CCC, committed

Antideficiency Act violations in fiscal year 2000. The Forest Service

obligated $274 million in excess of available funds to fight fires.

The violation occurred primarily due to incurring obligations without inputting the data into the system. CCC represented to us it

had disbursed $50,000 more than it had appropriated for the livestock indemnity program. These violations of law are examples of

the negative impact the absence of reliable accounting systems and/

or operational weaknesses can have.

Another long-standing, highly complex and very material encumbrance to the Department’s efforts to secure a clean opinion has

been its implementation of the credit reform legislation. USDA has

a portfolio of loans totaling nearly $97 billion that is subject to

credit reform. It is the largest direct lender in the entire Federal

Government.

The Department has launched an aggressive corrective action

plan to overcome the noncompliance with credit reform requirements that we first reported in 1994. Whereas initial actions by the

individual agencies were inadequate at best, under the leadership

of the Chief Financial Officer, a task force including representatives of my office was formed to redirect the sideways movement.

A series of cash-flow models have been devised to capture and analyze the necessary elements to yield meaningful subsidiary estimates and reestimates.

Legislative requirements impacting cash-flows have now been

identified, and calculation methodologies have been developed.

Achievements in the area of credit reform have been significant, to

include the development of two new cash-flow models for Rural Development’s nonhousing direct loans and guaranteed loans. If actions planned are taken in an efficient and effective manner, we believe this problem area, which impacts both the departmental and

governmentwide financial statements, can be corrected.

Another long-standing and major encumbrance to a clean opinion

is the Forest Service’s accounting for real property. As of September 30, 2000, the Forest Service reported about $4.7 billion in real

property assets. About 55 percent of this dollar value or $2.6 billion, is attributable to what is referred to as pooled assets, primarily roads. The remainder represents individual assets such as

buildings.

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An extraordinary breakthrough occurred this year in this area.

For the first time, the agency was able to reasonably estimate the

value of its pooled assets. Due to the absence of historical cost data,

a strategy was needed to estimate cost. Forest Service and OIG

partnered to develop such a strategy. The Forest Service compiled

the inventory data and the best cost information available and then

computed a reasonable balance.

A significant problem persists in the valuation of the individual

real property assets. Audit tests disclosed the values of about 24

percent of the assets examined were overstated, 5 percent understated, and 7 percent did not have any documentation to support

any valuation whatsoever.

The cumulative errors were too high to allow us to project the

total variances, but nonetheless, we were unable to obtain assurance regarding the fairness of the balance of the line item as presented on the statements.

Now, let me address what the Department needs to do to

strengthen its financial management and obtain an upgraded audit

opinion. First, FFIS must be fully functional and not beset by significant weaknesses.

Second, credit reform remains an obstacle to an improved audit

opinion because of the breadth and complexity of the issue. Although some of the cash-flow models have progressed to the point

where data verification procedures can be performed, others, frankly, have not. While the Department’s plans call for the problems to

be resolved by the next fiscal year, much remains to be accomplished. An intensive commitment from all affected agencies is

needed to ensure the impact on the financial statements will be

eliminated as soon as possible.

Third, Forest Service real property is another very difficult matter. Considerable resources will be needed to compile valuation

data, and controls must be put in place to verify the amounts as

supportable.

Last, the Forest Service and CCC must strengthen their financial

processes to ensure they are capable of producing timely and reliable data.

Despite these extraordinary encumbrances, the Department is

making headway and deserves a significant amount of credit for

their efforts and accomplishments to date.

Mr. Chairman, this ends my oral statement. I appreciate your

time, and any questions you may have.

[The prepared statement of Mr. Viadero follows:]

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Mr. HORN. We thank you for that presentation, and we now turn

to Patricia Healy, the Acting Chief Financial Officer for the U.S.

Department of Agriculture. Ms. Healy.

Ms. HEALY. Thank you, Chairman Horn.

Chairman Horn and members of the committee, I appreciate the

opportunity to talk with you today about the progress we have

made in financial management at USDA in fiscal year 2000 and

about how we plan to address our remaining issues that keep us

from obtaining a clean audit opinion.

Over the last year, my colleagues and I have been working very

hard with the General Accounting Office, the Office of Management

and Budget and the Inspector General to tackle some of the larger

issues facing the Department. We’ve made significant progress on

many fronts to address the underlying problems affecting the data

reported on our financial statements.

Providing effective financial management for an organization as

large and diverse as USDA is a tremendous challenge. If USDA

were a corporation, the Department’s spending would make it the

country’s sixth largest corporation and one of its largest banks.

USDA is the government’s largest direct lender, holding about onethird of the government’s outstanding direct loans. USDA employees and facilities are spread throughout the United States and in

many countries, providing benefits to nearly 70 million individuals

a year. Managing financial and administrative operations is made

even more challenging by the fact that staffing levels within the

Department have declined while demands for USDA programs

have not.

I also want to emphasize that although there are problems remaining, the top priority for financial managers at USDA is safeguarding taxpayers’ money against fraud, waste and abuse.

We’ve made progress on several fronts during this past year, including the accelerated implementation of the Foundation Financial Information System [FFIS], which is the cornerstone of financial management and administrative systems improvements at

USDA. The success of USDA in implementing the system according

to the aggressive schedule that we committed to in fiscal year 1999,

led us to accelerate the implementation for fiscal year 2000. As a

result, on October 1, 2001, all but two of our agencies will be using

FFIS.

We also have clean opinions on three of the six stand-alone statements produced by USDA agencies. The agencies with clean opinions are the Food and Nutrition Service, which is the USDA agency

with the largest budget; the Rural Telephone Bank; and the Federal Crop Insurance Corp. The remaining three agencies with

stand-alone statements, Rural Development, the Forest Service and

the Commodity Credit Corp., have made significant progress in improving their audit results. Rural Development has a qualified

opinion for fiscal year 2000.

Mr. Chairman, while progress has been made, we recognize that

we still have much to do. We recognize that receiving a clean audit

opinion will be a hollow victory if we do not put in place the systems and processes necessary to produce a sustainable process that

will provide accurate, reliable, and useful financial information

that can be used by program managers at USDA. We are commitVerDate 11-MAY-2000 09:24 Apr 30, 2002 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 C:\DOCS\77919.TXT HGOVREF1 PsN: HGOVREF1
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ted to sustainable improvement as we address the challenges before us.

The following are highlights of our major challenges and plans

for improvement. In the area of credit reform, there are two USDA

agencies affected: Farm Service Agency, including the programs

funded by the Commodity Credit Corp., and Rural Development. As

a response to audit findings in 1999, USDA formed a working

group comprised of USDA credit agencies, CFO, OMB, and OIG

representatives, to develop the needed cash-flow models and documentation. GAO assisted the group by providing a standard ‘‘best

practices’’ methodology to implement credit reform.

During fiscal year 2000, USDA’s Credit Reform Working Group

made significant progress toward resolving credit reform issues. All

USDA credit agencies revised a portion of their credit models during the past year to improve budget and financial statement estimates for loan allowances. Several data validity reviews performed

as a partnership with the OIG and GAO concluded that the integrity of the data used to develop the credit models is sound. Agencies also improved documentation supporting the models and

worked to revamp their accounting procedures.

During fiscal year 2001, USDA plans to complete the credit reform models and finalize procedures that will address most of the

remaining OIG concerns related to credit reform financial statement line items. We will also continue to address the challenge to

ensure sufficient staff is available to support credit reform activities.

Old, legacy administrative ‘‘feeder’’ systems of USDA have also

caused numerous financial management problems for the Department and the FFIS implementation. These problems include issues

that affect our ability to reconcile our cash accounts with Treasury

and to provide current online access to information for our managers in a timely manner.

In fiscal year 2000, the Chief Financial Officer, working with the

Chief Information Officer and the Assistant Secretary for Administration, led a Corporate Administrative Systems Executive Committee tasked with developing a corporate strategy for dealing with

the administrative and financial feeder systems. The systems in

the corporate strategy and their priorities for implementation are:

accounting and budget execution, telecommunications infrastructure and security, procurement, payroll, human resources, travel,

property, and budget formulation.

We plan to complete the necessary implementation of these systems within 5 years. A constraint in our ability to implement the

entire corporate strategy has been the availability of funding. We

are grateful to Congress for the language provided in last year’s

Agricultural Appropriations Act, allowing the Secretary of Agriculture, with the Appropriations Committees’ approval, to transfer

unobligated balances of appropriated funds to the Working Capital

Fund to assist with the acquisition of needed financial, administrative, information technology services. We will be providing a plan

to the committee shortly to seek this approval.

Reconciling our fund balances with the Treasury progressed well

in fiscal year 2000. Mr. Chairman, I want to stress that the outof-balance condition was due to reporting differences to Treasury

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that had not been corrected in a timely manner. The differences did

not result in a loss of taxpayer money.

We are continuing to work on resolving the remaining issues affecting our ability to reconcile our cash accounts with Treasury’s

fund balance in a timely manner and have been working with staff

at the National Finance Center and the agencies to implement a

sustainable process for reconciling cash.

The major component of the general property, plant and equipment line item in USDA’s financial statements is the Forest Service real property, consisting of pooled assets, for example, road

costs; and individual real property assets, for example, buildings.

During fiscal year 2000, the Forest Service initiatives with property began to show results. The OIG has accepted support for $2.57

billion of their 381,000 miles of roads. In fiscal year 2001, the Forest Service plans to revise its inventory instructions for the field

for the remaining real property assets and provide additional training with a goal of ensuring that all their real property assets will

pass the audit tests for fiscal year 2001.

Mr. Chairman, these issues from the audit combine for an extensive list of management and audit challenges. I am pleased to

share both our accomplishments today and our plans to remedy

outstanding issues that are preventing USDA from achieving an

unqualified audit opinion.

Mr. Chairman, I would be happy to respond to any questions

that you or your colleagues may have. Thank you for arranging

this forum to discuss the financial management issues at USDA.

Mr. HORN. Thank you very much, Ms. Healy.

[The prepared statement of Ms. Healy follows:]

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Mr. HORN. The ranking member has come in. If you would like

to have your statement at the beginning and go to questions, you’re

certainly free to. We’ll submit it into the record right after my own

statement. Without objection.

So let me move, then, to the 10-minute period that each of us

will have, including Mr. Putnam.

Mr. Viadero, if I heard you correctly, two of the Department of

Agriculture’s agencies, the Forest Service and the Commodity Credit Corp., spend more money than was provided by Congress; is that

true?

Mr. VIADERO. Yes, sir.

Mr. HORN. How do you think that happened?

Mr. VIADERO. I think it happened, sir, because of poor accounting

systems, not on the part of the CFO, but what we were discussing,

that CAS system, the Central Accounting System, and the transition into the new updated, streamlined, soup-to-nuts Foundation

Financial Information System, which is struggling by itself. Again,

as I mentioned—and there was no play on words—the CAS system

sort of cooks its own books as it goes along. Between the lack of

timeliness of the data and the unreliability of the data, that just

caused the train wreck here.

Mr. HORN. I’m curious. Where is the Chief Information Officer?

I would think they would appear at a situation like this. Ms.

Healy, does he report to you or she report to you or—— Ms. HEALY. The Chief Information Officer?

Mr. HORN. Right. CIO.

Ms. HEALY. No. They do not report to me.

Mr. HORN. To whom do they report?

Ms. HEALY. The Chief Information Officer at USDA reports to

the Secretary.

Mr. HORN. Directly to the Secretary?

Ms. HEALY. Yes; not the Forest Service one, the Chief Information Officer for USDA.

Mr. HORN. OK. And to whom do you report?

Ms. HEALY. The Secretary.

Mr. HORN. The Secretary?

Ms. HEALY. Yes.

Mr. HORN. OK. So there’s a chance for the Secretary to get the

two of you in the chairs, at least, to get you working together. It

seems to me if you can solve this problem, you’ve got to get the

CIO, the CFO—— Ms. HEALY. Uh-huh.

Mr. HORN [continuing]. And all of them to get on the same team.

Ms. HEALY. And we are. The Corporate Administrative Systems

Committee that we had last year was a combined effort of the

Chief Financial Officer, the Chief Information Officer, and the Assistant Secretary for Administration, and we had a number of the

agencies in there as well, recognizing that we have to work together to solve these problems, that we all have a piece of them,

and that the CIO needs to come to the table and provide the critical infrastructure. We need to get the systems out to where people

are, the functional people have to be able to write good requirements, and ensure that all of our systems are not developed the

way they were in the past in a stovepipe manner so they don’t talk

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to each other. They make running the agencies extremely difficult

if we can’t get corporate information.

And so what came out of that was corporate strategy for the systems that will work together with FFIS to give us the information

that we need to manage the agency. That strategy coupled with a

financial data warehouse that we’re also building at the same time,

will allow us to combine financial information, program information and any other information the agency wants to combine together in this warehouse so that we can get the corporate information. We have the plan. We have the strategy, and the Appropriations Committees this year finally gave us a mechanism to get the

funding. That has really been what has been holding us back.

So we have the plan together. It’s undergoing internal review,

and as soon as we can get it up to the committees, once we get

those dollars, we are going to work closely together with the same

parties monitoring how this money is spent, how these projects are

going, and to implement the most critical ones. These are the telecommunications and security, which safeguard the assets, and the

procurement system, which is the main system that feeds into the

accounting system and keeps track of our purchases.

Mr. HORN. Ms. Healy, is it correct that the Commodity Credit

Corp. and Forest Service have spent more money than were provided by Congress?

Ms. HEALY. I do know for sure about the Forest Service. I just

became aware of the Commodity Credit Corp. today, and I think

it was a small amount of $50,000 that I think they believe they

have internal authorities to cover. I don’t have the details on that.

I’d have to get someone from the agency to give you the information.

With respect to the Forest Service, that is true.

Mr. HORN. So it is true on the Forest Service?

Ms. HEALY. Yes, sir.

Mr. HORN. And how much did they overspend?

Ms. HEALY. $274 million.

Mr. HORN. $274 million?

Ms. HEALY. Yes.

Mr. HORN. And you’re saying Commodity Credit is $50,000?

Ms. HEALY. Yes.

Mr. HORN. Is it true that you maintain two sets of books, one for

reporting the value of loans for the financial statements and another for reporting on the budget? How does that system work? I’m

just curious.

Ms. HEALY. Well, I think it isn’t two sets in the traditional sense.

It refers to the way that we’re required to do loans for country

valuations. This is for the foreign loans, and we look at the default

rates for the countries and how to value the subsidy costs for the

foreign loans. This is based on a subsidy rate established by the

ICRA system at OMB, and when we look at it with our auditors,

we’re looking at reestimating the subsidy on an annual basis, as I

understand it. There are some differences in how we have to

present the figures; but the loans are the same no matter which

way you go. It’s just a matter of which way you want to look at

the subsidy cost.

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Mr. HORN. But essentially, in order to help the Department

along, I take it you’ve got two sets of books; is that right?

Ms. HEALY. Yes. For that small portion, for the foreign loans.

Mr. HORN. And it’s just the foreign loans?

Ms. HEALY. Yes, as I understand it.

Mr. HORN. How would you define that in relation to the other

loans that—say the Commodity Credit Corp. puts out loans. Now,

are those typically foreign loans, or are they all in the United

States to farmers here?

Ms. HEALY. I really don’t know. I’d have to check on that.

Mr. HORN. OK. Could you? And without objection, that will be

entered at this point in the record with a letter from the Chief Financial Officer.

[The information referred to follows:]

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Mr. HORN. It just seems to me that double bookkeeping is sort

of what somebody is trying to do to get away from the IRS or something. One set of books—— Ms. HEALY. Uh-huh.

Mr. HORN [continuing]. That is for the family, and one set of

books is for the IRS. So how do we get this corporation, the agency,

and the Secretary in the Department to get it so that it’s one system that people can find for either management purposes or finance purposes? What is it that the CFO will do, having listened

to all the Inspector Generals comments, and what’s your plan so

we don’t go through this again?

Ms. HEALY. Well, with respect to the data that we’re getting in

from CCC with the financial statements and for the loans, what we

need to do with respect to estimating the loans for CCC is get the

Office of the Inspector General and OMB to agree on the same way

that we estimate the subsidy. That’s one thing. And we will work

on that.

With respect to the systems and the data needed to do the financial statements, we are setting up a system to try to get the data

that comes into the financial systems from the individual systems

put into one place in order to easily produce financial statements

and be able to trace the data back to the originating systems. We’re

never going to redo all the various program systems, etc., that we

have in the Department, not at least in the short term. So what

we have to make sure of is that the data that we’re getting in from

the systems, loan systems, etc., is good, valid data. That’s what

we’ve been working on with the credit reform—making sure that

the data is good, then making sure we have a place where there

is a good repository, so that we can do good regular reporting with

what everybody can agree are the same numbers, and that the

numbers are traceable back to their source.

That is what we’re working on. We’re trying to make sure that

the fundamental data is correct first; that we then have a tool in

which to put the data, which is this financial statement warehouse

that we’re also developing; and that we can use that with the auditors and then with other people in the agencies as well to produce

reports that they can use to manage operations. But the key is first

making sure that we concentrate on getting good, solid data at the

base and that’s——

Mr. HORN. Do you feel you have that now?

Ms. HEALY. I think we’re very close. I think what’s——

Mr. HORN. And that’s based on seeing the last train wreck? In

other words, you’ve got better tracks, better cars, better locomotives? Is that—do you have a budget that you can use, or is it

in the CIO’s——

Ms. HEALY. Well, the budget for the financial systems resides

with the CFO organization. We get it through the Working Capital

Fund. So we do have control of that. And with the unobligated balances, we will set up a special fund in the Working Capital Fund

so that we will have that.

With respect to the program systems, the loan systems, etc., the

individual agencies get money in their budgets to correct those.

They work with the CIO. We do have a capital planning process

that we go through to make sure that the money is well spent. So

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we do try to complete the whole to make sure that we’re giving

money to systems that make sense, that are going to correct problems, and that we monitor how the systems are moving along.

With respect to the administrative side and the S&E accounts

and the systems at the National Finance Center, we’ve made a tremendous amount of progress with FFIS. We basically retooled that

project in fiscal year 1999, and by October 1, 2002, we will have

all the agencies of USDA up, which is 17 individual applications in

4 years. This is a phenomenal amount of progress. Together with

that we’re continuing to work on these corporate systems. When we

get the money for corporate systems we’re ready to launch with our

procurement system. We’re ready to look at some approaches for

our payroll systems. I think we’re very well positioned to move forward.

Mr. HORN. Now, do you have that money now, or is it in the current fiscal year, or is it waiting for the next fiscal year?

Ms. HEALY. We will get it once we get the plan—the approval

from the Appropriations Committees, House and Senate, then we

should get that money this year, and it will become basically, as

I understand it, available until expended in the Working Capital

Fund.

Mr. HORN. What are we talking about in numbers; how much?

Ms. HEALY. Right now the preliminary plan we’ve developed for

the administrative systems was about $160 million, to the best of

my knowledge. And then there was one of the commodity systems

that was about an additional $90 million.

Mr. HORN. What programming money do you have that you can

utilize and get this show on the road?

Ms. HEALY. I’m not entirely sure what is available.

Mr. HORN. Usually in an agency budget, they give reprogramming authority.

Ms. HEALY. Oh, I see.

Mr. HORN. That the Secretary could signoff on.

Ms. HEALY. Right.

Mr. HORN. And that the ranking member and the majority

Chair——

Ms. HEALY. Right.

Mr. HORN [continuing]. Could sign it off. That would save you a

lot of going through this drudgery of budgets and appropriations at

all. And that’s what we told them to do on the Y2K thing. I don’t

know if you were around then.

Ms. HEALY. No, I wasn’t.

Mr. HORN. But that was the way a lot of agencies solved the

problem, and that’s what they ought to be doing with money at the

end of the year, not just waste it, but put it to good use.

Ms. HEALY. Well, I think part of the constraint here is that in

the CFO’s office, we only have an appropriated budget of about $5

million. So there really isn’t money budgeted there for the administrative financial systems. The money comes from the Working Capital Fund, and what we do is we go before a Working Capital Fund

committee to justify the expenditures, and then basically we get

the money from the individual agencies into the Working Capital

Fund.

44

The struggle has been and remains, that their budgets have been

declining, there has not been a lot of extra money around to fund

this, and we did have FFIS ongoing, presenting a large expense to

the agencies. So that’s why we did ask for this authority to try to

tap into unobligated balances so we could go across agency lines,

which we really can’t do now in the Chief Financial Officer’s office.

Mr. HORN. I’m going to my 10-minute mark, so I’m yielding to

the ranking member here, Ms. Schakowsky, to ask questions.

Ms. SCHAKOWSKY. I’m new to this subcommittee and relatively

new to this Congress, and I have to tell you, I’m pretty astonished

by the differences. One would think that there might be some best

practices that then get adopted by not only agencies within the Department, but between agencies. So that it seems like when we— in the three hearings that we have had on Defense and USAID and

now Agriculture, that—everybody sort of starting from ground zero

and trying to figure out—you have the new FFIS system. Someone

else has Phoenix, an off-the-shelf system, and everybody has to figure it all out from scratch.

Did I just hear you say that agencies within the Department

have not been able to cross-communicate? I’m just trying to understand these—what seem to be fundamental inefficiencies that happen, if they’re just historical, and how soon—I guess for the bottom-line, how soon do you think that you’ll be able to have—receive

an opinion on your financial statements?

Ms. HEALY. Well, I didn’t say that the agencies didn’t cooperate.

It’s the money that can’t be transferred across the agency boundaries. But I think one good thing is I’ve been at USDA a little less

than 3 years, and before that I was in the Department of Treasury,

and before that I was at the National Institutes of Health. There

are a lot of common problems across the government, and I think

one of the things that was encouraging here at USDA is that they

have centralized a lot of their administrative and financial processes, at least for the S&E accounts, which is really good, at the

National Finance Center. The problem is there is not a funding

source that was readily available to keep those systems upgraded

and well funded, to keep them new and working well, and to provide good internal controls in order to move with the times.

The National Finance Center is fully funded by reimbursements

from agencies. They get no appropriation, and what this means is

that all the users, through the fees that they’re charged, pay for

the services. But there is not a good mechanism for providing capital money to the National Finance Center to upgrade systems, etc.

So, when you go to do these systems, these huge systems that need

to be done, you go out to the agencies and you start trying to ask

them for money that they have there. Although they have budgeted

for programs, they haven’t necessarily budgeted for these systems,

because in many respects, they’re not there before them. They’re

looking at their own systems and program areas. They’re not looking at what we might need for the centralized systems. So, if

there’s a flaw in how this was designed it is that there was no sustaining source of capital money to make improvements to NFC.

Now, realizing that, last year we worked very hard with all the

people in USDA to get a proposal to the Hill, and with the agencies

to talk to OMB and to work with the committees to ask to be able

45

to use these unobligated balances that probably won’t be used. If

we can tap into those balances, we can get this desperately needed

capital money to upgrade these systems.

I think you’ll find throughout the government that one of the

problems is just trying to fuse capital money into things for administrative operations. Also, over the last number of years, particularly over at USDA, we have lost a considerable amount of administrative staff, and it promises to get worse as the retirements that

you hear about and you’ve been reading about in the papers and

that Mr. Walker is concerned about come on the horizon.

So we are facing the problem. We think we have a plan to address it, but funding and resources is key, and also being able to

attract new people into the government to fill our shoes. A lot of

us are getting old, gray and rickety, and there aren’t people behind

us, and that troubles me more than anything. When we try to hire

people to come in to get the institutional knowledge, and you have

to have some, they’re simply not there.

Ms. SCHAKOWSKY. Well, so how soon do you think that we will

be able to—I mean, I understand all these problems, but, nonetheless, the U.S. taxpayers will want to be able to look and see that

the agency is run efficiently and that the money is being spent

well. When do you think that we will be able to have an auditable

opinion on the financial statements?

Ms. HEALY. I am hopeful that the opinion for the fiscal year 2001

statements will be an improved opinion. I think the key is we’re

getting FFIS up. That’s going to take care of a major material

weakness. We have major efforts that have been completed and efforts that are promising to be completed in the next number of

months before the end of the fiscal year in credit reform.

The Forest Service has worked very, very hard on correcting

their financial management deficiencies, particularly in the area of

property. And property is material to the USDA consolidated statements. They already have the roads taken care of, which is 57 percent of their real property. They’re working with their field now to

get the rest of the real property.

I went out with them last year to look at what their problems

were. They are addressing them and putting resources to these

problems. They are taking it very seriously.

With respect to one other item, the cash reconciliation, we put

in a major effort at the National Finance Center into reconciling

our fund balances with Treasury. In March, I was at a meeting

with all of the agencies and with the National Finance Center to

identify the last items that we need to address to take care of the

old items and to stop the problems going forward, and we have

identified those things. We have an action plan, and we intend to

put in a sustainable process and to watch this and to make sure

that we do not slip backward.

We’re always going to have timing issues with respect to cash,

but we just want it to be timing issues and then we want to be able

to address those timing issues and to try to reconcile cash as soon

as possible. So I think we have a very good shot at at least a qualified opinion next year. I don’t like to promise an opinion. It is Roger’s opinion. It’s not mine. But I do think we have a very good shot

at it.

46

There’s a lot of people working very hard, very diligently, taking

this very seriously. I can assure you we do not want to be sitting

out here with a disclaimer, and we want sustainable processes. I

do not want to have one of these heroic efforts that every year we

kill people to get to a number, then next year we’ve got to kill people again. So that’s what we’ve been focusing on, fixing the core

problems; and I think if we get these corporate administrative systems that will help us fix another core problem that will stop feeding us bad data into our ledgers.

Ms. SCHAKOWSKY. Let me ask another question that you actually

may have answered before I came in. I know that you’ve dealt with

the Federal credit issues, but the Federal credit agencies have been

required to estimate the cost of their loan programs in accordance

with the requirements of the Federal Credit Reform Act since 1992.

And USDA is currently the largest direct lender in the Federal

Government that is not capable of reasonably estimating the cost

of its credit programs. These requirements are over 8 years old.

Why has it taken so long to address this issue?

Ms. HEALY. As I said, I’ve only been here a little over 21⁄2 years,

so I am not entirely sure of the history. I do know in 1999, recognizing that this was not moving forward, the Chief Financial Officer at the time did convene a working group with all the agencies

involved, with the IG, GAO, and OMB to address the issues and

to get it on track, and it is on track now.

Ms. SCHAKOWSKY. OK. Thank you very much. I would yield back.

Mr. HORN. Gentleman from Florida, Mr. Putnam, for questions.

Mr. PUTNAM. Thank you, Mr. Chairman. I appreciate your having this hearing. I happen to serve on the Agriculture Committee

and on the Budget Committee. So I feel like we’ve kind of come full

circle. We gave them the money. We have some sense of how we’re

instructing them to spend it, and now we’re addressing the consequences of that.

Ms. Healy, I understand the difficulties of trying to put together

a perfect financial statement, particularly for an agency like forestry, where you have millions of acres and roads and barns and

tractors and equipment and everything else. So I can understand

the inherent difficulty in managing that.

But $274 million? I mean, that’s more than forgetting to include

the pool barn in the Black Water National Forest in the Panhandle

of Florida. I mean, this is of criminal proportions, the extent to

which there is neglect or lack of accountability. Could you give us

some estimate of the amount of overpayments or improper payments that your vendors received in the course of doing business

with the Department of Agriculture, perhaps payments for goods

and services that aren’t received, things of that nature?

Ms. HEALY. The $274 million was not for improper overpayments. What caused that was really a manifestation of the fire season last year. That was an extraordinary fire season. It was a late

fire season, and what happened was people did not put obligations

into the financial system in a timely manner so people could do

good estimates about what they thought the fire was going to cost.

As I understand it, Forest Service has internal authority to move

money around and did not realize how much money would have to

be moved in a timely manner to move it by September 30th.

47

The $274 million are legitimate obligations that they did incur

as a result of fire. There were obligations with various States, with

vendors, etc. The Forest Service did take this seriously and have

formed a group. I can also assure you that the Secretary of Agriculture takes it seriously. Many people have been involved in looking at what happened, why it happened, and how we can stop it

from happening again.

There will be fires every year. We have to have good processes

in place, and some of these processes are not systems. They’re simply having good procedures and policies in place out in your organization so the people know what to do, when to do it, and how to

do it.

I think part of—you had the fire season. You had them just up

that year on the new accounting system, learning things. I think

one of the things we have to make sure we do very well is make

sure that people out in the field clearly understand how to do their

jobs with the new system, how to get things in there in a timely

manner, how to get these things to the right place so they can be

entered, and what the communication lines are.

I think, coupled with bringing up a new financial system and

having an extraordinary fire season, I think some of the things

simply just got lost. Not lost in that they were misplaced but that

people just didn’t get them there in a timely manner. They were

able to quantify that, though, within a matter of time, how much

it was, but they were too late to save the September 30th day.

Mr. PUTNAM. Outside of the $274 million, though, do you have

an estimate on instances and totals of improper payments or payments for goods and services not received? Does that ever happen

in——

Ms. HEALY. I am not aware of any audit findings related to improper payments with our administrative and financial systems.

Mr. PUTNAM. Not even in the food stamp or nutrition program?

Ms. HEALY. In food stamps I think there may have been some

things, but I don’t know all the details on the food stamp——

Mr. PUTNAM. Isn’t that part of the USDA?

Ms. HEALY. Yes, it is.

Mr. PUTNAM. And you’re the Chief Financial Officer of USDA?

Ms. HEALY. Yes, sir, I am.

Mr. PUTNAM. Now, does the Inspector General have an estimate

on overpayments or improper payments in that area?

Mr. VIADERO. On food stamps we estimate it at about $1.2 billion. That’s money that the States and individuals owe us. It’s a

combination of excessive payments to recipients and payments to

the States that were offered certain administrative payments and

didn’t do their job.

Mr. PUTNAM. $1.2 billion. Is that——

Mr. VIADERO. Yes, sir.

Mr. PUTNAM. It’s about that every year?

Mr. VIADERO. Yes. Although it has been decreasing to some extent over the past few years.

Mr. PUTNAM. Now, are there any other glaring areas within the

Department that have a higher than usual number of improper

payments or accounting problems?

Mr. VIADERO. Mr. Putnam, I’d ask Mr. Ebbitt to join me on this.

48

Mr. EBBITT. Mr. Putnam, the food stamps are probably the most

measurable—it’s the most measured. They have a regular system—

a quality control system in place that actually measures the rate

of error. While that number is exceptionally high, there’s no doubt

about it, when you’re talking in terms of gross dollars, the rate is

actually down.

The last report from the Food and Nutrition Service brings that

rate of overpayment down—I just talked to the folks last week. It

was down around 6 percent, 6 percent overpayment rate. You factor in a certain amount of underpayment rate, that pushes that

rate up to 8 or 9 percent across the country, and you come up with

roughly $1.3 billion.

There are no similar measurement systems currently in place.

For example, in the National School Lunch Program that feeds all

of our Nation’s children throughout the country, there is not a similar process to measure overpayments within that program. So, I

mean, the USDA has about 300 programs that operate, and food

stamps would come out—would stick out as the most—as I indicated, the most measured as far as overpayments are concerned.

I am just trying to think out loud here.

The Secretary in the report that comes up on the semiannual

basis indicates two things. It indicated amounts of claims that are

established throughout the Department and then amounts of recoveries associated with those claims. I don’t know those off the top

of my head, but I know there’s information there that will give you

that kind of information.

Mr. PUTNAM. Is there a mechanism in place to audit or provide

some accountability for not just the food stamp program but for all

of the different commodities programs, the AMTA payments and

things of that sort? Is there some type of an audit mechanism in

those programs?

Mr. EBBITT. Well, absolutely. That’s what we do on a daily basis

with Farm Service Agency.

For example, in AMTA payments, all the payments that occur to

Farm Service Agency, what we want to do is be out there as soon

as the program is announced, as soon as farmers are coming in to

sign up. We want to have the auditors out there working with

Farm Service Agency staff as those applications come in. So that,

if we see a problem early on, we can get it to management and

they can deal with it before the overpayment occurs.

Hopefully, we either stop overpayments before they’re happening,

No. 1, or, No. 2, we make sure that farmers get what they’re deserving of in that particular program. That’s where we’re most effective, when we can be onsite doing that kind of an effort.

And we do that every time. Each year as these new programs

come out, any new emergency programs or whatever, that’s when

we want to be out there; and we have a good working relationship

with Farm Service Agency. With Rural Development, the people

that are administering the credit programs, we do the same kind

of thing.

Mr. PUTNAM. Ms. Healy, one of the reasons that you attributed

to a number of these financial problems was a reduction in the

number of people working in this area. How many people do work

49

in this area in the financial administration portion of the Department?

Ms. HEALY. Overall in the Department? I don’t have the figure

at my fingertips at the moment, but I could get it for you.

Mr. HORN. Without objection, it will be entered into the record

at this point.

Ms. HEALY. OK.

[The information referred to follows:]

Administrative and Financial Management Employees within USDA: FY 1993

baseline 9,560; FY 2000 actual 7,132; Decrease 2,428.

Ms. HEALY. But I do know that overall in the Department there’s

been about a 28 percent decline in the number of people working

in those areas.

Mr. PUTNAM. In what areas?

Ms. HEALY. Administrative and financial areas since about 1995.

Mr. PUTNAM. 28 percent from——

Ms. HEALY. Uh-huh.

Mr. PUTNAM. But you don’t know 28 percent from what? 28

percent——

Ms. HEALY. I don’t have the figure. I know last year this was one

of the issues we were discussing when we were talking about the

administrative and financial systems. Part of the rationale for how

quickly we needed to get them done was that the administrative

and financial people had been cut, and this has happened throughout the government, too, where they’ve been cut in anticipation of

systems coming on-line that haven’t come on-line. But I don’t know

the overall number. I’d have to get the information for you.

Mr. PUTNAM. Do you know—I know there’s no reason why you

would know this, but do you happen to know, since you’re not the

information technology person, what your Department spends on

the information systems to process these types of accounting measures?

Ms. HEALY. Overall, no, I don’t. I can get you that figure as well,

too.

Mr. PUTNAM. I would appreciate that.

Ms. HEALY. OK.

[The information referred to follows:]

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52

53

54

55

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Mr. PUTNAM. Mr. Chairman, my time is expired.

Mr. HORN. Well, you can continue another 2 minutes.

Mr. PUTNAM. Thank you, Mr. Chairman.

Ms. Healy, you have worked in a number of different departments. You said that you worked for Treasury and NIH. In addition, you worked with Agriculture. Is there something endemic to

government—this isn’t unique to USDA. We had the Pentagon this

morning. Y’all just happen to be the biggest, which means that y’all

are the worst. And you haven’t produced a clean statement in 5

years, and who knows before that, because Congress couldn’t

produce a clean statement before 5 years ago, and so they probably

didn’t bother to ask anybody else to produce one.

But what is it about government that nobody seems to be able

to produce good numbers? Or if they can manage to produce a

clean audit, it’s kind of a snapshot. We’ve got everybody moving in

the same direction and managed to meet the deadline and got it

this year, but we didn’t have it last year, and we’re probably not

going to get it this year. There’s no system. There’s no good accountability at any level. Based on your experience in a number of

different departments of this government, how can we improve

that?

Ms. HEALY. Well, I think we are in the process of improving it,

and I think we’re very early in the process. It doesn’t seem that

way, but in many respects, it is.

When the Chief Financial Officer’s Act was passed in 1990, basically the way the government worked was you got a budget, you

spent your budget, and that was pretty much the results that people were looking for. Now with the Chief Financial Officer’s Act,

there were new requirements that were put out there about actually having financial statements, much like the corporate world.

And there are differences.

I think part of the struggle you’re seeing is that the government

is not a corporation. There are other things we have to deal with,

including budgets, and appropriations language and a variety of

other parameters that are put on us that aren’t out there in the

private sector. Plus, we have to deal with the fact that we don’t always choose our customers, and we have problems that corporations don’t have or choose not to have.

So I do think we’re in the early stages of doing this. As Chief Financial Officer of USDA, I am on the CFO Council. This is something that we discuss often. When the CFO Council started, we

were trying to work together cross-government to share ‘‘best practices’’ with each other, to look at things that can be improved, to

look at processes that we can work on together to improve and also

to look at the processes that are out there in the central agencies

that could be causing everyone difficulties. Are we being well

served by the Treasury systems? Are we being well served by other

systems that we’re required to use out there?

So I do think we’re early in the process, but you have an awful

lot of people who are looking at this and trying to move forward

with it.

I think, with respect to USDA, as I said, we were hampered by

internal resources. Everybody has been to a degree, and that’s why

57

you see heroic efforts. People know what has to be done. I think

we’re at a time when the resources are limited.

Also, my personal opinion is we have to take a look at some of

the requirements we’re putting out there to say, does this make

sense overall? Will this help us manage the government better?

Certainly a clean audit opinion is a marker. It says, at a minimum, your numbers are fairly stated. But you don’t use those financial statements to manage the government. You use the underlying data. So can we collect the data well? Do we know what data

we need to manage? Do we know what performance measures are

right for us?

I think we’re early in that process, too, but a lot of people are

working hard and earnestly to get us there. I think it will take

some time, some iteration. I think we’ve gone down some paths

that maybe—well, that isn’t exactly where we need to go.

I should also point out that, as we go forward with these processes of audit, one of the things that I’ve discovered is that it’s a

learning process, not only for those of us in the financial community but for those in the audit community. The auditors in the government previously didn’t audit financial statements the way the

private sector does, so we’re learning together, and we’re learning

to figure out what makes sense for government with some of the

problems that we have that you wouldn’t encounter in the private

sector.

So, it isn’t that we can’t do it. We’re just new at doing it. I think

we will get to good financial numbers. I think this is giving us the

discipline, these financial statements. I don’t think they’re the final

answer, but I know that we are on the track to get there.

I do think we are limited by resource constraints, and I would

say the thing that is creeping up, that David Walker is talking

about, is the idea of human capital. We need to get some good talent into government. Even if you contract it out and if you agree

with the concept of contracting out, you need good people to manage the contractors, who understand what the programs are about,

who have institutional memory, who can point this out to people.

So I think we need to attend on a variety of fronts if we’re going

to be successful moving forward and managing our departments

well.

Mr. HORN. I think that’s well said on the matter of human capital. Both Congress and the executive branch have, frankly, lagged

behind as to what’s needed in the next generation, as some very

able people are looking for retirement, and those slots have to be

filled. And particularly it is important for those in information

management and also in the finance situation. It’s a lot more difficult than it is in most private corporations, and there’s also a lot

more responsibility when you get into government.

You’d be sitting around in a lot of corporations for 10 years before you did much. Whereas bright people coming into government

can have a lot of responsibility, and they certainly do in the services, but we also are doing it in the nonservices. In the 1930’s and

1940’s we had a real program of interns that one could see what’s

around and see if they want to stay. I happen to be a big drum

beater for interns and being given responsible positions.

58

I am going to close with something dear to my heart, which is

the debt collection situation. What processes does the Department

of Agriculture use to identify and recover the improper payments

that have been made at various agencies of the Department

throughout the Department? You have a big center in New Orleans, how much are we doing to get improper payments back in control, into the taxpayers’ Treasury?

Ms. HEALY. Well, what we’re doing is referring debt over to the

Treasury offset program for collection, and we’re referring more

and more of it, including some of the food stamp debt and the NFC

debt. So, we are sending more for the offset, and, until the 180-day

parameter, we are using our internal collection procedures to improve our collection activities. We are working our loan portfolios.

Mr. HORN. Well, are you collecting it yourself, or are you turning

it over to financial management in the Treasury?

Ms. HEALY. We’re doing both.

I think with respect to the recent waiver that I saw for—and I

may misspeak this, so I may need to be corrected here—for Rural

Development was we didn’t want to just have our program payments offset by Treasury, because it would be using government

money to pay off a government debt. So, some of that was exempted. But the rest of it we are getting ready to send off to offset. We

haven’t done that yet, but we are working to do that and to make

sure that we can use the tools available to us for debt collection.

Mr. HORN. Well, before you do that, is there a way that the person that holds the loan or has defaulted on the loan or whatever

you want to call it, does anybody phone them up?

Ms. HEALY. Oh, yes.

Mr. HORN. Does anybody send them a letter?

Ms. HEALY. Yes. My understanding from when I went out to the

center in St. Louis was that they do make lots of efforts to get the

person who borrowed the money to pay it back. They work with the

individual to restructure the loans if need be. So they do a significant amount of work in that area.

Mr. HORN. Could you give us an idea of the nutritional benefit

programs? We all know about the food stamp program. We know

about the school lunch program. What else is there?

Ms. HEALY. I am afraid I don’t know.

Mr. HORN. Well, the Inspector General has a nice neat plastic

clip there, I think, that has all who does what.

Ms. HEALY. OK. I don’t have one.

Mr. VIADERO. I have neat things on this plastic clip, Mr. Chairman. But if we can get back to a statement you just made.

Mr. HORN. How many have we got—you must know—on all the

nutritional programs?

Mr. VIADERO. Oh, quite a few. We have the Child and Adult Care

Feeding program, WIC, the nutrition education program.

Mr. HORN. I would just like—if you could put your heads together, and let’s get it in the record. I’d just like to see the scope

of this.

Mr. VIADERO. What I would like to get on the record, Mr. Chairman, is that Rural Development insofar as getting these loans paid

back, delinquencies and debt recovered, they need to publish reguVerDate 11-MAY-2000 09:24 Apr 30, 2002 Jkt 000000 PO 00000 Frm 00062 Fmt 6633 Sfmt 6633 C:\DOCS\77919.TXT HGOVREF1 PsN: HGOVREF1
59

lations to get this done. They haven’t published any regulations in

that venue yet.

Mr. HORN. So where is that? Is that in the Chief Financial Office

of the Chief Information Officer?

Mr. VIADERO. That’s with the Under Secretray for Rural Development, and they’ve known about that for quite a while.

Mr. HORN. How about it, Ms. Healy? Is that something you’ve got

on your agenda?

Ms. HEALY. I will certainly talk to them about it.

Mr. HORN. Yeah. Well, I would hope that when new appointees

are—and I’ve said that on our transition bit for the Presidents and

their Cabinet, is that they would talk to the Inspectors General,

look at what they have, and also with the Comptroller General and

the General Accounting Office, also with the budget examiners in

OMB. If you hit those three groups, you would know what you’re

needed to do in your particular area, and that’s very important.

And I think as the Inspector General and others of your colleagues, which are very essential in this government, on the

human capital bit, are there papers being put out by the Inspectors

General on where an agency is going and at the trend line of retirement where the vacancies are going to be?

Mr. VIADERO. Well, sir, just in the past 5 years my office alone

has suffered a 24 percent reduction in personnel because of—well,

basically, we got flatlined on the budget. We had zero growth. And

since we have many criminal investigators on board, their pensions

are computed differently.

So when—you know, people come out with an FTE. An FTE is

not a full FTE. If you’re a criminal investigator, that’s like a 0.7

of an FTE, if you will. So we keep losing in the FTE camp as it

goes up. We’re finding it very, very difficult just to maintain what

we have.

Our staff is very loyal and very dedicated. Of course, Mr. Ebbitt

is leaving us at the end of the month. He’s the—Mr. Mosley’s Deputy Inspector General at the end of the month. So there again,

human capital, Agriculture is losing a key player here.

Mr. HORN. So you’re going to AID?

Mr. EBBITT. Yes, sir.

Mr. VIADERO. You can see him next year, too.

Mr. HORN. That’s right.

Mr. EBBITT. Earlier time?

Mr. HORN. Well, anything you’d like to say in summing up that

we haven’t said?

Ms. HEALY. I’d just like to thank you for giving us this forum and

also to thank the Appropriations Committees for the opportunity to

apply a plan for the unobligated balances which will be critical for

us to move forward. We will keep working on these issues, Mr.

Chairman; and I do hope to have a better result for you next year.

Mr. HORN. Well, thank you. Both the majority and the minority

will probably have some questions to ask and put in the record.

This will be done without objection at this point in the record.

Let me thank the people that have been staffing these three

hearings: J. Russell George is right behind me, the staff director

and chief counsel.

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Diane Guensberg, on loan from the General Accounting Office. I

am sorry to say that she will be returning to the General Accounting Office. She has done a great job for us over the years, and we

appreciate it.

Bonnie Heald, director of communications, also back there; Earl

Pierce, professional staff; Grant Newman, assistant to the committee and the clerk and the sergeant at arms, the whole works. Alex

Hurowitz is a new intern.

And we have the minority staff: Mark Stephenson, professional

staff; and then Jean Gosa, minority clerk; and our two very good

reporters. Our court reporters are Leanne Dotson and Julie Thomas.

With that, we adjourn and go into a markup.

[Whereupon, at 2:40 p.m., the subcommittee was adjourned.]

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