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IMPROVING FINANCIAL ACCOUNTABILITY AT THE 

DEPARTMENT OF DEFENSE 

HEARING 

BEFORE THE

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, FEDERAL SERVICES, AND 

INTERNATIONAL SECURITY SUBCOMMITTEE 

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

SEPTEMBER 15, 2011 

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

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs 

( 

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(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

MARK BEGICH, Alaska 

SUSAN M. COLLINS, Maine 

TOM COBURN, Oklahoma 

SCOTT P. BROWN, Massachusetts 

JOHN MCCAIN, Arizona 

RON JOHNSON, Wisconsin 

ROB PORTMAN, Ohio 

RAND PAUL, Kentucky 

JERRY MORAN, Kansas 

MICHAEL L. ALEXANDER, Staff Director 

NICHOLAS A. ROSSI, Minority Staff Director 

TRINA DRIESSNACK TYRER, Chief Clerk 

JOYCE WARD, Publications Clerk and GPO Detailee 

SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, FEDERAL SERVICES, AND INTERNATIONAL SECURITY 

THOMAS R. CARPER, Delaware, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

MARK L. PRYOR, Arkansas 

CLAIRE MCCASKILL, Missouri 

MARK BEGICH, Alaska 

SCOTT P. BROWN, Massachusetts 

TOM COBURN, Oklahoma 

JOHN MCCAIN, Arizona 

RON JOHNSON, Wisconsin 

ROB PORTMAN, Ohio 

JOHN KILVINGTON, Staff Director 

WILLIAM WRIGHT, Minority Staff Director 

DEIRDRE G. ARMSTRONG, Chief Clerk 

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(III) 

C O N T E N T S 

Opening statements: Page 

Senator Carper ................................................................................................. 1 

Senator Brown .................................................................................................. 4 

Senator Coburn ................................................................................................. 5 

Prepared statements: 

Senator Carper ................................................................................................. 35 

Senator Brown .................................................................................................. 38 

WITNESSES 

THURSDAY, SEPTEMBER 15, 2011 

Hon. Robert F. Hale, Under Secretary of Defense (Comptroller) and Chief 

Financial Officer, U.S. Department of Defense and the Honorable Elizabeth 

A. McGrath, Deputy Chief Management Officer, U.S. Department of Defense ...................................................................................................................... 6 

Hon. Gladys J. Commons, Assistant Secretary of the Navy, Financial Management and Comptroller, U.S. Department of the Navy, accompanied by Caral 

E. Spangler, Assistant Deputy Commandant (Resources), U.S. Marine 

Corps ..................................................................................................................... 10 

Hon. Mary Sally Matiella, Assistant Secretary of the Army, Financial Management and Comptroller, U.S. Department of the Army ................................ 12 

Hon. Jamie M. Morin, Assistant Secretary of the Air Force, Financial Management and Comptroller, U.S. Department of the Air Force ......................... 13 

Asif Khan, Director, Financial Management and Assurance, U.S. Government 

Accountability Office ............................................................................................ 16 

ALPHABETICAL LIST OF WITNESSES

Commons, Hon. Gladys J.: 

Testimony .......................................................................................................... 10 

Prepared statement .......................................................................................... 49 

Hale, Hon. Robert F. 

Testimony .......................................................................................................... 6 

Prepared statement .......................................................................................... 40 

Khan, Asif: 

Testimony .......................................................................................................... 16 

Prepared statement .......................................................................................... 70 

Matiella, Hon. Mary Sally: 

Testimony .......................................................................................................... 12 

Prepared statement .......................................................................................... 54 

Morin, Hon. Jamie M.: 

Testimony .......................................................................................................... 13 

Prepared statement .......................................................................................... 62 

APPENDIX 

The chart referenced by Senator Carper ............................................................... 93 

Questions and responses for the Record from: 

Mr. Hale ............................................................................................................ 94 

Ms. McGrath ..................................................................................................... 112 

Ms. Commons .................................................................................................... 123 

Ms. Spangler ..................................................................................................... 127 

Ms. Matiella ...................................................................................................... 128 

Mr. Morin .......................................................................................................... 135 

Mr. Khan ........................................................................................................... 143 

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IMPROVING FINANCIAL ACCOUNTABILITY AT 

THE DEPARTMENT OF DEFENSE 

THURSDAY, SEPTEMBER 15, 2011 

U.S. SENATE,

SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT,

GOVERNMENT INFORMATION, FEDERAL SERVICES,

AND INTERNATIONAL SECURITY,

OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS,

Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:34 p.m., in Room 

SD–342, Dirksen Senate Office Building, Hon. Thomas R. Carper, 

Chairman of the Subcommittee, presiding. 

Present: Senators Carper, Brown and Coburn. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. The Subcommittee will come to order. 

Senator Brown, I welcome all of the witnesses and our guests. 

Nice of you to come. It is an important hearing and we are delighted that you could be with us. Thanks for your preparation and 

for your willingness to respond to our questions. 

Normally, when we have a hearing of this nature, I introduce 

each of our witnesses and provide some background on each. We 

are going to start voting I think at 4 o’clock, and so I will mention 

your names, your titles but we are not going to tell where you went 

to high school and how many kids you have and stuff like that. So, 

this will be the shorthand version. 

But we are happy to be here. This is something we have been 

looking forward to, and we have done this kind of hearing before, 

and we are going to keep doing it until we get it right. 

Since the 1990s, Federal agencies have been required to produce 

auditable financial statements. Currently, the Department of Defense (DOD) is incapable of doing this. In fact, it is one of two departments, the other being Homeland Security, although Janet 

Napolitano, the Secretary there, told us this week that they are 

making some progress, and I think they are. But the books at the 

DOD I am told are so bad that auditors cannot even attempt to 

perform a complete audit, and that is clearly unacceptable. 

A year ago we met in this same room and held a hearing, maybe 

a hearing with the same title, I am not sure. But we talked about 

how the Department of Defense was going to meet its statutory 

deadline of achieving financial auditability by 2017. And we are 

here today to get an update. We know the Marine Corps is curH605-41331-79W7 with DISTILLER

2 

rently attempting, its second try at auditing a portion of its financial books and are learning from these audits. 

As our witnesses and my colleagues know, successful financial 

statement audits are simply the outcome of strong financial management. Keeping a Federal agency’s books in order, ensuring good 

financial controls, and getting a clean audit helps to ensure that 

taxpayers are getting the services they paid for at a price we can 

afford. Unfortunately, these basic managerial tasks have proven 

challenging to the Department of Defense. 

Federal agencies should always strive to be good stewards of our 

taxpayer funds; but as we struggle to address our massive Federal 

debt and deficit, this effort has taken on an even greater importance. We must improve the basic financial management practices 

at the Department of Defense, the Department of Homeland Security (DHS), and throughout the Federal Government. After all, we 

cannot effectively identify areas to reduce spending if we do not 

know how much and where we are spending that money in the first 

place. 

Unfortunately, most Americans question whether those of us in 

government are capable of making the kind of tough decisions that 

they and their families make with their own budgets and with 

their checkbooks every month. 

They wonder why a massive arm of the Federal Government like 

the Department of Defense can be so incapable year after year of 

doing the same kind of work. It is hard to blame those citizens for 

their frustration and skepticism with us. 

Now more than ever, we need to establish a different kind of culture in Washington when it comes to spending. Clean, auditable financial statements can provide the roadmap we need to move from 

what I call a culture of spendthrift towards a culture of thrift. 

Cleans statements would give an agency leadership, and those of 

us here in the Congress, the information we need to look at every 

nook and cranny of the Federal spending and ask this question. Is 

it possible to get better results for less money? 

When it comes to the Department of Defense, it is clear to me 

that we can get better results and save money, promote our national defense, and provide better support for the war fighters in 

the field and across the world. 

The department’s finances have been on the Government Accountability Office’s (GAO’s) high risk list since 1995, in part due 

to pervasive management deficiencies that would never be tolerated in private sector businesses. In fact, these deficiencies are not 

tolerated even at most Federal agencies. These deficiencies make 

it difficult, if not impossible, to know for certain how and when the 

Department of Defense spends its money. 

The Department of Defense has annual expenditures of nearly 

$700 billion, spending approximately $2 billion every day. Managing this level of spending requires transparent information that 

is reliable and relevant. Without quality financial data and the assurance of a clean audit opinion, the department is unable to assure the Congress, and the American people that the funds that we 

entrust them with are spent prudently. 

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1The chart referenced by Senator Carper appears in the appendix on page 93. 

A series of recent reports detail a litany of the Pentagon’s oversight problems. This is not a complete list but it is a list that I 

think is illustrative. 

First, members of this panel recently wrote to the Department of 

Defense about the Inspector General’s (IGs) report on the Department’s inability to recoup about $200 million in delinquent debts 

due to poor but basic record keeping. 

Second, just last week we learned about a helicopter contract 

through which the Army has overpaid millions of dollars for spare 

parts. The size of some of these overpayments is staggering. An $8 

helicopter door part, for example, went for $284 in DOD’s accounting world. In another instance, the Army paid five times too much 

for a $1,500 rotor part that turned out to have already been in the 

military warehouse. 

Third, in fact, we have seen from the Department of Defense that at any given time there is roughly $1 billion of spare parts on order 

that the Department simply does not need, but the Pentagon inventory system does not allow for the order to be changed. 

This kind of thing drives me crazy. I am sure it drives Senator 

Brown crazy, taxpayers crazy, and it must keep you up at night as 

well. 

Fourth, USA Today recently reported that the Department of De- fense racked up $720 million in late fees for shipping container 

leases by not returning the containers on time. The $720 million 

in late fees was on top of the cost of the actual leases. 

And finally, the Commission on Wartime Contracting found ear- lier this month that there was an estimated $60 billion in Department of Defense waste and fraud related to the Iraq war. In these 

tough economic times, this level of waste is just unacceptable. 

Even worse are the fraud, waste, and abuse that we cannot identify at the Department of Defense because the financial management systems are so poor. 

Fortunately, momentum is building to address this widely recognized problem. The House of Representatives has formed a panel 

to study financial management at the Department of Defense, and 

as Mr. Hale can attest, he is often called to testify in front of Congress on the Department’s progress in this area. 

And most encouraging of all, Secretary Leon Panetta, who was 

good enough to stop by my office about a month ago, has expressed 

his intent to greatly improve financial management at the Department of Defense. 

We have a chart1 over here that has a quote from the Secretary 

and reads, ‘‘It is unacceptable to me that the Department of Defense cannot produce a financial statement that passes all financial 

audit standards. That will change. I have directed that this requirement be put in place as soon as possible. America deserves 

nothing less.’’ 

Was that his testimony at his confirmation hearing? 

Mr. HALE. Very similar to his confirmation. 

Senator CARPER. No? 

Mr. HALE. It was a statement. That part is from a statement he 

made to the employees in the Department of Defense. 

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Senator CARPER. Oh, good. 

Mr. HALE. But he made similar statements at his confirmation 

hearing. 

Senator CARPER. That is what I call being on message, and it is 

a good message to have. All right. 

We have an opportunity to make financial management at the 

Department of Defense better so that every day decisions can be 

made on quality information. This way we can support, better support the men and women in uniform in a way that obtains the best 

results for a fair and reasonable price. 

Today we have been joined by several witnesses who are each 

key players in helping the Department of Defense improve its financial management processes and controls. 

Your work, if successful, will allow the department to produce reliable financial statements that regularly produce critical information for decisionmakers. 

More importantly, doing this job well will enable us to support 

the war fighters, the men and women on the line fighting every 

day to protect our freedoms. That is what this is all about. 

And as a guy who spent about 23 years active and reserve duty 

as a Naval flight officer, someone who cares deeply about these 

issues personally, whose family has spent a lot of time in uniform, 

these issues are even more personal and important to me. 

With that, let me turn to Senator Brown for any comments he 

would like to make. Senator Brown. 

OPENING STATEMENT OF SENATOR BROWN 

Senator BROWN. Thank you, Mr. Chairman. You said a lot on 

this issue. We have talked about this issue a lot since I have been 

here; and as you know, DOD has suffered from significant financial 

system weaknesses, problems of bookkeeping, incomplete documentation, weak internal controls. 

And efforts to fix these problems, such as modernizing key business systems, have themselves been plagued by mismanagement, 

going years over schedule and billions over budget at a time when 

we obviously cannot afford it. 

DOD faces a deadline of 2017. These challenges are numerous 

and pervasive. However, there are some encouraging signs. The 

persistence of this Subcommittee and other committees is paying 

off; and senior leadership at DOD, including our witnesses today, 

are finally giving this the priority it deserves. 

Mr. Chairman, you noted Secretary Panetta’s recent comments 

on this issue. It is something that, as you have said many times 

before and I agree, we need to do it better between the three people 

that are up here, Senator Coburn, you and me and others. We are 

just trying to find a way to maximize Federal dollars, find out 

where the holes are, plug them up, and use our resources better. 

I had the honor recently to go to Afghanistan on your CODE L 

which was great, and then to followup as a soldier. But to see our 

men and women fighting and it also concerns me deeply about the 

draw down and how, in fact, we are going to continue on with the 

mission with the limited resources that are potentially going to be 

made available is deeply troubling to each and every one of them 

serving. 

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5 

So, I want to make sure that we do it right and we need to do 

it immediately. So, I am anxious to hear what is being said and 

thank you for holding the hearing. 

Senator CARPER. You bet. Thanks for being here and being a part 

of it. Senator Coburn. 

OPENING STATEMENT OF SENATOR COBURN 

Senator COBURN. Mr. Chairman, I very much appreciate you continuing to focus on this issue. We have a distinct obligation under 

the Constitution to defend the country and I appreciate all of your 

service in that regard. 

We also have a unique aspect of the Constitution which I thought 

I would read because it is just as applicable as any other area of 

the Constitution. It is Article 1, Section 9, clause 7 which says, ‘‘No 

money shall be drawn from the Treasury but in a consequence of 

appropriations made by law and a regular statement and account 

of the receipts and expenditures of all public moneys shall be published from time to time.’’ 

Well, the Pentagon cannot do that. And in a very depressing and 

little noticed report, the IG reported the following in their summary on DOD office of audits of financial management for 2010, 

and I think there is some significant things here. 

‘‘Financial management systems DOD has put in place to control 

and monitor the money flow do not facilitate but actually prevent 

DOD from collecting and reporting financial information that is accurate, reliable, and timely. DOD frequently enters unsupported 

amounts in its books and uses those imaginary figures to make the 

books balance. DOD managers do not know how much money is in 

their accounts at the Treasury nor when they spent more than 

Congress appropriates to them nor does DOD record, report, collect, 

and reconcile funds received from other agencies or the public, and 

DOD tracks neither buyer nor seller amounts when conducting 

transactions with other agencies.’’ 

And that is just the few. And I know you all are working on that. 

But we are in a whole new set of realities in our country; and many 

at that table I visited with before, they know my intensity on the 

issue; and my hope is is that we can help you do what I know you 

want to do, and we will not be a hindrance to it but we will be a 

help to it. 

So, there is no questioning of your motives that you want to try 

to solve it. It is a big problem. We all know that. The question is 

is how do we get it solved, and how do we get it solved quickly, 

because we do not have the luxury anymore of allowing it to continue, given our fiscal situation. 

Senator CARPER. Well said. We are going to just lead off with 

Hon. Robert Hale, Under Secretary of Defense, Chief Financial Office (CFO) of the U.S. Department of Defense. Welcome back. The 

Hon. Elizabeth McGrath, Deputy Chief Management Officer 

(DCMO), U.S. Department of Defense. 

The Hon. Gladys J. Commons, Assistant Secretary of the Navy, 

Financial Management and Comptroller, U.S. Department of Defense. A pleasure. Ms. Caral Spangler, Assistant Deputy Commandant, U.S. Marine Corps. I understand you are going to be 

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1The prepared statement of Mr. Hale appears in the appendix on page 40. 

joining Ms. Commons. How are you all going to do this in terms 

of presenting the testimony? How is this going to work? 

Ms. COMMONS. I will make the opening statement, and then Ms. 

Spangler will answer any questions that you might have. 

Senator CARPER. OK. Good. 

The Hon. Mary Sally Matiella, Assistant Secretary of the Army, 

Information Management and Comptroller, U.S. Department of the 

Army. Ms. Matiella, welcome. 

Jamie Morin, Assistant Secretary of the Air Force, Financial 

Management and Comptroller, Department of the Air Force. 

And Asif Khan. Great to see you. Director of Financial Management and Assurance. I like that ‘‘and Assurance’’. We can always 

use some of that from GAO. 

Your whole statement will be made part of the record. I ask you 

to proceed. The last I heard, we are going to start voting at 4 

o’clock. So, we would like to be able to move through this and be 

able to complete your statements, have our questions, and be out 

the door shortly after 4 o’clock. 

Please proceed, Mr. Hale. 

TESTIMONY OF HON. ROBERT F. HALE,1 UNDER SECRETARY 

OF DEFENSE (COMPTROLLER) AND CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT OF DEFENSE AND HON. ELIZABETH 

A. MCGRATH, DEPUTY CHIEF MANAGEMENT OFFICER, U.S. 

DEPARTMENT OF DEFENSE 

Mr. HALE. Well, thank you, Mr. Chairman, Ranking Member 

Brown, Senator Coburn. Thank you for the chance to discuss our 

efforts to improve financial management of the Department of Defense. 

I appreciate your interest and your support in helping us keep 

a focus on improving defense financial management, and I can assure you that this is an issue that is of personal interest to me. It 

was of personal interest to me 10 years ago when I was with the 

Air Force FM. It still is, and the same, I think, is true of Ms. 

McGrath. I am joined by Beth McGrath, our Deputy Chief Management Officer, and we will summarize our joint statement together. 

Let me start with the significant weaknesses and the problems 

that the department faces. I think you know these. I will go quickly. We have enterprise-wide weaknesses in defense financial management. 

There are two main ones. Our problems are our legacy systems 

are old. Some of them are several decades old, and those that are 

still there do not always provide adequate financial controls, and 

they often do not accumulate data at a level that the auditors require for auditability. 

But systems are not our only problem. The other is financial controls outside of the systems that are not always adequate. They are 

either not strong enough to support audits or they are too variable 

across commands to convince auditors that we have a consistent 

set of controls. 

These weaknesses manifest themselves, as you well know, in our 

inability to obtain a clean audit opinion. The problems are signifiH605-41331-79W7 with DISTILLER

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cant and are of great concern to me. We are working to solve them, 

and in a moment Beth McGrath and I will tell you more about 

what we are doing, as will the service FMs that follow us. 

But first, in an effort to provide balance, I want to do one more 

thing, and that is to mention a strength of defense financial management, and that is, that I believe we are meeting our mission. 

We could do it better, but we are meeting our mission by effectively 

providing resources and services to our war fighters. There are 

problems and auditable financial statements would help. But when 

I ask senior commanders, they almost always tell me that they get 

the financial support that they need, and I might add that we are 

doing this despite some incredible obstacles—something I have not 

seen in more than 30 years of working in and around defense financial management. The 6-month continuing resolution which 

just drained support that we needed to do other things. Planning 

for a government shutdown that consumed an enormous amount of 

attention. Fortunately, we did not have to implement it. Planning 

to run out of cash, which consumed less-but significant’ attention, 

especially in places like the Defense Finance and Accounting Service (DFAS), and now innumerable what-if drills on sequesters. 

So, I think there are strengths to defense financial management. 

I am not going to dwell on them after this but I would like you to 

keep them in mind. I believe we are meeting our basic mission. 

Let me turn back, now, to the systematic weaknesses in defense 

financial management, and what we are doing to address them. 

When I took over as CFO in February 2009, one of my key goals 

was to fix these problems and achieve auditable financial statements, or at least get as far as I could. 

I knew we needed a new approach. The one we had was not 

working. Everybody was kind of going in their own direction. We 

needed to establish some priorities. This is an enormous problem 

and we cannot fix it all at once, and we have a new approach, one 

that focuses on budgetary information and accounts and locations 

of our assets; key information we use to manage. 

I knew we needed to make auditability a priority. It is now on 

DOD’s top-10 priorities list, and of course, as I might add, my new 

boss, Secretary Panetta, as your quote shows, feels strongly about 

the need for auditable financial statements, and I am working actively with him in this area. 

I knew we needed resources. When I walked into this building, 

there were not resources available to all the departments. There 

certainly was not anything 10 years ago when I was Air Force FM. 

Now every service in the Defense Finance and Accounting Service has substantial resources for auditability programming 

throughout the 5-year planning period. 

And I knew we needed goals and not just long-term goals. Part 

of our problem has been that we set these goals out to 2017. That 

is important, but nobody wakes up in the morning thinking: I have 

to get to work today to meet a goal 5 or 6 years from now. We need 

short-term goals, and we have established them and the plans to 

meet that. 

I also knew that we needed to do more than plan. We had to 

make tangible progress toward auditability, something that could 

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convince us we could do it and convince you; and one of the most 

important accomplishments is improving our financial systems. 

And I would like to ask Beth McGrath to address those. 

Ms. MCGRATH. Sir, thank you very much for also allowing us the 

opportunity to come back and talk more about the progress the Defense Department is making with regard to our financial management operations. 

Our approach toward overarching management reform efforts 

emphasizes improving our ability to access execution through performance, strengthening governance, and ensuring leadership accountability, and also making necessary changes to the way we 

procure our information technology. 

In each of these areas, we rely heavily on tools that Congress 

provided us through the last several National Defense Authorization Acts (NDAA), and for that we are very appreciative. 

As Secretary Hale makes clear, improvements to our business 

systems and the business environments in which those systems operate are important to achieve the goals for auditability that the 

Department and Congress share. 

In pursuit of these goals, we are taking an enterprise approach 

to meet the challenges of implementing information technology systems on time, within budget, and with the needed capabilities, as 

required. 

We are also establishing effective governance over their operations; not only the management of those programs, but also how 

they are going to be used once they are fielded. 

To improve our financial systems, we have oriented them around 

end-to-end business processes that support audit goals, including 

procure-to-pay and hire-to-retire. Each of these has been identified 

and documented in our Business Enterprise Architecture (BEA), 

whose success requires that we appropriately implement and utilize our enterprise resource planning systems; modernize legacy 

systems only when necessary and supported by a business case; 

and aggressively sunset legacy systems that are obsolete, redundant, or not aligned with our business objectives. 

As you saw in greater detail in our written statement, we have 

placed significant emphasis and effort in several areas: Managing 

the business processes from end-to-end across the government, the 

way we actually execute our business; improving business systems 

acquisition; implementing the architectures as I mentioned; and 

improving process controls across functions and organizations. 

Our focus on business operations to include financial management at the department, is an area of great and immediate interest 

to all of our senior leadership, as well as an area of serious activity 

and concerted efforts. We are on the way to creating better business processes that will create the kind of lasting result our country deserves. 

As always, I appreciate the opportunity to work with Congress 

to optimize performance across the department. I look forward to 

your questions. 

Mr. HALE. We need to improve financial controls. I know we are 

running a little late. Do I get to count this as two witnesses? 

Senator CARPER. Go ahead. 

Mr. HALE. I will go fast. 

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We need to improve the controls, financial controls outside the 

system. So, we have set up teams in each service trying to rely on 

the service of auditors to actually go out and help us start making 

those controlled changes now even if we are not going to be audited 

for a while. 

We need to get key personnel outside the department or outside 

the financial community involved in this process. This is a DODwide issue, not just DOD FM. So, each service has put audit goals 

into the performance plans of appropriate members of the Senior 

Executive Service (SES) so their professional success and bonuses 

are tied to audit success. 

And we need to have independent checks on our progress. So, we 

have hired independent public accountants, or sometimes we are 

using the DOD IG, to audit or validate what we are doing. 

The biggest one is the Marine Corps audit or the statement of 

budgetary resources which I am cautiously optimistic that we are 

going to get a positive opinion. We have recently received a clean 

opinion on what is called ‘‘appropriations received.’’ That is our 

funds distribution process. That clean opinion reassures me, and I 

think it should reassure you regarding a key step in knowing 

where we are spending the public’s money. 

Defense Finance and Accounting System recently received a 

clean opinion on a system that handles civilian pay. We have independent auditors, as we speak, looking at the Army’s emerging 

business environment and their new system, the General Fund Enterprise Business (GFEB) system; and the Air Force currently has 

auditors looking at their ability to reconcile their so-called Funds 

Balanced with Treasury, essentially their checkbook with Treasury, 

if you will. 

And I could go on. There are a number of others, but in the interest of time I will not. 

Now, I can already hear some of our critics saying, there he goes 

again suggesting everything is fixed. So, in the interest of balance, 

let me acknowledge our continued problems. 

We could have better plans. GAO will tell you about that. We 

need to look at them again, but I would rather focus the resources 

I have, and they are limited, on having auditors actually go out 

and check what we are doing. I think we will learn a lot more and 

get there quicker. 

We have missed some milestones which frustrates me, but in 

many cases we are catching up. We were overly optimistic early on. 

And finally, and most importantly, I know we have a long way 

to go. We are working to address the fundamentals of defense financial management, but it is a journey that will inevitably take 

a number of years. 

So, just summing up, I believe there are some significant 

strengths in defense financial management, but there are also systemic problems and weaknesses. We need to focus on those. I think 

we are making progress, but I understand we have a long ways to 

go. 

With that, I will stop and be glad to answer your questions. 

Senator CARPER. Good. Thanks, Mr. Hale. 

Ms. Commons, I think you are next. Please proceed. 

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1The prepared statement of Ms. Commons appears in the appendix on page 49. 

TESTIMONY OF HON. GLADYS J. COMMONS,1 ASSISTANT SECRETARY OF THE NAVY (FINANCIAL MANAGEMENT AND 

COMPTROLLER), ACCOMPANIED BY CAROL E. SPANGLER, 

ASSISTANT DEPUTY COMMANDANT OF THE MARINE CORPS 

PROGRAM AND RESOURCES 

Ms. COMMONS. Chairman Carper, Senator Coburn, thank you for 

the opportunity to discuss our efforts to improve financial management and achieve audit readiness. 

The Department is fully committed to improving our financial 

data. Our senior leaders, Secretary Ray Mabus, Under Secretary 

Work, the Chief of Naval Operations, and Commandant of the Marine Corps are all engaged, and so are our major commands and 

field activities. 

We have met with every senior executive responsible for executing our business processes, and as Secretary Hale noted, we will 

include an audit readiness objective in their performance plans. 

We are also engaging our flag and general officers. We are working with our business process owners and service providers to ensure that we all understand what must be done and who is responsible. 

We support the priorities established by Secretary Hale and have 

focused our plans and efforts on achieving an auditable Statement 

of Budgetary Resources (SBR) and proving the existence and completeness of our military equipment. We are making steady 

progress. 

The Marine Corps is currently undergoing the second year of 

audit on its Statement of Budgetary Resources. It has been challenging but both the Department of Defense Inspector General staff 

and the private firm auditing the Statement of Budgetary Resources have noted the significant progress made by the Marine 

Corps this year. 

They have already agreed that 11 of the remediation actions 

taken by the Marine Corps are effective, and third quarter testing 

will assess the effectiveness of the remaining remediation actions. 

They have indicated they will provide their assessment to me in 

October. 

We have embraced the lessons learned from the Marine Corps 

and have incorporated them in our departmentwide plan. We are 

also sharing these lessons with the other Departments. We know 

we must strengthen the internal controls surrounding our business 

processes end to end and our systems. We are working to do so. 

It is also crucial that we prove the accuracy of our beginning balances for our approximately 200 open appropriations before we 

start the final audit of our Statement of Budgetary Resources. 

Because of the large volume of supporting documentation required during an audit, we know we must have an audit infrastructure that will allow the smooth and quick transfer of immense volumes of data to the auditors. 

The Department recently received an unqualified opinion on our 

appropriations received process examination as noted by Secretary 

Hale. So, we are comfortable in knowing that the amounts approH605-41331-79W7 with DISTILLER

11 

priated by the Congress are well controlled and that we meet the 

intent of the Congress in allocating those resources. 

The Department of Defense Inspector General is currently examining the existence and completeness of our ship, submarine, ballistic missile, and satellite inventories. We believe this examination 

will be successful and prove that the number of assets recorded in 

our systems of record represent the actual assets available. It will 

demonstrate that we have the necessary stewardship over assets 

important to our mission. 

We are also ready for an examination of the existence and completeness of our aircraft and ordnance inventories. 

The auditors have noted that because of the number of systems 

we use in the accounting and reporting, it is critical that we perform reconciliations of the transactions between our systems in 

order to support our Funds Balance with Treasury (FBWT). 

Our accounting partner, the Defense Finance and Accounting 

Service, has identified an automated tool, the Business Activity 

Monitoring tool, to accomplish these reconciliations. We recently 

conducted a sample manual reconciliation down to the penny to ensure that the Business Activity Monitoring tool was performing effectively. 

We did find that some adjustments were needed in the tool and 

the Defense Finance and Accounting Service Cleveland is working 

to make those adjustments and expect to complete these actions by 

December. 

Our intent is to use the tool to produce monthly reconciliations 

of our Funds Balance with Treasury linked to transaction level details as required by auditing standards. 

Earlier this year we believed our Civilian Personnel Pay process 

was ready for audit. But closer examination by the Financial Improvement and Audit Readiness Team, the Department of Defense 

Inspector General, and the Government Accountability Office noted 

that our sampling and testing was insufficient. 

Even though we were not ready for assertion, viewing our process through the auditors lens has proven to be very helpful. We are 

now completing the necessary remediation actions and retesting 

and we believe we will be ready for examination next summer. 

In addition, the Defense Finance and Accounting Service, 

through an independent public accounting firm, will conduct a 

Statement on Standards for Attestation Engagement (SSAE 16), on 

the civilian pay system. This will complete an end-to-end review of 

our civilian personnel pay process. 

Achieving auditability is challenging, and there is much work to 

be done. We are committed to this effort and we are making process. 

Thank you for your interest and support of our efforts. I will be 

pleased to answer any questions you might have. Thank you. 

Senator CARPER. Thank you. 

Ms. Spangler, do I understand that you are not going to be giving 

a statement but you are here to answer questions? 

Ms. SPANGLER. That is right, Senator. 

Senator CARPER. My first questions, I will just ask one question 

of you and then go to Ms. Matiella. How did she do, how did Ms. 

Commons do? 

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12 

1The prepared statement of Ms. Matiella appears in the appendix on page 54. 

Ms. SPANGLER. Oh, she covers me very well. 

Senator CARPER. Fair enough. Thank you. Ms. Matiella. 

TESTIMONY OF HON. MARY SALLY MATIELLA,1 ASSISTANT 

SECRETARY OF THE ARMY, FINANCIAL MANAGEMENT AND 

COMPTROLLER, U.S. DEPARTMENT OF THE ARMY 

Ms. MATIELLA. Thank you. Chairman Carper, Ranking Member 

Brown, Members of the Subcommittee, thank you for the opportunity to testify today regarding financial management in the U.S. 

Army and our commitment to achieving auditable financial statements. 

Secretary John McHugh, Chief of Staff Odinero, Under Secretary 

Westphal, and all of our senior leaders recognize the value and importance of achieving the mandate of the 2010 National Defense 

Authorization Act, which requires the Army to be audit ready by 

September 30, 2017. 

Past audits have demonstrated the importance of leadership, 

governance, accountability, competent workforce, effective ERP systems, and improved internal controls. We have incorporated these 

factors into our financial improvement plan. 

The Army’s leaders, soldiers, civilians are dedicated to achieving 

audit readiness goals. These professionals are transforming our financial and business systems to improve financial management, 

provide timely, accurate, and relevant information for decisionmakers, and to assure American taxpayers and Congress that the 

Army is a trustworthy steward of public funds. 

I am confident that we will be audit ready by September 2017 

because we have a sound and resource financial management plan 

which conforms to the department’s financial improvement and 

audit readiness plan. 

Army senior leaders are committed to providing governance and 

oversight of our audit readiness efforts and will hold personnel accountable for achieving specific milestones. For example, audit 

readiness performance criteria will be included in senior executive 

performance plans in fiscal year (FY) 2012. 

Further, we have a solid enterprise resource and planning strategy guiding our business systems development and deployment. 

Our plan contains detailed corrective actions and milestones, identifies accountable organizations, incorporates lessons learned from 

the Army Corps of Engineers and Marine Corps audits, and aligns 

with our business systems strategy. 

Our plan calls for annual audit examinations by an independent 

public accounting firm each year from fiscal year 2011 to 2014. 

These examinations focus on management and information technology systems controls and business practices in the ERP environments. 

We are now examining three installations and by October of next 

year, 2012, all of our installations, stations, and posts will be under 

examinations. 

The accounting firms conducting these examinations will identify 

controlled deficiencies and issue corrective actions. This will enable 

us to correct the deficiencies in time to have assert the general 

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13 

1The prepared statement of Dr. Morin appears in the appendix on page 62. 

fund Statement of Budgetary Resources in fiscal year 2015 and all 

of our financial statements in fiscal year 2017. 

These audit exams will also serve to condition the Army on how 

to support financial statement audits and ensure our readiness 

tragedy is sound and remains on schedule. At the same time, we 

are also ensuring that we have a financial management workforce 

that is knowledgeable in audit requirements and thus allowing the 

Army to sustain these processes and system improvements. 

Each year we are repeating a cycle of assessing, testing, and 

identifying deficiencies and corrective actions. Additionally, each 

audit exam expands our assessment of business processes and systems controls. 

We recently completed an examination of our appropriations 

which received an unqualified audit opinion from an independent 

auditor. This confirms our ability to receive and account for nearly 

$232 billion of appropriations. 

Execution of our financial improvement plan and enterprise resource planning strategy combined with focused senior-level oversight and accountability will enable the Army to be audit ready by 

September 30, 2017. 

I am personally committed to accountability and auditability. I 

look forward to continued collaboration with the Members of this 

Subcommittee, your counterparts in the House of Representatives, 

the GAO, Comptroller Hale, DCMO McGrath to ensure the continued improvement of the Army’s business environment. 

I look forward to your questions. 

Senator CARPER. Thank you very much for that testimony. Did 

you say personally committed, I am personally committed? 

Ms. MATIELLA. I am personally committed. 

Senator CARPER. We do not hear that every day. Good. Thanks. 

Dr. Morin, please proceed. Thanks. 

TESTIMONY OF HON. JAMIE M. MORIN,1 ASSISTANT SECRETARY OF THE AIR FORCE, FINANCIAL MANAGEMENT AND 

COMPTROLLER, U.S. DEPARTMENT OF THE AIR FORCE 

Dr. MORIN. Thank you very much, Mr. Chairman. Dr. Coburn, 

thank you also. I appreciate the Subcommittee’s invitation to testify today and the interest of really the entire Congress on this 

issue. We have had a great deal of interest. If I may, I would like 

to just summarize my written testimony and place it in the record. 

Senator CARPER. Everyone’s testimony will be made part of the 

record. Please summarize. Thank you. 

Dr. MORIN. Thank you, sir. Let me just start by saying, business 

as usual is the enemy of success in the financial improvement and 

audit readiness (FIAR) effort at DOD. In the Air Force, we are 

committed to getting to auditability and we are committed to not 

letting business as usual be the enemy of success. 

This is a charge I too take very personally and intensely, and we 

very much appreciate the intensified focus that Secretary Panetta 

has placed on audit readiness and the leadership that his team and 

Secretary Gates’s team had provided. 

H605-41331-79W7 with DISTILLER

14 

Personally, I am a strong advocate of the re-focusing on the financial improvement and audit readiness effort that Under Secretary Hale has laid in place. His emphasis on getting the sort of 

information that managers use to manage and prioritizing that at 

the head of our audit readiness efforts has been very helpful in getting us on the sort of virtuous circle where the leaders in the department see the value of the audit readiness effort. It ties it more 

directly to business outcomes and things they need to know in 

order to manage their organizations. 

In the Air Force, we have seen already the fruits of that 

prioritization. I have seen additional resources approved by the topmost leadership of the Air Force. I have seen additional focus from 

the Secretary, from the Chief of Staff, the Under Secretary, the 

Vice Chief, all of them are seeing the value of this effort. It has 

been a good step in the right direction. 

I think thanks to that focus we have made real progress over the 

last year or so although, to be clear, there is a long way to go. 

Some of the key wins that we have achieved. First, a clean opinion on our appropriations received from an independent public accounting firm. That was a key step that should be able to give the 

confidence to the Congress and the American people that we understand how the Congress appropriates money and where it ought to 

be allocated. 

We have also had what looks like a successful assertion on our 

Funds Balance with Treasury reconciliation process. You heard Mr. 

Hale talk about that. That is balancing a check book with 1.1 million entries a month. It is not a trivial matter. Again, a key step 

on the way. It does not get us all the way there but it is a key step, 

and that is looking like a good assertion there. 

We asserted audit readiness on the existence and completeness 

of our military equipment and several categories of our operating 

materials and supplies like cruise missiles and aerial targets. 

Again, I think this is directly attributable to the strong commitment of our leadership. In May, our Chief Management Officer, 

Under Secretary Erin Conaton, and our Vice Chief of Staff, General 

Philip Breedlove, wrote to all the commanders of the Air Force 

major commands talking specifically about the need for personal 

accountability on this issue and moving forward along our path of 

senior leader accountability, senior executive accountability toward 

audit readiness goals, extending that outside of just the financial 

community and extending it outside of just the headquarters, two 

key steps. 

We really led the way in building direct financial incentives into 

senior executives performance plans in the Air Force, and we have 

a number of senior executives that have it in their plans already. 

But we are pressing that further now, getting it out to the field 

where the rubber really hits the road. 

As we have worked through this substantial number of audit 

readiness assertions over the past year or 2 years, we have learned 

some very important lessons that are helping us as we move further down the road. 

For example, we have found that things like lack of timely updating of our real estate, our real property accountability system 

was not happening consistently in the field. We are not consistently 

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15 

getting that timely updated, and that is the sort of decision that 

actually affects allocation of resources. 

If the system does not know that you own property, you will not 

get the funds to maintain it. So, we have put in place the corrections necessary and the training necessary to make sure that the 

folks at a base level are making those transactions in their system, 

recording them timely, saving resources, making sure resources are 

adequately aligned. 

Again, while we have made significant progress toward the 2017 

deadline, I think we do still have a ways to go. The Air Force is 

catching up but we are still behind the other services. 

That is in part because our audit readiness efforts for quite some 

many years focused heavily on the balance sheet and on valuation 

of assets which is the area we de-emphasize because of the business case analysis on the value of that to managers. 

So, our ability to achieve audit readiness I think depends pretty 

heavily on successfully fielding new financial systems, modernized 

financial systems. 

We have a variety of them. Defense Enterprise Accounting and 

Management System (DEAMS) is our fundamental accounting systems. We have personnel systems, logistics systems. We need modernization because we are relying on 1970s era bookkeeping systems that do not conform to the standard general ledger, do not roll 

up transactions at an appropriate level in order to produce financial statements that will withstand auditability. 

Again, these systems are good at handling budgetary resources 

as appropriated by Congress and providing controls on them. That 

is what they were designed to do. They do not fit the CFO Act and 

the need to produce financial statements. 

We are trying to follow a deliberate and careful path. Again, because we are a little bit behind the other services, we have had an 

opportunity to learn some lessons from their efforts. 

For example, we are not pushing wide deployment of systems 

perhaps as fast as sometimes has happened. The DEAMS accounting system we have now had in the field at Scott Air Force Base 

for, this will be the second year that we have closed out on that 

system. 

We are getting it stable. We are getting it to a degree that it does 

not drive too much manual workload for the users before we turned 

it on Air Force-wide, but, you know, processing billions of dollars 

of transactions there. 

I think because of the historical challenges DOD has faced in 

major IT acquisition, I do see a moderate level of risk as we march 

toward 2017, and that is, not because we do not have plans that 

get us to audit readiness by 2017 but because those plans are contingent on us achieving goals for fielding of systems. 

And looking at history, I know that across DOD those plans do 

not always stand up 5 years down the road. So, I do see a moderate 

level of risk. But as a result, we are focusing on a sort of belt and 

suspenders approach here where we are looking at our legacy systems, making remediation in those systems in some cases where it 

would be otherwise subsumed by the follow-on system but we can 

perhaps give ourselves a little less risk toward the 2017 deadline 

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16 

1The prepared statement of Mr. Khan appears in the appendix on page 70. 

by having both approaches available. Again, we do need business 

systems modernization to get to a clean audit. 

So, let me just briefly come back to where I started. We cannot 

rely on business as usual if we are going to get to a clean audit 

by 2017. 

If we are going to achieve the financial modernization, better financial practices we need true accountability. We need investment 

in real systems modernization, both our ERPs and our enduring 

legacy systems. We need responsive and effective acquisition of IT 

systems. We need to learn lessons from one another, each of the 

services, and we need involvement to reach from the headquarters 

to the field and from the financial community to the broader world. 

We have to be willing to change our processes, change our practices; and we have to take this charge seriously. I think the Air 

Force is on the right course and I know that my senior leadership 

is backing me up in this effort. 

Thank you again for the commitment. 

Senator CARPER. No, not at all. Thanks, Dr. Morin. Mr. Khan. 

TESTIMONY OF ASIF KHAN,1 DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. KAHN. Thank you, Mr. Chairman, Ranking Member Brown, 

and Dr. Coburn. Good afternoon. It is my pleasure to be here today 

to discuss the status of Department of Defense financial management improvement and business transformation. 

As you said, Mr. Chairman, the Federal Government’s fiscal 

challenges highlight the need for accountability and effective financial management, and this is particularly so at the most important 

and the largest department in the government, the DOD. I would 

like to thank the Subcommittee for holding this important hearing. 

In my testimony today, I will summarize three areas related to 

DOD’s continuing efforts to remediate its long-standing financial 

management weaknesses and become auditable. 

First, I will discuss the progress made by the DOD Comptroller 

in issuing the Financial Improvement and Audit Readiness guidance for DOD military services. 

Next I will highlight the challenges experienced by these services 

in implementing the FIAR guidance. And finally, I will focus on improvements needed in DOD’s oversight and monitoring of its readiness process. 

My testimony is based on recent and ongoing work at DOD, including two reports we are issuing today and another two that will 

be issued in the next few weeks. 

First, regarding the progress made. The DOD Comptroller has 

established a focused approach to achieve the FIAR Plan audit 

readiness goals. The Army, Navy, Air Force, and other defense 

agencies, including the Defense Logistics Agency, have key roles in 

implementing this Plan. 

After reviewing the FIAR guidance issued by the DOD Comptroller in May 2010, we concluded it provides a reasonable methodH605-41331-79W7 with DISTILLER

17 

ology for DOD components to follow in developing and implementing their individual Financial Improvement Plans. 

Nevertheless, DOD’s ability to achieve audit readiness is highly 

dependent on the military services’ effective implementation of this 

guidance and that leads me to my second point, the challenges experienced by the military services and their recent financial management improvement efforts. 

In our recent work, we examined specific areas including Navy 

civilian pay, Air Force military equipment, Fund Balance with 

Treasury at the Marine Corps and Navy, the Statement of Budgetary Resources audit efforts at the Marine Corps, and the Army 

and Air Force’s business systems. We did find significant weaknesses in each of these areas. 

As discussed in our report released today, the Navy and Air 

Force did not follow the FIAR guidance in implementing the Financial Improvement Plans that we reviewed—Navy civilian pay and 

Air Force military equipment. As a result, they did not conduct sufficient or appropriate work to support their conclusions that these 

two areas were ready for audit. 

In another example, auditors for the Marine Corps fiscal year 

2010 Statement of Budgetary Resources issued a disclaimer of 

opinion, meaning that they were not able to audit those financial 

statements even though the Marine Corps had concluded that the 

statements and underlying financial transactions were ready for an 

audit. The processes identified 139 internal control weaknesses 

that need to be addressed and remediated. 

The Marine Corps has begun making progress. But our report 

issued points out that the remediation efforts were focused on 

short-term heroic efforts that may not result in sustained improvements over the long-term. 

Our preliminary work has identified significant weaknesses in 

the Navy and Marine Corps’s ability to reconcile their Fund Balances with Treasury. This reconciliation, as Ms. Commons mentioned, is a procedure similar to reconciling a checkbook to a 

monthly bank statement. 

It is a key step in achieving accurate financial information, 

tracking available budgetary authority and preparing a reliable 

Statement of Budgetary Resources. 

Preliminary results of another audit identify significant weaknesses in the implementation of two major IT systems. The effectiveness and timely implementation of such systems is crucial to 

DOD-wide audit readiness and meeting the fiscal year 2017 goal. 

My third point deals with the need for effective DOD oversight 

and monitoring of the FIAR implementation effort. DOD and the 

military services have designated offices and established committees responsible for overseeing audit readiness efforts. 

However, these responsibilities were not carried out effectively. 

As a result, the Navy and Air Force incorrectly asserted audit readiness in two key audit areas. 

Oversight and monitoring are important for keeping improvement efforts on track, making steady progress and ultimately 

achieving auditability goals and within the timeframe designated. 

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18 

Effective oversight can also help to ensure that lessons learned 

are disseminated throughout the services so others can avoid similar problems. 

In closing, I am encouraged by the recent efforts and commitment by DOD leaders. However, the challenges that I am highlighting are significant and include putting into place some very 

basic building blocks of sound financial management with effective 

oversight and monitoring of the process. 

Mr. Chairman, this concludes my statement. I would be happy 

to answer any questions that you or other members may have. 

Senator CARPER. Good. Mr. Khan, thanks. And thanks to all of 

you for your statements. 

Let me start with you, Mr. Khan, if I could. I have a friend 

whenever he is asked, how are you doing, he says compared to 

what. I want to ask really a variation of that same question. 

How are we doing compared to the last time we met here? Some 

of you testified, I think you were present. How are we doing compared to roughly a year ago? How are we doing? Are we doing better and where are the areas we should be most concerned about? 

The last thing I want to say is what do we need to do. What do 

we need to do on our end? Those are like about three questions. 

How are we doing compared to what, a year ago? What should we 

be encouraged about? And you said some of this already. What 

should we be concerned about? What do we need to do to help 

make sure we stay on the right path? 

Mr. KAHN. Senator Carper, the positive is that there is a good 

plan. The key is in implementation of the plan. Last year we had 

mentioned that the plan has some phases which need to be filled 

out. That is an important element. 

So, in one way DOD does have a plan. However, the path is not 

clear to reaching auditability by 2017. The Comptroller office, I understand, is working on defining the remaining steps of the FIAR 

Plan. 

However, the picture changes when we begin to look at the components. Admittedly, the plan has to be executed and it has to be 

executed properly. Based on what I have mentioned and the reports that we have issued today, the results are very mixed, and 

that is of concern. 

One key point. The systems have to be implemented and be in 

place well before 2017, and just looking at the time line it is a bit 

worrying because their completion time line is very close to 2017 

to be able to affect a successful audit. Thank you. 

Senator CARPER. My last question. How do we help? What can 

we do at our end? And I asked this question a lot as my colleagues 

know. What can the Legislative Branch do here? 

Sometimes the answer is more resources. Sometimes it is get 

somebody confirmed for a position of leadership. A lot of times I 

hear the answer to that question is do more oversight, keep doing 

what you are doing, keep putting a spotlight on whatever the issue 

of the day is, and keep holding us accountable. What advice would 

you have for us? 

Mr. KAHN. I am going to reiterate what you have just said, Senator Carper. One of the issues that I have mentioned is stronger 

oversight and monitoring of the implementation of the plan itself 

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19 

that would be critical to understanding where the shortfalls are, 

and not allowing some of these areas to go forward when they 

would not be likely to succeed. 

Similarly, I would like to reflect the same point for you is oversight hearings are important because they really help to focus on 

what the issues are and to be able to focus resources to resolve 

those issues. 

Senator CARPER. I would note to our witnesses and to our audience and to my colleagues, when the President spoke last Thursday 

evening and addressed the Nation in the joint session of Congress, 

he had a lot of great applause lines but none of them dealt with 

the clean financial audits statements or audited statements. 

We had the Republican, and I think it was the second of a series 

of Republican debates, Presidential candidate debates, and not one 

of them ever touched on this issue to either draw applause or just 

to make a point. 

However, our colleague Scott Brown just led a cadre over to Afghanistan. One of the things I want to make sure that we do with 

Afghanistan when we pretty much pull out by the end of 2014 is 

that we leave behind a country that can feed itself, a country that 

can govern itself, and a country that can defend itself. 

And more than most people would realize are doing these jobs 

well, our ability to do these jobs well, to better ensure that we have 

that kind of success 3 or 4 years down the line is to improve financial management. 

Somebody talk to me about the selection of independent auditors. 

We have heard a lot of discussion of independent auditors for this 

or that or the other. How do we select those? How do you all select 

those? And we will start with the comptroller, Mr. Hale, do you 

want to take a shot at that? 

Mr. HALE. Sure. We have a blanket purchasing agreement, it is 

called. We did that competitively. All audit firms that were interested and could meet our requirements could bid, and we selected 

a number of them. I want to say six, about six audit firms, teams. 

Then when we have a particular task, they go out to the teams, 

they give us a price estimate, but they have been pre-qualified. So, 

it is a lot quicker at that point. 

So, it is a competitive process, and we have several audit firms 

working right now. If I may say so I think this is a good way to 

go. I believe in plans. We can probably do better with the plans. 

But we are learning so much because when you finally get somebody looking out there that actually does this for a living; they are 

really auditors; they know financial audits. We do not at the Department of Defense, frankly. 

They have helped us immensely, because they can often say, ‘‘you 

are not going to make it here but if you did this . . . .’’ They cannot 

do it for us, but they can say, ‘‘if you did A, B, and C, you would 

be OK.’’ 

I think it has been enormously helpful in the case of the Marine 

Corps. We got some advice on appropriations received although we 

got a clean opinion there. I think it will be true in many of the 

Independent Public Accountant (IPA) engagements, Independent 

public accountant engagements that we have in mind for the future. 

H605-41331-79W7 with DISTILLER

20 

Senator CARPER. Does anybody else want to add or take away 

from that response? Anyone else? OK. Who are the firms? Can you 

give us some idea of the firms, who the firms are? 

Mr. HALE. May I give you that for the record. May I do that? I 

can name a couple of them but I do not want to not name all of 

them. Is that OK? 

Senator CARPER. Oh, sure. 

INFORMATION FOR THE RECORD

The Department has established a Multiple Award Purchase Agreement (BPA) for 

Financial Management System Auditability Assessments, Audit Readiness Validation, Examinations and Audit to acquire the services to perform validations for 

Service interim goals. Six firms are awardees for the BPA—they are as follows: 

• Ernest & Young LLP 

• Kearney & Company, PC 

• KPMG LLP 

• PricewaterhouseCoopers LLP/Grant Thornton LLP 

• Williams, Adley & Company DC, LLP 

• Lani Eko & Company, CPAs, PLLC 

Mr. HALE. You would recognize them. I mean, I can tell you one 

for sure. Grant Thornton is working on the Marine Corps audit. 

KPMG and Price Waterhouse Coopers are two that we have used 

so far. 

Senator CARPER. Thanks. To change gears just a little bit. My 

colleagues often hear me say everything I do I know I can do better. One thing they do not hear me say as much is I learn more 

from my mistakes probably than what I do well. And the Marines 

are the first on the beach trying to lead the way into this promised 

land. We are delighted with that. 

What have you learned from your mistakes and missteps along 

this path, in particular? And what have you learned that you think 

might be informative to our other services, our other departments 

that are here today? 

Ms. COMMONS. First off, I will let Caral, since she is much closer 

to this than I am. But certainly, we have learned that we must 

validate our beginning balances before we go to audit. We know 

that we must tie out our transaction level detail to the general 

ledger accounts. If we cannot do that, it will be very difficult to get 

an audit opinion. 

We also learned from the Marine Corps that we need an audit 

infrastructure. We need to have a methodology for passing information to the auditors, and it is a large volume of information. 

We have also learned from the Marine Corps that we need to get 

everybody involved. Leadership, business process owners, our service providers. This is not just a financial management problem. We 

need to look at our business processes end to end and make sure 

that those processes are compliant as well. 

So, we have learned a tremendous lesson from the Marine Corps 

stepping out and starting this audit. Certainly, we have incorporated those lessons in our plans. Caral. 

Senator CARPER. Ms. Spangler, my time has expired. I am going 

to yield to Senator Brown. 

Senator BROWN. Why don’t you just go ahead. 

Senator CARPER. Why don’t you just respond if you would and 

then I will yield to Senator Brown. Thanks. 

H605-41331-79W7 with DISTILLER

21 

Ms. SPANGLER. I would actually say that some of our lessons 

learned are summarized in the GAO report, and we would agree 

with a lot of those lessons learned, and we can see the other services picking them up and running with them. 

As Ms. Commons talked about, some of just the very physical 

things, logistics challenges of dealing with the audit and the volumes of data, we had to establish a Web site to be able to take in 

all the data as opposed to what the Army Corps of Engineers did 

which was have boxes and boxes of information. 

To the more esoteric type issues, we have also learned things like 

ensuring the documentation is there. In some of our older accounts, 

that has been a problem for us. We also have put in place reconciliation actions. We have been working with DFAS, the accounting 

service, to make sure—— 

Senator CARPER. What is DFAS? I am sorry. 

Ms. SPANGLER. The accounting service. I am sorry. To make sure 

that they have all the reconciliations in their repeatable processes, 

and that lesson has been translated to the other services and is 

being reflected in their plans. 

We also learned about establishing relationships with the people 

that do business for us, that work with us, the service providers 

in making sure that they understand what their role is. 

Also just preparing for the logistics challenges and then rehearsing our response to it, we found that it was very difficult sometimes to pull the data accurately the first time and get it posted 

and sent to the auditors. So that is critical. And if the other services would do things like rehearse that, that would be very beneficial. 

Senator CARPER. Good. I am going to telegraph a pitch and the 

pitch I am going to telegraph is the next question when it comes 

back and I get to ask a question. What I am going to ask is how 

do we go about sharing what is working and what is not working? 

For example, how do we share what we learned with the Marines, 

with other departments, with the Navy as such? Do not answer 

now, but also with the Air Force, and the Army. That is my next 

question. 

Senator BROWN. Thank you. Of course, Mr. Chairman, I always 

like to give you leeway. 

Senator CARPER. I wish that my other colleagues were as considerate. 

Senator BROWN. I will remember that. 

So, the Marine Corps should be commended for being first up. I 

mean, they are always the first into battle usually. So that does not 

surprise me. 

They started the audit in 2010 and it was ultimately unsuccessful and now we are told it will be 2012, 2013 before they can reasonably achieve a clean opinion, and it is just one part of the overall audit, the smallest part at that. I know there is a learning 

curve. 

However, Mr. Hale, how does this time line, 5 years to see an 

assertion and a clean opinion affect your confidence about being 

audit ready to the degree that you had planned by 2017? 

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22 

Mr. HALE. Well, as you know, the law requires audit readiness, 

so, I am cautiously optimistic we will make that by 2017 DODwide. 

I am more optimistic that we will make it for the high value information that we actually use every day, the budgetary information, and accounts, and locations of our assets. 

But I hear your point. We need to pick up the pace. I am counting on a learning curve. Once we get to audit-ready, it will take 

a couple of years to go through this process. We have seen this 

with the Army Corps of Engineers. It actually took them about 6 

years. They were doing all of their statements. 

We are seeing it with the Marine Corps. I am sure we will see 

it with the other services, because once you jump into the pool, we 

discover there are things that we did not expect that we have to 

fix. 

Senator BROWN. Do you think you will see similar types of up 

and downs—learning curve issues? 

Mr. HALE. I do. We will learn some from it. I will answer the 

Chairman’s question in a moment. But you cannot learn to swim 

on the beach. I mean, until they are actually under audits. That 

is why I am so anxious to do these validations, take pieces of this 

and get started and let us learn from the independent public accountants who do this for a living, and then we can fix those problems and we will be that much further along. 

Moreover, we will begin to establish some knowledge on the part 

of the auditors of our business processes. That is another thing is 

that when the auditor comes in, they do not know us either, and 

so it takes them a while to get up to speed so they can function 

effectively. 

Senator BROWN. Sure. I guess if we assume that all of DOD is 

audit ready by 2017, we could reasonably assume that the entire 

department will be able to receive a clean audit by 2020. That is 

a full 30 years since the passage of the CFO Act in 1990. 

But considering 2017 is looking optimistic, would 2025 be a more 

accurate estimate for the clean opinion for DOD? 

Mr. HALE. I am sticking with 2017 for audit-ready. 

Senator BROWN. OK. 

Mr. HALE. But I hear your concern about the fact that it has 

been so long. To be candid, in the early years—it was actually 1994 

that they passed the Government Management Reform Act that required auditable statements. 

Senator BROWN. Thank you. 

Mr. HALE. In the early years, there was just not a commitment 

by senior leadership on the part of the Department of Defense, and 

it has been variable, frankly, since then. 

But I believe in this Administration there has been a commitment from day one. The comment has never been as strong as it 

is right now. I have never briefed Secretary Panetta in the first 

month that he was in office on audits. That is a first. So, he clearly 

has a commitment, I think stronger than anything we have seen 

before, and that is going to help a lot. 

Senator BROWN. Just as a side note. As I said, I did go to Afghanistan and speaking with a lot of the leaders on the ground, 

General McHale, for example. He indicated to me that he has 50 

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independent audits going on right now. Fifty, and a lot of the questions are from different entities, different groups, and they are saying the same thing. 

I would like to maybe speak to you and Mr. Khan and whoever 

else, obviously the IG too, as to whether our soldiers there to do 

audits or to do the mission? And is it affecting readiness and safety 

and security? So, that is just a side note. Maybe we can talk offline. 

Mr. Khan, does all of what you just heard from Mr. Hale seem 

reasonable in light of the challenges you have described in your reports? 

Mr. KAHN. I have concerns about some of the challenges that we 

have highlighted in our report and that really is the implementation of the plan by the components. In a few areas that we have 

looked at over the last 12 months, the results have been very 

mixed. I wish there was something more positive to add. 

Senator BROWN. I just want the facts. You do not need to sugarcoat it. I appreciate your honesty. 

Dr. Morin, I think you are the newest one here, the newest and 

freshest face in the DOD having been appointed in 2009, 6 years 

on the staff of obviously Senate Budget. 

As a relative outsider, what is your perspective on addressing the 

challenge from your own recent experiences? 

Dr. MORIN. Senator Brown, I think that the perspective I have 

developed on the Air Force’s audit readiness efforts is really threefold. 

First of all, the intense importance of senior leadership commitment. The fact that the Secretary of the Air Force is a former Air 

Force comptroller, the fact that Secretary Hale is a former Air 

Force comptroller provides me with a lot of top cover, a lot of engagement, a lot of focused interest that helps motivate the entire 

organization. 

The second point is that breaking this effort out of a purely financial lens into an operational lens, into a lens that crosses all 

of the various stovepipes that make up a big institution like the 

Department of Defense or the Air Force is absolutely key. 

We will not get to audit readiness without aggressive involvement from the personnel community, the acquisition and contracting community, without aggressive involvement from the logistics community, and many others. 

If it does not play in the field and if it does not play in those 

silos of functional expertise that hold much of the data and conduct 

much of the business activities of the department, we will not get 

there. 

A third piece is that there really is not at present a culture in 

the department of managing from financial statements, and it is 

probably the case that there will not be. The government agencies 

that have clean audit are not generally managing from their financial statements, and that is why Mr. Hale’s focus on the Statement 

of Budgetary Resources specifically is a useful bridge. 

It is the entry point into the relevance of the financial statements, because the managers in the department do understand 

how to do their budgetary accounting and how to understand what 

appropriations they have available and how they expend them. So 

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that helps us down the way of using these to actually run our business type operations and squeeze the maximum amount of combat 

capability out of each dollar we have entrusted to us. 

Senator BROWN. I will save for the next round, if that is all right. 

Senator CARPER. Let me come back to, if I could, to Comptroller 

Hale on Secretary Panetta’s statement. As I mentioned in my opening statement, the words of the Secretary over here are not the 

kind of thing we always hear from Secretaries of Defense. I have 

known a bunch of them. I do not recall everybody being quite this 

direct on this subject. 

He said much of the same thing in my office about a month and 

a half ago. He said that in any number of forums and people start 

to believe them. I think it is just usually helpful to have the person 

at the top saying this is what one of our key goals and to hold people accountable. 

But I applaud his commitment to the goal and I am going to 

work during my time as Chairman on this Subcommittee to partner with the department toward this goal of better accountability. 

As I said earlier, war fighters are counting on us. Frankly, so are 

the taxpayers, because we spend money we do not have and we 

have to do our best efforts for our war fighters. By the same token, 

we have to face these huge deficits as you know, and we have to 

be all over them. 

I will not repeat the Secretary’s words. They are here for us to 

see. But, Comptroller Hale, could you just tell us what changes are 

forthcoming and how you plan to continue to respond to Secretary 

Panetta’s commitment to not only meet the 2017 goal of 

auditability but to meet the Secretary’s challenge of becoming 

auditable before 2017? 

Mr. HALE. Well, I am working actively with Secretary Panetta 

and his senior staff. I do not want to get ahead of him on this. So, 

I am not going to make a pronouncement. I am going to let him 

do that. I think it will be soon. He has a lot on his plate as he addresses issues from Afghanistan and the budget and everything in 

between. But he is very interested. 

I think my jobs are two. The main one is to serve him and make 

sure I do what he wants. But also, frankly, to figure out how I can 

exploit his interest in order to make this process move faster and 

place more emphasis on the effort of the Department. 

Senator CARPER. It is enormously helpful to be able to say to 

folks up and down the line in the different branches of our armed 

forces, the Secretary says we are going to get this done. 

Mr. HALE. It is enormously helpful. I have used that phrase already. I think all of us at this table and all of the DOD employees 

are well aware of it. 

Part of my job is to make sure everybody in DOD is aware of it, 

and we have some thoughts on how to do it. So, I know I am being 

vague but I do not want to get ahead of him on this. I have given 

him some suggestions, but I need to let him decide how and when 

and what he wants to do and how and when he announces it. 

Senator CARPER. All right. Let me just ask our other branch witnesses, and Ms. Spangler, you might get your shot here. 

But if you all could take a moment and tell us in as much detail 

as possible what your branch is doing to help meet Secretary PaH605-41331-79W7 with DISTILLER

25 

netta’s new goal. And do you want to just lead it off and then we 

will turn to the folks from the other branches? 

Ms. SPANGLER. I think by leading the charge on the Statement 

of Budgetary Resources and sharing those lessons learned with 

people, I mean, we were in progress on doing that. I think we will 

have some notable successes this fall. 

We do not know yet what the result will be. But as Ms. Commons said, she is waiting for them to come back to her in October 

to give us an assessment of whether we can keep going with the 

effort. The lessons learned I think do translate to the other services, and I think that is part of what we are doing to lead the 

charge. 

Senator CARPER. Ms. Commons, do you want to add or take away 

anything away from that? 

Ms. COMMONS. We have a very aggressive schedule. We anticipate that by 2013 we will be ready for audit on our Statement of 

Budgetary Resources. So, we are very aggressive. We are focused. 

We are putting our energy and our resources behind this effort, 

and I am cautiously optimistic that we will get there and that we 

will meet our deadline which is well ahead of the 2017 deadline. 

Even if we do not make 2013, I believe we have enough time 

built into our schedule to self-correct and that we will get there. 

Senator CARPER. Is it true that as Governor of Mississippi, Governor Mabus could have cared less about clean audited financials? 

Now he is starting to get religion. Is that true? 

Ms. COMMONS. I cannot speak for what kind of religion he had 

as Governor. I can tell you that he is fully committed to this effort. 

He is supporting us and we are working very hard. 

Senator CARPER. I am just kidding. We were Governors, not at 

the same time, but I thought he was a great Governor. Staying in 

the religions vein though, every now and then I say people need ‘‘a 

come to Jesus message’’ from one of their leaders and I think the 

Secretary of Defense has provided that. 

How about the Army? 

Ms. MATIELLA. It is very important to Secretary McHugh and the 

senior leadership to make a resource-informed decisions. Given our 

budget situation, it is important, like you said, to stretch a dollar 

as far as we can and to use it as effectively as possible, and the 

way to make those resource-informed decisions, the way to implement a cost culture that will be effective is to have accurate and 

timely data. 

And for that reason, it is important to our senior leaders to 

change that, to change the systems, to change the practices, to 

change the controls, to change our workforce so that they are able 

to create this accurate data, capture accurate data, and present the 

information to our leadership and our leaders that will help them 

make these resource-informed decisions, to make the best possible 

decision that in terms of what to buy, when to buy it, how much 

it costs, and so, I believe that auditability will help us in our endeavor to develop a cost culture. 

Senator CARPER. Mr. Morin, would you respond to the same 

question on behalf of the Air Force? 

Mr. MORIN. Absolutely. Well, I can begin with the personal level 

where the Under Secretary Chief Management Officer of the Air 

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Force, Ms. Erin Conaton, was, in a previous job, the staff director 

of the House Armed Services Committee at the time that that Committee initiated the legislation that gave us the 2017 audit deadline. 

So, to say she feels a personal commitment to that effort and 

that she is driving—— 

Senator CARPER. That is encouraging. 

Mr. MORIN. Yes. It really goes without saying but I said it anyway. 

On the few substantive issues where I think the Air Force is 

leading the way, even though across-the-board we are behind the 

other services, is the Funds Balance with Treasury reconciliation 

effort that we have done working very closely with the Defense Financing and Accounting Service. I think that is going to be helpful 

for the other services. 

We use different systems so they just cannot take our tools 

wholesale. But working through that process and getting to 99.997 

percent reconciliation each month, which is where we are right 

now, is a useful example. 

I think our effort to lead on the personal accountability issue and 

the tying audit readiness outcomes to senior executives performance goals is helpful. Working with Mr. Hale on that has been rewarding. 

And though we are still working through some discrepancies and 

some corrective actions associated with our existence and completeness of military equipment assertion, we were further along on that 

in many respects and I know that the other services are learning 

from the work we have done there and the input that has come 

from the GAO and the office of the Secretary of Defense on that 

assertion. 

Senator CARPER. Good. Thanks. I said earlier at the end of my 

last questioning I was going to ask you how you cross pollinate 

from lessons learned. When I have another shot, I really am going 

to ask that question. Senator Brown. 

Senator BROWN. Thank you. This will be my last round because 

I have to get ready for our votes. I just have a few questions. I need 

to make sure I understand one of the issues that we are working 

on. 

But, Ms. McGrath, you look lonely so I figured I would ask you 

a question. 

In considering the importance to the overall FIAR efforts, this is 

also a concern as the pressure builds to fully deploy the ERPs. 

There has already been criticism of some of the ERPs regarding the 

number of interfaces and manual workarounds that are required to 

fully integrate these systems into the current financial accounting 

environment. These systems were intended to solve a lot of these 

issues, not create more. 

How are you ensuring that the components are fixing the major 

weaknesses with long-term solutions and not just creating more 

kind of bureaucracy and overlap and similar problems? 

Ms. MCGRATH. Thank you very much for the question. You have 

heard a lot today in terms of themes, business process re-engineering; taking an end-to-end perspective; the engagement from across 

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functional perspectives so it is not just the financial community. It 

is all across the department. 

And in my opening statement, in our written testimony, it articulates, really, the different approach the department is taking not 

only to audit, but our entire business environment. We really are 

looking from an end-to-end perspective. 

You tend to see the disconnects in the system implementations. 

What we are doing is ensuring that we are identifying what those 

lessons are and baking those into our overarching business process 

re-engineering. 

The National Defense Authorization Act, Section 1072 actually 

was very helpful in illuminating our collective responsibility to 

identify appropriate Business Process re-engineering (BPR) so that 

before these systems go into implementation, there is a documentation path that is articulated, that says, ‘‘I understand how I am 

going to execute my business and how this system plays in doing 

that.’’ And part of that documentation is the identification of the 

interfaces that are needed. 

Historically, what we would do is deploy a logistics system. It 

would define its own interfaces; and now, we are saying, ‘‘well, 

really, are those the right ones? How would you best optimize the 

entire business environment? ’’ 

So, we are identifying interfaces that do not need to happen anymore, trying to maximize the investment that we have made than 

not only in the ERPs but those capabilities that surround it. So, 

it is a much broader, wider aperture regarding systems implementations. 

Some of what you have heard today in terms of the learning experience to turn on these systems once you have identified you 

have a stable platform, you have gone through the initial operational test and evaluation, then you ought to turn it on because 

that is the best way to learn and that is the best way to also identify the change management in both challenges and opportunities 

that come with systems implementations. 

So, it is a long answer. 

Senator BROWN. No. Fine. 

Ms. MCGRATH. I would also say that it is more than just the system itself. It is all the surrounding conversation that happens with 

the implementations. 

Senator BROWN. Well, thank you. I appreciate that. 

Ms. Matiella, as a long-term DFAS veteran, how has this informed your experience with a working relationship between DFAS 

and the Army in regard to the audit readiness? 

And then take it a step further. What are your concerns regarding the interaction that is required and the impact that the potential problems at DFAS have on the Army not being at a State of 

readiness? 

Ms. MATIELLA. Having worked in DFAS, I saw people work extremely hard with a very high customer service ethic. They are 

doing the best they can with what they have, and they too, just like 

us, they have systems that are not creating transaction level information that updates general ledgers. They have obligations that 

come in bulk instead of at transaction level. 

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So, whatever challenges we say that we have with our financial 

data and the way it is being created by our feeder systems or within our accounting system they have those same challenges. 

And so, there has been a lot of manual workarounds both on 

their part and our part, and that is why they are equally, I think, 

supportive of us changing to systems that are more compliant because it will help them as well as us do our work. 

They are, I think, equally mindful of the fact that we have to 

change, that we have to improve what we are doing, and they are 

our No. 1 cheerleader in terms of getting a clean audit, and I am 

100 percent confident that DFAS will help us get there. 

But again they too have to change like we have to change. So, 

it will be a challenge for them as well as for us. 

Senator BROWN. Thank you. And, Ms. Commons, with a career 

spent in Navy financial services, I would like to get your perspective on the challenges that you faced with this issue over the years 

and how you are addressing it in your leadership role now. 

Ms. COMMONS. I was the principal deputy in 1994 when the Act 

was passed, and I can tell you that we tried at that point in time 

to get interest in auditable financial statements. 

At that time, it was really viewed as a financial management 

issue and certainly the leadership pushed it right over onto my 

plate. I kept saying it is not just a financial management issue. 

And so, we have come a long way in establishing this as a department-wide issue across all of our business processes and with 

all of our stakeholders. 

Also, back in 1994, we tried to do everything. We tried to do 

every statement, and it was just too much of a bite of the apple. 

So, I was very gratified that Secretary Hale brought focus to this 

initiative and that we could focus on two things as opposed to trying to do everything within the statement. 

That has been very helpful for us. We are working lockstep with 

DFAS Cleveland. They are very supportive of us. In fact, we have 

what we call a monthly drumbeat with them to talk about progress 

and the things that we need to accomplish. 

So, it is a very different environment and culture from the time 

I was there in 1994. 

Senator BROWN. Very well. Thank you for that thorough answer. 

Thank you, Mr. Chairman, for holding the hearing. 

Senator CARPER. Not at all. I said to the fellow sitting behind 

you, our staff, one of the principal authors, maybe the principal author of the Chief Financial Officer Act was Senator Roth, our senior 

Senator, and I worked in the House as a Congressman but after 

that period of time. But he is deceased now. 

But in terms of legacies for him, if we are able to continue on 

his path and actually achieve the auditability and get some clean 

audits by 2017 or thereabouts that would be a great legacy for him, 

and a very good thing I think for our country. 

I want to come back, and somebody mentioned and I am not sure 

who maybe it was Ms. Matiella mentioned I think workarounds. I 

want to come back with a different question on workarounds and 

direct to Ms. McGrath, if I could. 

I think in his testimony Asif Khan explained that following the 

implementation of the Army’s general fund, the enterprise business 

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system, approximately I think he said two-thirds of the invoice and 

receipt data must be manually entered, and eventually this type of 

increasing amounts of repetitive data entry become infeasible due 

to the amount of data that would need to be entered in the Air 

Force system. 

The Defense Enterprise Accounting and Management System. 

Workarounds are needed to process data such as travel debts data 

I believe. This seems to be maybe an odd situation. And when we 

see a huge increase in data entry costs by implementing a modern 

billion-dollar financial system, it just seems counter intuitive to 

me, and maybe to others as well. 

But I would just ask Ms. McGrath, can you explain how you are 

working with the different branches as they implement these very 

expensive systems to make them as efficient as possible, make sure 

that these types of workarounds and manual entries are not ultimately necessary? 

Obviously, these problems are not sustainable and they cannot 

be allowed to continue to occur. Would you tackle that for us? 

Ms. MCGRATH. Sure. I would also ask that Dr. Morin and Ms. 

Matiella augment as necessary. 

Senator CARPER. Would you all be willing to do that? They said 

yes. 

Ms. MCGRATH. Yes. I think, too, with the DEAMS, the Air 

Force’s financial system is still in what we call a ‘‘tech demo’’ status—— 

Senator CARPER. Tech demo, I wanted to use that word today. 

Ms. MCGRATH. It is a technical demonstration. I tried not to use 

an acronym. 

Senator CARPER. Thank you. 

Ms. MCGRATH. It has, for 2 years, been deployed at Scott Air 

Force Base to learn, and then to educate the workforce. You have 

heard a lot today about business process re-engineering and change 

management challenges. 

A lot of the change management comes to folks who have been 

doing their jobs for a very long time the way they have been doing 

it. We have now introduced a new, modern capability that has a 

lot more controls and rigor, that they are not necessarily accustomed to. 

They would like flexibility but flexibility equates to non-standard 

data which then does not enable a clean financial opinion, nor does 

it necessarily equate to a smooth transaction. 

With the implementation of the systems, it is really a significant 

change management challenge, and referential integrity that comes 

with the implementation of these systems is really what we are 

after from an audit perspective, so that you can rely upon and trust 

the data that comes out the other end. 

At the end of the day, what we are all after it is the clean data 

with which to make decisions. 

As we implement these systems, again the DEAMS Air Force solution is in a tech demo status. So, before we deploy it to other Air 

Force bases, we want to ensure that we have identified and eliminated as many manual workarounds as possible before it goes to 

the next. We are looking for DEAMS to deploy to five additional 

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bases once it has completed its operational test and evaluation, 

which is scheduled for March or April of next year. 

As I mentioned earlier, I think turning on these solutions is a 

significant way to learn what else you need to fix and what 

changes you need to make not only from a systems perspective, but 

also from a people perspective. And I would give the same but 

shorter answer from a GFEBS perspective. 

Senator CARPER. What is GFEBS? 

Ms. MCGRATH. I am sorry. The Army’s accounting solution, General Funds Enterprise Business System. It deployed to many different additional sites, and so the number of users significantly increased in a short amount of time. 

So again, we went to a different population. We are learning a 

lot more about both of the types of users. We talked a little bit 

about the DFAS involvement and also the Army involvement, and 

again I think we are ensuring that we document all of the feedback 

from implementation so that we can make the appropriate course 

corrections; again, system changes, people changes, business process. 

And so, turning on the system, although there are going to bewe expect, I will say, some bumpiness when we turn it on, but we 

want to learn from what is happening so that we can, at the end 

of the day, make it the solution that works from a business process 

perspective, a change management perspective, and a data conversion. 

Senator CARPER. All right. I think you said you were going to 

yield to our friends from the Army and the Air Force. 

Do you all agree with anything she just said? 

Ms. MATIELLA. The Army is deploying our GFEBS or accounting 

system very aggressively. We are going to be done with full deployment of the General Funds Enterprise Business System by next 

year at this time. 

There is a lot of change management. One of the things about 

change management is that people have to learn new business 

practices. It is not business as usual as Dr. Morin said. They have 

to learn new business practices. 

The old system would allow for weak internal controls, bad practices. GFEBS does not. GFEBS has a lot of edits. So as people are 

learning how to deal with these edits, there is going to be anxiety. 

There will be more data input problems. 

It is not that the system is bad. It is just because it requires a 

lot more discipline. And so, at this point as we go back to the installations that have been on it the longest, those are the installations that can use it the best. The ones that have been on it the 

least are the ones that are still probably having higher anxiety levels. 

In the end, the system works. There are no data integrity problems and we are improving it. For example, that 40 percent acceptance rate is now up to 70 percent acceptance rate for invoices. So, 

it has changed the management. 

I am confident that as we train our folks to use it, as they learn 

over time how to use it and become accustomed to this added discipline and additional edits that we will get to where we need to 

go in terms of accurate and complete data. 

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Senator CARPER. Mr. Morin, just very briefly, anything you want 

to add? 

Dr. MORIN. I think the others have said most of the key points 

but I would just point out one thing which is the fact that these 

systems, these enterprise research planning systems have interfaces that do not always work is most often a feature not a bug in 

that it reflects feeder systems and data from feeder systems which 

is not reliable. 

So, our procurement feeder system to Deems, the interface is not 

working well because the data in the procurement system is not 

good and it is not formatted consistently as Ms. Matiella said. 

So, what that does, the implementation of these more rigorous 

systems brings to light the process problems and the systems problems that are around the rest of the enterprise. So, I think it is 

helpful and it is yet another reason why we have to turn these 

things on and try them rather than maybe build the perfect plan 

and only then confront it with the real world. 

Senator CARPER. OK. Our voting has begun on the Senate floor 

so we are going to have to wrap up here in a few minutes. What 

I would like to do is come back to the question I said I was going 

to ask and now I am going to ask it. 

In the National Governors Association (NGA), during my old job 

as Governor, we used something called the Center for Best Practices which is really a clearinghouse for good ideas. 

We could learn from other States what they are doing well or 

what they did not do well. We learn from their mistakes. A good 

idea. It is still used in terms of some of the good work in different 

venues here as we approach better financial auditing and accountability. 

But how do we impart to other departments, whether it is Army, 

Navy, Air Force, Marines, how do we impart to other departments 

lessons learned? How do we do that in a consistent way and a helpful way? 

Mr. HALE. Let me start. 

Senator CARPER. And I am going to ask you to be very brief. 

Mr. HALE. OK. We have set up a structure for governance by the 

Chief Management Officer but a quarterly meeting of a group that 

Beth McGrath and I chair also has service FMs on it, a number 

of others, and the Defense Chief Management Officer (DCMOs) 

from the services; and we have had a number of presentations at 

these sessions about lessons learned, especially from the Marine 

Corps audit because we are learning so much, and frankly we have 

had a number of problems. 

I think that is one forum in which we can exchange information. 

My Deputy Chief Financial Officer, Mark Easton, who is sitting behind me, also chairs a monthly meeting of financial operations 

folks in the department, each of the military departments. They 

share information there. 

If we have a center for excellence, I think it would be the Defense Finance and Accounting Service. They are going to be involved in every one of these audits because they serve all of the departments as service providers, and they have set up a team focused on audit, and part of what I have asked of Terroy McKay, 

as the Director, is to make sure we are exchanging information. 

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So, we are trying, but there is no substitute for jumping in the 

pool. We are not going to learn to swim unless we do that. So, I 

am anxious to see us actually try these validations, and as soon as 

we can actual audits. 

Senator CARPER. Another comment. Mr. Morin. 

Dr. MORIN. I think Mr. Hale has left out an important point. 

Senator CARPER. What is it? 

Dr. MORIN. His staff is a center of excellence for the department 

as a whole and his FIAR team holds us to standards, helps transmit data back and forth between these services. We talk directly, 

of course, but they bring things to light. That is really a big part 

of the reason that they exist. They do a good and increasingly better job of it. 

Senator CARPER. You would expect that, Mr. Hale? 

Mr. HALE. Absolutely, thanks to Mark Easton and Joe Quinn, 

who are here, for the work they are doing. 

Senator CARPER. Would they raise their hands please? All right. 

Anybody else on this particular issue, cross pollination, sharing 

ideas? Ms. Commons, just very briefly please. 

Ms. COMMONS. We also have what we call a quarterly audit committee meeting where we share with all of the stakeholders involved and with the other services. They actually attend our meeting. We tell them the things that we have learned during that 

quarter and actively pass that information to them. 

Senator CARPER. Ms. Matiella. 

Ms. MATIELLA. Communicate both formally and informally. We 

do it all the time. It is working well. 

Senator CARPER. All right, good. We come down to my favorite 

part of the hearing where I go back down the list from Mr. Asif 

Khan to Mr. Hale and just ask each of you to take maybe 15 or 

20 seconds and just give a quick closing comment you would like 

to leave as like a take-away for us. This is like a benediction. You 

all help give it. 

Mr. KAHN. Thank you, Senator Carper. One of the important elements in transformation is tone at the top and we are really encouraged to see that the current leaders within the DOD and the 

components have the right tone and they are going through the 

right actions to be able to get to auditability eventually. 

Senator CARPER. All right. Good. Mr. Morin. 

Mr. MORIN. My final thought would be we have to keep in mind 

our ultimate goal here. Our ultimate goal here is not a clean financial statement audit. That is a symptom. Our ultimate goal is financial improvements across the departments so that we are better 

stewards of the taxpayers resources and we get that maximum 

amount of combat capability out of each dollar that they entrust to 

us. 

Senator CARPER. Better results for less money or at least better 

results for the same amount of money. Ms. Matiella. 

Ms. MATIELLA. Our focus is to provide the information that the 

war fighter needs to make decisions. These decisions will help the 

war fighter become more effective and get the resources they need 

to do the job, and that is our focus. 

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33 

Senator CARPER. Good. Ms. Spangler, you did not get to give an 

opening statement but we will give you twice as much time for a 

closing statement. 

Ms. SPANGLER. Thank you. I do not know if I need twice as much 

time. But I would just say that our efforts have really been a benefit to the other services, and we have come a lot further this year 

than we were able to come last year. 

We responded to 2,500 different sample requests from the auditors. We provided 65 million transactions to them as we establish 

the beginning balances. We are going to go into areas in the next 

few months that we were not able to go into last year, things like 

civilian payroll and the Fund Balance with Treasury and actually 

doing some testing on that as well as military pay which is vitally 

important for all of us since we all have military pay that we have 

to go forward with. 

Senator CARPER. Thank you. Ms. Commons. 

Ms. COMMONS. We are fully committed to this effort. We are 

working very hard to achieve auditability, and thank you for your 

support and interest. 

Senator CARPER. You are welcome. Ms. McGrath. 

Ms. MCGRATH. I guess I would like to say I have heard a lot of 

conversation today about the additional focus on the financial 

audit. But with the passing of the Chief Management Officer legislation, I think that has put a greater focus on the entire business 

space and the business outcomes of which financial auditability is 

one of them. 

So, I do appreciate the attention that Congress has put on the 

entire business space. 

Senator CARPER. Thank you. Mr. Hale. 

Mr. HALE. I would like to associate myself with the remarks of 

my colleagues and add that I think we will get there more quickly 

if we focus on doing audits—— 

Senator CARPER. Focus on what? 

Mr. HALE. If we focus on actually doing audits and validations. 

I am so anxious that we try out various pieces, get independent 

public accountants to give us their own opinion, and tell us where 

we need to do better. I would also like to thank you for your support and continued assistance. 

Senator CARPER. You are most welcome. 

Senator Brown has joined us more recently, and I am grateful to 

him for his focus and interest in these issues and his staff. 

Senator Coburn has been at it even longer and he has been 

working the vineyards with me for, 6 or 7 years. For those of you 

who do not know him, he is tenacious, and I am pretty persistent 

myself, and we are not going away on this. 

What we have here is like a situation where you have the Secretary saying this is important and you have to do this, and the 

Executive Branch providing leadership and with the relevant Subcommittee here in the Senate saying this is important as well. 

That is what we described in the business as an echo, an echo 

effect. Sometimes it is helpful to have that. I am not sure who said 

this. Maybe it was Peter Tyler. Maybe it was Heather who said 

this, but what we measure we manage, and with the cost of the 

Federal Government we need to do a better job of measuring so 

H605-41331-79W7 with DISTILLER

34 

that we can actually manage, and that is for us to help do our jobs 

as well as for you and your colleagues. 

But I turned around to our colleagues during the back and forth 

and I said, I do not know if this is my imagination but I sense sort 

of different spirit here at this hearing this year compared to the 

last time that we gathered and discussed these issues, and I am 

encouraged by that, and that is not to mean that we should take 

our foot off the accelerator. 

We need to keep it right there but I think we are heading in the 

right direction. I think we are heading there a little bit faster, and 

God knows we need to. 

The last question. Who is here from the Air Force? Dr. Morin. 

My recollection is that in the Air Force, every year they hold a 

competition. I think it is like Commander-in-Chief competition to 

pick the best Air Force Base in the country, and they usually end 

up with two finalists. Any idea? Have you heard who the two finalists are this year? 

Dr. MORIN. I have a sneaking suspicion Dover might be one of 

them. [Laughter.] 

Senator CARPER. One of them is Arkansas, Little Rock. But for 

the third time in 4 years the other finalist is Dover Air Force Base, 

and we are so proud of the work they do. They do a lot of work 

in airlift and they handle the receipt of the remains of our fallen 

heroes. They just do some extraordinary work. 

We are very proud of them, and what I would like to see is us 

doing this across-the-board in every part of our armed services and 

Department of Defense. 

We should be doing as good a job with respect to managing our 

finances as well as we are in Dover in handling the airlift and 

other important duties. That is a good standard for us to shoot for. 

Some of my colleagues will be asking questions, following up in 

writing. Senator Coburn I know is going to do that. How long do 

they have? They have 2 weeks to submit those questions in writing 

in followup. I would just ask that you try to respond to those 

promptly. 

And we will look forward to the next time we are gathered together and have even better news to share with all of us. Thank 

you all. 

With that, this hearing is adjourned. 

[Whereupon, at 4:14 p.m., the Subcommittee was adjourned.] 

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