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74–457 PDF 2012

THE STATUS OF GOVERNMENT FINANCIAL MANAGEMENT: A LOOK AT THE FISCAL YEAR 2011 

CONSOLIDATED FINANCIAL STATEMENTS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT ORGANIZATION, 

EFFICIENCY AND FINANCIAL MANAGEMENT 

OF THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

TUESDAY, MARCH 1, 2012 

Serial No. 112–145 

Printed for the use of the Committee on Oversight and Government Reform 

( 

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

http://www.house.gov/reform 

(II) 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

DARRELL E. ISSA, California, Chairman 

DAN BURTON, Indiana 

JOHN L. MICA, Florida 

TODD RUSSELL PLATTS, Pennsylvania 

MICHAEL R. TURNER, Ohio 

PATRICK T. MCHENRY, North Carolina 

JIM JORDAN, Ohio 

JASON CHAFFETZ, Utah 

CONNIE MACK, Florida 

TIM WALBERG, Michigan 

JAMES LANKFORD, Oklahoma 

JUSTIN AMASH, Michigan 

ANN MARIE BUERKLE, New York 

PAUL A. GOSAR, Arizona 

RAU ́ L R. LABRADOR, Idaho 

PATRICK MEEHAN, Pennsylvania 

SCOTT DESJARLAIS, Tennessee 

JOE WALSH, Illinois 

TREY GOWDY, South Carolina 

DENNIS A. ROSS, Florida 

FRANK C. GUINTA, New Hampshire 

BLAKE FARENTHOLD, Texas 

MIKE KELLY, Pennsylvania 

ELIJAH E. CUMMINGS, Maryland, Ranking 

Minority Member 

EDOLPHUS TOWNS, New York 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

DENNIS J. KUCINICH, Ohio 

JOHN F. TIERNEY, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

MIKE QUIGLEY, Illinois 

DANNY K. DAVIS, Illinois 

BRUCE L. BRALEY, Iowa 

PETER WELCH, Vermont 

JOHN A. YARMUTH, Kentucky 

CHRISTOPHER S. MURPHY, Connecticut 

JACKIE SPEIER, California 

LAWRENCE J. BRADY, Staff Director 

JOHN D. CUADERES, Deputy Staff Director 

ROBERT BORDEN, General Counsel 

LINDA A. GOOD, Chief Clerk 

DAVID RAPALLO, Minority Staff Director 

SUBCOMMITTEE ON GOVERNMENT ORGANIZATION, EFFICIENCY AND FINANCIAL

MANAGEMENT

TODD RUSSELL PLATTS, Pennsylvania, Chairman 

CONNIE MACK, Florida, Vice Chairman 

JAMES LANKFORD, Oklahoma 

JUSTIN AMASH, Michigan 

PAUL A. GOSAR, Arizona 

FRANK C. GUINTA, New Hampshire 

BLAKE FARENTHOLD, Texas 

EDOLPHUS TOWNS, New York, Ranking 

Minority Member 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

ELEANOR HOLMES NORTON, District of 

Columbia 

(III) 

C O N T E N T S 

Page 

Hearing held on March 1, 2012 .............................................................................. 1 

WITNESSES 

Mr. Gene L. Dodaro, Comptroller General, the U.S. Government Accountability Office 

Oral Statement .......................................................................................... 2 

Written Statement .................................................................................... 4 

Mr. Daniel I. Werfel, Controller, Office of Management and Budget 

Oral Statement .......................................................................................... 25 

Written Statement .................................................................................... 27 

Mr. Richard L. Gregg, Fiscal Assistant Secretary, U.S. Department of the 

Treasury 

Oral Statement .......................................................................................... 32 

Written Statement .................................................................................... 34 

(1) 

THE STATUS OF GOVERNMENT FINANCIAL 

MANAGEMENT: A LOOK AT THE FISCAL 

YEAR 2011 CONSOLIDATED FINANCIAL 

STATEMENTS 

THURSDAY, MARCH 1, 2012, 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON GOVERNMENT ORGANIZATION, 

EFFICIENCY AND FINANCIAL MANAGEMENT, 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, 

Washington, DC. 

The subcommittee met, pursuant to call, at 10:00 a.m., in Room 

2154, Rayburn House Office Building, Hon. Todd Russell Platts 

[chairman of the subcommittee] presiding. 

Present: Representatives Platts, Guinta, Towns and Connolly. 

Staff Present: Ali Ahmad, Majority Communications Advisor; Michael R. Bebeau, Majority Assistant Clerk; Robert Borden, Majority 

General Counsel; Linda Good, Majority Chief Clerk; Tegan 

Millspaw, Majority Research Assistant; Jaron Bourke, Minority Director of Administration; Beverly Britton Fraser, Minority Counsel; 

Ashley Etienne, Minority Director of Communications; Devon Hill, 

Minority Staff Assistant; Paul Kincaid, Minority Press Secretary; 

Mark Stephenson, Minority Director of Legislation. 

Mr. PLATTS. This hearing of the Subcommittee on Government 

Organization, Efficiency and Financial Management will come to 

order. 

We certainly appreciate everyone’s participation, especially our 

witnesses. In the interest of time management, we are going to dispense with opening statements here with Committee members and 

submit our statements for the record, and leave the record open for 

seven days for any other members to submit opening statements or 

extraneous material, and go right to our witnesses. 

We are honored to have three very distinguished public servants. 

We are grateful for your participation here today and especially for 

your work day in and day out, as part of the Federal Government’s 

work on behalf of all of our Nation’s citizens. 

We are honored to have the Honorable Gene Dodaro, Comptroller 

General of the United States; the Honorable Daniel Werfel, Controller of the Office of Management and Budget; and the Honorable 

Richard Gregg, Fiscal Assistant Secretary of the Department of 

Treasury. Again, we have had a chance to review your written 

statements and we appreciate that preparation that you provided 

us. It allows us to be a little more prepared for a good engagement 

here today. 

2 

The practice of the Committee, if I could ask, now that you are 

all seated, is to stand, and we will swear you in. If you would raise 

your right hand. Do you solemnly swear or affirm that the testimony you are about to give this Committee will be the truth, the 

whole truth and nothing but the truth? 

[Witnesses respond in the affirmative.] 

Mr. PLATTS. Let the record reflect that all witnesses answered in 

the affirmative. And Mr. Comptroller General, we will begin with 

you and again appreciate your participation here today. 

STATEMENTS OF WITNESSES 

STATEMENT OF GENE L. DODARO 

Mr. DODARO. Thank you very much, Mr. Chairman. It is a pleasure to be here this morning. Ranking Member Towns, nice to see 

both of you to discuss the results of our latest review of the financial statements for fiscal year 2011. 

I might take this opportunity, Mr. Chairman, with your announcement that you are not running for re-election, I just want 

to take this opportunity to thank you on behalf of myself and all 

my colleagues at the GAO for your dedication to financial management improvement. I think your efforts with the DHS Accountability Act and improper payments, working on a bipartisan manner with your colleagues has really made a difference. I just want 

to thank you for that. 

Mr. PLATTS. Mr. Comptroller General, I appreciate the kind 

words. It has been a remarkable experience for the last 12 years. 

I don’t know what is next, but I look forward to whatever that 

chapter is. But as I said before we started, working with you and 

your staff at GAO has been a great experience and we are grateful. 

And working with my Ranking Member, my former Chairman, we 

kind of keep swapping seats, who is Chairman and Ranking Member. But the approach I know that we have taken, along with you 

and our other witnesses, is just a team effort. It has been a real 

privilege to work with you and all here in Washington on behalf 

of the people of my district. 

So I appreciate the kind words. 

Mr. DODARO. Sure, thank you. You leave with our appreciation 

and best wishes. 

With regard to our report this past year, as will be no surprise 

to either of you, we again disclaimed to give an opinion on the accrual based audited financial statements of the United States Government. Three main reasons remain; serious financial management problems at the Department of Defense and issues at Treasury with both preparing consolidated financial statements and 

eliminating inter-governmental transactions. 

Now, there are a few important developments with regard to 

DOD that I would like to highlight this morning. First, in addition 

to this Committee’s focus, the House Armed Services Committee 

has had a special panel on DOD financial management, held a 

number of hearings, issued a report encouraging them to continue 

with their improvements. So the Congress is getting more actively 

engaged, and I think that is a very positive development and hope 

that it continues as DOD progresses. 

3 

Also, having the Congress set a firm deadline of 2017 in terms 

of auditability for the Department is an important step. 

Secondly, Secretary Panetta has advanced those goals by setting 

a date of 2014 for the audits of the statements of budgetary resources. This is a very important early step and I think will give 

indications as to whether or not they are going to be able to make 

the 2017 date as well. Because it will highlight additional problems 

up front. 

Thirdly is that the Department has set priorities for the beginning of their financial Management improvement in dealing with 

budgetary resources and also the existence and completeness of 

military assets. These are the things they care about at the Department. And I think if they can’t make progress in these areas, it is 

going to be even more difficult in dealing with some of the other 

issues associated with preparing financial statements. 

So I think all these elements, against the backdrop of a lot of fiscal pressure that the Department is going to be under, are creating 

the proper environment, hopefully, for improvement. Now, one 

should not underestimate the serious challenges that DOD is going 

to face in improving their controls and systems and the skills of 

their workforce. But I think these are encouraging signs. 

With regard to Treasury, they have taken some important steps 

in order to help deal with inter-governmental transactions by engaging the agencies on a quarterly and regular basis, which I think 

is very important. They have also signaled their intent to prepare 

financial statements for the general fund transactions, which is 

really important in order to really figure out how to finally deal 

with this inter-governmental transaction issue. There hasn’t been 

enough transaction history in order to make sure that they can find 

and eliminate all these transactions. This will create a better 

record for them to eliminate those transactions. 

Also, again we have identified weaknesses and improper payments and information security and tax collection activities. I 

would be happy to talk about any of those and the Qs and As. 

Just in closing, Mr. Chairman, I would say it is really critical 

that the Federal Government continue to make progress in addressing these financial management challenges I have just outlined at DOD and Treasury. But it is really important also that the 

civilian agencies continue to maintain their record of improvements 

and sustain that going forward. All these things are critical to 

make sure there is proper accountability and stewardship of the 

taxpayers’ funds and also to more effectively manage the cost to 

government. All this occurring against a backdrop of really longterm serious challenges facing our Federal Government. 

So I thank you for the opportunity to be here today. At the appropriate time be happy to answer any questions. 

[Prepared statement of Mr. Dodaro follows:] 

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Mr. PLATTS. Thank you for your testimony. You certainly hit 

some of the important high points, and your reference specifically 

on the improper payments with Mr. Towns introducing recent legislation, along with Senator Carper in the Senate, to take kind of 

the next step, even going a little further on how we can continue 

to tighten up the issue of improper payments and preventing that 

from occurring up front, rather than after the fact, trying to collect 

the money back. I look forward to working with you and your staff 

on that issue as well. 

Mr. Werfel? 

STATEMENT OF DANIEL I. WERFEL 

Mr. WERFEL. Thank you, Chairman Platts, and Ranking Member 

Towns, for the invitation today to discuss the state of financial 

Management in the Federal Government, and in particular, the 

2011 Consolidated Financial Report of the United States. Sound financial management is essential to the effective stewardship of 

taxpayer dollars and enabling agency decision makers to make 

tough choices on day to day and long-term management challenges. 

In this time of tight budgets, families across the Country are sitting around their kitchen tables and figuring out how to make the 

most of every penny. And they should expect nothing less from 

their government. 

To meet this commitment, last year the Administration launched 

a campaign to cut waste, dedicated to combing through the entire 

Federal Government and rooting out any areas of waste an inefficiency. We have made tremendous strides to date. We are cutting 

real estate costs, driving down the amount of improper payments 

the government makes, closing data centers and saving money on 

information technology, and reducing administrative costs across 

the board. 

Underlying all these efforts is the need for robust accounting 

practices, effective internal controls and reliable financial reports. 

These tools create an environment where agencies can be more effective in meeting our most critical bottom line results: effective 

and efficient programs, free of error and waste. 

In addition to providing a comprehensive view of the Federal 

Government’s finances, its current position as well as issues and 

conditions that impact future operations, the financial report provides us with an annual update on agency financial audit results, 

a critical indicator of the success of our efforts to strengthen financial management practices across government. 

On those efforts, I am pleased to report that great progress was 

made in 2011. Twenty-three of the 24 CFO Act agencies obtained 

an audit opinion. The best performance by the Federal Government 

to date, and only two agencies received a qualified opinion. Moreover, auditor-identified material weaknesses continued to decline. 

And again, all major agencies met the 45-day deadline for producing audited financial statements at year end. 

These successes are due to the tireless efforts, leadership and 

long-term commitment of our Federal agencies. For example, this 

year, NASA was able to overcome longstanding challenges with reporting certain assets and achieve a clean opinion on their financial 

statements for the first time since 2002. Similarly, the sustained 

26 

leadership and persistence of the Department of Homeland Security led to them obtaining an opinion on their balance sheet for the 

first time since the Department’s inception. 

And although DOD was not able to obtain an audit opinion, they 

have significantly accelerated their efforts for getting there, with 

Secretary Panetta specifically expressing his strong commitment to 

achieving an audit of the Department’s budgetary statement by 

2014, which would establish a firm foundation for full financial 

auditabilty by 2017. 

As we move forward on these efforts, we are cognizant that a 

foundation now exists that enables us to go beyond the balance 

sheet to ensure every dollar spent on programs and services is 

spent wisely. In today’s continually challenging fiscal environment, 

wasting money is inexcusable and cannot be tolerated. As I mentioned earlier, we have already made tremendous progress in cutting administrative costs, saving money on real estate, reducing 

improper payments and other key reforms under the campaign to 

cut waste. 

But in each of these areas, there is still significant work to be 

done in order to cut waste and improve efficiencies wherever possible. To achieve these goals, we will continue to improve financial 

management and identify ways to better manage and report on 

how the Federal Government spends taxpayer dollars. I look forward to working with Congress, GAO and the financial Management community to achieve our mutual goal of providing reliable 

and relevant financial information in a readily available and easily 

accessible format. 

Since I finished a minute early, let me echo Mr. Dodaro’s comments about your service to this Country, to this Subcommittee, 

Mr. Chairman. I would just mention, earlier in my career, I think 

it was around 2003, I saw you give a speech on the CFO Act and 

financial management generally. Some of the themes that you emphasized in terms of the purpose of the CFO Act and that are, you 

talked a lot about the audits that we do on a quarterly and an annual basis, financial statements are a means to a larger end of better Management and better data for information and decision making. 

Those certainly resonated with me as I was starting out in financial management in 2003. I started my career in government in 

1997, but got into financial management right at the time I saw 

that speech. And it was very helpful for me in terms of formulating 

my approach and my strategic vision for financial management 

from OMB’s perspective. 

So for all your work, OMB thanks you and wishes you the best 

of luck in the future. 

[Prepared statement of Mr. Werfel follows:] 

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Mr. PLATTS. Thank you. 

Secretary Gregg? 

STATEMENT OF RICHARD L. GREGG 

Mr. GREGG. Chairman Platts, Ranking Member Towns, thank 

you for inviting me to talk about the financial report for the United 

States Government for fiscal year 2011. Your interest in financial 

management is greatly appreciated. 

The financial report provides the U.S. Government, President, 

Congress and the American people with a comprehensive view of 

the Federal Government’s financial position. The projections in the 

report demonstrate that we must continue to take action to put the 

Federal budget on a more sustainable path. The Obama Administration is committed to meeting that challenge. 

The Affordable Care Act of 2010 and the Budget Control Act of 

2011, both of which Congress passed and President Obama signed, 

are expected to help bring the Government’s expenditures more in 

line with its receipts. Together, these two laws substantially reduce 

the estimated long-term fiscal gap. 

But there is still more work to be done. The fiscal year 2013 

budget that President Obama submitted on February 13th seeks to 

build on that progress through a balanced plan for deficit reduction. The President’s budget reduces projected deficits by a total of 

more than $4 trillion over the next 10 years, by adding more than 

$3 trillion in deficit reduction to the approximately $1 trillion in 

savings already enacted through the BCA. These savings would cut 

the deficit and begin placing the Federal debt on a downward path 

as a share of the economy by the middle part of the decade. 

Addressing our Nation’s fiscal challenges will require a sustained 

commitment, not just today, but for the long term. As Secretary 

Geithner has said, ‘‘Restoring fiscal sustainability will require substantial additional changes, including tax reforms to increase revenue and changes to make our entitlement program sustainable 

over time.’’ But these reforms, if done on a broad-based and balanced way, and phased in over time to give Americans a chance to 

plan and adjust, will not impose an unfair or excessive burden on 

the citizens of this Country. 

Let me turn to the financial report. The Federal Government, as 

Mr. Dodaro said, continues to receive a disclaimer of opinion on the 

government-wide audit. Last year I spoke to the Subcommittee 

about my personal commitment to addressing the audit issues for 

which Treasury is primarily responsible, the mitigation of the 

inter-governmental out of balance conditions and to improve the 

process for compiling the report itself. I think we have made significant progress on those two fronts over the last year. 

Treasury, working in cooperation with OMB and GAO and all 

the Federal agencies, is pursuing a number of strategic solutions 

to resolve these issues and improve financial management across 

government. For example, we have launched a coordinated, multifaceted effort to resolve inter-governmental differences, including 

working groups that get together and identify areas where we can 

not only clear out the out of balance conditions but resolve the underlying problems. We have taken the lead in working with agencies to resolve reconciliation differences. We are creating metrics to 

33 

go out to the agencies to measure their performance and we are developing an automated system to address the buy-sell issue which 

is a complicated one in this area. 

In addition, in this fiscal year, in fact, in June, we will implement a central account group, or general fund, against which millions of transactions can be reconciled and validated. The original 

government-wide accounting construct lacked a central account of 

this type, giving rise to the audit issues that we have been facing. 

And while additional work is certainly necessary, we continue to 

clear out many of the audit issues that GAO has identified over the 

years. 

Let me just touch on a few financial management areas that 

complement what Danny said about things that are going on within the government and within Treasury. Within Treasury, we have 

launched an automated electronic invoice that any government 

agency can use to move away from paper invoice processing to electronic processing. It will save money and improve performance. 

Treasury is also working to accelerate the use of electronic transactions. Many of our payments are now made electronically as a result of an initiative we started a couple of years ago. We have 

moved savings bonds from paper to electronic, and we also have 

the tax payments coming into Treasury almost all electronic these 

days. Those three initiatives alone will save about $500 million. 

We are working with OMB to improve the payment process and 

to identify potential for improper payments before the payments go 

out through the goVerify program that we have put together. And 

there is a host of other things that we have done. 

The last one I would mention is the provision in the fiscal year 

2013 budget that consolidates the two fiscal bureaus that report to 

me, Public Data and FMS. We are doing that primarily to give us 

a greater opportunity to help other agencies across the government 

in the financial management realm. We are also going to save some 

money, but the primary reason is to strengthen our capacity to deal 

with financial management and to be a leader in financial management across government. 

Mr. Chairman, that concludes my remarks. I would like to echo 

what my two colleagues said about your work over the years in 

providing great leadership in this area. It has been greatly appreciated by all of us in Treasury who have sat in this chair and you 

will be sorely missed. Thank you. 

[Prepared statement of Mr. Gregg follows:] 

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Mr. PLATTS. Thank you, Mr. Secretary. It has been an interesting 

experience, in working with Mr. Towns on the Subcommittee over 

the years, and trying to raise awareness in the general public, I 

guess, that the issues that all of you deal with every day are critically important. 

I reference back that, years back when we had a hearing on 

steroids in baseball and you couldn’t fit everyone or all the cameras 

in this room, I am a huge baseball fan, but if they want to kill 

themselves doing steroids, that is not a priority issue for this Committee. And yet when we are talking about how we spend trillions 

of dollars, we have a lot of empty seats. 

The issues you are working on every day really are the issues 

that this Committee and the Federal Government needs to be focused on. So I appreciate all of your nice words, and certainly look 

forward to the final 10 months working with you and then I will 

be a private citizen. Then I will keep tracking how we are doing. 

But we are going to try to get through some questions here. The 

votes have gone up, but we are going to try to get through as many 

as we can, so that ideally we don’t have to have you wait while we 

run over. 

I am going to start with Danny, Mr. Werfel. You started a reference I wanted to start with, which is, what is the real purpose 

of what we do when it comes to audits and financial statements. 

That is to have knowledge that we can then act on, and not just 

once a year, but throughout the year. And to be able to make informed decisions. 

I will start with you, but if any of the three of you want to comment. What percentage of the departments and agencies do you 

think are still having to make heroic efforts to make that 45-day 

deadline as opposed to having in place the systems that really are 

going to generate the information at the end of the year ready for 

audit that we really are after? Because that is what is ultimately 

going to benefit the department heads, the agency officials in day 

to day Management. I know it is going to be an estimate or a 

guesstimate, but any ideas? 

Mr. WERFEL. I would say that about, roughly 70 percent of the 

major agencies at this time have hit their stride and gotten their 

sea legs. 

Mr. PLATTS. That is a seven zero? 

Mr. WERFEL. Seven zero, where—that is not, I don’t mean to say 

that they are as efficient as they can be. But I would say that they 

have hit the point where there is a routine nature to the manner 

in which the financial statements are put together and the yearend activities occur. 

Every once in a while, within those agencies, there is some kind 

of surprise that comes up in October that is unexpected, and there 

is a lot of scrambling and we might ramp into heroic efforts mode. 

But more and more I think we have achieved a stability. There are 

several agencies out there that still, it is a lot of workarounds, and 

it is a lot of manual processes. And you used the term heroic efforts. It is just not the right efficiency point, they just haven’t hit 

their efficiency. And that impacts how they can manage more to 

the bottom line. 

38 

And I said in my remarks, the goal here is that financial statement reporting, internal controls, basic accounting, become a routine functionality, so that where you are doing your heroic efforts 

and where you are staying up at night worried is around things 

that are more impactful to the bottom line, like are the dollars 

going to the right person in the right amount. 

Mr. PLATTS. General Dodaro? 

Mr. DODARO. I agree with Danny that things have gotten much, 

much better over time. There is no question about it. 

Another benchmark, though, that we look at is whether or not 

the agencies are able to be in compliance with the Federal Financial Management Improvement Act. We still have 11 of the agencies that are out of compliance with one of the three requirements 

there in terms of the standard general ledger, or whether they are 

following generally accepted accounting standards or Federal systems requirements. But it is much, much better. It is hard to quantify, but there is no question that it is marked Improvement from 

where we started back in 1996 and 1997 with these audits. There 

is no question. 

A couple of areas, one area that we are still heroic efforts, still 

at the IRS on the tax collection activities, which is why we list that 

as a material weakness. We are still using their statistical sampling estimates to estimate the tax receivables. There is really not 

yet a good system there. They are making good strides with their 

system improvements efforts, but I would like to see more improvement over there. Because I think it would benefit the taxpayers as 

well as the government in that particular case. And of course, we 

have the issues at DOD, DHS and a few others. 

But by and large, I would give it a much improved situation. We 

just need to keep it there. I am concerned, if you notice, some agencies slip out of unqualified opinions, slip back in, slip out. That is 

a little bit of a sign there too, that they are not smooth, you don’t 

have smooth processes in place. 

Mr. PLATTS. And continuing to have leaders like Secretary Panetta, who are emphasizing this as a clarity issue, not in place of 

their key functions at HHS or DOD or whatever, but along with. 

That leadership at the top really plays a huge role in whether they 

stay focused and don’t slip out. 

Mr. DODARO. That is essential. That is essential, as well as continued emphasis from OMB and Treasury. 

Mr. PLATTS. Yes. 

Mr. Secretary? 

Mr. GREGG. The only thing I would add would be to reiterate 

what Danny said, is that whether it is the financial report or any 

other kind of operation or accounting process, you can’t jump into 

it once a year and expect to deal with the issue appropriately. It 

has to be an ongoing process, and many of the things that we are 

working on is to not have the period that we have to issue the financial report to address the imbalances. But throughout the year, 

work at the agencies and OMB and GAO to know what the causes 

of those are and fix them so ultimately, when we get to the end 

of the year, we could be at some point pushing a button and the 

report is generated and the reconciliations are there. 

Mr. PLATTS. Thank you. 

39 

One other quick question, then I am going to turn to the Ranking 

Member. DOD, obviously is a huge part of ever getting to a clean 

audit, the Secretary has been great in setting the priority there, 

and getting to 2014 with the statements. Do we think that is realistic? In other words, I think just a few months back we had the 

CFO at Air Force saying they were going to have trouble meeting 

the 2017 deadline, and now we are talking about part of that being 

2014. Your estimate of whether we can meet that goal, which we 

need to, and obviously Congress has said we will, in law. But we 

have said some other things in law about financial Management 

that were not yet achieved. 

Any idea? 

Mr. DODARO. I think this time we have more interim measures 

to be able to determine whether we are going to make 2017 or not. 

If you recall, in the past, DOD always had an out year estimate 

of when they were going to make it. But there weren’t interim 

milestones to be able to tell. 

That is why Secretary Panetta’s decision on 2014 is so important. 

If they can’t make 2014, and get audits on the statement of budgetary resources, it is going to be really, really difficult to make the 

2017 goal. So I think over the next couple of years, particularly, I 

applaud the Marines, because they have gone out front, as they 

usually do, and are trying to get their statement of budgetary resources audited. They are trying for the third time this year. I 

think every year the are learning more, and hopefully the other 

Services will benefit from their experience. 

So these interim milestones, Mr. Chairman, I think will give us 

a better, more realistic assessment than trying to speculate at this 

time about 2017. 

Mr. PLATTS. Great. 

Mr. WERFEL. I absolutely agree. I have talked many times about 

what I thought was a critical missing piece to the Defense Department’s efforts. It is what I call a moment of truth for the finance 

shop. They have many moments of truth at the Defense Department more broadly. 

But for the finance shop, the rest of government looks at November 15th each year as the day in which they have to hand in their 

final papers and get graded. And in many agencies, that is embedded into performance appraisals and it is embedded into the manner in which the effectiveness of the CFO and their entire operation is working. 

But the Defense Department, they have had a disclaimer for so 

long, they don’t have that healthy stress that exists. But by Secretary Panetta putting a line in the sand and saying, we will be 

auditable on the statement of budgetary resources by this date, I 

know for a fact that internally inside the Defense Department, this 

is making waves and people are recognizing that there is a line in 

the sand and for agencies like Air Force and others, they are moving in new directions to try to make sure they meet that commitment. 

And it is a smart line in the sand that he has drawn, because 

the statement of budgetary resources is so central, the budget execution, whether program managers and field commanders throughout the Defense Department can know what cash they have on 

40 

hand, what their obligation rate is, what their expenditure rate is, 

to meet emerging commitments. That is the bread and butter of 

what they do. 

And you can convince people that if you can’t pass this test, then 

it is impacting your mission. Now you are in a place where you will 

get more accountability and I think it is a good place to be. 

Mr. PLATTS. Great. 

The Ranking Member, Mr. Towns. 

Mr. TOWNS. Thank you very much, Mr. Chairman. 

I am pleased to see that the rates of improper payments have decreased, as we discussed in our hearing on this matter several 

weeks ago. Today, however, I want to focus on the President’s goals 

to recapture at least $2 billion in improper overpayments by the 

end of the fiscal year 2012. So I guess, let me ask you, Mr. Werfel, 

your testimony indicates that Federal agencies are on track to meet 

or exceed the President’s goal in 2012. 

My question is simply this. If we proceed with ten new payment 

recovery audit programs as has been proposed by my legislation 

and Senator Carper’s legislation, would you expect to see a significant impact to the recovery of the improper payment fund? 

Mr. WERFEL. I would. I think that the challenge that we are having right now is making the transition from recovery audits and a 

contractor/vendor payment setting to recovery audits in a granteemaking environment. Let me explain that. The recovery audits first 

launched as a legal requirement in 2002. It focused on vendor payments. So we have this, we built up this capacity to send in these 

specialized auditors and scrub both the agency’s books and the contractor receiving the funds books and find errors, keep a portion of 

what they find. The incentive structure is there. And the process 

is working very effectively. 

That was expanded to Medicare. And it was a seamless transition, because the Medicare processors operate very much like contractors. There is an expectation that the way they keep their 

books would be audited, and auditable. And the types of transactions between the agency and the Medicare contractors looked 

and felt a lot like Federal contract payments. So there is familiarity. 

Where we have been challenged is in expanding that to grants. 

So we have not yet figured out exactly how to maximize the impact 

of sending recovery auditors down to States, local governments, 

universities, it is a much different proposition. There are a lot of 

different cultural issues. When Federal employees knock on the 

door of a State government office and say, we are here to audit, 

show us your paperwork, it is very different than showing up at a 

Medicare claims processor. And that is something we need to work 

on. 

I will finish by saying that in Medicaid, the Affordable Care Act 

specifically expanded, and the expectation to do recovery auditing 

in Medicaid, which operates, as you know, like a grant program. 

And HHS, with this pressure of, this healthy pressure of needing 

to be successful in the Affordable Care Act, has gotten out front 

and done a lot of work and issued the regulations and done a lot 

of outreach to get that Medicaid program started. It started in January of this year. 

41 

I am very hopeful that with that program, if it can get off the 

ground and get off the ground well, that a lot of lessons would be 

learned that we can carry over to other State and grant programs. 

So to go back to your answer, absolutely, Congressman Towns, 

we will increase, we will go way above $2 billion, if we can expand 

beyond contracts to grants effectively. We just haven’t yet figured 

out the exact critical path, but Medicaid is going to be a critical 

moment in time for us. 

Mr. TOWNS. Right, thank you very much. Is there anything that 

we should do on this side to sort of help you implement it? 

Mr. WERFEL. I think that the important point is to keep us accountable, make sure that we are reporting to you consistently on 

the different challenges we are seeing in the grants realm, the 

State and local government realm, so that there is an openness and 

a dialogue around how to fix this. It may be at some point in the 

there is a future hearing where this is your first panel and your 

second panel are State controllers or State finance directors, and 

you are asking them, help us figure out how to make a recovery 

audit program work at the State level. This is something that I 

think is going to require that type of collaboration to make it work. 

Mr. TOWNS. Right. Thank you very much, Mr. Chairman. 

Mr. PLATTS. We are going to need to run for votes. I do have 

some others, and I think it is only going to be about 15, 20 minutes. Probably no more than 20 minutes, and I should be able to 

be back. So I apologize in holding you, was hoping to get through 

more. 

But as a follow-up to your answer, I appreciate the suggestion, 

I think it is a great one as far as when we are looking at Medicaid 

and these grant programs to get that insight from the States and 

how they can better partner with us, something I think we will 

look at doing with the auditor general in Pennsylvania or the 

equivalent position in New York. You are right, if we are going to 

be successful in improper payments in a lot of these areas, especially Medicaid being from a dollar level one of the biggest, we are 

going to have to have a better relationship, because it is ultimately 

at a State level where those dollars are being spent and need to 

be tracked. 

We are going to stand in recess for approximately 15 to 20 minutes then continue. Thank you. 

[Recess.] 

Mr. PLATTS. Hearing will come to order. 

I offer Mr. Towns’ apologies, he is having to run to Energy and 

Commerce now, so he won’t be able to join us. But I do appreciate 

your patience and while I catch my breath, having run over and 

back to the Floor to try to expedite the hearing here. 

I want to pick up, we were talking about DOD, and certainly one 

of the big challenges. General Dodaro, in your testimony you talk 

about the importance of implementing the enterprise resource planning system and the number of challenges, ten, when you talked 

about six of the nine of the critical ERPs had experienced delays. 

One of the things that caught my attention was two to twelve years 

of delay that you referenced, and that you have made recommendations to DOD to try to improve their implementation of these plans 

42 

as well as to deal with the cost of them. You reference in your testimony cost increases totaling almost $7 billion. 

Can you expand on what you think the challenge DOD is facing 

here, and especially, if we are talking about 2014 for the first statement, being auditable, 2017, to be able to have the whole department audited, when we see two to twelve year delays with implementing ERPs, that is not real encouraging. 

Mr. DODARO. Basically the problems that DOD is having here, 

and I would be happy to submit our detailed reports for the record, 

where we have outlined all the recommendations, aren’t dissimilar 

from what we see in other IT investment issues across government 

in terms of making sure, you have to have the requirements there, 

properly outlined, the fact that they have to make sure that they 

stabilize the systems going forward. And it has proven to be a difficult issue across government in terms of managing these IT investments. 

And DOD business systems modernization more broadly is on 

our high risk list. So it is not just isolated in the financial management area, but it is a broader issue. We have recommended that 

DOD have better enterprise architectures to manage their systems. 

Right now they have over 7,000 different systems, 2,000 investments in new ones. It is a massive activity. And to have an enterprise architecture to guide it. 

A lot of the information they are going to need eventually comes 

not just from the financial management community but from logistics, procurement, and other parts of DOD. 

So there are two really sets of issues here. One is to have a good 

architecture, where all these systems can be integrated properly, 

because that is one of the big problems now. Then secondly is to 

manage the systems using a disciplined process that is put in 

place. Many of our recommendations go to instituting good practices. 

Mr. PLATTS. Is one of the challenges, since we are talking multiple years of implementation, to then have access to that good information, from when there is a change of administration, does 

that an impact on why we see delays estimating two to twelve 

years? Is that a factor, or is it more that they are just not putting 

in place that architecture to then follow along and implement? 

Mr. DODARO. It is more the lack of disciplined systems than it 

is a change in administration. Although we have recommended in 

the past that you need to have a chief management officer at the 

Department of Defense. Right now, the Deputy Secretary is doublehatted, but there is a CMO structure in place in the Services, and 

a deputy CMO that reports to the Deputy Secretary. 

So we are watching that very carefully to make sure, and I hope 

that that makes a difference in instituting more disciplined management practices in place. 

A big challenge DOD is going to have, even if they have the good 

systems, is getting the right data entry to get reliable data in 

there. Part of the issue is that they are being able to document a 

lot of their transactions. Having not been able to document some 

of their transactions was one of the main reasons they couldn’t get 

an opinion on the Marine Corps statement of budgetary resources. 

43 

So a lot of this is really, I think, better perfecting and having discipline in the record-keeping and their systems and development, 

which hasn’t been a priority in the past. 

Mr. PLATTS. We are going to be doing a hearing in a couple of 

weeks with Army, related to personnel and accounting. 

Mr. DODARO. You will see that issue vividly in that hearing. 

Mr. PLATTS. And that kind of leads to the broader issue, and you 

referenced it, General Dodaro, and maybe if any of the three of you 

want to comment, that a number that jumps out is that in the past 

fiscal year, we spent almost $80 billion on IT systems. Yet we are 

still having the difficulty of how those systems are being implemented and then generating useful information. 

Is there, in the big picture, not just DOD, but in any of the departments or agencies, is there any one issue that as a committee 

we should be conscious of that IT implementation, expenditure and 

actual how the money is used, that is most problematic, that we 

are spending tens of billions and not maybe getting the return on 

that investment that we hope to? 

Mr. DODARO. I would say there are two things the Committee 

could focus on. One is the implementation of this IT dashboard that 

has been put in place. We have made recommendations, that dashboard is helping because it better tracks the performance of the 

systems enhancements on cost schedule and whether or not they 

are really going to achieve the results that they are intending to 

achieve. 

So there is much more transparency now than there ever has 

been. We have made further recommendations to make sure that 

information is most current as possible. 

But that gives the Congress and the public a window into the 

performance of these new systems investments. And we can work 

with you to provide our recommendations on that area. 

Secondly, I was here two days ago talking about duplication, 

overlap, fragmentation of the Federal Government. I pointed out, 

at DOD and Energy Department that we identified 37 different investments totaling over a billion dollars that were potentially duplicative. So if you are spreading your talent out across more systems than you really have to, and you are not concentrating on 

managing the performance of a fewer number of systems properly, 

you are going to have even bigger problems. So the potential, having processes in place, investment management processes to look at 

the portfolio of programs and make sure that you don’t have duplicative investments. And many of these occur in administrative systems, whether they are in personnel management systems. We also 

talked about the Office of Personnel Management and other agencies are developing individual case Management systems for background investigations on their own, rather than using one common 

system. I was pleased that OMB accepted our recommendation to 

work with OPM and to try to streamline that across process. 

So I think there are plenty of fruitful opportunities for the Committee to pursue in this area. 

Mr. PLATTS. Yes, I, because of being in another markup, wasn’t 

able to be at the hearing on Tuesday. And DOD is a perfect example, 7,000 systems that you know there is overlap, duplication in 

those that could have been much better managed. And because it 

44 

wasn’t, now to try to get control or bring it under control is going 

to be very challenging. 

Mr. Werfel? 

Mr. WERFEL. I would like to add a few thoughts if I could. First 

of all, I appreciate Mr. Dodaro mentioning the IT dashboard. Obviously transparency is the staple of any effective government reform 

effort. Bringing to light credible and reliable information about the 

status of projects helps drive accountability. 

And I agree with Mr. Dodaro about the emphasis on duplication 

and overlap. 

The one area that I would suggest the Committee look into is an 

area where we have been extremely focused from the start of this 

Administration, and that is on the overall size and scope of our IT 

projects, our basic assessment is that we have not historically as 

a government done a good job in right-sizing the business requirements for these systems. We take on a lot of nice to haves in terms 

of what our systems need to do. 

And we bought into, I think unfortunately, a notion that we can 

move to these large, single instance systems that can solve multiple problems simultaneously in a seamless way. And on paper it 

looks good. But when you get down to the practicality of whether 

our government organizations have the capacity to manage the 

change involved, which is a lot of business process change, it is a 

lot of data cleanup, it is cultural changes and training, all things 

that need to happen. But if you take on too big of a project, we tend 

to never get across the finish line in the way we envision. 

So our emphasis has been on downsizing and down-scoping our 

IT projects across the board into more bite sized chunks. And here 

is what that does. It does a couple of key things. By doing that, 

you get to meaningful points of functionality quicker. So if you 

have this large project, and even the best project management 

team in the world is going to take five years to deploy, a lot of the 

key senior officials involved won’t be there five years from now. 

And the taxpayer is not getting the benefit of an active system for 

another five years. 

If you say, okay, our first landing point will be 18 months from 

now and it won’t do everything that the full vision does, but it will 

give us meaningful return on investment functionality within 18 

months, well, first of all, the senior leaders will be there. And on 

that go-live date, there will be a sense of accountability. And it creates a change management environment that is more manageable. 

So we have in financial systems over the summer of 2010, we 

looked at every financial system project with this thought in mind. 

And we shrunk the budget of our financial systems by $1.6 billion, 

just on the notion of, you have asked for too much, you have asked 

for too many nice to haves. We are doing that in a lot of other 

areas. 

So I think as a government, we need to be on a better diet in 

terms of what business requirements we are asking our systems to 

do, and look for these shorter bursts of functionality. The challenge 

we have with agencies like DOD are that they have already, when 

this Administration came on board with this guiding principle of 

smaller, more targeted, higher priority business needs for our systems, the Defense Department had already launched into these 

45 

broad ERPs. It is hard to walk back from the big systems once you 

are halfway down the football field. 

I think they are looking very closely at areas where they can as 

they are implementing forward shrink the size of the problem, 

shrink the footprint of business requirements, make some important adjustments so that they can get to meaningful deployment 

sooner. 

Mr. PLATTS. I know we saw, I am drawing a blank on the name of the program at DOD where they had spent $100 million over I 

think seven years, with no, as you say, result. By the time they got 

far along, it was realized that it couldn’t actually do what it needed 

to do, and the taxpayers were out the money without a benefit. 

Mr. DODARO. Yes, a couple other points I would suggest along 

these lines. One is we pointed out in our report that was released 

Tuesday not only duplication systems but for cost saving opportunities . And one in Defense was this next generation email system 

for the Navy, where they looked at different alternatives and then 

they actually selected an approach that wasn’t one of the alternatives that they had identified. And it was much more costly and 

involved many more contractors than any of the alternative approaches. So we recommended re-assessing that. 

What we have been trying to do at GAO is get in earlier in these 

decisions along the lines that Mr. Werfel mentioned early on. 

One of the major pieces of legislation that this Committee sponsored many years ago was the Clinger-Cohen Act that actually put 

chief information officers in place across government. The idea 

there was to have a disciplined investment management process, to 

do more modular approaches and not the big systems approach. 

So I think this Committee has opportunity to look at how well 

that is working. We could provide a lot of assistance in that area. 

Mr. PLATTS. That might be, using the specific example of the 

Navy system where we maybe partner with you to do some productive oversight and help to see if they will reevaluate what their decision was. Secretary Gregg? 

Mr. GREGG. If I might add, actually, you can do these things successfully. Just to give another point, the Bureau of Public Debt, 

which is part of the Fiscal Service, they provide services to other 

government agencies accounting services, through a franchise activity. They are well along to implementing an upgraded ERP. 

They are on time, they are under budget. And they have done that 

two or three times. It gets down to identifying exactly what you are 

going to do and sticking to it and having the management, discipline to do that. 

And the minimizing the reliance to the extent you can on outside 

contractors. 

Mr. PLATTS. Which agency or office was that? 

Mr. GREGG. It’s the Bureau of Public Debt, part of the Fiscal 

Service. They provide franchising services to 55 or 60 smaller government agencies in the accounting area. They have done that and 

they are on schedule to implement that. 

Mr. PLATTS. Maybe we need to loan those men and women out 

to DOD on their ERPs. 

Mr. GREGG. The one thing that often, I think both Gene and 

Danny alluded to it, is that these projects tend to grow. And the 

46 

Public Debt office service, this is what the service is, and in one 

respect it may be somewhat vanilla. But they don’t modify it for 

their customers. This provides basic, good, sound accounting, and 

they don’t deviate from that. If you don’t want to come and be their 

customer, then that is fine. But if you do, here is what you get. I 

think that has really paid dividends for them over the years, and 

for their customers, in keeping the costs down and the quality high. 

Mr. PLATTS. Yes. I want to touch on kind of a different issue, different track. And it relates to one of the audit issues raised by 

GAO, was Medicare cost growth. Secretary Gregg, in your testimony you talk about the projected savings because of the Affordable Care Act and what will transpire. And the GAO referenced 

that as one of the areas of concern. We probably saw evidence of 

that just a few weeks back, with the payroll tax bill, where at least 

for the next 18 months, we are suspending the provider payment 

reductions, which would have been drastic and ultimately led to 

less access to care for seniors. 

Secretary Gregg, if you want to comment, given that that legislation is now passed and is an example of I will say the fallacy of 

the Affordable Care Act on the fiscal impact, there really won’t be 

savings, because of that type. Congress, we are not going to let 

Medicare provider reimbursements drop 25 percent or more now, or 

I would contend, ever, because of what it would mean to seniors 

getting access. 

Mr. GREGG. I think two things. One is that the auditors for the 

associate programs identified in their view significant uncertainties 

about the amount that was identified. Having said that, I think 

there is still significant savings through the Act. 

Mr. PLATTS. I am not saying there is not anything in the Act. 

But if I remember, and this number, my memory is it was $220 billion or $240 billion over ten years, was specifically related to Medicare provider payment reductions. I am pretty sure it was over 

$200. I don’t remember the exact number. That is significant, that 

aspect of the bill. 

Mr. GREGG. And I think there are a couple provisions in there 

where the auditors and GAO said, well, based on experience that 

there is some uncertainty whether or not these are actually going 

to be realized. I think that was the reason for the disclaimer. But 

on the one hand you have a statute that is in place, and on the 

other hand, you have past experience that might suggest that additional legislation may come along and modify it. 

Mr. PLATTS. I think it is one of the challenges when we pass the 

bill, and then as we go forward with audits, whether it is CBO and 

how they score the bill or now how we try to assess its actual impact, is CBO did what they were required to do, look at what the 

bill said and score it based on what it said, even though everyone 

knew at the time it passed that we would not allow, as we now 

have not allowed those payments to drop. 

Until we get to a more frank or accurate, I am trying not to use 

the word honest, meaning I don’t think there is any intent of dishonesty, but the reality of the impact was we didn’t have an accurate or honest assessment of the impact, we really will struggle 

with trying to have a true understanding of the fiscal situation or 

challenges coming, and then how we deal with them. 

47 

Mr. DODARO. There are really a few things I would like to comment on that I think will help shed some light on it. One is, the 

financial statements were prepared, as you mentioned, in order to 

assume that the law was enacted. But there are uncertainties. 

Now, a couple of things in that regard. One is the reimbursements 

to doctors, which you mentioned was deferred. And there are questions about whether that will continue to be deferred or not in the 

future. That is one answer. 

Now, there are provisions in the health care legislation to reduce 

payments to hospitals that are different. Supposedly the hospitals 

have agreed to accept those in exchange for greater coverage of individuals under health care. So that should be okay, perhaps, if 

that arrangement holds over the next decade. 

Then there is the question of assumed productivity increases in 

other parts of the health care profession. That is another degree of 

uncertainty. So those are the reasons that led us to disclaim to give 

an opinion on there. And you have a lot of inherent uncertainties 

in the health care field anyway in terms of cost growth. But I just 

wanted to offer those comments. 

Mr. PLATTS. Because we are trying to assess what, in reality, future Congresses will do, they are always going to have some uncertainty in how we make those projections. I don’t want to dismiss, 

Controller Werfel referenced earlier the Medicaid aspects of the 

bill, of trying to have a proactive approach that can prevent misuse 

of funds, as one of those examples of a positive aspect. 

So while I was opposed to the bill in total, I don’t want to dismiss 

or contend that there are not aspects of it that I think are wise and 

good policy going forward. 

I want to touch on just a couple of things. General Dodaro, you 

talk about in your statement compliance with auditing laws, and 

you referenced earlier the Federal Management Financial Improvement Act and the number of entities still not in compliance and the 

impact that has. Would any of you comment, are we doing a better 

job? And this has been one of my frustrations, I guess, whether I 

was Chairman or Ranking Member here, that we have laws that 

are not complied with but there is no consequence for those who 

fail to comply. Are we doing a better job of sending, and Mr. 

Werfel, you might have mentioned earlier, DOD, the fact that the 

Secretary is saying in 2014 we will do this, that there is a better 

understanding in the Department that there is a hard deadline and 

there will be consequences. Unless we have consequences, the 

deadlines ultimately don’t mean anything. Here we have laws that 

are being ignored and not complied with. 

Are we doing a better job of sending the message out, whether 

it is civilian or with DOD, military personnel, that you are giving 

this charge and you will fulfill it, and if not, it will reflect on you 

from a personal standpoint in your job rating or assessments? Is 

that culture changing at all? 

Mr. WERFEL. I think it is. There are examples of statutory requirements where there were no particular sanctions where the 

global accountability on it was so high that we, that we were going 

to make it no matter what. The example I am referring to is the 

Recovery Act. All the various reporting deadlines within the Recovery Act to get the information out, that we had to stand up a naVerDate Aug 31 2005 13:52 Jun 19, 2012 Jkt 000000 PO 00000 Frm 00051 Fmt 6633 Sfmt 6633 C:\DOCS\74457.TXT APRIL
48 

tionwide data system in a matter of months and it took an enormous amount of combined stakeholder engagement and senior 

leadership attention to get that all done, all in not just the name 

of a statutory deadline but a broader expectation that Congress, 

the President, citizen intermediaries like the media all placed 

on—— 

Mr. PLATTS. So the public, the fact that it was a very transparent 

public aspect helped to make sure that—yes. 

Mr. WERFEL. Yes. And then on the other end of the spectrum, if 

you have a law that is out there that doesn’t have that type of attention, whether inherently within an administration, there are no 

hearings on it and the media is not paying attention, you might see 

situations where statutory deadlines are missed and there is not a 

lot of accountability or attention to it. 

I think the place likely to land is somewhere in the middle, 

where clearly, where there are moments in time where a statutory 

deadline is surrounded by a tremendous amount of attention from 

this Committee, from other committees, from the Administration, 

it is kind of, it feeds off each other. We end up in a situation where 

these deadlines are consistently met. 

But you can’t prioritize everything. And you can’t expect that in 

all situations. For those places where we don’t see that, I feel there 

can be different things we can do to drive greater accountability, 

including organically within the government embedding these 

things in performance appraisals, which is happening more and 

more, thanks to efforts at OPM and others to try to enforce more 

performance-based work from Federal employees and tying meritbased promotions and salary increases and things like that. 

And then there are some creative things that I have seen come 

out of this Committee and on the Senate side in the area of improper payments, saying that if the IG finds you non-compliant, 

there needs to be a disclosure to the Hill with these kinds of explanations. There is a transparency element to that, an additional reporting requirement to that, that can be helpful. 

So it is finding that right calibration, but yes, I think there are 

moments in the Federal financial frame where if there is not 

enough attention to it and not enough teeth in the statute, it is 

hard to keep everyone in line on every single requirement. 

Mr. PLATTS. So maybe a good example, if my good friend, Mr. 

Towns, was here, in the coming term, 2013–2014, he would say if 

he was Chairman, and I would say whoever succeeds me as Chairman from our side, but that they work with DOD, not wait until 

2014, but in early 2013 maybe mid-year 2013, in getting to that 

2014 deadline that DOD knows that this Committee, whoever is in 

this chair for the next two years, leading up to that 2014 deadline, 

is very public about scrutinizing DOD meeting that deadline? 

Mr. WERFEL. Yes. It is like the point Gene was making on the 

IT dashboard. It is out there, there is a report card for it, it is public. It reinforces. If there are interim report card moments for the 

Defense Department that are public, that is going to be a better ingredient for accountability and sustained leadership attention than 

if we just wait until 2014 and see what happens. 

Mr. DODARO. I would offer a couple of observations on this. First, 

the last update we did of the high risk list, we took two times off 

49 

the high risk list. In both of those cases, over a dozen hearings had 

been held by Congress since we put the area on the high risk list 

to get them off. There is no doubt in my mind that that would not 

have happened absent Congressional oversight and top commitment by the Administration. One was personnel security clearances, we were way behind in clearing people, and that was a big 

issue after 9/11. So the Deputy for Management at OMB and the 

OPM Director led a task force, they focused on it, Congress focused 

on it and it got fixed. There were metrics, they moved to a specific 

period of time. 

Now, I contrast that to the Anti-Deficiency Act which has criminal and civil penalties in it, and we know there have been violations, but nobody has ever been prosecuted as a result of those violations. So I think transparency and involvement of top people, 

where there is a coalescing of Administration priority and Congressional priority and things get done. And that is really, I think, the 

proper vehicle to pursue. 

I was involved in the original development of the legislation back 

in 1996 that created the Financial Management Improvement Act. 

And there was in draft legislation, there were penalties in there. 

If you didn’t achieve compliance, your budget was reduced by so 

much, but that created so much problem. And people were afraid, 

I think rightfully so, of unintended consequences, that that could 

occur, that that was removed from the final legislation that is in 

place. But in my view, there is no substitute for Congressional and 

Administration attention. 

Mr. PLATTS. That may be, as we look at the remainder of this 

year, with the number of oversight hearing issues, such as the 

State cooperation on Medicaid and grant programs, perhaps with 

Navy and IT, and that type thing, we look at maybe in the fall one 

that is DOD-specific on where they are, to kind of set the stage for 

whoever does succeed me as chair. 

And as far as getting more attention, I always think about asking the three of you to admit to steroid usage so that we would 

have more media focus on these important issues. So for a future 

hearing, we may ask you to start bulking up. 

[Laughter.] 

Mr. PLATTS. And I appreciate your patience. If I can, maybe two 

final issues. I always have too many probably for the time frame. 

In the testimony, and I guess it goes to one of the uncertainties 

and the impact of the economic recovery efforts, and specifically, 

General Dodaro, you referenced the $316 billion in future payments 

related to Fannie Mae and Freddie Mac and what that ultimate 

cost is going to be. 

That number, I have not seen before, and maybe just missed it. 

But it is, to me, was much higher than any estimates I had, which 

were $150 billion, $200 billion. Can you comment on that and is 

that a pretty, do you think, a pretty solid estimate of what that ultimate cost is going to be? 

Mr. DODARO. So far, and probably the numbers you are referring 

to that are most often referenced is what has already been paid, 

which is about $183 billion recently. This morning in the paper, another disclosure about losses for this last quarter for one of the 

NGSEs. 

50 

The $316 billion, there is also a disclosure in there that there 

may be an additional $60 billion over and above the $316. Now, 

this changes every year based upon circumstances and estimates. 

So we will have to watch it. But I do think that ultimately this will 

be one of the greater costs of the financial recovery efforts, will be 

Freddie Mac and Fannie Mae. That is setting aside even what the 

transition issues would be, once the Congress settles on what their 

ultimate disposition should be. 

So this is something we are watching closely, the same way we 

are watching under the TARP program, we still have to exit from 

AIG, General Motors. We have made recommendations to Treasury 

that they have the expertise to be able to divest there at an appropriate point in time to protect the taxpayers. 

And so all these investments we are watching very closely going 

forward. 

Mr. PLATTS. And obviously that has a huge impact on the bottom 

line, when we talk about future liabilities and our fiscal position. 

Mr. DODARO. Oh, definitely. Fannie Mae and Freddie Mac are 

huge entities and they have a lot of repercussions. 

Mr. PLATTS. Great. We have been joined by the gentleman from 

Virginia, Mr. Connolly. Do you have questions? 

Mr. CONNOLLY. I do, thank you, Mr. Chairman. 

And thank you to our panelists. Mr. Dodaro we heard from just 

the other day. Mr. Werfel, we have missed you. There was a period 

of time during Congress I thought you had a cot somewhere. But 

thank you so much for your willingness and patience to share with 

members of Congress. Mr. Gregg, welcome. 

Mr. Dodaro, there has been a lot of talk about balancing the 

budget and ways we can do it. I want to talk to you a little bit to 

follow up on the conversation we had in full committee the other 

day. Do you remember what percentage of GDP revenue Federal 

revenue represented the last time we balanced the budget? 

Mr. DODARO. Not off hand. 

Mr. CONNOLLY. Would 19.6 percent roughly sound right to you? 

Mr. DODARO. Yes. 

Mr. CONNOLLY. And 20.5 percent the very last year we balanced 

the budget? Roughly, roughly guess. 

Mr. DODARO. All right. 

Mr. CONNOLLY. And it is somewhere between 14 percent and 15 

percent today? 

Mr. DODARO. Yes. 

Mr. CONNOLLY. Would it be fair to say that when you look at the 

fact that we are at 25 percent spending, which is too high, higher 

than it was last time we balanced the budget, but revenue is too 

low, relative to that record, that we have to address both sides if 

we really seriously want to put ourselves on a sustainable path toward balance in the Federal budget? 

Mr. DODARO. I am on record as saying we need to address everything, revenue, entitlements and other government spending. 

Mr. CONNOLLY. Would it be fair to say that it would be a very 

hard climb to try to balance the budget only on the spending side 

of the ledger? 

Mr. DODARO. Yes. 

Mr. CONNOLLY. Thank you. 

51 

Mr. Gregg, in your testimony, you actually said, you pointed out 

that the Affordable Care Act reduced Federal outlays and helped 

reduce deficit spending, if I understood your testimony correctly. 

Mr. GREGG. Pardon me? 

Mr. CONNOLLY. I said, in your testimony, you talked about how 

the Affordable Health Care Act actually helped reduce Federal outlays and long term actually will contribute to deficit reduction. Is 

that your testimony? 

Mr. GREGG. And while there is some uncertainty on the numbers, 

the savings are still very significant. 

Mr. CONNOLLY. Very significant. Do we have any evidence with 

respect to, for example, Medicare premiums or Medicare Advantage 

premiums that maybe the promise of the Affordable Health Care 

Act is in fact being realized, or shows some empirical evidence that 

it might be? Did Medicare Advantage premiums go up or down the 

last two years? 

Mr. GREGG. I am sorry, Mr. Connolly, I can’t answer that. But 

I can get an answer for you for the record. 

Mr. CONNOLLY. Would it surprise you to learn that as a matter 

of fact the answer to that is they went down both years for the first 

time in the history of the program? 

Mr. GREGG. No. 

Mr. CONNOLLY. And Medicare premiums this year went down. 

And in both cases, especially Medicare Advantage, the number of 

people enrolled, because one of the criticisms of health care reform 

was, it will destroy Medicare Advantage, in both of the subsequent 

years since passage of the Act, not only did premiums go down, 

benefits went up, with lower cost to the consumer, and the number 

of people registered actually increased very significantly. Other 

than that, the predictions of killing Medicare Advantage have been 

proved correct. 

We were talking, Mr. Dodaro, the other day about metrics. And 

one of the things, and I know the Chairman certainly has not only 

concurred with this concept but tried to help it along, there are 

some investments we can make in the Federal Government that actually have huge return on them. I want to give you the opportunity to revisit the issue of what that ratio was for every dollar 

we were investing in new resources at GAO, what was the payoff 

for taxpayers in terms of dollars saved? 

Mr. DODARO. Basically, our return on providing, the record at 

GAO returning financial benefits for every dollar invested at GAO 

in the last four years was on average $91 to every dollar invested 

in GAO. 

Mr. CONNOLLY. Ninety-one to one? 

Mr. DODARO. Yes. The last year was 81 to 1. 

Mr. CONNOLLY. And what has happened to your budget? 

Mr. DODARO. Our budget has been reduced about 8.3 percent 

since 2010. And our number of staff by the end of this year will 

be 11 percent lower than it was in 2010. That will be the lowest 

staff level that we have had in GAO since 1935. 

Mr. CONNOLLY. I would say to my friend, the Chairman, whose 

retirement still causes me sorrow, because his voice is going to be 

very much missed here in the Congress, this Subcommittee has 

done some pioneering work on a bipartisan basis, looking at issues 

52 

like this, improper payments. And Mr. Werfel, you testified about 

this, and I hope the Chairman will indulge me just a few more seconds. We have to get out of this mindless narrative that all spending is the same and all spending is bad. There are such things as 

strategic investments. 

A hundred and twenty-five billion dollars a year in improper payments, if we could in theory bring that to zero times ten, that exceeds the sequestration number we are sweating buckets of blood 

about around here. If you could have even half that 91 to 1 ratio, 

let’s say in the first year it is that, but you come down a little bit 

in the next year, it is still a bargain. Instead, we are at the lowest 

level since 1935. We are actively dis-investing in opportunities to 

enhance revenue and to catch waste, fraud and abuse and mistakes 

early on and prevent them. That is good for taxpayers. 

This Subcommittee has talked about the need for, and thank God 

the Congress passed the Federal Acquisition Institute Training Bill 

that I introduced. And again, Mr. Platts was a co-sponsor. It is 

penny-wise and pound-foolish not to have highly skilled, highly 

trained managers of big, large contracts. What can go wrong if you 

have someone who doesn’t really know what they are doing? 

Mr. DODARO. Lots. 

Mr. CONNOLLY. Right. And so it just, we have to change the narrative around here. Again, I want to thank my friend, the Chairman of the Subcommittee, who has tried to change the narrative 

around here about this. We need to highlight that kind of statistic 

more. We need to educate our colleagues around here that it aint 

all the same and that there are some investments worth making 

if we share this goal about reducing the deficit and getting our 

arms around the fiscal situation. 

Well, what are the tools we need? And all too often we have substituted ideological rhetoric and political catch phrases that are not 

a substitute for thoughtful, analytical work about what are the analytical tools we need, frankly, to do our job and do it better. 

Mr. Werfel, I have not given you an opportunity. If the Chairman 

will indulge one more minute, just to allow Mr. Werfel to respond. 

I thank the Chair for his indulgence. 

Mr. WERFEL. I think you are hitting on a central issue: where 

are there investments that have a positive return on investment for 

the taxpayer, in particular in program integrity. Every year the 

President’s budget includes a suite of program integrity proposals 

that will improve our track record on improper payments in Medicare and improve tax enforcement. The numbers are staggering in 

terms of the types of savings we can achieve, over a one-year window, over a ten-year window. Either way you are looking at very 

large numbers, in the $100 billion range. 

Often, those investments are not enacted through the appropriations process. And it is enormously frustrating that investments 

that can return dollars and help us in our battle against the deficit 

are not enacted. So I agree. 

And I also would emphasize that I think as we move forward as 

a Federal Government, the more that we can do to improve the 

analysis that we have on the return on investment of our dollars, 

whether it is for GAO, Inspector General’s shop, a new fraud detection technology that we need to invest in, and we can expose that 

53 

and make it clear, I think we are better off. This is an area where 

this Committee can play a critical role in highlighting places, in 

any President’s budget, whether it is this one, the next one or the 

previous one, where those investments have a positive return to 

drive down error and improve efficiency. More people need to be 

singing that song that you are singing and bring attention to it. 

Mr. CONNOLLY. I thank the Chair for his consideration. 

Mr. PLATTS. I thank the gentleman for his comments and being right on point. When you look at the number, the $91 or $83 return 

for every dollar spent, perhaps the gentleman and I can look, as 

we move into the appropriations process, see if there is a way in 

a bipartisan way to make sure we are making that investment specifically, and being able to make that case of the wisdom of it and 

the return to the taxpayer. 

We are going to conclude, and I want to thank each of you again 

for your insights that you share with us and giving us some more 

work to do with your knowledge and things that we need to highlight. We will keep the record open, as I said earlier, for seven days 

for any additional information you want to provide, or members 

that want to provide a statement for the record. 

I know I will have the chance to interact with you some over the 

next 10 months, but I very much appreciate what you do every day 

and your commitment to good fiscal management, which is one of 

the Federal Government’s most important responsibilities, is how 

we handle the hard-earned dollars of our fellow citizens. I know 

each of you and your staffs are focused very much on that day in 

and day out. That is commendable. 

When I talk about public service being a calling, what you are 

doing epitomizes that calling of serving your fellow citizens. So 

thanks for your testimony and your patience as we had to break 

for votes. 

This hearing stands adjourned. 

[Whereupon, at 11:44 a.m., the subcommittee was adjourned.]