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ACCOUNTABILITY LAPSES IN MULTIPLE FUNDS

FOR IRAQ

HEARING

BEFORE THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

MAY 22, 2008

Serial No. 110–131

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

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

HENRY A. WAXMAN, California, Chairman

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

BRIAN HIGGINS, New York

JOHN A. YARMUTH, Kentucky

BRUCE L. BRALEY, Iowa

ELEANOR HOLMES NORTON, District of

Columbia

BETTY MCCOLLUM, Minnesota

JIM COOPER, Tennessee

CHRIS VAN HOLLEN, Maryland

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

JOHN P. SARBANES, Maryland

PETER WELCH, Vermont

——— ———

TOM DAVIS, Virginia

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

VIRGINIA FOXX, North Carolina

BRIAN P. BILBRAY, California

BILL SALI, Idaho

JIM JORDAN, Ohio

PHIL SCHILIRO, Chief of Staff

PHIL BARNETT, Staff Director

EARLEY GREEN, Chief Clerk

LAWRENCE HALLORAN, Minority Staff Director

(III)

C O N T E N T S

Page

Hearing held on May 22, 2008 ............................................................................... 1

Statement of:

Ugone, Mary L., Deputy Inspector General for Auditing, U.S. Department

of Defense, Office of the Inspector General, accompanied by Patricia

Marsh, Assistant Inspector General, Defense Financial Auditing Service Directorate, U.S. Department of Defense, Office of the Inspector

General; and Daniel Blair, Deputy Assistant Inspector General, Defense Financial Auditing Service Directorate, U.S. Department of Defense, Office of the Inspector General ......................................................... 17

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

Davis, Hon. Tom, a Representative in Congress from the State of Virginia, prepared statement of ........................................................................ 12

Issa, Hon. Darrell E., a Representative in Congress from the State of

California, excerpt from the House Armed Services Committee .............. 57

Ugone, Mary L., Deputy Inspector General for Auditing, U.S. Department

of Defense, Office of the Inspector General, prepared statement of ......... 19

Waxman, Chairman Henry A., a Representative in Congress from the

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

(1)

ACCOUNTABILITY LAPSES IN MULTIPLE

FUNDS FOR IRAQ

THURSDAY, MAY 22, 2008

HOUSE OF REPRESENTATIVES,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The committee met, pursuant to notice, at 10 a.m., in room 2154,

Rayburn House Office Building, Hon. Henry A. Waxman (chairman

of the committee) presiding.

Present: Representatives Waxman, Davis of Virginia, Cummings,

Kucinich, Tierney, Clay, Watson, Lynch, Higgins, Yarmuth, McCollum, Sarbanes, Platts, Duncan, and Issa.

Staff present: Phil Barnett, staff director; Kristin Amerling, chief

counsel; Karen Lightfoot, communications director and senior policy advisor; David Rapallo, chief investigative counsel; Theodore

Chuang, deputy chief investigative counsel; Steve Glickman, counsel; Mark Stephenson, professional staff member; Jen Berenholz,

deputy clerk; Caren Auchman and Ella Hoffman, press assistants;

Leneal Scott, information systems manager; Larry Halloran, minority staff director; Jennifer Safavian, minority chief counsel for oversight and investigations; Keith Ausbrook, minority general counsel;

Mason Alinger, minority legislative director; John Brosnan, minority senior procurement counsel; A. Brooke Bennett, minority counsel; Emile Monette and Benjamin Chance, minority professional

staff members; Nick Palarino, minority senior investigator and policy advisor; Patrick Lyden, minority parliamentarian and member

services coordinator; Brian McNicoll, minority communications director; and John Ohly, minority staff assistant.

Chairman WAXMAN. The committee will please come to order.

As many of us know, there are strong and fundamental disagreements in Congress and throughout the country about President

Bush’s Iraq policy, but despite these differences there is unanimous

agreement in at least one area: Our Government should do all it

can to eliminate any waste, fraud and abuse in the hundreds of billions of taxpayers’ dollars that are being spent on the war.

Normal accounting standards aren’t always possible in war

zones, and we have kept that in mind during our committee’s work.

But some actions, like our Government’s decision to hand out $12

billion in cash at the beginning of the war, defy logic. As we

learned in our hearings last year, nearly $9 billion of that money

was distributed with no accounting standards at all.

Today’s hearing will give us a new status report on how the Defense Department is safeguarding taxpayers’ dollars. We are very

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fortunate to have the Department’s Deputy Inspector General here

to brief us on a new report.

The Defense Department has made over 180,000 payments to

contractors from offices in Iraq, Kuwait and Egypt. These payments are for everything from bottled water to vehicles to transportation services.

The Inspector General reviewed approximately $8.2 billion in Defense spending and estimated that the Department failed to properly account for $7.8 billion. That means the Defense Department

had a stunning 95 percent failure rate in following basic accounting

standards.

The Inspector General concluded that $1.4 billion of these payments didn’t even meet the most minimal requirements necessary,

leaving U.S. taxpayers vulnerable to waste and fraud. In fact, the

Inspector General has already referred 28 cases involving millions

of dollars to criminal investigators.

Few Americans may be aware of this, but the Defense Department has paid $135 million to Britain, South Korea, Poland and

other countries to conduct their operations in Iraq. When the Inspector General tried to find out what this money was used for,

they couldn’t find any answers. Investigators reviewed 22 different

voucher files, but not one single payment made to these foreign

countries had documents explaining how the money was spent.

The Inspector General also found that the Pentagon gave away

$1.8 billion in Iraqi assets with absolutely no accountability. Investigators examined 53 payment vouchers and couldn’t find even one

that adequately explained where the money went.

In one remarkable instance, a $320 million payment in cash was

handed over with little more than a signature in exchange.

These new findings are on top of the Inspector General’s sobering

November 2007 report which concluded that the Defense Department couldn’t properly account for over $5 billion in taxpayer funds

spent in support of the Iraqi security forces. That analysis reported

that thousands of weapons are unaccounted for, including assault

rifles, machine guns and rocket-propelled grenade launchers, and

millions of dollars have been squandered on construction projects

that don’t exist.

Taken together, the Inspector General found that the Defense

Department did not properly account for almost $15 billion. American taxpayers are picking up the tab for Iraqi ministries, Coalition

governments, United States and foreign contractors, Iraqi security

forces and Blackwater and other U.S. security companies. We are

even giving hundreds of millions of dollars to local Iraqi tribal leaders in order to get them to stop fighting, and much of this is spent

without the minimum safeguards needed to protect taxpayers.

Our troops seems to be the only ones who are held to demanding

standards. In fact, they often have to overcome mindless obstacles

just to get what they are owed.

Soldiers wounded in battle have received letters demanding that

they return signing bonuses because they didn’t complete their

terms. In some cases, the Pentagon even wanted interest.

Guard forces and Reservists have waited months, even years, to

get reimbursed for travel and meal expenses.

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Sergeants have had to buy their own body armor. They have had

to armor their own Humvees, buy their own medical supplies and

even purchase their own global positioning devices.

And, when the brigade of National Guard and Reserve troops

that served the longest tour of duty in Iraq came home, they had

to fight the Pentagon bureaucracy to get the education benefits

they had earned.

There is something very wrong when our wounded troops have

to fill out forms in triplicate for meal money while billions of dollars in cash are handed out in Iraq with no accountability.

The Inspector General has done important work, and this new

report deserves an official response from the Defense Department.

The Department has known about this audit for more than a year

and has known about this hearing for several weeks, but the Department refused to testify voluntarily today. I think that is a regrettable decision, but it will not keep our committee from giving

this matter the careful scrutiny it deserves.

I want to thank the Inspector General and his staff, and I look

forward to hearing today’s testimony.

Mr. Davis.

[The prepared statement of Chairman Henry A. Waxman follows:]

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Mr. DAVIS OF VIRGINIA. Thank you, Mr. Chairman, for calling

this hearing to examine the complex range of vulnerabilities and

management challenges raised by our extensive security and reconstruction activities in Iraq. We are pleased the committee is continuing this line of oversight which began when I sat in your chair.

During the 108th and 109th Congresses, the full committee and

our subcommittees held a total of 19 hearings focused on complex

logistical support and reconstruction contracts. In those sessions,

we tried to transcend the charged rhetoric and easy generalities

that can swirl around this topic and focus instead on the hard realities of using last century business systems in a war zone on the

other side of the world. I hope today’s hearing follows that constructive path.

It is worth the committee’s sustained attention because the bad

news is inadequate DOD payment processes didn’t start with the

Iraq War and they are unlikely to disappear when the war is over.

I would just note that the DOD IG has done similar audits and

obtained similar results for vendor payment activities outside the

Iraq War.

In one report issued in 2002, the DOD IG stated serious internal

control weaknesses have been reported over the years in the DOD

payment process and system. Since the formation of DFAS in the

early 1990’s, its processes and procedures have been the subject of

significant attention from the oversight community in general.

For example, while investigation disbursements by DFAS Oakland, CA, the DOD IG found that the accounts payable data bases

used to validate vendor systems and payments were incomplete, inaccurate and virtually unauditable. The auditors identified at least

$2.4 million in duplicate payments in the limited sample that it reviewed. That was a 1995 report.

While reviewing vendor payments at DFAS Denver, the DOD IG

found that approximately 176,000 of the 306,000 vendor payments

made over the course of the 3-month period in 1999 lacked the required supporting documentation and information.

In 2001, the DOD IG reviewed vendor payments at DFAS Omaha

for vendor payments on a $25.5 million multi-year maintenance

contract. The auditors found $2.9 in erroneous obligations to the

contract, $530,000 in duplicative payments of the contract and over

$700,000 of unnecessary upward adjustments of obligations on the

contract. That was in March 2001, and that was just a very small

sample.

The DOD IG, which will testify today, as I said, it has suffered

from longstanding and serious internal control weaknesses, but

spending in Iraq presents unique challenges and provides undeniable opportunities for worthwhile oversight.

Few people operating in an active combat zone would refer to the

documentation requirements of the financial management process

as mission critical work. Similarly, no one would deny the imperative to tell American taxpayers how their money is being spent. So

we have to balance these two truths and approach this issue with

unclouded vision.

We need to know what has gotten better, what is still being fixed

and what is still broken, and we need to refine our understanding

of the differences between audit report findings that take an unVerDate 11-MAY-2000 13:00 Apr 06, 2009 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 C:\DOCS\47997.TXT KATIE PsN: KATIE
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flattering snapshot of a complex process and the real meaning of

those findings to the long-term integrity of systems handling huge

disbursements of taxpayer dollars.

Without question, many processed used with relative success in

peacetime operations here fall far short of expectations when deployed in an active combat zone. In Iraq, a highly unstable environment and consequent security overhead greatly compound the

scope of resulting cost, performance and oversight issues.

The underlying causes: inadequate planning, a lack of sustained,

high-level leadership, mismatches between requirements and resources and an insufficient number of trained financial management personnel.

The last factor, not enough trained and experienced acquisition

professionals, is by no means unique to Iraq, and we should not let

a focus on the war blind us to the Government-wide need for veteran finance officials to watch over large and growing expenditures.

Today, we are going to hear from the Department of Defense

Deputy Inspector General for Audit, Ms. Mary Ugone. She brings

an important perspective informed by a substantial body of audit

and review work.

The picture painted by that work is not pretty. A volatile environment, poor security and an arcane, ill-suited regulatory structure have produced a succession of transactions plagued by missing

documentation and other lax fiscal controls.

The IG findings remind us the truth of a war zone is gritty

enough. There is no need to embellish, inflate or spin it. Thoughtful

oversight will steer clear of hyperbolic discussions and oversimplification of complex processes in the search for meaningful reforms.

I look forward to her testimony and to a frank and constructive

discussion.

Thank you.

[The prepared statement of Hon. Tom Davis follows:]

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Chairman WAXMAN. Thank you very much, Mr. Davis.

It is the practice of the committee to have opening statements

from the chairman and the ranking member. We don’t have a great

number of Members here, so if Members want to make a brief

opening statement, I will recognize them at this point.

Mr. Kucinich.

Mr. KUCINICH. Thank you very much, Mr. Chairman. I want to

thank you and Ranking Member Davis for your ongoing interest in

providing accountability for the funds that are used in Iraq.

One of the things that disturbs me about the approach that the

administration has taken, Mr. Chairman, is that it has treated the

money of the people of Iraq as free money, as though we don’t have

responsibility for the money that we take custody of that belongs

to the people of Iraq.

I think that those in the administration who have had custody

of that money, who have, through their instance, created systems

for distributing the money, need to be held accountable as though

they were handling the money of the taxpayers of the United

States of America. This hearing, I hope, proceeds in that spirit.

Because it is Iraq money and since we have a higher responsibility, we can’t act as though, well, that is just Iraqi money and somehow anything goes. Actually, when you look at it in terms of the

work of particularly Coalition Provisional Authority, anything has

gone. Billions have gone out the door, and we can’t trace it. There

are a lot of questions there.

Mr. Chairman, thank you for holding this hearing. I will be rejoining the hearing shortly. I have people in my office I have to

meet with, but thank you.

Chairman WAXMAN. Thank you, Mr. Kucinich.

Mr. Issa.

Mr. ISSA. Thank you, Mr. Chairman.

I will be brief. I would like to put my entire statement in for the

record.

I appreciate your holding this hearing. I think it is incredibly important that we, on a bipartisan basis, continue to operate an oversight role.

To that end, I would like to comment briefly that if in fact the

majority doesn’t begin the process of briefing us until the 20th, if

we have at 9:39 this morning the majority opinion coming out, giving us 21 minutes before the start to begin to review an 11-page

document, then in fact we, as a committee, are part of the problem.

Although our guests are important as part of the solution today, I

would hope that we could prevent this from happening so deliberately again in the future.

Also, to that end, I hope today that we won’t allow our anti-war

versus pro-war images to taint the legitimate need for bipartisan

oversight as to mistakes, fraud and lost money. I break them down

into those three categories for a reason and hope that our witnesses will be able to give us statistical clarity on what, in fact, is

the level of mistakes being made as a percentage now and in past

conflicts, what level of fraud do we believe has occurred and what

level of fraud have we taken steps to enforce criminal violations

against and, last but not least, the total loss through all causes so

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that we can understand as a statistical percentage of the dollars

and the number of transactions.

I would hope that this committee would look to the statistical reality of a number of occurrences as we do in the business world and

not simply to dollars which, in a multi-trillion dollar economy, always manage to end up being large figures.

So, Mr. Chairman, I will put my entire statement in for the

record, and I hope that my comments will lead to our staffs being

able to work for better notification sooner in the future.

I yield back.

Chairman WAXMAN. Ms. Watson, do you wish to make an opening statement?

Ms. WATSON. Thank you so much, Mr. Chairman, for holding today’s hearing on the accountability of funds used to support this

war in Iraq.

I remember being told by the President that the cost of this war

would be revenues from the oil that was produced and drilled out

in Iraq. That appeared to be untrue. Today, we are talking about

taxpayers’ U.S. dollars, taxpayers’ money.

As you know, Mr. Chairman, we have been working diligently to

provide oversight of funds that may have been inappropriately used

while the occupation of Iraq has dragged on. Over the course of the

last 15 months, we have had several hearings that were aimed at

addressing the poor accountability methods of the Coalition Provisional Authority, contractors and subcontractors in Iraq.

Right here, I have a staff person who was in Iraq, and we saw

these contractors given millions and millions of American dollars,

and the goods and the services that were supposed to be produced

for our fighting forces never got to them. I have a witness here in

this chamber today.

The hearings opened our eyes to the potential waste of almost

$50 billion in unauthorized security costs, overpriced workers, compensation insurance, inefficiencies and cost overruns associated

with the construction of the U.S. Embassy in Baghdad, the largest

in the world for a rather small, what is it, 58 million people population. The largest in the world, costing a billion dollars, and this

example is only to name a few of the problems.

Also, last October, this committee held a hearing on the state of

corruption in the Iraqi government that showed there are severe

problems with accountability in their government. The reason why

I bring this up is because if the United States wants to be an example of democracy and accountability in Iraq, we must demonstrate the need to abide by the Rule of Law.

So I look forward to hearing the testimony of today’s panel on

our current situation, describing as to why there are deficiencies in

the reporting of the Multi-National Security Transition Command’s

ability to deliver weapons, supplies and equipment to support the

war in Iraq.

I thank you, Mr. Chairman, for the opportunity to address the

committee, and I yield back the remainder of my time.

Chairman WAXMAN. Thank you very much, Ms. Watson.

Mr. Duncan.

Mr. DUNCAN. Thank you very much, Mr. Chairman. I don’t have

a formal written statement, but I will briefly say this.

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This is my 20th year in the Congress, and I followed the Congress very closely for more than 20 years prior to that. In all that

time, we have seen mind-boggling amounts of waste in almost

every Federal department and agency.

But in all those years, never has any department or agency ever

come close to the gigantic waste, fraud and abuse that has gone on

in Iraq, and fiscal conservatives should be the ones most horrified

by what has happened there. There has been nothing fiscally conservative about the war in Iraq.

It is really shameful, and it is extremely unfair to the taxpayers

of this country.

Thank you.

Chairman WAXMAN. Thank you very much, Mr. Duncan.

Mr. Higgins.

Mr. HIGGINS. Yes, thank you, Mr. Chairman. I applaud your

leadership on this issue today and historically.

I think this issue of accountability and oversight is very, very important. We are talking about millions and billions of dollars in an

effort that doesn’t appear to be making much progress.

The congressional role historically in oversight, particularly to

support war efforts, has been critical as a fundamental component

in changing the direction in terms of our policy. So I think this

hearing is obviously very important. I look forward to the testimony of the Inspector General.

I applaud you again, Mr. Chairman, for your leadership, and I

yield back.

Chairman WAXMAN. Thank you very much.

Mr. Sarbanes.

Mr. SARBANES. Thank you, Mr. Chairman, for holding this hearing which is one in a series that you have held to shed light on the

tremendous war profiteering—that is really the only word or

phrase to use to describe it—that has gone on in Iraq with the various contractors that have been in that space over the last 5 to 6

years.

I want to say that I still am captive to this image that I mentioned in a hearing we had last week of the days right after the

occupation when U.S. forces stood by and watched as tremendous

looting went on of ministries and other sites in Iraq. It appears

that the U.S. Government, the Department of Defense and other

agencies stood by and watched while the looting of our treasury

went on, on the part of many of these contractors.

What I can’t understand is did they not see it, did they see it and

not care or did they see and have some sort of interest in having

it occur? Hopefully, these hearings will help us get to the bottom

of that.

Thank you.

Chairman WAXMAN. Thank you very much, Mr. Sarbanes.

We are pleased to welcome our witnesses today: Mary Ugone,

Deputy Inspector General for Auditing, U.S. Department of Defense, Office of the Inspector General; Patricia Marsh, Assistant Inspector General, Defense Financial Auditing Service Directorate,

U.S. Department of Defense, Office of the Inspector General; and

Daniel Blair, Deputy Assistant Inspector General, Defense FinanVerDate 11-MAY-2000 13:00 Apr 06, 2009 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 C:\DOCS\47997.TXT KATIE PsN: KATIE
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cial Auditing Service Directorate, U.S. Department of Defense, Office of the Inspector General.

We are pleased to welcome you to our hearing today.

It is the practice of this committee that all witnesses testify

under oath, so if you would please stand and raise your right

hands.

[Witnesses sworn.]

Chairman WAXMAN. The record will indicate that each of the witnesses have answered in the affirmative.

Ms. Ugone, I want to recognize you now. We have your prepared

statements, and we are looking forward to your testimony.

STATEMENT OF MARY L. UGONE, DEPUTY INSPECTOR GENERAL FOR AUDITING, U.S. DEPARTMENT OF DEFENSE, OFFICE OF THE INSPECTOR GENERAL, ACCOMPANIED BY PATRICIA MARSH, ASSISTANT INSPECTOR GENERAL, DEFENSE

FINANCIAL AUDITING SERVICE DIRECTORATE, U.S. DEPARTMENT OF DEFENSE, OFFICE OF THE INSPECTOR GENERAL;

AND DANIEL BLAIR, DEPUTY ASSISTANT INSPECTOR GENERAL, DEFENSE FINANCIAL AUDITING SERVICE DIRECTORATE, U.S. DEPARTMENT OF DEFENSE, OFFICE OF THE

INSPECTOR GENERAL

Ms. UGONE. It is an honor to be here before you. Thank you.

Chairman Waxman, Congressman Davis and distinguished members of the committee, we appreciate the opportunity to appear before you today to discuss controls over commercial payments made

in Iraq, Kuwait and Egypt, accounting for the Commander’s Emergency Response Program [CERP] funds, provided to Coalition partners and Iraqi seized and vested asset payments and also to discuss the management of the Iraq Security Forces Fund.

Our audit of controls over payments was initiated in May 2006,

in response to a Defense Criminal Investigative Service [DCIS], assessment that there had been limited review of the completeness,

accuracy and propriety of these payment vouchers.

This concern centered on the potential existence of fraud, waste

and abuse related to over $10.7 billion in payment vouchers related

to U.S. Army disbursement of which we estimate that $8.2 billion

pertain to commercial payments. The remaining $2.5 billion are

noncommercial payments.

We identified the need for improved processes and guidance used

by the Army and Defense Finance and Accounting Service to review commercial payment information in a contingency operation.

Based on our review of 702 vouchers, we estimated that the Army

made $1.4 billion in commercial payments that did not have essential supporting information needed to determine whether the payment was proper. We identified information as essential because it

was needed to ensure that entitlement to a commercial payment

matched the goods or services provided.

Another $6.3 billion in estimated commercial payments did meet

essential criteria but did not comply with other requirements.

Essential criteria include receiving reports, invoices, certifying official signature and payee signatures. For example, a voucher for

payment for $11.1 million was missing both the receiving report

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and invoice. Without a receiving report and invoice, we don’t know

what we paid for.

As a result of our audit, on May 16, 2008, the Office of the Under

Secretary of Defense-Comptroller-Chief Financial Officer notified

us that the financial management regulation was revised to incorporate guidance on commercial payment vouchers and supporting

documents in contingency operations.

CERP-funded projects are performed by both United States and

Coalition forces. We reviewed a sample of 22 payment vouchers totaling $134.8 million for CERP payments to Coalition partners.

None of them had sufficient supporting documentation to provide

reasonable assurance that these funds were used for their intended

purposes.

The sample of 53 payment vouchers for seized and vested assets valued at $1.8 billion did not have supporting documentation that

accounted for how the funds were to be used as prescribed by existing guidance. We suggested that a spending plan should be attached to serve as documentation that accounted for how the funds

were to be used.

During this audit, we referred 28 vouchers totaling $35.1 million

to DCIS for potential followup.

With respect to the Iraq Security Forces Fund, the scope of re- view of $5.2 billion in funds used to provide equipment, services,

construction and other support to the Iraq security forces, our November 2007 audit report concluded that the Multi-National Security Transition Command-Iraq could not always demonstrate proper accountability of purchases using these funds or that delivery of

services, equipment and construction were properly made to the

Iraq security forces. We judgmentally sampled 317 transactions valued at $2.7 billion of which $2 billion did not have adequate supporting documentation needed to ensure that funds were properly managed. For example, about 91.5 of the $1.1 billion in sample transactions for

equipment purchases did not have adequate supporting documentation of information such as receiving reports or recorded vehicle

identification numbers or serial numbers.

For construction projects, documentation was not adequate to

support whether 93 percent of the $400 million in sampled projects

were completed or that progress was accurately recorded.

In April 2008, the Command released its Logistics Accountability

Standard Operating Procedures as a result of our audit.

In May 2005, DCIS launched a proactive project to analyze the

payment vouchers at the Defense Finance and Accounting Service

Rome, New York in an attempt to identify potentially fraudulent

activity related to the war effort in Iraq and Afghanistan. Work is

ongoing to expand the review of payment records for anomalies.

This concludes my oral testimony. I will be happy to answer any

questions that you may have. Thank you.

[The prepared statement of Ms. Ugone follows:]

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Chairman WAXMAN. Thank you very much.

I assume that Ms. Marsh and Mr. Blair are here to help answer

questions.

Ms. UGONE. Yes.

Chairman WAXMAN. OK. I would like to recognize myself first for

a 5-minute round.

Ms. Ugone, I would like to start by asking your primary finding. You estimate that the Defense Department made $1.4 billion in

commercial payments that lacked minimum documentation for a

valid payment such as properly prepared receiving reports, invoices

and certified vouchers. Perhaps we could talk about this by looking

at an example. On page 6 of your report, you mention a voucher for $11.1 million, and you provided us with a copy. I would like to put it up on

the screen.

This says that there was a payment on May 24, 2005, to someone

named David M. Dial of Irmo, South Carolina at a company called

IAP. Is that right?

Ms. UGONE. Right.

Chairman WAXMAN. It is my understanding that IAP is the same

company that had all the problems with delivering ice during Hurricane Katrina and the company that was in charge of maintenance

at Walter Reed.

Your report says that when you examined IAP’s voucher, ‘‘We

could not identify the goods or services purchased.’’

What did you mean by that?

Ms. UGONE. We meant that there was no invoice at all that supported the request for payment, and there was no receiving report

that showed that actually the services or goods were delivered. So

there was nothing.

Actually, in essence, we were giving or providing a payment

without any basis for the payment. That is what we mean. We

don’t know what we got.

Chairman WAXMAN. Well, how could someone hand out more

than $11 million without even writing down what they were paying

for? Isn’t there someone at the Defense Department who is supposed to verify that they got paid, that they got what they paid for?

Ms. UGONE. Yes. I mean when you look at the entire set of regulatory requirements, there are 53 regulatory requirements which

help ensure that the Department is paying what they should.

Chairman WAXMAN. Did they meet any of the 53 requirements?

Ms. UGONE. Well, that is where we get to the $7.7 billion. One

of the things that we had thought in a contingency operation and

what is a minimum essential requirement, 27 of the 53 we determined were minimum of which receiving reports and invoices are

essential to determine what you paid for. That is where we were

able to project an estimated $1.4 billion that didn’t even meet the

minimum essentials.

Chairman WAXMAN. Well, in this specific instance, how did the Defense Department even know that $11.1 million was the right

amount for what they were buying?

Ms. UGONE. Well, they didn’t.

Chairman WAXMAN. And you said there is no evidence that the

requesting organization receives the goods or services purchased.

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So are you saying that the Department couldn’t provide any proof

that they received anything for this $11 million?

Ms. UGONE. What I can say is we don’t know what we paid for.

Chairman WAXMAN. Well, the obvious problem is the potential

for abuse. You noted on page 14 of your report that these kinds of

ineffective controls create an environment conducive to fraudulent

activity. In this case, how do we know that the taxpayer received $11 million in goods and services? I suppose the answer is we don’t know.

Ms. UGONE. We don’t know, not in this case.

Chairman WAXMAN. Have you come across cases that you feel

warrant potential criminal investigation and was this one of them?

Ms. UGONE. I don’t know if this is one of those that was referred,

but I can tell you of the 28 we referred 2 resulted in cases being

initiated, 8 were incorporated into ongoing investigations and the

remaining are still being reviewed. I can get back with you as to

whether or not this is one of those.

Chairman WAXMAN. We have appropriated billions of taxpayers’

dollars for this war, and the American people deserve to know that

the administration isn’t squandering their money. I think everybody understands that if you have no record of what you are buying and no record of what you received, there is going to be a major

problem there.

Let me ask you about some other examples of commercial payments.

Ms. WATSON. Mr. Chairman, would you yield for a second?

Chairman WAXMAN. I want to complete my questions here. Then

I will yield time.

There are other examples of payments that don’t describe what

we bought or whether we even received anything for it. There is

another voucher, this one for $5.7 million, and I want to put that

one up on the screen. This one wasn’t mentioned specifically in

your report, but I wanted to ask you about it.

The payment is to Al Kasid Specialized Vehicles Trading Co.,

and it was made on August 13, 2004. The voucher doesn’t provide

any information that explains what goods or services the U.S. Government was buying. Is that correct?

Ms. UGONE. That is correct.

Chairman WAXMAN. Was there any invoice that provided this

kind of description?

Ms. UGONE. I believe in this case also, and I would have to get

back with you. I believe this instance also was where there was not

an invoice as well.

Chairman WAXMAN. OK. I have some more questions. It is a vehicle trading company, and maybe they sold cars, but we don’t

know what they sold. That is, I think, a real problem.

Mr. Davis.

Mr. DAVIS OF VIRGINIA. Thank you, Mr. Chairman.

Thank you for your testimony and your work. We appreciate it.

Ms. UGONE. Thank you.

Mr. DAVIS OF VIRGINIA. One thing I found a little different in

this report than others is you made an estimate that the Army

made $1.4 billion in commercial payments that lacked the minimum documentations that would be needed for valid payment.

52

Ms. UGONE. Right.

Mr. DAVIS OF VIRGINIA. And the report further estimates the Army made another $6.3 billion in payments that did not comply

with other criteria.

But, in looking at the universe of commercial and miscellaneous

payments, there are 183,486 vouchers and you really looked at 702.

Ms. UGONE. That is correct.

Mr. DAVIS OF VIRGINIA. How can you extrapolate a sound number from that? These are estimates, are they not?

Ms. UGONE. These are based on statistical projections. We are at

a 90 percent confidence level. What we ended up doing was using

dollars stratum or dollars to be able to split out the vouchers.

So that is true. It is using our statistical projections to estimate

at a 90 percent confidence level. So, if you look at the actual $1.4 billion, there is a range. There is an upper range and a lower range. The $1.4 billion is the median

of that estimation.

Mr. DAVIS OF VIRGINIA. Let me just say what I would have done,

for what it is worth, which is to say something like we would expect that such errors were carried through the rest of the vouchers

and put it in that vein because the number gets thrown around as

an absolute and, of course, we are not dealing with absolutes. But

there is one absolute here, and that is this stuff has been completely mismanaged, and this is ongoing and systemic.

How much of this is because we are in a war zone and how much

of this is just systematic? Is there any way to guesstimate that, or

is it a little of both?

Ms. UGONE. I think it is both. I think the financial management

area has been a high risk every year. The Government Accountability Office has identified it as the high risk area. So I think that

is recognized.

The other thing in a contingency environment, and we understood this when we looked at the 53 regulatory requirements, is

what were absolutely essential that needed to be applied when we

determined entitlement to a commercial payment.

Given the fact we were in a contingency operation, if we applied

all 53 requirements, you would have $7.7 billion, in essence, where

you had payments that had an error. But what we wanted to do

was look at the minimum essentials which is why we focused on

27.

In the environment, one of the key areas in a war, in a contingency operation is you want to make sure that gaps in internal

controls are mitigated because that is critical, because you are

pressed. There is expediency, and you need to make sure that those

gaps are mitigated. We believe that our criteria that we used would

mitigate those gaps.

Mr. DAVIS OF VIRGINIA. It has been a high risk for some time,

hasn’t it?

Ms. UGONE. Yes.

Mr. DAVIS OF VIRGINIA. What has the Army done to mitigate

those high risks? Have they gone out to outside experts and asked

for help in terms of how they fix this?

Ms. UGONE. Well, actually, during the audit, they did. There

were some actions taken.

53

One of the interesting things if you really look at a slice of the

data, you would look. You would see that most of the commercial

payments had occurred out of Kuwait, the disbursing stations.

And, last year in the middle of the summer, what happened was

they actually moved the disbursing function back here to the

United States to DFAS so where the disbursements for those commercial payments are now being made back here.

Mr. DAVIS OF VIRGINIA. Are they being done better here than in

Kuwait?

Ms. UGONE. We haven’t done that assessment yet.

Mr. DAVIS OF VIRGINIA. Because, in the past, DFAS has had

some real problems as I alluded in my opening statement.

Ms. UGONE. Right.

Mr. DAVIS OF VIRGINIA. Having nothing to do with war, just how

they function.

Ms. UGONE. But I think one of the things, one of the actions they

were trying to do was try and move that function, the certifying official function for commercial payments back into DFAS rather

than keep it in Kuwait which was already having some issues with

relation to other functions like contracting.

Mr. DAVIS OF VIRGINIA. On the surface, that would seem to make

some sense.

Ms. UGONE. Right. I think that was a good initiative.

Mr. DAVIS OF VIRGINIA. But we are still dealing with a long-term

systematic problem, aren’t we, here?

Ms. UGONE. Yes, we are.

Mr. DAVIS OF VIRGINIA. How did the results of this audit compare with similar work done at the DFAS Columbus, DFAS Denver

or Omaha where the offices are not supporting Iraq war disbursements? I guess that is a better way to try and get it.

Ms. UGONE. This was a year-long effort as previously described,

and there was a lot of dialog between.

We had two draft reports issued for discussion purposes. We had

one formal draft. We had meetings and dialogs because one of the

key differences is that we didn’t apply all the regulatory and statutory requirements when we were making our assessment whereas

when we did our typical audits in Columbus, we would look at

every possible regulation and apply it. In this particular case, we

wanted to take another approach.

Mr. DAVIS OF VIRGINIA. Just very quickly, I asked this before,

but let me just ask you. This is a systematic high-risk problem.

What is the Army doing about this, long term?

They might have, at least on this, moved it from Kuwait back to

the United States. What are they doing long term to resolve this?

Have they brought in some of the world’s brightest consultants and

controls people to do anything on this?

Ms. UGONE. I don’t know if they have done that or not.

Mr. DAVIS OF VIRGINIA. You haven’t seen it, though, in your

work?

Ms. UGONE. No. At a much more macro level, I don’t know what

their initiatives have been. I know what their initiatives have been

in response to this report.

Mr. DAVIS OF VIRGINIA. Thank you.

Chairman WAXMAN. Thank you, Mr. Davis.

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Mr. Kucinich.

Mr. KUCINICH. Thank you very much.

Ms. Ugone, I would like to ask about findings in your report.

Ms. UGONE. OK.

Mr. KUCINICH. That the Pentagon made $135 million in payments to foreign governments from the Commander’s Emergency

Response Program [CERP], this whole idea is news to me.

When the Pentagon comes up here and briefs Congress about the

CERP program, they talk about how it gives our local military commanders the flexibility to hire Iraqis for relatively small construction projects. They didn’t say that they are spending more than

$100 million of this money on payments to foreign governments.

I am certain the American people don’t know that this is how

their taxpayer dollars are being used, but your report says that the

Defense Department has given $21 million to South Korea, $68

million to the United Kingdom and $45 million to Poland. My first

question is why?

If these are members of the Coalition of the Willing, why are

they paying them anything and why aren’t they covering these

costs themselves?

Ms. UGONE. We didn’t look at that issue as to why the Department was doing this particular procedure.

Mr. KUCINICH. Why not?

Ms. UGONE. We focused on whether or not. The scope of our

audit was to focus on whether or not the funds were being used for

their intended purposes. So we looked at whether or not, when

these payments were made to Coalition partners, whether we could

find a way to reconcile what we gave and then what we got.

Mr. KUCINICH. Well, let’s put aside the issue of who should pay.

Your report concludes that the Defense Department basically has

provided no information on how this money was spent. According

to your report, all—all—of the 22 payments that you examined

failed ‘‘to provide reasonable assurance’’ that they were ‘‘intended

or used for their intended purposes.’’

Is that correct?

Ms. UGONE. That is correct.

Also in the report, I would just like to say that during the audit,

one of the Coalition partners had initiated efforts to reconcile the

funds that we provided to them.

Mr. KUCINICH. Well, wait a minute. Let’s talk about an example.

Your report cites a single $8 million payment to Poland on in September 2004.

Ms. UGONE. Right. Right.

Mr. KUCINICH. You provided the committee with a copy of that

voucher. I would like to put it on the screen. Staff would put that

voucher on a screen.

Now, in the middle of the page, under the description of articles

or services, it says: Commander’s Emergency Response Program,

CERP, funds for the benefit of the Iraqi people. That is a pretty

vague description of services, isn’t it, to benefit the Iraqi people?

Ms. UGONE. Yes, it is.

Mr. KUCINICH. Well, then on the right side of the page, the amount listed is $8 million. Is that right?

Ms. UGONE. That is correct.

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Mr. KUCINICH. Where did this money actually go? How do we

know whether the Polish Army used these funds to benefit the

Iraqi people?

Ms. UGONE. We don’t.

Mr. KUCINICH. Now, Ms. Ugone, the Defense Department refused

to be here today, but they did submit comments to your report, and

here’s what they said about this issue. They said, ‘‘All funds advanced to our Coalition partners are reconciled when the Coalition

partner completes the assigned mission.’’

Is that an accurate statement?

Ms. UGONE. I am not aware of that comment. They didn’t share

that information.

Mr. KUCINICH. Is that statement accurate to your knowledge?

Ms. UGONE. I think what is supposed to happen is there should

be some sort of reconciliation. I mean that is assuming that none

of the construction projects have been completed during this time

period. So that means that if there is no construction project files

provided, I imagine they can’t reconcile.

But the whole issue is these CERP funds are supposed to be for

the same purpose as for U.S. forces, which is for construction

projects as well as non-construction projects related to the Iraqi

people. The only way to figure out whether or not those have been

completed is to actually get project files or data from the Coalition

partners. We don’t have any data to show that.

Mr. KUCINICH. I understand that. That is why you said all the

22 payments you examine failed to provide reasonable assurance

they were used for intended purposes.

I also understand that as a result of your investigation the Defense Department tried to go back and ask these foreign governments, get this, for evidence of how they spent their funds.

But, sitting here today, can you identify a single reconstruction

project that was funded with this $135 million?

Ms. UGONE. No, we cannot.

Mr. KUCINICH. Think about that. Think about what that means,

Mr. Chairman, in terms of the credibility of this country and also

how the people of Iraq are getting cheated as well as the people

of the United States are being cheated.

I yield back.

Chairman WAXMAN. If the gentleman will yield to me the few

seconds he has, it sounds like the Coalition of the Willing is the

Coalition of the paid. They are willing to be paid.

Thank you.

Mr. Issa.

Mr. ISSA. Thank you, Mr. Chairman.

I would like to establish a couple of things sort of for the record

and for my own understanding. All three of you are career professionals. Is that correct?

Ms. UGONE. Yes.

Mr. ISSA. The vast majority, if not all, of the people that were

involved that you worked with on the ground in this audit were career professionals. Is that correct?

Ms. UGONE. Yes.

Mr. ISSA. OK. I ask that in following up on Mr. Davis’ questions.

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To the extent that we have not been able to make the system

work, there is little or no hand of political appointees in this. This

is, in fact, career people overseeing career people, trying to come

up with problems that occur, in this case, related to a war zone

where career people are trying to dispense money and account for

it. Is that a fair statement?

Ms. UGONE. I think the military, the forward, if you take a look

at the documentation we have, were also involved in trying to.

Mr. ISSA. But we call our career military personnel, career professionals.

Ms. UGONE. OK. OK.

Mr. ISSA. Somehow until you get to about four stars, you actually

don’t get to meet a politician most of the time.

So I am saying that because I want to understand. This is not

about the hand of the Bush administration. This would not be substantially different in any other administration. These are arms of

government doing their job and seeing mistakes or flaws or lack of

accountability. Is that correct?

Does anyone disagree with that statement as best I phrased it?

Ms. UGONE. I don’t disagree. We independently did this audit

work.

Mr. ISSA. I appreciate that.

Now I want to concentrate, following up on Mr. Kucinich’s questions because he and I do disagree on the conduct of the war in a

sense.

The use of CERP funds to help fund the Sons of Iraq. OK. That

program appears to be working by independent news communications.

Some of these funds, in fact, end up in the hands of what Mr.

Waxman characterized as bought hearts and minds in some fashion, similar to that. Is that correct?

Ms. UGONE. We didn’t look at the Sons of Iraq.

Mr. ISSA. Well, you looked at the same funds.

Ms. UGONE. We looked at the 22 payment vouchers that were

made to Coalition partners. We don’t know what it was used on,

so we are not. I mean I can’t address that particular question.

Mr. ISSA. OK. Mr. Chairman, I would like to have an excerpt

from the House Armed Services Committee—this was staff questions and answers—inserted in the record at this time.

Chairman WAXMAN. Without objection, that will be the order.

[The information referred to follows:]

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58

59

Mr. ISSA. I guess this may be beyond the level of your audit, but

whether it is CIA around the world during the cold war or a war

zone here where we are trying to fund sheiks and individuals in

religious communities to get people to take another look at our role

in Iraq as not an occupier but as somebody who wants to liberate

and leave, if those funds are essentially walking around moneys,

to use in American term, wouldn’t it be rather hard to account for

every dollar you give when you give a few hundred dollars to dozens or hundreds of people in order to essentially hold meetings and

so on in the Iraqi economy?

Ms. UGONE. Yes, there are challenges. I agree with that, but I

think there should be some semblance of accountability. No documentation is not acceptable from our perspective.

Mr. ISSA. I appreciate that.

In my opening statement, I talked in terms of statistics, and I

see you have the statistics and you have extrapolated it, but if you

extrapolated past wars, how do these compare?

Ms. UGONE. We haven’t looked at it and applied this level of effort on past work. I mean this has been, for us also, a new approach as well.

Mr. ISSA. OK. So this is a first time. Would it be possible for the

committee for you to answer for the record, essentially extrapolating some previous similar studies so that we could understand

whether or not this war is costing us more or less in the terms of

unaccounted for or poorly accounted for funds?

I don’t think anyone on the dais wants to take an improvement

and punish it because it isn’t perfect. At the same time, if the trend

line is in the wrong direction, then corrective action could be very

appropriate. Would you agree?

Ms. UGONE. Well, what I can do related to the current, what we

did look at was to see if it was getting better during this particular

audit. We looked at the vouchers and, frankly, it wasn’t getting

better if you looked at the years. We looked at 2003 to 2006, and

it wasn’t getting better.

Mr. ISSA. I am running out of time.

Unfortunately, I can’t account for differences in the rise and fall

of combat during that time, but isn’t it true that the Iraq economy

is a cash economy? Isn’t that fundamentally one of the problems?

Ms. UGONE. Well, it is true that there was a lot. It is cash. It

is a cash economy, in fact. But our 702 vouchers that we estimated, $1.4 billion, that was

not cash. That was a commercial payment. The cash that we are

talking about is the CERP for Coalition partners and the seized

and vested assets.

Chairman WAXMAN. The gentleman’s time is expired.

Mr. ISSA. Thank you, Mr. Chairman.

Chairman WAXMAN. Ms. Watson.

Ms. WATSON. Thank you so much, Mr. Chairman.

My questions will go to what is happening now under this administration and under this administration’s war. I am not interested in past wars; now the wars that we are paying for here.

Over a year ago, in February 2007, this committee held a hearing with the Special Inspector General from Iraq Reconstruction,

Stuart Bowen. At that hearing, Mr. Bowen testified that the Bush

60

administration disbursed over $8.8 billion in cash without assuring

that the moneys were properly used or accounted for. He was

sworn in, and it is on the record—$8.8 billion.

The administration for the Coalition Provisional Authority, Ambassador Paul Bremer also testified at that hearing, and he explained away this problem by making two arguments. First, he

said these were not appropriated American funds. They were Iraqi

funds, but we were told American dollars were used.

Second, he said it was unrealistic to expect modern financial controls in less than a year on failed state in the middle of a war. That

is a quote. It is on the record.

So, Ms. Ugone, I think your report today demonstrates two

things for me. First, it has now been more than 5 years since the

war began, and we were told by the President that our mission was

accomplished, and we are still having these problems. There is

something wrong there.

Second, your report finds critical deficiencies in how the Defense

Department is disbursing billions of U.S. taxpayers’ dollars. So,

now we are talking about American money.

Now I know you did examine some Iraqi assets, but let me ask about the U.S. funds. First, you examined a pool of roughly $3.2

billion in commercial payments, and I have your full statement. I

have asked my staff, who is standing right here, to highlight those

figures.

Your report found that internal controls over these payments

were inadequate. These commercial payments are from U.S. appropriated funds. Is that right?

Ms. UGONE. Most, yes, the majority.

Ms. WATSON. OK. Is it explained and maybe separated in your

full statement?

Ms. UGONE. We can provide that information separately.

Ms. WATSON. OK. I would like to have that.

Ms. UGONE. There are different appropriations like Operations

and Maintenance-Army, and there will be different levels of appropriations. So we can get that detailed to you.

Ms. WATSON. Yes, and I will look through your full report.

Ms. UGONE. OK.

Ms. WATSON. You also found that $135 million in funds from the

Commander’s Emergency Response Program were given to foreign

governments without ‘‘reasonable assurance that they were used

for the intended purposes.’’

That was also U.S. dollars appropriated?

Ms. UGONE. Yes, the majority of it.

Ms. WATSON. OK. What was not? I hope you would clarify.

Ms. UGONE. I can clarify that and add the additional information

on that to you separately.

Ms. WATSON. Very good. In your November report, you found

that the Defense Department failed to exercise proper accountability over $5.2 billion in funds to support the Iraqi security forces.

Those were also U.S. funds?

Ms. UGONE. Yes, that was the Iraqi, actually, the scope of our work on that particular, those $5.2 billion that was provided to

MNSTC-I, Multi-National Security Transition Command-Iraq. We

judgmentally sampled. I believe it was 317 transactions for $2.7

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billion. So that is what we looked at as the scope of our review,

$2.7 billion.

Ms. WATSON. OK. For these expenditures of U.S. tax dollars, you

examined disbursements made through the year 2006. Is that

right?

Ms. UGONE. We didn’t look at disbursements on that particular

audit. That was a little bit of a different scope on that.

We were looking at whether or not, that there was a proper, a

way to tell that there was a proper transfer to the Iraq security

forces, and we looked at documentation to support that. That is

what we were looking at.

Ms. WATSON. So my time is up, but I will followup. I will look

at your full report, and then we can address questions directly to

you.

Thank you, Mr. Chairman.

Chairman WAXMAN. Thank you, Ms. Watson.

Mr. Platts, you have no questions.

Mr. Sarbanes.

Mr. SARBANES. Thank you, Mr. Chairman.

Ms. Ugone, I am going to ask about the genesis of the report that

you are issuing today. You said in the report that you started the

investigation at the request of the Defense Criminal Investigative

Service, and I wanted to pursue that a little bit.

At the beginning of the report, you said that the service concluded there had only been a limited review of the payments that

are the subject of this hearing and ‘‘there existed the potential for

fraud, waste and abuse.’’

Is that correct?

Ms. UGONE. That is correct.

Mr. SARBANES. Then throughout the report, you make reference

to this. On page 6, you say that an absence of supporting documentation makes the legitimacy of payments questionable. You say

that missing voucher information could affect the legality of a vendor payment.

On page 14, you say, ‘‘ineffective internal controls could create an

environment conducive to fraudulent activity or improper use of

funds.’’

Is that right?

Ms. UGONE. That is correct.

Mr. SARBANES. Basically perpetrating fraud on the U.S. Government is a crime, correct? That can be pursued as a criminal violation, right?

Ms. UGONE. Well, identifying; I think the key here is potential

fraudulent activity. Our referrals haven’t been culminated in anything conclusive from the investigative side of the house, but we

did have enough for 28 vouchers out of the 702 that were reviewed

that we referred because of missing information, unusual nature of

transaction or DCIS was already interested in the payee.

Mr. SARBANES. These are the kinds of things that immediately

get flagged on a radar screen as being the kind of conduct and

transactions and other things that could suggest that there is

criminal activity behind them, potentially, correct?

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Ms. UGONE. Right. Gaps in the controls create an environment

that might be conducive for fraud, waste and abuse. That is really

the key is your gaps, your critical gaps.

Mr. SARBANES. Can you give us a sense? You don’t have to reveal

any sensitive law enforcement information, but how do you expect

these cases to proceed?

Ms. UGONE. Well, we already have data from DCIS in a general

sense; 2 have resulted in cases being initiated, 8 have been incorporated into ongoing investigations, and I believe the other 18 are

still undergoing review.

Mr. SARBANES. You had a finding. I mean one of the most significant findings is that the Defense Department has ‘‘material internal control weakness’’ over its payment system in Iraq.

I know this is accounting terminology and so forth, but one of the

findings you included is particularly relevant, I thought. It said,

‘‘Our concern is more than an adequate audit trail.’’

It is not just about the audit trail.

‘‘We are concerned there are significant gaps in internal controls

over commercial payments made in a military contingency operation and that these gaps in internal controls can create,’’ as you

have been saying, situations where there is much higher vulnerability.

These aren’t your words, I am paraphrasing, but much higher

vulnerability to fraud, waste and abuse.

Ms. UGONE. Right. Correct.

Mr. SARBANES. So it is not just about the paperwork and collecting documentation in the audit.

Ms. UGONE. No.

Mr. SARBANES. It is about making sure that the taxpayer dollars

that are behind these funds are being used for intended purposes,

correct?

Ms. UGONE. Correct.

Mr. SARBANES. What is really inexplicable, and I think something that is hard for us to digest even though we have had so

many hearings on this. Every time it is unbelievable, that the Defense Department is approving payments for $11 million, $5.7 million, $6.3 million without any information about what they are buying.

As far as I can tell, not just from this hearing but listening to

other ones, the accounting principles that the Defense Department

seem to be using in its interaction and transactions with all sorts

of different players in this drama was essentially we will keep giving you money as long as you keep telling us that you are spending

it. That was essentially the way the system seemed to operate.

What I would like for you to answer, and I am about to run out

of time, is from your experience, what is the motivation for somebody to not want to know how money is being spent?

In other words, it could be neglect. It could be a breakdown in

systems. But what I see here is really not wanting to know what

is happening on the other side of the curtain. Let me just ask, are

there ever instances where that turns out to be what was driving

the lack of documentation?

Ms. UGONE. Well, we actually looked at it from a different perspective. One of the things that we have a recommendation in our

63

report is when you are in a contingency environment, going to

maybe five or six different regulations to figure out what you need

to do, you may not have as much time to be able to do that.

We recommended the Department to consolidate all the minimal

essential information. So, if you had to actually look at the requirement, you could look on one sheet to figure out what you had to

do to ensure a proper payment.

That is one of the challenges is there is regulatory and statutory

requirements embedded in different places, and that was a challenge too. When we looked for it, we actually didn’t find the 53 requirements in one place. They are rooted in many different regulations, and I think that is really one of the primary challenges is

trying to figure out what is absolutely minimally essential, which

is why we identified the 27 criteria.

Mr. SARBANES. Thank you.

Chairman WAXMAN. Thank you, Mr. Sarbanes.

Mr. Higgins.

Mr. HIGGINS. Thank you, Mr. Chairman. Ms. Ugone, I would like to ask you about the $5.2 billion for Iraq

security forces.

Ms. UGONE. OK.

Mr. HIGGINS. Providing assistance to help train and equip the

Iraqi security forces has been one of the President’s core strategies

in Iraq. In a nationally televised address in June 2005, the President said, ‘‘Our strategy can be summed up this way: As Iraqis

stand up, we will stand down.’’ To implement the President’s goal, Congress appropriated $5.2

billion in 2005 to provide assistance to the Iraqi security forces including weapons, equipment, the construction of training and operating facilities.

Ms. Ugone, in November, your office issued a report about these

funds, and your conclusions was quite astounding. This is what you

said: ‘‘The Defense Department did not have sufficient controls and

procedures in place, did not maintain adequate oversight and did

not maintain accountable property records. As a result, the Defense

Department was unable to provide reasonable assurance that funds

appropriated for the Iraq security forces achieved the intended results, that resources were used in a manner consistent with the

mission and that resources were protected from waste and mismanagement.’’

Ms. Ugone, this is supposed to be one of the President’s core

strategies in Iraq, training and equipping the Iraqi security forces

so that young service members can come home. How can it be that

something so critical, so fundamental to this effort can be so poorly

administered?

Ms. UGONE. The issue when we looked at this area, we had spent

90 days forward, and we had looked at three major locations. We

sent, deployed a team forward, and we looked at the port of entry

on Umm Qasr and I think Taegu National Depot and the Abu

Ghraib warehouse.

And, at that time, there have been changes since the time we reviewed the effort. As I mentioned in my testimony, in April 2008,

MNSTC-I has recognized the need to put in standard operating

procedures.

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One of the key issues that we found was the fact that we could

not trace from what we provided to the Iraqi security forces all the

way back to the contract. There might instances. For example, for

equipment, you could have a receiving report with vehicle identification numbers, but when you actually transfer the equipment to

the Iraqi security forces, there was no listing of the vehicle identification numbers on the hand receipt.

So those are the examples we had, and it was primarily documentation that supported whether or not the transfers were properly made to the Iraqi security forces.

Mr. HIGGINS. Yes. I think perhaps this is an unfair question of

you, but the Defense Department refused to testify today. The report issued by your office found a lack of accountability over tens

of thousands of weapons including pistols, assault rifles, rocket-propelled grenade launchers and even machine guns. Isn’t that right?

Ms. UGONE. See, one of the things is there is a separate review

going on of the munitions assessment team effort, and I wanted to

make sure that they were focused more on the accountability of

weapons, munitions. But, yes, we looked at the documentation supporting not only equipment, construction and services. That is correct.

Mr. HIGGINS. In addition to the weapons, your report offers a litany of deficiencies with control over 91 percent of equipment transfers, fuel tankers and tractor-trailers worth $1.5 million, generators

worth $7 million and heavy tracked recovery vehicles worth $10.2

million.

I don’t know you lose a garbage truck in the middle of downtown

Baghdad, but your report was not limited to equipment and supplies. You also report that 93 percent of construction projects you

analyzed lacked adequate oversight and that millions of dollars

were wasted as a result.

I won’t ask for an answer to this question, but it seems to me

that mismanagement is crippling our mission in Iraq and, unfortunately, our troops and taxpayers will suffer as a result.

I yield back, Mr. Chairman.

Chairman WAXMAN. Thank you very much, Mr. Higgins.

Mr. Clay is not here.

Mr. Yarmuth.

Mr. YARMUTH. Thank you, Mr. Chairman.

Ms. Ugone, on page 15 of your written testimony, you describe how the Defense Department spent $1.8 billion in seized and vested Iraqi assets without adequate accountability. As I understand,

seized and vested assets are Iraqi funds that were confiscated in

Iraq or they were frozen in the United States, and the United

States began spending them in the war in Iraq sometime after it

began in 2003. Is that correct?

Ms. UGONE. Well, actually, the majority I think was spent during

the CPA time period, and I believe $7.5 million was expended in

October 2004, after the CPA transitioned on.

Mr. YARMUTH. OK. Thank you.

Your report then says that you examined 53 different payment vouchers for a total of $1.8 billion, and they were all missing basic

documentation to show how they were used. Here is what you said

in your report: ‘‘There was no audit trail to verify the basis for the

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amount, who actually received the funds or how the funds were

used.’’

That is your testimony, correct?

Ms. UGONE. That is correct.

Mr. YARMUTH. Let me ask you about one example that was mentioned in your testimony. You provided with a copy of a receipt

which I would like to have put on the screen.

At the very top, in handwriting, you can see that this is a single

payment to the Iraqi Ministry of Finance. In the middle of the

page, you can also see that the purpose of the funds is for Iraqi salaries. If you look in the middle on the right, you can see that the

total amount is $320 million, and that is really all we know about

the transaction. Is that correct?

Ms. UGONE. That is correct.

Mr. YARMUTH. There is one more detail. Under the quantity section, it says 1,000 employees or 1,000. We are assuming that is employees. It talks about salaries. So, if you read the document literally, it would indicate that 1,000 different Iraqi employees are

being paid $320,000 each.

Now I know if you are talking about the chairman of Exxon, that

is not a lot of money. It is probably about 1 percent of what he

made last year, but it is more than a Member of Congress makes.

Is there any explanation for this? Are those just kind of random

numbers? They are just putting numbers in there because they

didn’t know what it was or could that literally be true?

Ms. UGONE. We don’t have any documentation to explain, to support this quantity, this amount.

Mr. YARMUTH. So we really don’t know. Really, we don’t know if

it was actually spent for salaries. It could have been spent for guns

to fight insurgents or anything else.

Ms. UGONE. We don’t know what it was spent for.

Mr. YARMUTH. Let me ask you. This has been mentioned many

times today already.

The Defense Department has refused to testify here, but in their

written comments on your report, this is what they say: ‘‘We do not

agree the audit trail documentation should include supporting

budget details and spending plans that can be reconciled to payment vouchers. This is not a disbursing officer responsibility.’’

Do you agree that this is not the Defense Department’s responsibility?

Ms. UGONE. We believe that the Defense Department should add

something like spending plans to account how the funds would be

used and, in fact, we have been notified that the financial management regulation is undergoing revision to incorporate guidance on

seized and vested assets.

Mr. YARMUTH. Referring to that comment again, can you maybe

give us a guess as to what the official Defense Department budget,

whose responsibility they believe it is, if it is not a disbursing officer?

If they say it is not the disbursing officer, who else’s responsibility could it be?

Ms. UGONE. I think part of it is the guidance. One of the issues

that we took was when you look at the prescribed guidance, which

was I believe in this regard an Executive order, it was specific

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about accounting for these funds. So we looked at the comptroller

promulgation of that Executive order and believe that it omitted

items such as spending plans.

So what we had recommended and asked that the comptroller do

was revise its guidance so that the disbursing officer would have

that document available to be able to make those decisions.

Mr. YARMUTH. A final question, your report points out that on

March 20, 2003, the President signed Executive Order 13290 directing that payments from seized and vested Iraqi assets be adequately accounted for and auditable, and you also point out that requirement was repeated in a Presidential memo issued on April 30,

2003.

Is it your conclusion today that the Defense Department failed

to comply with the President’s Executive order as outlined in those

two documents?

Ms. UGONE. We do not believe that there is a way to account for

how those Iraqi seized and vested funds were used. That is correct.

Mr. YARMUTH. Thank you very much. I yield back.

Chairman WAXMAN. Thank you, Mr. Yarmuth.

Mr. Lynch.

Mr. LYNCH. Thank you, Mr. Chairman. I want to thank you for

holding this hearing. I also want to thank the ranking member and

the panelists, quite frankly, for your help. Ms. Ugone, I would like to talk to you about the $5.2 billion in

U.S. taxpayer dollars that were targeted for Iraqi security forces.

I know there are several Members. My colleague, Mr. Platts, who

was here earlier, and a number of us have spent a lot of time on

the ground in Anbar Province, principally in the area of Fallujah

and also in Ramadi.

Some months ago, the chairman asked us to inspect the progress

of construction of a couple of Iraqi Army bases, one in Fallujah and

one in Ramadi. Now we, myself and Congressman Platts and a few

others, were able to inspect the base in Fallujah. However, we were

unable to inspect the base in Ar Ramadi, and I think you know

why.

On page 13 of your report, you state that the Defense Department was supposed to build, as we understood, a $34 million base

for the new Iraqi Army in Al Anbar Province near Ramadi. You

also found that the Defense Department paid a contractor, Ellis

World Alliance Corp., $31.9 million out of the $34 million, about 93

percent of the contract, the problem being that the facility was

never built.

Is that correct?

Ms. UGONE. That is correct.

Mr. LYNCH. OK. This example is just so egregious that we wanted to investigate further. In meetings with committee staff and the

military service responsible for this contract, the Air Force said

that the problem with this contract was that they never obtained

the land rights necessary to construct the base.

Despite the critical deficiency, the Air Force issued a notice to

proceed with mobilization to the contractor, and they let them continue for 9 months under this contract even though we didn’t own

the land and we couldn’t build the base. Then 9 months later, they

finally called a halt to the program.

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The Air Force told us that ‘‘not a spade of dirt was turned on this

project.’’

They said it was an embarrassment and that they now have a

new policy that says you can’t proceed with a construction project

until you have title for the land.

Can you explain? I hate to put this onto you, but can you explain

how a contract can go on for 9 months, incurring millions and millions of dollars in costs—this is American taxpayer dollars. This is

not Iraqi money. This is our money—before even the basic question

of who owns the land is resolved?

Ms. UGONE. I can’t explain that.

Mr. LYNCH. OK. Now what bothers me worse here is we have

been out to Ramadi a number of times, as I say, and apparently

the meter is still running on this because they have the raw materials, the bricks.

I have a long history in construction, and they have all that material in warehouses. Of course, in Ramadi, you have to have everything heavily guarded. So now, basically, we are spending all the

money that was supposed to build this base on protecting the raw

materials.

If you understand what the security people are making over

there, it is costing us more to guard the bricks and the steel and

the building components in the warehouse than the stuff in the

warehouse is worth, and that troubles me greatly. It is just bad

management.

Is there anything you can help us with in terms of reversing this

practice or making sure that this doesn’t happen?

Ms. UGONE. I believe this was the one that we had referred to

our Defense Criminal Investigative Service, and I can followup to

see what has occurred since the referral.

Mr. LYNCH. This contractor is burning the moneys there. They

are basically spending it down. We are getting nothing for the

value. It is an embarrassment. I agree with that assessment. We

would never tolerate that in our country, and this is something

that is directly under our control.

Also, this Ellis World Alliance Corp., I don’t know what we are

getting for our $34 million. I couldn’t see anything.

There has to be a cutoff. We have to be able to terminate this

thing and stop the cost to the American taxpayer.

Ms. UGONE. We will followup and get back with you.

Mr. LYNCH. That will be great. Thank you.

I yield back, Mr. Chairman.

Chairman WAXMAN. Thank you very much, Mr. Lynch.

Ms. McCollum.

Ms. MCCOLLUM. Thank you, Mr. Chair. Thank you for having

this hearing.

I want to followup on a line of questioning that I actually started

with Ambassador Crocker in the Appropriations Committee.

Deputy Inspector General, your report concludes that the Defense Department made $135 million in payments to foreign governments under the Commander’s Emergency Response Fund.

Your conclusion in the report is that there was no audit showing

where the funds went.

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Last year, the Defense Department began using the CERP, the

CERP funds for other purposes, bulk payments to local Iraqi tribal

leaders so that their followers would stop fighting us. The Pentagon calls this the Sons of Iraq program.

I ask this because the Pentagon now wants to ramp this program up to $370 million in fiscal year 2008. This is a huge ramp-up for

a program that did not exist a year ago.

These funds are payments to foreign governments. They have no

audit trail. They have no supporting documentation. They have no

way to determine where the money actually went.

In fact, I asked Ambassador Crocker about this program. I asked

him about my concerns of child soldiers with some of the media reports that I have read. I asked him about the Sons of Iraq providing a false sense of security because no one from the State Department of the Department of Defense could tell me what would happen if these payments stopped.

So I would like to ask you, has the IG’s office done any work on

this issue?

Ms. UGONE. No, we have not, not on the Sons of Iraq.

Ms. MCCOLLUM. What documentation would you expect to see in

support of these types of payments? What kind of detail would you

expect to have about the services provided, the type of employees

being paid?

Ms. UGONE. Well, with respect to what we did look at, the 22

payment vouchers that were provided to Coalition partners, that

was intended for either non-construction or construction efforts, for

humanitarian purposes and other support purposes.

We would have expected to see, for construction, project files—

project files that described what was, how the funds were being

used, for what construction, what the status of the construction,

what percentage of completion, some sort of mechanism to be able

to reconcile how much.

We provided bulk funding, what that bulk funding went into,

whether it was non-construction and construction. If it was construction, we would expect a detailed project file for reconciliation

purposes and, for non-construction, some sort of support that indicated what that money was being used for.

Ms. MCCOLLUM. So, if it went for something like the Sons of Iraq

program, where we are paying Sunni groups to not fight against

U.S. soldiers, you would expect to see a detailed list of employees,

what kind of equipment they were given, who is being paid what

on what basis. You would expect to see those types of things in an

audit?

Ms. UGONE. Well, I would expect to see some level of detail supporting the Sons of Iraq program, but since I am not familiar with

it, it is hard to talk about it. But I can get back to you.

From the standpoint since I didn’t look at it as part of the audit,

I don’t think it would be appropriate for me to say what it should

include at this point, but I can take a look at that separately.

Ms. MCCOLLUM. I appreciate that.

Mr. Chair, I am so glad you are having this hearing. I would like

to encourage this committee to do more examination about the

issue of the Sons of Iraq. Many people think that this program has

reduced the violence in Iraq. Others, including some in the national

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Shiite government, are concerned that U.S. funds are being used

to buy weapons and fund Sunni groups that will engage in civil

war when the United States leaves.

I don’t understand, Mr. Chair, why the United States has to spend $370 million on this program. If we think it helps reduce violence in Iraq, then the Iraqi government should be excited about

the reduction and they should pay for it. After all, we now know that the Iraqi government has $70 billion

in reserves. They should be paying for their own security.

So, Mr. Chairman, due to the lack of accountability in the funds

that you have pointed out here today and the rest of the construction issues, I would really encourage you and this committee to

work with Chairman Obey and Ms. Lowey and myself to find out

more about the Sons of Iraq program and if there is any kind of

audit paper trail on that.

Thank you, Mr. Chair.

Chairman WAXMAN. Thank you very much, Ms. McCollum. We

will certainly want to look into that with you.

Mr. Tierney.

Mr. TIERNEY. Thank you, Mr. Chairman.

I think we have covered this pretty extensively but, Ms. Ugone,

I want to go in a different direction. I want to put on the record

a little information about why we don’t have any Defense Department witness before us here today.

The committee apparently sent a letter on May 9th to Defense

Secretary Gates, requesting that he designate a witness for today’s

hearing.

After multiple conversations and meetings with Defense Department officials, we received a letter this week, refusing the committee’s request. The letter cited as a reason for this decision the impending release of the IG’s report and the desire to have a reasonable opportunity to digest the final version of the report.

Ms. Ugone, how long has your office been working on this report?

Ms. UGONE. A year, actually, the audit—no, it hasn’t taken a

year to get the report. We have been working on this audit for a

year.

Mr. TIERNEY. And when did your office first make the Defense

Department aware that your office was working on this audit?

Ms. UGONE. I believe we announced that in May 2006.

Mr. TIERNEY. Am I correct in saying that in May 2007, over a

year ago, you gave the Defense Department an opportunity to try

to locate additional documentation?

Ms. UGONE. Yes.

Mr. TIERNEY. To substitute the payments for which you found deficiencies?

Ms. UGONE. Yes. From May 2007, it has been about a year where

we first identified some of these critical issues, and we have been

working with the Department since then.

We have had two drafts for discussion purposes which is we

write up our issues and provide it for discussion purposes. We had

one formal draft, and we have many meetings, the most recent

meeting being May 13, 2008.

Mr. TIERNEY. When was the first draft given to the Defense Department?

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Ms. UGONE. The first discussion draft, I will have to get back

with you. November 2007.

Mr. TIERNEY. Was there another one given on February 11,

2008?

Ms. UGONE. Yes.

Mr. TIERNEY. In the appendix of your report today, you reproduced written comments from the Department of Defense. Is that

right?

Ms. UGONE. Yes. In fact, we not only incorporated their comments to the official draft version. We also incorporated comments

they provided to us, I believe, on May 16, 2008.

Mr. TIERNEY. So the Office of the Assistant Secretary of the

Army, Financial Management and Comptroller provided comments

on March 24, 2008.

Ms. UGONE. That is correct.

Mr. TIERNEY. The Defense Finance and Accounting Service provided comments on March 25, 2008.

Ms. UGONE. That is correct.

Mr. TIERNEY. The Office of the Undersecretary of Defense for Acquisition, Technology and Logistics provided comments on April 25,

2008.

Ms. UGONE. That is correct.

Mr. TIERNEY. So it is accurate to say the Defense Department,

well, let me ask you. Do you think it is accurate for them to say

that they haven’t had ample notice of this and an opportunity to

review?

Ms. UGONE. What I can say is that they were fully aware of our

issues and concerns, and we have been working with them for over

a year.

Mr. TIERNEY. It appears to me that they have had ample knowledge over time. They have worked with you. They have filed written responses.

Mr. Chairman, if I might, this is not an uncommon problem, unfortunately, with the Defense Department being unwilling. It is

clear to me why they are not here today. It has nothing to do with

not getting notice, nothing with not being able to have an opportunity to respond. It has all to do with not wanting to be in front

of the American public, trying to make answers as to what is going

on.

I think we have subpoena power, and I would ask you and the

ranking member at some point in time to consider using it where

appropriate, so the Department of Defense wouldn’t think that they

can avoid the kind of public scrutiny that we are specifically set up

to do here.

Mr. DAVIS OF VIRGINIA. Will the gentleman yield?

Mr. TIERNEY. Yes.

Mr. DAVIS OF VIRGINIA. I would be happy to work with our chairman on that.

The one thing that is most frustrating is that you can go back

15 years and you see this same kind of problem. We are talking

about a war zone today, but these are systematic problems that the

GAO has put on their high-risk list every year, and they keep coming back and coming back and coming back.

71

Mr. TIERNEY. Reclaiming my time, that is why I think at some

time, under some administration, somewhere we have to call.

I think some of the people at the Department of Defense are

probably not the ones most responsible for what is going on. So it

is not a personality thing. It is a case of getting a system in place

where we get the answers that we need to correct these deficiencies

so that they don’t continue to repeat themselves.

I thank the chairman, and I yield back the balance of my time.

Chairman WAXMAN. If I can just respond to the gentleman, I

think you are making an excellent point. We need to hear from the

Defense Department, and I hope this hearing today will be a call

to them that they have some explaining to do.

The gentleman’s time is expired.

Mr. Cummings.

Mr. CUMMINGS. Thank you very much.

Ms. Ugone and all the witnesses, it is good to see you this morning.

As I sat here, I could not help but think. I have just left my district, and I used to be a criminal lawyer in my before life. I actually

saw people go to prison for stealing a $100 bike.

Here, we have a situation where something has gone awfully

wrong. It is very interesting that as I listen to the ranking member

say that this goes back 15 years, that concerns me.

You know the author Stephen Covey has a book, and it is my favorite book. It is entitled the Speed of Trust, and it talks about how

when you trust someone, things go along. The relationship moves

along at a greater speed than when you don’t trust them.

There are two types of trust. Competency, that is that you trust

that somebody is competent to do the job that they have been assigned to do. For example, I would not have my mechanic cut my

hair if I had some. And, there is another kind of trust that goes

to honesty and integrity.

As I have listened to your testimony and read through the documents, it seems to me that we may have both types of trust lacking

here. Trust in competency, there is a lack of. It seems like somebody or a whole lot of people are incompetent. But there is also

some dishonesty going on here too.

I am glad to know that cases are being referred to the criminal

division. I am just hoping that they will be.

See, I don’t buy this argument that something has been systematic because the guys in my neighborhood who I used to represent,

they don’t say that to them. They send them to prison for $100.

Here, we are talking about millions and billions of taxpayers’ dollars, and we don’t know where they have gone. Abracadabra—they

disappear.

But, at the same time, there are three principles that concern me

here. One, the United States of America and our citizens are hardworking taxpayers who are complaining every 2 weeks or every

month when they get their checks that taxes are being taken out.

They deserve three basic things. One, they deserve to get what

we bargained for. That is a basic principle.

Two, they deserve, in this instance, to have funds spent so that

we can do those things that the Defense Department is supposed

to do: to make sure that their lives are the best that they can be,

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to make sure that they defend this country and do all those things

that are supposed to be done.

And then there is a third one, and it is one that Ms. McCollum

alluded to. That is we must be in a situation where we know that

our funds are not doing harm to us. If our own funds in some way

are being turned around as if someone took a gun and turned it

around and pointed it right back at you, it makes absolutely no

sense.

That is why I am taking my few minutes to say to you and ask

that whatever the standard is that requires that folks or factual

patterns be sent to the criminal division, I hope that they are because the American people support our troops. There may be differing views about the war, but they support our troops, and every

Member of Congress supports our troops a million percent.

But I have to tell you, when somebody looks at C–SPAN and

hears this kind of stuff, it has to make them very, very angry.

The guys in my neighborhood, in the inner city of Baltimore,

when they hear about this, they will say, Cummings, I mean, when

I get home tonight, I can hear them now, you mean to tell me them

people got away with millions, man? What is up with that? What

is that about?

I am hoping that somebody is brought to justice. Somebody needs

to be brought to justice.

You can comment on what I have said if you like, but I thank

you for what you are doing, and I see my time is up.

Chairman WAXMAN. Do you want to respond in any way?

Ms. UGONE. No comment.

Chairman WAXMAN. Mr. Cummings, you are the last questioner,

and I think you have done an excellent job in summing up the situation.

To be told that this has been going on for a long time is no excuse for allowing it to continue, and to say we ought to look at past

wars to see if there was money squandered is not going to make

people feel any better if they see money being squandered in this

war.

I want to thank you for the work you have done. This is a very

important report that you have given us today, and it is a wakeup call that we have to see changes because the taxpayers’ money

cannot be squandered the way it has been.

We need accountability. That is the essence of government, so

the people know that government belongs to them and not to the

people running.

I want to see if Mr. Davis wants to make any further questions

or comments.

Mr. DAVIS OF VIRGINIA. I guess the frustration every one of us

has up here—you have it too—is what is the Army doing to fix

this?

I know they moved. We talked about temporarily, on the Iraq

side, moving some of the work from Kuwait back stateside, but the

systematic problems in these areas.

Ms. UGONE. I think one of the areas that we really think and it

is a work force issue which I believe that this committee as well

as the Department has identified as a work force issue is training.

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One of the areas that we have recommended the Army do is

train the Army finance personnel in these matters as well because

we understand in a contingency operation that we need to have essential information ready at hand, and people who perform those

functions should be trained in how to apply the criteria quickly.

Mr. DAVIS OF VIRGINIA. This goes back to the comment, you go

to war with the Army you have, I guess if you remember.

But, look, why was the Army financial system overburdened with

additional tasks and influx of billions and billions of dollars that

were being distributed to the Coalition?

What is the fix in this case and if you are just saying it is manpower or is getting competent people, system people in there with

appropriate controls? Are the computer systems not working and

interactive?

Ms. UGONE. Well, we are actually looking at that in some followon audits. One of the areas that we are going to look at is the Defense Finance and Accounting work force, and we are also going to

be reviewing the Defense Contract Management Agency work force

because that was also a challenge area in this environment. We

plan to look at the deployable disbursing system which is supposed

to be used and cited by the comptroller as a valuable additional to

accounting for these funds in that environment.

So we are doing follow-on work to take a look at many of those

issues.

Mr. DAVIS OF VIRGINIA. Every year, on the GAO watch list, this

is there. It stays there.

This committee got some things off the list. We got the whole

postal thing off the watch list. We passed a massive bill working

with it, very difficult to do, and we took it off the watch list. Things

come off the watch list.

If there is anything legislatively we need to do or if this is just

a bureaucratic problem where the people can’t seem to figure it out

or get the resources, and I guess that is the ultimate question I

would give you if you have any solutions.

You are going to go back here. I guarantee you will be back here

next year and the year with example after example, and nothing

seems to change except incrementally.

It is a huge frustration. If this were a few thousand dollars or

a million dollars, but we are talking billions of dollars over time

that they are taking out of hardworking people’s paychecks or borrowing in the future. That is the frustration.

Ms. UGONE. If I could just comment, there is a lessons learned

work group that is being sponsored by, I believe, the Principal

Under Secretary of Defense Comptroller. It is the lessons learned

with respect to not only disbursement but also to vendors. You

know the contracting side of the house.

The lessons learned group is made up of members from my organization as well as acquisition technology, the logistics comptroller,

DFAS and Army. That working group met in April, I believe twice.

So that effort is underway to resolve some of the issues and lessons

learned identified during this particular audit.

Mr. DAVIS OF VIRGINIA. Look, all of you are great people. You are

working hard at this. You are doing your jobs well, and you are

identifying this.

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I think the problem goes up in division at the top in terms of do

we really fix this. We have good people. We just need to deploy

them right and give them the resources, but it doesn’t seem to get

done.

Thank you very much. It is very helpful to us, I think, in trying

to focus our energies in the right way.

Mr. Chairman, I appreciate your holding this hearing.

Chairman WAXMAN. Thank you very much.

Ms. UGONE. Thank you very much.

Chairman WAXMAN. Thank you very much, Mr. Davis.

We appreciate the work you are doing.

Ms. UGONE. Thank you.

Chairman WAXMAN. That concludes our hearing, and we stand

adjourned.

[Whereupon, at 11:45 a.m., the committee was adjourned.]

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