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S. Hrg. 111–1066 

IMPROVING FINANCIAL ACCOUNTABILITY AT THE 

DEPARTMENT OF DEFENSE 

HEARING 

BEFORE THE

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, FEDERAL SERVICES, AND 

INTERNATIONAL SECURITY SUBCOMMITTEE 

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

OF THE

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

SEPTEMBER 29, 2010 

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

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs 

( 

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(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

ROLAND W. BURRIS, Illinois 

EDWARD E. KAUFMAN, Delaware 

SUSAN M. COLLINS, Maine 

TOM COBURN, Oklahoma 

SCOTT P. BROWN, Massachusetts 

JOHN MCCAIN, Arizona 

GEORGE V. VOINOVICH, Ohio 

JOHN ENSIGN, Nevada 

LINDSEY GRAHAM, South Carolina 

MICHAEL L. ALEXANDER, Staff Director 

BRANDON L. MILHORN, Minority Staff Director and Chief Counsel 

TRINA DRIESSNACK TYRER, Chief Clerk 

JOYCE WARD, Publications Clerk and GPO Detailee 

SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, FEDERAL SERVICES, AND INTERNATIONAL SECURITY 

THOMAS R. CARPER, Delaware, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

MARK L. PRYOR, Arkansas 

CLAIRE MCCASKILL, Missouri 

ROLAND W. BURRIS, Illinois 

JOHN MCCAIN, Arizona 

TOM COBURN, Oklahoma 

GEORGE V. VOINOVICH, Ohio 

JOHN ENSIGN, Nevada 

JOHN KILVINGTON, Staff Director 

BRYAN PARKER, Staff Director and General Counsel to the Minority 

DEIRDRE G. ARMSTRONG, Chief Clerk 

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(III) 

C O N T E N T S 

Opening statements: Page 

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

Senator McCain ................................................................................................ 3 

Senator Coburn ................................................................................................. 4 

Prepared statements: 

Senator McCain ................................................................................................ 39 

Senator Carper ................................................................................................. 41 

WITNESSES 

WEDNESDAY, SEPTEMBER 29, 2010 

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

Officer, U.S. Department of Defense .................................................................. 6 

Elizabeth A. McGrath, Deputy Chief Management Officer, U.S. Department 

of Defense ............................................................................................................. 9 

Eric Fanning, Deputy Under Secretary of the Navy and Deputy Chief Management Officer, U.S. Navy ................................................................................. 10 

David Tillotson, III, Deputy Chief Management Officer, U.S. Air Force ............ 11 

Lieutenant General Robert E. Durbin, Acting Deputy Chief Management 

Officer, U.S. Army ................................................................................................ 12 

Asif A. Khan, Director Financial Management and Assurance, U.S. Government Accountability Office .................................................................................. 13 

ALPHABETICAL LIST OF WITNESSES

Durbin, Lt. Gen. Robert E.: 

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

Prepared statement .......................................................................................... 60 

Fanning Eric: 

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

Prepared statement .......................................................................................... 50 

Hale, Robert F. 

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

Prepared statement .......................................................................................... 43 

Khan, Asif A.: 

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

Prepared statement .......................................................................................... 66 

McGrath, Elizabeth A.: 

Testimony .......................................................................................................... 9 

Prepared statement .......................................................................................... 43 

Tillotson, David, III: 

Testimony .......................................................................................................... 11 

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

APPENDIX 

Questions and responses for the Record from: 

Mr. Hale ............................................................................................................ 99 

Ms. McGrath ..................................................................................................... 111 

Mr. Fanning ...................................................................................................... 129 

Mr. Tillotson ..................................................................................................... 135 

Mr. Durbin ........................................................................................................ 142 

Chart referenced by Senator Carper ...................................................................... 149 

Chart referenced by Senator Carper ...................................................................... 150 

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IMPROVING FINANCIAL ACCOUNTABILITY AT 

THE DEPARTMENT OF DEFENSE 

WEDNESDAY, SEPTEMBER 29, 2010 

U.S. SENATE, SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, FEDERAL SERVICES, AND INTERNATIONAL SECURITY, OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:37 p.m., in room 

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

Chairman of the Subcommittee, presiding. 

Present: Senators Carper, McCain, and Coburn. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. This afternoon’s hearing will come to order. I 

want to start off by apologizing for being a few minutes late. Our 

colleague from Delaware, Senator Ted Kaufman, whose term expires, I think, on November 3, has just given his farewell address 

after serving for almost 2 years as a successor to Joe Biden. Ted 

used to be the Chief of Staff to Senator Biden for about 20 years. 

I like to say, John, that he made Joe Biden what he is today, or 

at least he helped, and—— 

Senator MCCAIN. They were hoping I would be giving that 

speech. [Laughter.] 

Senator CARPER. Do you want to say that on the record? [Laughter.] 

Well, I am glad to be here with Senator McCain and Dr. Coburn. 

Today, we are going to hear from our panel of witnesses about 

financial accountability at the Department of Defense (DOD). You 

have three Senators up here who are very much interested in what 

you have to say and what we are going to be doing here on this 

front. One specific question is whether the Department of Defense 

is on track to pass a financial audit, and overall, we are going to 

learn today about the importance of improving the Department’s financial management and accountability. 

The witnesses who have joined us today will tell an important 

story. Keeping our Nation’s military affordable and effective demands that we track the millions of transactions made each year 

and ensure that the hundreds of billions of dollars in expenditures 

are properly accounted for. If modern and effective accounting systems are not in place, then we have a system that can foster waste 

and fraud, and unfortunately, we see too many examples of waste 

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2 

and fraud within military programs and operations every year, and 

we see those in non-military operations and programs each year. 

When we had a balanced budget 10 years ago, it was one thing. 

But today, as we are seeing our Nation’s debt literally double between 2001 and 2008 and we are on track to double it again in this 

decade, it is not something where we can simply look the other 

way. 

Also, with a robust and modern accounting system at the Pentagon, the Administration and Congress can make informed decisions about our Nation’s security needs. 

Secretary Robert Gates recently proposed a series of cost saving 

moves at the Department of Defense. I believe the Secretary recognizes that the way we buy and manage our weapons systems, the 

way we train and feed our troops, the way that we provide maintenance of hundreds of facilities, military facilities across the world, 

need to become more modern and business-like. However, the Department of Defense’s financial system is not where it needs to be. 

Most notably, the Department of Defense is one of the last Federal agencies still unable to pass a financial audit. Private businesses in America and their shareholders and top managers understand the importance of passing an audit. But the Pentagon has 

failed to do so. The Pentagon’s financial management systems are 

simply not good enough, according to most estimates, to even try. 

Congress has established a requirement that the Department of 

Defense become audit-ready by 2017. This is a critical goal, and 

considering the amount of time and money that has gone into this 

effort, it is one that should have been met years ago. Not only will 

an audit help the Department of Defense ensure that billions of tax 

dollars are spent properly, but it will help to make certain that our 

troops have the equipment and the supplies that they need. 

Unfortunately, according to the Government Accountability Office (GAO), the Department of Defense cannot even say whether 

the audit readiness goal of 2017 will be met. At the end of the day, 

making sure that the Department of Defense’s financial books are 

in order is not just about being a good steward of taxpayers’ money, 

although that is a top priority for me and I know for my colleagues. 

It is about ensuring that our brave men and women serving in our 

Armed Forces have the equipment and the supplies and the training that they need and that we are paying for. 

Further, the GAO will testify today that the audit readiness goal 

faces a major and costly challenge. The Department of Defense and 

the military services are modernizing their financial systems, including its related computerized business systems, to become audit 

ready. This is an appropriate and important set of initiatives to ensure that the Department of Defense has the same modern accounting tools now common in almost every major business and in 

many government agencies. These upgrades, such as buying and 

implementing new accounting software, go by the arcane term— 

here it is—Enterprise Resource Planning (ERP). We will hear that 

several times, I think, in our testimony today. 

The GAO will describe today that, overall, the financial system 

upgrades are years behind schedule and at least $6.9 billion over 

budget. That is right. The programs to upgrade our military finanH605-41331-79W7 with DISTILLER

3 

1The chart referenced by Senator Carper appears in the appendix on page 149. 

2The chart referenced by Senator Carper appears in the appendix on page 150. 

cial system so that we can track our dollars and ensure we spend 

money effectively are themselves behind schedule and over budget. 

I have a couple of charts. I do not know if our staff person, would 

be willing to put them up here, but I have a couple of charts we 

want to look at this time. The first chart1 is based on the GAO 

study of the Department of Defense’s upgrades to its accounting 

and financial system. Now, I am not going to go into all the details, 

but the chart shows, for those of you who cannot read all of the 

words, the chart shows that of the nine Department of Defense programs, six have slipped anywhere from 2 to 12 years into the future and two more do not even yet have clear schedules to keep. 

I have a second chart—can we take a look at the second chart,2

please? I am not going to try to describe all the details—shows that 

five of the programs are over budget, for a total cost overrun of at 

least $6.9 billion. And one more does not yet have a cost estimate, 

and two more just established baselines of costs, so there is no way 

to calculate cost overruns. The point of these new accounting and 

financial management systems are to better manage programs and 

money, yet they themselves are over budget. 

As a recovering Governor, I understand the unique challenges 

that come with running a major institution like the Department of 

Defense. However, I am also a former State Treasurer and a 

former Naval Flight Officer (NFO) who served over here with my 

hero, John McCain, so I know the importance of keeping our financial house in order. As a U.S. Senator and a taxpayer, I also understand the importance of ensuring that our Federal dollars are well 

spent, especially during a time of record budget deficits. 

Of course, no program is perfect, at least none that I have helped 

to design, but Congress needs to ensure that the more than $700 

billion that we spend through the Pentagon is spent effectively and 

efficiently. 

And with that having been said, let me turn to my wingman 

here. Senator McCain, it is great to be with you. Thank you, John. 

OPENING STATEMENT OF SENATOR MCCAIN 

Senator MCCAIN. Thank you very much, Senator Carper. I would 

just like my statement to be included in the record. 

Senator CARPER. Without objection. 

Senator MCCAIN. Dr. Coburn has been involved in this issue and 

he may have an opening comment, if you would agree, but look, I 

thank you for those charts. They describe the situation far better 

than any statement that I have. 

If this were a corporation in America, the shareholders would 

have fired them long ago. What I think we have to start demanding, and should have started a long time ago, is accountability. If 

people cannot meet the milestones that they lay down—we are not 

setting these milestones for them, they are saying that they can 

complete these tasks by a certain period of time, and you and I will 

probably be here for several years—we ought to start demanding 

that people get fired. That is what they do with corporations that 

have cost overruns and cannot account to their stockholders. Well, 

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4 

we are supposed to be representing the taxpayers. They are the 

stockholders. And this clearly is an unacceptable level of progress, 

a total lack of—well, certainly a significant lack of progress. 

And I also wonder if our friends here in the Pentagon have ever 

called in one of these high-tech private corporations and say, ‘‘Hey, 

help us set up this system,’’ because again, none of those companies 

and corporations in America that are privately owned could—the 

management could survive this kind of performance. 

So I would like to say, Mr. Chairman, that starting today, that 

if we do not start meeting these in the next couple of years, these 

milestones, we ought to demand that people get fired and we get 

people in the job that can do the job. For the last 20-some years, 

you and I have been asking for an auditable Department of Defense. Last year, it was $690-some billion of taxpayers’ money that 

was spent and we really have no real good handle on how a significant portion of that money was spent. 

I thank you, Mr. Chairman, and I thank the witnesses. I appreciate their hard work. But it is about time that we start demanding 

some results. 

Senator CARPER. Before I yield to Senator Coburn, let me thank 

Senator McCain not just for his statement, but for his leadership 

and his work as the Chair and now the Ranking Member of the 

Armed Services Committee on many of these same issues. 

We had a hearing, Dr. Coburn may remember, about 2 years ago, 

and maybe not even that long. We invited in the Air Force. We had 

invited them to send in some of their top procurement people from 

the Department of Defense, some folks that worked for Secretary 

Gates at the time on procurement. And one of the fellows we invited to come and testify, he testified with us once, but at a later 

hearing was not able to come back. Instead, he sent, I think, his 

top lieutenant. In terms of firing people, sometimes the problem is 

not just firing people, it is actually hiring people. 

As we said to the fellow who was here sitting in, and Tom may 

remember this, but the fellow was sitting in for John Young, we 

said to him, ‘‘How long have you been in your job? ’’ He had been 

in his job for about a year or so. And I said, ‘‘What kind of turnover 

did you get from the person that you succeeded? ’’ And he said, 

‘‘The person I succeeded had been gone for 18 months.’’ And I said, 

‘‘Well, talk to us about how many direct reports you have.’’ And he 

said, ‘‘I have six, but when I came on board, only two of them were 

filled.’’ 

So I think part of the secret here to getting the results is maybe 

firing some people. The other part of the success might be hiring 

some people, especially hiring the right people. So I just note that 

for the record. Dr. Coburn. 

OPENING STATEMENT OF SENATOR COBURN 

Senator COBURN. I will be very brief. The threats our Nation 

faces today are greater than any time in my lifetime. With the 

budget situations that we have, the last place we want to skimp 

is in defending this country, which means the job of those leaders 

who have accepted the task of making sure we can defend our 

country has to be scrutinized closely. 

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5 

This is not a ‘‘hit you over the head’’ hearing. This is to ask the real questions of why. We have $64 billion worth of information 

technology (IT) purchases going on in the Federal Government. 

Over half of them are in the Pentagon. Yet, 50 percent of them are 

on the danger list of not meeting what their goals were, being over 

budget, being behind. It is not just the Pentagon that has this 

problem, however, the Pentagon is the most important agency because it is the agency that we are depending on to defend this 

country. 

I think the importance of today’s hearing is not just to have a 

hearing, but how do we get out of this mess when we cannot even 

purchase what we want effectively and we cannot implement what 

we have effectively? I think those are the real questions. Nobody 

is happy with a $6.9 billion overrun, but there are lot of reasons. 

It is called requirement creep, and that is a lack of management. 

My hope is that we learn some things to help you help us defend 

this country with this hearing. Thank you. 

Senator CARPER. Thank you, Dr. Coburn, and thanks very much 

for the good work that you and your staff continue to do. 

We are not going to go away on these issues. I think we are 

going to be around for a while. I know Senator McCain is going to 

be around for at least 6 years, and maybe if Tom and I are lucky, 

we can join him for most of those. But we are not going to go away 

on these issues and we are very hopeful that you will not, either. 

I want to take a moment just to introduce our witnesses. I will 

start with Mr. Hale. Our first witness today will be the Under Secretary Robert F. Hale. He is both the Under Secretary of Defense, 

Comptroller, and he is the Chief Financial Office (CFO) at the Pentagon. He has the responsibility to advise the Secretary of Defense, 

Robert Gates, on all budgetary and fiscal matters. He is charged 

with the development and execution of the Department’s annual 

budget of more than $700 billion. Under Secretary Hale has a long 

history of Federal service, including as the U.S. Air Force’s Assistant Secretary for Financial Management, head of the Congressional 

Budget Office’s (CBO’s) National Security Division, and served on 

active duty as a Naval officer. Anchors away. I thank you for being 

here with us today. 

Our second witness is from the Office of the Secretary of Defense, 

Ms. Elizabeth McGrath, the Deputy Chief Management Officer 

(CMO) for the Department of Defense. Ms. McGrath is Advisor to 

the Secretary of Defense for matters relating to management and 

the improvement of business operations. Prior to becoming the 

Deputy Chief Management Officer, Ms. McGrath was the Department’s Principal Deputy Under Secretary for Defense Business 

Transformation and also served at the Defense Finance and Accounting Service. We also thank her for being with us today. 

I think Mr. Hale, if I am not mistaken, will deliver maybe joint 

testimony for himself and for Ms. McGrath, is that correct? 

Mr. HALE. Mr. Chairman, I think she is going to follow up with 

some brief statements after I finish. 

Senator CARPER. That is great. OK. We will look forward to that. 

I am going to slip over here to Lieutenant General Robert E. 

Durbin, who I understand, Senator Coburn, may be a distant relative to a Durbin that we know from Illinois. We will see. 

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6 

1The prepared statement of Mr. Hale appears in the appendix on page 43. 

Senator COBURN. Well, we will give him an extra hard time, 

then. [Laughter.] 

Senator CARPER. General Durbin, whether he is related or not to 

our colleague, is the Special Assistant to the Chief of Staff for 

Army Enterprise Management and holds the position of Deputy 

Chief Management Officer of the Army. General Durbin has a long 

military record of service spanning some 35 years. We thank him 

for his service and thank him for participating in today’s hearing. 

Next, let me introduce Eric Fanning, Deputy Under Secretary of 

the Navy for Business Operations and Transformation. He is also 

the Deputy Chief Management Officer for the Navy. Mr. Fanning 

was previously the Deputy Director of the Commission on the Prevention of Weapons of Mass Destruction. Thank you for your service and for joining us today. 

Next, let me introduce David Tillotson, Deputy Chief Management Officer in the Office of the Under Secretary of the Air Force. 

Along with a long service in the Federal Government—you do not 

look that old to have that long a record—Mr. Tillotson has also 

served as an officer in the U.S. Air Force. We thank you for that 

and for being with us today. 

And finally, we have Asif Khan of the Government Accountability 

Office. Mr. Khan is a Director on the Financial Management and 

Assurance Team and is focused on financial management and audit 

readiness in the Department of Defense. How long have you been 

doing that? 

Mr. KHAN. About 2 years. 

Senator CARPER. OK. Thank you for that, and we thank you for 

appearing here today and we look forward to your testimony. 

I think, unless my staff suggests otherwise, I think we will just 

start with Mr. Hale and just go from left to right, or should we go 

in the order that I introduced them? Alright. 

Mr. Hale, you are our lead-off hitter. Thanks again for your testimony. Your entire testimony will be made part of the record, and 

if you would like to summarize, that would be fine. Try to stick to 

about 5 minutes. If you go way beyond that, I will have to rein you 

in. Thank you. 

TESTIMONY OF ROBERT F. HALE,1 UNDER SECRETARY OF DEFENSE (COMPTROLLER) AND CHIEF FINANCIAL OFFICER, 

U.S. DEPARTMENT OF DEFENSE 

Mr. HALE. I will do it. Chairman Carper, Senator Coburn, thank 

you for your interest in financial management improvement of the 

Department of Defense, and thanks also for your consistent support 

of America’s military. 

I am pleased to be here with representatives from the Deputy 

Chief Management Officer (DCMO) at Office of Secretary Defense 

(OSD) and the services. I think our joint presence underscores the 

importance of partnering on this issue. 

I believe defense financial management does have some significant strengths. Most importantly, commanders tell me that we are 

providing the resources and financial services they need to meet 

our national security objectives in Afghanistan. Iraq and elsewhere. 

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7 

However, I also fully understand there are enterprise-wide weaknesses in DOD financial management that demand enterprise-wide 

business response. The lack of auditable financial statements is an 

indicator of those weaknesses and it is one of the business management weaknesses that must be resolved. 

Now, I know you have heard that statement before. We celebrate 

the 20th anniversary of the Chief Financial Officers Act this year, 

and the 16th anniversary of the government Management and Reform Act, which actually requires auditable statements. You might 

reasonably ask, what has changed? Why do we now think we will 

finally improve financial information in DOD and move toward 

audit readiness? 

In my mind, there are a couple of reasons, but one that stands 

out to me is that we have established a new and focused approach 

to improving financial information and achieving audit readiness. 

The approach concentrates on improving the quality and accuracy 

of financial and asset information and moving toward audit readiness for the information that we use to manage the Department 

every day, and that is budgetary data. We manage the Department 

based on budget data, and also the number and counts and location 

of our weapons, which accountants call existence and completeness, 

because that is so important to warfighters. 

This new approach, has established a demanding but meaningful 

goal. It will lead, for example, to the auditability of the statement 

of budgetary resources for all of the services. The new approach 

has won the support of senior military and civilian personnel. It 

has been generally endorsed by Congress in the fiscal 2010 National Defense Authorization Act (NDAA), and has been called a 

reasonable approach by the Government Accountability Office. 

Most importantly, we have all the services and agencies working 

toward a common goal, and that was not the case when I took office 18 months ago. 

But those of us who have spent many years in government service know that establishing a meaningful goal, while necessary for 

success, is not enough to ensure success. You have to implement 

that goal, and that is a challenge in a Department that is rightly 

focused on winning the war in Afghanistan and completing the 

mission in Iraq. So, what have we done to implement this goal, and 

what are we doing? 

First, we have established long-term goals, including the one you 

mentioned, to achieve auditability, at least for the information we 

most use to manage, by 2017, and we have plans to support that 

target. However, one of the problems we have had in the Department is that we set goals that are way out there, like 2017. Frankly, 2017 sounds like somebody else’s problem, and I think it may 

been seen that way by many people in the Department. So we have 

established some near-term goals. What can we do in the next 2 

years to show progress to ourselves as well as to you? You will see 

examples of those goals in my formal statement. 

Second, we now have leadership committed to financial improvement and auditability. Both Beth and I have briefed the Deputy 

Secretary and the Chief Management Officer of the Department, 

twice in detail on this, and a third time, early in my tenure, to tell 

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8 

bility. Beth and I jointly chair a senior governance board that 

meets quarterly and includes representatives from the Service financial management offices as well as the DCMOs. Many of the 

people you see sitting next to me today are on that board. And we 

have some subsidiary groups and we have a governance structure. 

Third, we are moving to install new systems with that arcane 

name, Mr. Chairman, of Enterprise Resource Planning Systems. 

These are particularly important both for getting to auditability 

and for sustaining auditability. Three military services and several 

Defense Agencies are currently implementing ERPs. Ms. McGrath 

has oversight responsibility for these ERPs and other business systems and she will address the financial ERPs when I finish. 

Finally, we have programmed resources in each service and in 

my office to carry out these tasks. You cannot make progress without resources. We are putting our money where our mouth is. 

I believe that by implementing this plan we can meet the goal 

of auditability for the information we most use to manage by 2017. 

But we also recognize and understand that the NDA directed us to 

have fully auditable statements by 2017. Under the current audit 

rules, meeting that date would likely require the expenditure of 

large sums to acquire and improve information, especially the historical costs of exiting assets that, frankly, are just not used to 

manage in the Department. 

We have been directed by the Senate Armed Services Committee 

to assess the cost effectiveness of approaches to reach full 

auditability and we will do so. The Committee directed that the results of the assessments be included in the May 2011 financial improvement and audit readiness status report. We will make that 

goal. We are also working with the Office of Management and 

Budget (OMB) and GAO to try to come up with approaches that 

would match the benefits that we are going to get out of that other 

data, which are few, frankly, when compared to the costs, and I expect to complete at least DOD’s portion of that effort by next May 

and I hope that we will have overall agreement. 

In summary, Mr. Chairman, our message to you this afternoon 

is meant to be a positive one. I know you have heard similar statements before and you have every right to be skeptical. However, I 

think our new focused approach and our implementation plan justifies our optimism. We are all committed to moving forward. I am 

personally committed to moving forward. I have worked on this for 

a long time in various capacities. I would like to make some 

progress during my tenure. 

Mr. Chairman, that concludes my opening statement, and after 

the other witnesses have completed theirs, I would welcome your 

questions. 

Senator CARPER. Thank you, Mr. Hale. You are right, we have 

been promised things before on this front and not often seen those 

promises fulfilled. 

We have a colleague here—she is not here right at this moment—Senator McCaskill. She is from Missouri. And you know 

what one of their slogans is in Missouri, the ‘‘Show Me State.’’ And 

I think when it comes to this stuff, we are all from the Show Me 

State. So we are anxious to see you show us what you can do. 

Thank you. Ms. McGrath. 

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9 

1The prepared statement of Ms. McGrath appears in the appendix on page 43. 

TESTIMONY OF ELIZABETH A. MCGRATH,1 DEPUTY CHIEF 

MANAGEMENT OFFICER, U.S. DEPARTMENT OF DEFENSE 

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

the opportunity to discuss our combined efforts to improve DOD’s 

financial operations. Thank you, too, for your support to our military members and their families. 

As Secretary Hale mentioned, we do have a joint statement that 

we submitted, so I am just adding a few short comments as we 

move down the witness line here. 

While the Department has always worked to improve the efficiency and effectiveness of its financial and other business operations, the imperative to achieve lasting results and the engagement of our senior Department leadership has never been greater. 

Our approach to overarching management reform efforts emphasizes improving our ability to assess execution through performance, strengthening governance to ensure leadership accountability, and making needed changes to the way we procure information technology. In each of these areas, we rely heavily on tools 

Congress provided us through the last several National Defense 

Authorization Acts, and for that, we thank you. 

As Secretary Hale mentioned, together, we lead the Financial 

Improvement, Audit and Readiness (FIAR) Governance Board to 

ensure our business areas move forward in a coordinated manner 

to achieve our overarching business priorities and financial management goals, thereby integrating our financial management improvement activities with our overall business efforts. 

As you mentioned, the Enterprise Resource Planning, those are 

a key a part of our auditability strategy, fielding those successfully, 

that is, looking for an interoperable structure that supports sound 

business practices. In my role as the Deputy Chief Management 

Officer, I have broad responsibility to ensure these systems are 

part of an overarching enterprise-wide business strategy that includes not only systems, but policy alignment and process perspective tied to investment strategy. That investment strategy must leverage data standards, business rules, and performance measures 

contained in our business enterprise architecture. 

Focusing on business operations to include financial management 

at the Department of Defense is an area of great and immediate 

interest for our senior leadership as well as an area of serious activity and concerted effort. We are on the way to creating better 

business processes that will create the kind of lasting results our 

country deserves. I look forward to continued opportunities to work 

with the Congress to optimize our performance across the Department. 

I look forward to your questions. 

Senator CARPER. Thanks for that testimony. 

Mr. Fanning, you are recognized. Your entire statement will be 

made part of the record. Please proceed. 

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1The prepared statement of Mr. Fanning appears in the appendix on page 50. 

TESTIMONY OF ERIC FANNING,1 DEPUTY UNDER SECRETARY 

OF THE NAVY AND DEPUTY CHIEF MANAGEMENT OFFICER, 

U.S. NAVY 

Mr. FANNING. Thank you, Chairman Carper. Thank you for the 

opportunity to discuss the Department of the Navy’s efforts to improve its financial management processes and related business systems. 

The Department of the Navy’s Financial Improvement Program, 

our blueprint for achieving an audit-ready State, has made steady 

progress in establishing internal controls over business processes 

impacting financial reporting. But attaining an audit-ready state is 

not merely about obtaining a clean opinion. These efforts will optimize the resources available to the warfighter, increase readiness, 

build more confidence in Congress and the public with how we use 

taxpayer resources, and increase the timeliness, reliability, and accuracy of business and financial information for decision making. 

As a first step towards auditable financial statements in the Department of the Navy, the Marine Corps has achieved audit readiness on its Statement of Budgetary Resources (SBR). An audit is 

currently underway conducted by a private firm. From the audit, 

our Department and the entire Department of Defense have accrued a number of instructive lessons. As a result, the Department 

of the Navy has refined the content of its overall Statement of 

Budgetary Resource audit readiness plan, which is scheduled for 

completion in December 2012. 

A key enabler in achieving this goal is the continued implementation of Navy Enterprise Resource Planning (Navy ERP). Measurable results from improved financial controls, such as lower interest payments and fewer unmatched disbursements, increase the 

funding available for operational requirements. In addition, Navy 

ERP will bring other benefits, including standardization of business procedures across the universe of users, reduced cost from legacy systems retirement, efficiencies from streamlining and increased electronic workflow, and the enterprise financial and asset 

viability necessary to optimize Navy resources. 

Implementations continue on time and on schedule. By October 

2012, Navy ERP will have over 70,000 users and will manage 50 

percent of our obligational authority, or about $71 billion. 

We will also achieve audit readiness with those parts of the organization that still operate legacy systems and processes. Key internal control objectives are the same regardless of the business and 

financial environment. And while internal controls may be more robust in Navy ERP, commands which have not yet implemented it 

are also pursuing improved controls over their processes and systems. 

Two major overarching challenges to success are common to both 

our Financial Improvement Programs (FIP) progress and the continued successful implementation of Navy ERP. The twin hurdles 

are gaining top-to-bottom organizational acceptance of and accountability for the changes these programs bring and continuing the 

Department’s commitment to adequately fund both initiatives. To 

date, the Department of Navy’s leadership has fully supported both 

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1The prepared statement of Mr. Tillotson appears in the appendix on page 54. 

programs and we are moving forward with our strategy and objectives. 

Thank you again for taking the time and interest in our efforts 

at audit readiness and business systems modernization. Your oversight and support will help greatly as we continue our work. 

Senator CARPER. Mr. Fanning, thank you. 

Mr. Tillotson, you are recognized. Please proceed. 

TESTIMONY OF DAVID TILLOTSON,1 III, DEPUTY CHIEF 

MANAGEMENT OFFICER, U.S. AIR FORCE 

Mr. TILLOTSON. Thank you, Mr. Chairman. Thank you, Senator 

McCain, Senator Coburn, and Members of the Subcommittee. 

Thank you for all the work you do in supporting our members and 

families. I look forward to the opportunity to answer your questions 

at the conclusion of our statements. 

Air Force efforts to improve audit readiness is a total effort 

across the entire Air Force. Both our Chief and our Secretary are 

committed to this effort, and our Under Secretary and Vice have 

day-in and day-out responsibilities for making sure that we follow 

through on the implementation of this activity, and it ranges not 

just from our financial community, but also includes our personnel 

community, our logisticians, and all of the other assorted business 

practice entities that are required in order to make a full auditable 

business process possible. 

So this is not just about the finance folks, at least in the Air 

Force. It is also not just about financial auditability. Our ability to 

track existence and completeness of materiel to the points that 

were made earlier is an essential part of our warfighting capability 

as much as anything else. So by preparing for audit readiness, we 

are anticipating genuine benefits in our mission effectiveness, and 

that focus brought by Mr. Hale to refocus the Department on both 

the financial balance statement but also the existence and completeness has allowed us to energize a great deal more support because we can talk in terms that folks outside the financial community understand, relate to, and get behind. So this has been very 

important. 

Our efforts in implementing these processes embody not only the 

goals of audit readiness, but we are also looking for the detailed 

processes and procedures, and not just tied to the implementation 

of IT, our information technology systems. Having said that, I will 

get back to the same position my other colleagues have been in. 

The Enterprise Resource Planning Systems and their associated 

audit controls are a key part at some phase of achieving final 

auditability posture. But to Mr. Hale’s point, we are not waiting for 

those implementations to begin to show progress in auditability. 

We have deployed initial instances or initial efforts on both of 

our main ERPs, the Enterprise Combat Support System and the 

Defense Enterprise Asset Management System, already, and we 

are on track to continue those deployments, and those are funded 

and supported by the Department. 

Finally, on the issue of accountability, the Under Secretary has 

asked me to work across the rest of the Department of the Air 

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1The prepared statement of Mr. Durbin appears in the appendix on page 60. 

Force to identify key leaders in the Air Force whose performance 

plan should explicitly include accountability outcomes, and again, 

not just limited to financial specialists but also to include that responsibility within our logisticians, our personnel specialists, and 

others who provide the essential elements of accountability to our 

Comptroller. 

The Air Force has set itself on a planned and deliberate path to 

improve our financial accountability and achieve audit readiness. 

This path imposes on Air Force leadership the responsibility to provide the sustained and committed effort behind this work. 

Thank you very much, and again, I look forward to your questions. 

Senator CARPER. Mr. Tillotson, thank you. 

General Durbin, welcome. Please proceed. 

TESTIMONY OF LIEUTENANT GENERAL ROBERT E. DURBIN,1

ACTING DEPUTY CHIEF MANAGEMENT OFFICER, U.S. ARMY 

General DURBIN. Chairman Carper, Senator McCain, Senator 

Coburn, other distinguished Members of the Subcommittee, I am 

honored to be here today with Hon. Mr. Hale and Ms. McGrath and 

also my partners from the sister services. This Committee’s focus 

on the importance of stewardship and accountability measures will 

improve our ability to accomplish the mission of defending our Nation both at home and abroad and I look forward to addressing 

your questions on how we lead and manage the Army enterprise 

to generate readiness at best value for the American people. 

Today, the Army’s financial and business systems successfully 

provide our commanders with information about the resources they 

need to accomplish their missions. I say this based upon my personal experience as a commanding general in Afghanistan for 19 

months. However, while these systems do provide meaningful information to commanders, they were not designed to meet today’s 

audit standards nor were they designed to support a single integrated enterprise. 

That said, I can report significant progress toward strengthening 

the Army’s financial management, starting with a notable change 

in our leadership culture. Under the guidance of Dr. Westphal in 

his position as the Chief Management Officer for the Army, we 

have energized our partnership within the Army, with our sister 

services, and within the Defense Department. The Assistant Secretary of the Army for Financial Management and Comptroller and 

the Army Office of Business Transformation and other Army stakeholders have all identified strengthening financial management as 

a high priority and are actively working to achieve measurable results. 

But accountable, engaged leadership and improved governance 

are only part of the solution. The foundation of audit readiness is 

compliant, reliable systems and we recognize that to achieve and 

sustain auditable financial statements, the Army must modernize 

our financial systems and our business processes. We believe Enterprise Resource Planning Systems are an important enabler to leverage business process improvement, strengthening financial conH605-41331-79W7 with DISTILLER

13 

1The prepared statement of Mr. Khan appears in the appendix on page 66. 

trols and managing business operations in a more efficient, integrated manner. To that end, the Army has initiated a focused effort 

to explore options to refine our current ERP strategy with the goal 

of achieving the best possible end state within available resources. 

In conclusion, we have a plan to meet our auditable requirements by their respective deadlines and what we are doing today 

to improve financial information, management, and auditability is 

critical to development of the Army’s Integrated Management System, which will greatly improve the Army’s ability to manage itself. 

Moreover, I am personally and professionally confident that Army 

leaders fully understand this is the right choice for the Army and 

our Nation in the long run. 

Again, I thank you for the invitation to speak here today and for 

your unwavering support for the great soldiers, sailors, airmen, 

marines, and civilians and their families around the world. 

Senator CARPER. Thanks for that statement, especially the last 

part. 

Mr. Khan, we recognize you. We want to thank you and all of 

your colleagues at GAO for your stewardship and for helping us to 

better become the kind of stewards that our constituents expect us 

to be. Thank you. Please proceed. 

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

Mr. KHAN. Thank you, Mr. Chairman. Senator McCain and Dr. 

Coburn good afternoon. It is a pleasure to be here to discuss the 

status of the Department of Defense financial management and 

audit readiness efforts. Your Subcommittee has been at the forefront in addressing DOD business related high-risk areas. 

In my testimony today, I will summarize DOD’s current strategy 

for addressing its persistent weaknesses in financial management 

for achieving audit readiness and in modernizing its business systems. I will also provide GAO’s perspectives on DOD’S efforts on 

progress towards these goals. My testimony today is based on our 

prior work at DOD. 

Over the years, DOD has initiated several broad-based efforts for 

improving financial management and developing the capability for 

preparing auditable financial statements. However, financial management weaknesses continue to affect the timeliness and reliability of information available to managers, and to date, none of 

the military services has achieved auditability. GAO’s review of 

DOD’s financial management improvement efforts have seen a 

need for active leadership and a clear strategy to put DOD on a 

sustained path toward transforming its financial management operations. 

In May 2009, GAO reviewed DOD’s Financial Improvement and 

Audit Readiness Plan (FIAR Plan), and made recommendations 

that were incorporated into the defense authorizing legislation for 

fiscal year 2010. In August 2009, DOD revised its strategy as reflected in the May 2010 FIAR status report. While GAO has not 

formally examined this report, it and the accompanying guidance 

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14 

appear to reflect progress on our recommendations. The issuance of 

the guidance is in itself an accomplishment. 

The report also charts a course for achieving financial audit readiness by 2017. The revised strategy continues efforts to achieve full 

audit readiness, but it focuses on two priorities, achieving reliable 

budget data and improving the accuracy and management of information related to mission critical assets. Budget information and 

information on the existence and completeness of assets, such as 

military equipment and real property, have been identified by the 

Comptroller as particularly useful for DOD management. This approach has advantage for the near term, including the potential for 

building commitment and support throughout the Department. In 

the longer term, additional work will be needed to achieve full financial statement auditability. 

A key element of modern financial management and business operations is the use of integrated information systems with the capability of supporting DOD’s vast and complex operations. Effective 

implementation of these integrated business systems, or ERPs, is 

essential to improving and sustaining DOD financial management 

and related business operations. DOD is in the process of implementing a number of ERPs as part of its efforts to modernize its 

business systems. However, the Department’s efforts to implement 

these systems on schedule and within cost have been hindered, in 

part by inadequate requirements management, systems testing, 

and ineffective oversight of these investments. Effective business 

system modernization across the Department will be the key to 

achieving billions of dollars of annual saving. 

To strengthen DOD’s leadership for financial management transformation, Congress in 2008 established the position of Chief Management Officer for DOD and for each of the military departments. 

The CMOs are now in place. For these new leaders to be effective, 

DOD needs to specify the roles and responsibilities, including their 

involvement in problem resolution and ensuring commitment to financial management improvement activities across components 

and functional areas. 

Based on what we have seen to date, DOD’s strategy and methodology for improving its financial management, addressing weaknesses, and achieving audit readiness reflects a reasonable approach. Sustained effort and commitment at the Department and 

component level will be needed to achieve auditability and produce 

financial management information that is timely, reliable, and useful for DOD managers. 

To support this Subcommittee oversight, GAO will continue monitoring and reporting on the Department’s financial management 

improvement efforts. 

Mr. Chairman, this concludes my prepared statement. I will be 

happy to answer your questions. 

Senator CARPER. OK. Well, we have some, and Mr. Khan, thanks 

very much. 

I am going to slip out and take a phone call. Senator McCain is 

good enough to lead off, and I will be right back. John, thanks. 

Senator MCCAIN. [Presiding.] Well, thank you, Mr. Chairman. 

Mr. Hale, you have a long resume of experience in this area and 

we appreciate all the hard work you have done for many years. As 

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you recall, once upon a time, one of your predecessors, Dov 

Zakheim, set a deadline of 2007, and now as a result of last year’s 

legislation, that deadline is 2017. I guess I would ask you, will 

DOD make that 2017 deadline? 

Mr. HALE. Well, Senator McCain, I am confident that we can 

make the deadline for the information we most use to manage. 

That is the budgetary information and keeping track of where our 

weapons and other assets are located. We have a plan. We have 

commitment. I am reasonably confident we can make that date. 

For the rest of the data, which is principally the historical cost 

data, we have to come up with a plan, and in my mind, and at the 

direction of the Senate Armed Services Committee it needs to be 

a cost-effective plan. We do not use historical data to manage, or 

at least do so rarely. Therefore, we need to audit it, or improve it 

and audit it in a way that matches the benefits. 

That plan, we do not yet have. We are committed to provide that 

by next May. I expect to meet that deadline, and at that point I 

certainly intend to find some way to do it, or try, so that we can 

meet the 2017 deadline for full auditability. I do not know if I answered your question. I mean for the data that matters, I think we 

can do it. 

Senator MCCAIN. I guess I would ask the rest of the witnesses 

if they share Secretary Hale’s view. Do you, Ms. McGrath? 

Ms. MCGRATH. Sir, I certainly support the Department’s current 

strategy to achieve the auditability and—— 

Senator MCCAIN. My question is, do you think they can meet the 

2017 deadline? 

Ms. MCGRATH. So I would echo Secretary Hale’s position on the 

achievability in 2017 of the management information. Certainly, we 

will put great pressure on the systems in terms of ensuring that 

they do not have requirements creep and they maintain the focus 

and scope such they contribute to the auditability goals that have 

been identified. 

Senator MCCAIN. Mr. Fanning. 

Mr. FANNING. Senator, I do agree, also, that we can—I am optimistic we can make it by 2017. The Navy is on board to be ready 

by that date. As Secretary Hale said, I would echo the evaluation 

aspect is probably the mist difficult part of that. 

Mr. TILLOTSON. The Air Force supports Secretary Hale’s view. 

The critical data, we expect to be available by 2017. 

General DURBIN. The Army also supports that, and we have a 

solid plan to take us there. 

Mr. KHAN. Senator McCain, I think the implementation of the 

ERPs will be the key in reaching auditability, whether it is for the 

statement of budgetary resources or all the financial statements. 

In addition, I would just like to add that the top level management commitment like we are seeing now needs to continue. The 

Comptroller’s Office has been engaged in this process, along with 

the DCMO, and now that we have the military CMOs in place, 

their involvement is going to be critical. A lot of this activity is 

going to occur in other functions, such as logistics and acquisition. 

That is where the transactions originate. The role and responsibilities have to be defined so that they can reach across their specific 

functions to the other functions to be able to get their buy-in to 

H605-41331-79W7 with DISTILLER

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have the processes in place to provide the management information 

which they can use on a useful basis. 

Senator MCCAIN. So you estimate that the actual life cycle costs for the 10 major ERP systems will be well over $6 billion over their 

original estimates, right? 

Mr. KHAN. Correct. 

Senator MCCAIN. And $5.8 billion has already been invested to 

develop and implement these systems, only one of which is currently fully deployed. Have any of these investments ever been in 

jeopardy of being terminated for cost overruns or schedule delays? 

Ms. McGrath. 

Ms. MCGRATH. So each one of these programs is in a different 

life cycle in terms of the acquisition process. We constantly look at 

the performance of these programs. A couple of them, I will highlight. 

The Army’s General Fund Enterprise Business System back in 

the, I will say, late summer had initial operational test and evaluation and the results did not find them effective or suitable. So instead of pursuing with the next wave of deployment, the Army put 

together a mitigation strategy, thought it was sound both from the 

Army’s Test and Evaluation Command (ATEC) and from a performance management perspective, allowed them to test their mitigation strategy to the next deployment site, put those measures in 

place, was tested by our Operational Test and Evaluation Command (OPTEC), and found to be suitable and effective. 

I use that as an example because if your question was, do we 

ever think about terminating or slowing the funds down, we absolutely are putting more structure and rigor in the management of 

these programs such that they—— 

Senator MCCAIN. So the answer is no? 

Ms. MCGRATH. Well, sir, I believe the answer is yes. We absolutely wanted to ensure that they had the mitigation plans in place 

to ensure that the—— 

Senator MCCAIN. You have terminated—— 

Ms. MCGRATH [continuing]. Next stage of the program—— 

Senator MCCAIN. You have terminated programs? 

Ms. MCGRATH. Of the programs that are on this particular list, 

and I do not know if the Defense Integrated Team and Resource 

Systems is on—— 

Mr. HALE [continuing]. The successor is on—— 

Ms. MCGRATH [continuing]. Is on that list. Certainly, we did terminate the Defense Integrated Military Human Resources Systems 

(DIMHRS)—thank you—terminate the DIMHRS program. 

Senator MCCAIN. As we mentioned earlier, the $6.9 billion cost 

overrun and several question marks that we are not sure of, has 

anyone above the program manager level ever been fired or demoted? 

Ms. MCGRATH. Sir—well, specifically, I would have to take that 

question for the record and determine whether or not someone has 

been fired. Again, the—— 

Senator MCCAIN. I think maybe it would not have escaped your 

notice if someone had been fired. Do you know of anyone who has 

been fired? 

Ms. MCGRATH. Sir—— 

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Senator MCCAIN. Or demoted? 

Ms. MCGRATH. I know we have made changes in the program 

management structure, specific programs when program managers 

were not performing. Whether or not they were fired from the government, I would have to check. 

Senator MCCAIN. Well, I know it is a large organization, but I 

think you would know if someone was fired, or I would hope that 

you would have enough attention to your own organization to know 

if anyone was fired or demoted or not. Apparently not, from your 

answer. 

Mr. Khan, you have been involved in this for a long time and 

scrutinizing this. What do you think Congress ought to do in the 

exercise of its responsibilities, given light of the fact that back 

many years ago, Dov Zakheim said it was going to be completed 

by 2007. Now it is 2017. And frankly, by the testimony that we 

have received here today, we do not think we have seen the last 

of the cost overruns, nor do we really have any solid evidence that 

2017 will be the year this can be completed, except that it is a long 

time from now. 

Mr. KHAN. Senator McCain, I think hearings such as this one are 

going to be critical in giving you the visibility and accountability 

that is needed in the Department of Defense. I think it is going to 

be very important not just to have the Comptroller’s Office here, 

but also the departmental level CMOs. Most of the heavy lifting, 

whether it is on audit readiness or implementing the ERPs, is 

going to happen at the military services. I think that oversight is 

going to go a long way to provide you a real-time status. 

Senator MCCAIN. I thank you Mr. Chairman. I thank the witnesses. 

Senator CARPER. [Presiding.] Yes, sir. 

I am going to ask Dr. Coburn to go next, if you would, please. 

Senator COBURN. Mr. Khan, would you go back through the last 

part of your testimony for me where you said ineffective oversight, 

I believe were some of your words, cost overruns. Would you give 

that to us again, that paragraph where you had ineffective oversight? 

Mr. KHAN. I will find that place. I am sorry, Dr. Coburn. That 

was relating to the ERPs. 

Senator COBURN. Yes. I want you to reread that, if you would, 

please. 

Mr. KHAN. Effective implementation of these integrated business 

systems (IBS), or ERPs, is essential to improving and sustaining 

DOD financial management and related business operations. However, the Department’s efforts to implement these systems on 

schedule and within cost have been hindered, in part by inadequate 

requirements management, systems testing, and ineffective oversight of these investments. 

Senator COBURN. All right. So what you are saying is your criticism is there has not been effective oversight. There has not been 

effective management of requirement creep. And there has not 

been significant systems testing, right? 

Mr. KHAN. That is correct. 

Senator COBURN. All three of those? 

Mr. KHAN. Yes. 

H605-41331-79W7 with DISTILLER

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Senator COBURN. That leads me to think that the management 

has not been effective in implementing these systems. Would you 

agree with that? 

Mr. KHAN. We did not specifically look at the project management. 

Senator COBURN. Well, let me go back, then. I will not put words 

in your mouth. I will make them my words. If somebody is not 

doing effective oversight, they are not managing the requirement 

list, and they are not managing the system testing, is that effective 

management? 

Mr. KHAN. No, sir, that is not. 

Senator COBURN. OK. So that is the problem. Now, what I want 

to ask each of the separate branches, from your chiefs, whether it 

be the Secretary of the Army, Navy, Air Force, or from General 

Schwartz, Admiral Roughead, or General Casey, is it a part of the 

command structure that we are going to get this done and are you 

hearing that regularly? Unless the leadership buys into getting this 

done, I know how the military works. It will be third place, fourth 

place, fifth place in terms of the priority. Are you hearing that? 

General DURBIN. Sir, I will start since I am hearing it loud and 

clear. I hear it both from our Secretary and from the Chief, for the 

Chief for the last 2 years, since he pulled me out early from division command to focus on this effort, and specifically now since the 

beginning of this year when officially I started working for the 

Under Secretary of the Army in his role as the Chief Management 

Officer. And I will just give you two specific examples. 

In June, we stood up a new governance body that is chaired by 

the Chief Management Officer, Dr. Westphal, specifically focused 

on business systems, information technology. It is the Executive 

Steering Group (ESG). The Under Secretary of the Army in his role 

as CMO chairs it. It is a Committee that includes all of our Assistant Secretaries of the Army and each of our Army primary staff. 

We are relooking everything associated with our current ERP strategy and we will make the hard decision—the Secretary of the Army 

will make the hard decision that new governance body recommends 

we do to hold ourselves accountable and achieve the results that 

our plan says we have to do with our ERPs. 

Mr. TILLOTSON. General Schwartz personally put a direction out 

and has assumed quarterly oversight review of our Enterprise 

Combat Support System. When that program required restructure, 

he put it on notice that if it did not meet the restructured time tables and keep on schedule and cost, he would take the action to terminate the program. That program continues to be reviewed by 

him every quarter. 

The remaining Enterprise Resource Planning Systems, the Air 

Force made a corporate decision to go ahead and put resources 

against them, with the provision that they go back and report to 

our governance body, which is called the Air Force Council, which 

is chaired by the Vice Chief of Staff and the Air Force Under Secretary, on a routine basis to ensure that they also meet progress 

on cost and schedule or, again, we will take action to address those 

program content. 

Like the Committee, this is a substantial investment for the Department of the Air Force to make at a time when we are involved 

H605-41331-79W7 with DISTILLER

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in combat operations. We believe it is worth it in that we are going 

to get payoff in terms of accountability of assets and in terms of 

better support to the warfighter. But having said that, we are as 

mindful as the Committee is and appreciate your concern that we 

are actually spending the money and getting a payoff from it. 

So, yes, I hear it directly from my uniformed leadership. 

Senator COBURN. Mr. Fanning. 

Mr. FANNING. I would agree. I hear regularly from my leadership, both in the Navy and the Marine Corps and on the civilian 

side, of the importance of these programs and of getting them 

right. I think a big part of the change, which you have already 

heard today, the creation of the CMO, the Chief Management Officer position. The Under Secretary takes that role very seriously. 

We have also created a senior governing body for these types of 

programs, the Business Transformation Council. He chairs it with 

the Assistant Commandant of the Marine Corps and the Vice Chief 

of Naval Operations. The Assistant Secretaries are also at the 

table, as are the relevant three-stars. 

We have put this into our Department of the Navy strategic objectives as one of the high-order objectives. It gets monitored on a 

quarterly basis by those leaders. 

Senator COBURN. That is good enough. I am going to run out of 

time. 

Mr. Khan, are these cost-plus contracts? 

Mr. KHAN. I am not aware of that, sir. 

Senator COBURN. Are they cost-plus contracts? They are fixedprice contracts? 

Mr. TILLOTSON. Fixed price. 

Senator COBURN. How come they are over cost, if they are fixedprice contracts? 

Mr. TILLOTSON. Unfortunately, with a fixed-price contract, if we 

make an adjustment to the requirement, then there is a basis for 

readjusting the cost. 

Senator COBURN. So that is called requirement creep. 

Mr. TILLOTSON. In some cases, the requirements were changed 

deliberately to actually address some of the concerns that Mr. 

Khan has raised about whether we have a risky schedule, whether 

we need to parse the deployment up into more controllable chunks. 

Again, in the Enterprise Combat Support System deployment, we 

deliberately moved the program into a series of measured decisions 

and that did generate some of the cost increases. So yes, it was a 

requirement to change. It was a deliberate requirement change to 

accommodate some of the management deficiencies that were identified, in fact, with the GAO audit, and these are actions we have 

taken since their audit time in April. 

Senator COBURN. Let me see if I have this right. We have spent 

$5 billion so far, is that correct, Mr. Khan, and we are anticipating 

$6.9 billion in overruns so far? 

Mr. KHAN. That is correct. 

Senator COBURN. And with no guarantee that we are going to 

have what we need in the end? 

Mr. KHAN. Right. 

Senator COBURN. Who are the prime contractors for the Army, 

Navy, and Air Force on these programs? 

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General DURBIN. Sir, we have Northrop Grumman for two, Computer Science Corporation for one, and Accenture for one. 

Senator COBURN. OK. 

Mr. TILLOTSON. We have Accenture for one, Computer Science 

Corporation for one, and we have not let the contract on the third 

one. That is the Integrated Personnel Pay system (IPPS). We are 

still in the development of analysis of alternatives and pending a 

solicitation. 

Senator COBURN. Mr. Fanning. 

Mr. FANNING. We have IBM, Deloitte, and GD IT. 

Senator COBURN. I want to ask one final question of each of the 

branches. What is your thought about the fact that GAO says there 

is ineffective oversight, there is ineffective requirement management, and there is ineffective systems testing? What is your response to GAO’s findings? 

General DURBIN. Sir, just for the record, for the Army, I just 

highlight that we are not over cost, although we do have one system that is over the time. 

Senator COBURN. You get the ‘‘atta boy’’ for today’s hearing. 

General DURBIN. OK, so—— 

Senator COBURN. Even if your last name is Durbin. [Laughter.] 

General DURBIN. Thank you. So I would say that we agree with 

the GAO findings and the recommendations. That is part of the 

purpose for enhancing our governance, and we have the correct 

leadership at the right level that is focused on this and putting this 

on the front burner. So I think we will address each of those concerns and they are part of our plan as we move forward. 

Senator COBURN. Mr. Tillotson. 

Mr. TILLOTSON. We also agree with the GAO’s findings. We have, 

in fact replaced program management on both of our major ERP 

programs and actually elevated that attention, separated them out 

from layers where they were kind of hidden down in the acquisition 

structure. We have already implemented, again, within the Expeditionary Combat Support System (ECSS), many of the schedule control requirements that were identified back in the April 2009 period, and for our Defense Enterprise Accounting Management System (DEAMS), we are in the process of doing the same again. Our 

Integrated Personnel and Pay System, which is the replacement for 

Defense Integrated Military Human Resources System (DIMHRS), 

will lay that in from the beginning because we are taking those lessons learned from that. So the answer is we are taking the review 

very seriously. We actually appreciate the review. We have had 

similar additional reviews from the OSD level, so our partners at 

the DOD DCMO have also been paying attention to this, and quite 

frankly, we take the feedback seriously. 

Senator COBURN. Mr. Fanning. 

Mr. FANNING. We also have new program managers, or have replaced the program managers in both the programs, definitely instituted increased oversight. I think the program managers would 

agree strongly with that. Testing is another area where I think we 

have made substantial improvements, as we have with requirement mission creep, although that would be of your three the one 

that I think we still need the most effort on, but that is tied into 

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21 

the new very senior-level oversight that is paying attention to these 

programs. 

Senator COBURN. Would you indulge me a couple of minutes? 

Thank you. 

Correct me. My understanding was most of these purchases were 

supposed to be essentially off-the-shelf programs. Is that not correct? 

General DURBIN. Yes, sir. 

Senator COBURN. Is that correct? 

Mr. TILLOTSON. Yes, sir. That is correct. 

Senator COBURN. And the changes were supposed to be minimal 

when we started this, correct? The idea was to take a proven system and interject there. 

Mr. TILLOTSON. That is correct, and we are, at least within the 

Air Force, are maintaining true to that direction. 

Senator COBURN. OK. And so the only other question that I 

would have is going back and looking at our problems with procurement, because what I am seeing at this hearing is really the 

same problems we are seeing throughout the Pentagon with difficulties with procurement. Is any of that a problem with our procurement officers directly? Is it a problem that we have lost experienced staff? Where is our problem? I mean, it is not just in our auditing attempts and in our IT attempts that we are having difficulty, you all would agree with that, across the services. We are 

having difficulty with procurement. So where do you see the problem? 

Mr. TILLOTSON. Again, I will speak only for the Air Force and I 

will defer to my colleagues for their inputs. The problems we are 

seeing within the Enterprise Resource Planning System deployments right now tend to be stemming not so much from the software itself, which to your point is purchased commercial software, 

but these systems require the enterprise as a whole, the Air Force 

as a whole, to actually make some fairly substantial business practice changes, some fairly substantial data changes in other systems, and then to actually deploy that across a fairly large target 

audience. That is actually where most of the time and money is 

being spent. 

Senator COBURN. So the cost overruns are not really with the 

package you are buying. It is adjusting the rest of the systems to 

feed into those? 

Mr. TILLOTSON. Yes, sir, and also doing training to make the 

workforce capable of using the new system, as well as then deploying that system into the communications layers that exist within 

the Department, so—— 

Senator COBURN. One final follow-up question. You are contracting for your other systems to be able to feed in? 

Mr. TILLOTSON. Yes. sir. 

Senator COBURN. Are they cost-plus contracts, service contracts? 

Mr. TILLOTSON. I cannot give you a universal answer. Some may 

be cost-plus. Some are actually in sustainment, so they are probably on a sustainment contract of some kind. 

Senator COBURN. All right. Any other comments from the other 

two? 

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22 

Ms. MCGRATH. I would actually just like to add, put a finer point 

on what Mr. Tillotson said in terms of the business process reengineering, which is another way of talking about what are the 

data requirements, understanding exactly how are you going to use 

this IT capability to execute the business. With the 2010 NDAA, 

specifically Section 1072, the requirement to conduct a business 

process reengineering prior to the investment is critical, and I 

think what the Department lacked previously was that focus on 

understanding exactly how they were going to use and execute the 

business process within their enterprise prior to implementing, and 

what we are learning over the last few years is that really has been 

an area that we have not paid attention to. So you are talking 

about requirements creep. It is requirements creep plus an understanding of how you are going to execute the business. 

So you have heard all the military departments talk about the 

governance. That absolutely is part of the conversation the equation, taking these systems forward. So I would like to think that 

we are actually better managing with stronger governance all these 

programs going forward by requiring each of the organizations to 

articulate how they are going to use the business prior to the implementation so we do not go forward until they demonstrate their 

ability to actually articulate that, and that is extremely key. 

All of these ERPs are cross-functional in nature. They go across 

their entire organization. So it is not just the financial community. 

It is logistics. It is personnel. The whole enterprise needs to understand, how are you going to execute what you are going to execute 

prior to this systems piece, and I cannot overstate that. 

Mr. HALE. I would just add one thing. You asked, Senator 

Coburn, whether we had an adequate procurement staff. It is not 

my primary area of expertise, but the answer is clearly no. We 

made cuts in the 1990s which were too large, and in the early part 

of the 2000s, and we have committed to adding 20,000 people to 

our acquisition workforce over the next 5 years. Ten thousand of 

those will replace contractors, because we think there are too many 

contractors and some of them are doing inherently Governmental 

work, and 10,000 will be a net add to the size of the acquisition 

workforce. We also have a number of training initiatives. 

Congress has been helpful with things like the Defense Acquisition Workforce Development Fund (DAWDF) in terms of paying for 

this, but we have ways to go, and it is a high priority with Secretary Gates. He has exempted it from the limits that he has 

placed on staffs in the Department of Defense in connection with 

his efficiency initiative. Therefore, we are working this issue with 

Ash Carter, the Under Secretary of Defense for Acquisition, Technology, and Logistics. We know it is a problem. 

Senator COBURN. Thank you Mr. Chairman. 

Senator CARPER. Those were some pretty good questions. 

Mr. HALE. How were the answers? [Laughter.] 

Senator CARPER. Some were pretty good, but some, I will be real 

honest with you, some were pretty hard to follow. 

Let me just back up a little bit. I want to put this hearing maybe 

in a little bit of context. We all know that we live in a dangerous 

world. We know that there are threats, the likes of which, 20, 30 

years ago, I never imagined we would face, at least not when I was 

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23 

on active duty or in the Reserves. We are, as I think Mr. Hale 

noted, involved very much in a hot war in Afghanistan and beginning to withdraw our troops as the Iraqis transition to take over 

their own security in Iraq. 

We are a country trying to get out of a recession. I think we are 

starting to, but it is slower than any of us would like, and revenues 

are recovering slower than any of us would like. We have been 

spending a lot of money to try to stimulate the economy. It is kind 

of like one foot on the accelerator, and now with the deficits high, 

starting to tap down on the brake, among other things, a threeyear freeze on domestic discretionary spending is about to begin, 

the kind of work that the Department of Defense is doing under 

Secretary Gates’s leadership to really carve about $100 billion out 

of spending over the next 5 years. 

I think Dr. Coburn serves, if I am not mistaken, I think he 

serves on this Deficit Reduction Commission (DRC). Some people 

do not have much hope for anything comprehensive. But with the 

bipartisan agreement coming out of that Commission, I am more 

hopeful, and I know you are working hard and we need for them 

to be successful so that we can have a chance for success. 

But all told, we are just spending a lot of money. We say we are 

spending taxpayers’ money, and that is true to some extent. But 

really, a lot of the money we are spending is not taxpayers’ money. 

A lot of the money we are spending is money that we go around 

the world borrowing. It is almost like we have a tin cup and we 

are out there borrowing money from just about anybody that would 

lend us money, including the Chinese, and we are trying to get 

them to do something on their currency, try to let their currency 

float, and they can push back against us and say, we will stop buying your Treasuries if you want to push too hard. We look to places 

like South Korea and Japan, folks in Europe, Asia, the Middle 

East, really to borrow the money. 

As much as anything, when we think about these issues, I want 

us to focus more on the need to stop doing that, to stop doing that. 

And as we figure out, is this something we can do by 2017 or not, 

we have to do it. We need the clear setting of goals. We need a 

strategy in place. We need strong leadership. We need buy-in up 

and down the ranks, including uniformed armed services and civilian. We need to monitor progress, and we have GAO over here trying to help us monitor progress on an ongoing basis, and our responsibility is to provide ongoing oversight to try to back up GAO 

and really to complement the work that they are doing. 

Senator McCain said there have to be consequences. There have 

to be consequences, positive for good performance and negative for 

not good or not acceptable performance. 

I am going to ask, Mr. Khan, you are sitting on that side of the 

witness table. Let us say you are sitting over here. Let us say you 

are sitting over here with Dr. Coburn and Senator McCain and myself. You are a Member of this Subcommittee addressing this problem. This is one we have been trying to solve for years. I think Senator McCain said we were supposed to try to address this several 

years ago, and without success. I do not want us to be here in 2017 

and you be sitting out here and the rest of you be here and say, 

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24 

‘‘Well, we still have not made it.’’ I want us to address this problem 

and do it in a satisfactory way. 

We have asked, what can we do to be helpful. You have indicated 

that in some cases—I think Mr. Hale said with respect to acquisition forces, more people. Replace some of the contractors and hire 

other folks to come on board and help us with the acquisition. We 

have done that. We have been trying to help on the training side. 

I think we have provided fairly generous monies for some of these 

systems to enable us to stand up accounting systems and to do this 

job. 

What more do we need to do? If you were sitting over here, what 

would you be doing beyond what we have already done? 

Mr. KHAN. Mr. Chairman, I think you should continue doing 

what you are doing. Oversight hearings like these will go a long 

way. Like I had mentioned before, I think it will be important to 

consider where all the heavy lifting is going to be done, and I think 

we all recognize that most of the work, whether it is in the ERP 

implementations or audit readiness, is going to be at the military 

departments. So it is going to be critical to have the DOD Comptroller’s Office, as well as the senior-level representatives from the 

military services to provide you with an ongoing status so you can 

have a real-time picture of what is going on and what needs to be 

done. I think that would be non-burdensome. 

We, for our part, are working with them, providing oversight, 

and we have an open communication, with the Comptroller’s Office. 

We have started dialogue with the DCMO’s Office and CMOs in the 

military services as part of the ERP report that will be issued 

shortly. 

Senator CARPER. Let me just interrupt. My question of you was, 

what more—if you were sitting on this side of the dais, what more 

would you be doing than what we are now doing? 

Mr. KHAN. Continuing to have non-burdensome oversight hearings will go a long way. 

Senator CARPER. Dr. Coburn, when are you up for reelection? 

Senator COBURN. This year. 

Senator CARPER. This year? How is it going? 

Senator COBURN. Well. 

Senator CARPER. He may—— 

Senator COBURN. Do you want me to make a political statement? 

[Laughter.] 

Senator CARPER. I am going to be around for at least a couple 

more years, maybe even beyond that. Senator McCain is going to 

be around for, it looks like at least another 6 years, and Dr. Coburn 

for another 6 years. So what you are going to have, or what we are 

going to have here are three guys who are on this Subcommittee 

who care about these issues and are really committed to creating 

what I call a culture of thrift—a culture of thrift—not just in Defense, but throughout our Federal Government. And we are going 

to have hearings. We are not going to have them every day or 

every week or every month on this subject, but we will have them 

at least every year if I get to be the Chairman of this Committee 

or Subcommittee for a little bit longer. And if Dr. Coburn or others 

want to hold them, I will certainly be here. I just want to put that 

out there very clearly. 

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25 

I want to follow up on something that Senator McCain said earlier. We appreciate your being here. We appreciate your responses 

and all. I do not think we wish to imply that no progress has been 

made, obviously, there are some pockets of encouraging progress 

and that is welcomed and hopefully we will see a good deal more. 

I was talking with my staff about this hearing several days ago 

and said, we do not expect the whole Department of Defense to sort 

of stand up and all at once accounting systems, accountability systems that basically are from soup to nuts, from A to Z, that is not 

going to happen. It is going to be maybe the Air Force, maybe the 

Army, maybe the Navy, Marine Corps who will be pockets of excellence and basically help show the way for the rest of the Department of Defense. 

But I also agree with the importance of properly prioritizing 

goals and knowing that there is a lot of work still to be done to 

get ourselves to a clean audit. 

Let me just ask Mr. Khan, do you believe that we have yet to 

see a complete plan to achieve audit readiness and to achieve the 

key goals for better financial management for the Department of 

Defense? Let me say that again. Do you believe that we have yet 

to see a complete plan to achieve audit readiness and to achieve 

the key goals for better financial management for the Department 

of Defense? And also, let me just add a P.S. to that. What must 

the Department of Defense and the military services do to ensure 

a more complete plan which will get us to the point where we will 

actually see the Department ready to conduct successfully a financial audit? 

Mr. KHAN. The current plan is primarily focused on the shortterm, that is, to get the statement of budgetary resources 

auditable. That is the budgetary information used by the managers 

on a day-to-day basis. And the second one is the existence and completeness of mission critical assets. The plan itself does not go into 

the remaining piece of the financial statement auditability, if you 

are looking to achieve full financial statement auditability. So the 

remaining pieces have yet to be filled in. In the status report that 

was issued in May, it was mentioned that additional information 

is going to be forthcoming in the November issue. So to answer 

your questions, there are several steps which need to be completed 

so we can have a complete picture of how 2017 is going to be attained. 

Similarly, at the military departments, they need to also have a 

plan, which they are working on, which needs to align with the departmental plan. That was a key recommendation in our May 2009 

report, and in our discussions with the Comptroller’s Office, we believe that the military services are working on it, though we have 

not yet evaluated the plan. 

So those are the two steps which will be critical for us to have 

a plan that can be evaluated, that can be followed through. 

Mr. HALE. May I add to that? 

Senator CARPER. Yes, please. But before you do, let me just kind 

of stay with you for just a moment, Mr. Khan. You heard our witnesses testify. We have heard folks from each of the branches of 

our Armed Services. What do you find most encouraging in what 

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you have heard today? What should we find encouraging in what 

we have been told? 

Mr. KHAN. Very much the commitment. To have all the DCMOs 

here from the services and getting down to the granular level of detail, which is really needed to be able to manage this process, is 

very encouraging. Similarly, GAO is very encouraged by the plan 

and the beginning process of the implementation to bring the plan 

in unison. Before the FIAR plan or before the prioritization, each 

of the military services had their own plan. The FIAR aligns it into 

one direction by defining the priority that Mr. Hale did last year. 

That helped to make sure that the entire Department was going 

in one direction, which is of great benefit. 

Senator CARPER. OK, thanks. 

Mr. Hale, go ahead, please. 

Mr. HALE. Mr. Chairman, if we try for everything, I am afraid 

we will again get nothing. I believe firmly we have to pick some 

priorities and go after them, and we have done that. And the only 

way in my mind to set those priorities is to focus on the information we use to manage in the Department of Defense. I mean, it 

seems to be common sense. I believe we have done that. I am encouraged to hear that my colleagues in the services seem to agree 

so that we do not have to order them to do things. They feel that 

we are approaching, or trying to improve audit readiness and 

achieve audit readiness for data we actually need. 

Then there is the issue of what to do about the rest of the information, which, frankly, we do not use to manage. It is mainly the 

historical costs of assets. Under current audit rules, I would have 

to spend the taxpayers’ money to go out and gather data on what 

we spent on the F–22, including every modification that we have 

done to it. I would have to allocate the Program Office costs to it. 

I would have to support historical cost with invoices for it to be 

auditable. We do not use that information for managing the Department. We use the Selected Acquisition Reports (SARs), to manage costs. We do not use historical cost information. 

Therefore, I am looking for ways to either change the rules—I 

would like to do that—but if I am not allowed—— 

Senator CARPER. Who makes the rules? Are we talking about 

laws—— 

Mr. HALE. Well, it is the—— 

Senator CARPER [continuing]. Or are we talking about regulations, or are we—— 

Mr. HALE. Yes, to some extent OMB, and ultimately the Financial Accounting Standards Advisory Board (FASAB), would pass on 

this. I am not trying to point fingers. We owe them a proposal that 

makes sense for the rest of the data. I want to spend 80 percent 

of our time trying to do something. I want to get something done, 

and I know you do, too. I am frustrated by this, also. But I understand we have to address the rest of the issue, and we are thinking 

about it. We need to do it in some way that is high level and relatively inexpensive, in my view, so we do not spend a lot of money 

improving information that will never use. 

Senator CARPER. When I was a kid growing up, my father used 

to say to my sister and me—she is about 15 months older—he 

would say to us from time to time when we were kids doing stuff 

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27 

around the house or the yard, he would always say to us, ‘‘Just use 

some common sense.’’ We must not have used it very often, because 

he said that a lot, and he did not say that quite nicely. 

But he would be pleased to know—he is now deceased, but he 

would be pleased to know that as I take up my responsibilities 

here, I think a lot about using common sense, and there are instances when you are going to see when we do not, and the instances where we are not using common sense may be things that 

are internal within one of the various Armed Services, they may 

be internal to the Department of Defense, may flow out of something out of OMB, may flow out of some kind of law that we have 

passed. 

One of the things I would like to encourage through the course 

of these hearings is when the Congress is doing things that, frankly, do not make common sense, that do not really add up, you need 

to tell us. When there are resources that are needed, whether there 

are 20,000 people who work in acquisition, whether it is voting to 

confirm somebody that is nominated for one of these confirmable 

positions, you have to have the kind of relationship, particularly 

with our staff members, to let us know that, and we need to be advised by them, by the people on my left and right behind me, of 

those points. 

Let me come back, if I could, to Mr. Fanning, please. Mr. Fanning, I understand that the Marine Corps—by the way, we just 

saw the department of one of the great Members of our Subcommittee staff, Eric Hopkins, who has been to a lot of these hearings over the last 3 or so years. He is off to become a Marine Officer. He reports, I think, the first of October down at Quantico and 

we miss him and wish him well. 

But I understand the Marine Corps will be the first of the military services to have a major financial piece under audit. Is that 

correct? 

Mr. FANNING. It is correct. It is under audit right now. 

Senator CARPER. Good. I think the U.S. Marine Corps was the 

first military service to assert audit readiness of a financial statement since the Department first articulated its financial improvement strategy, I want to say maybe 5 years ago, December 2005 

is what I am told. In fact, I understand the Marines put out a report showing the benefits of improving their financial systems, including a net savings of money, some, I guess, $15, $16, $17 million. 

So, if you will, just give us the status, please, of the Marine 

Corp’s Statement of Budgetary Resources audit. What type of opinion do you expect that they will be receiving on this first-year 

audit, please? 

Mr. FANNING. I think Mr. Hale has more insight into this. It is 

underway right now. I am optimistic about the opinion, but we will 

know soon. We do not yet know. We have learned a number of lessons. It is much harder than we thought it was, so it is taking 

longer, so I think that the major issue at stake here is just the timing and how much longer we have. But I am optimistic about the 

progress we have made. 

Mr. HALE. We have asked the Marines to take a lot of beachheads in our history—— 

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Senator CARPER. Yes, we have—— 

Mr. HALE [continuing]. And we are asking them to take a financial beachhead, and I appreciate their efforts. As Eric said, we have 

learned a lot from the audit of their Statement of Budgetary Resources. It is budget data. That is one of our high priority areas. 

The deadline for an audit opinion is November 15. We are not 

going to make that. We will get a disclaimer, that is the Marines 

will. 

We will then decide whether to continue the audit. We have 

struggled, to be honest with you. Frankly, the problems with our 

business processes have been greater than we expected and we are 

not going to complete the audit by November 15. We will have to 

decide whether to continue that audit and seek an out-of-cycle 

opinion, or stop it and go on to fiscal year 2011. 

Regardless of what decision we make about the audit, we have 

learned a lot, and I am still cautiously optimistic. I am optimistic 

that we are going to get there. The Marines are committed, as only 

Marines can be, and I think they will get to a clean audit opinion 

and will be a major accomplishment for the Department and we 

will have learned much that we can apply to the other services. 

Did that answer your question? 

Senator CARPER. Yes. That is good. I know when the Naval Academy plays the Air Force Academy or Army-West Point that there 

is a pretty good competition in the athletic area. Maybe could we 

look for a little competitive spirit here, as well? 

Mr. HALE. Absolutely. I served as the Air Force Financial Manager, and saw benefits from interservice competition, but we must 

use correctly. You do not want to use it incorrectly. Used correctly 

it is a powerful tool. 

I will say for the record, the Department of the Navy is the leader here. The Army and the Air Force are working hard, but the 

Navy is in the lead, and the Marine Corps in particular, and I appreciate it. 

Again, what we have to do is learn from the Marine Corps’ audit. 

We do these quarterly meetings of this governance board. Every 

one that I have attended has included a briefing from the Marines 

about the problems they are having with this audit lessons learned 

that must be passed, on to the Air Force and the Army. So again, 

I appreciate what they are doing. 

We will get there. It is just—it is difficult. Our business systems 

and processes are not conducive to audits. They are pretty good at 

getting the resources out to the warfighters. I think we do well 

there. The commanders are happy with the service they get. They 

are not, as I said, conducive to audits, and we are struggling, but 

we are going to get there. 

Senator CARPER. Does that say something about the kind of 

training that we provide for some of our officers? Not every officer 

needs to be trained to do this kind of thing. Some do, some do not. 

Many do not. 

Mr. HALE. Eighty percent of the Defense Financial Managers are 

civilians. About 20 percent are officers. Both the civilian and officers are trained to handle our money in the ways that are legal 

and effective while getting it out to the warfighters, to obey the 

laws, and we do pretty well at that, unfortunately, not always, but 

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generally we do. We have not focused on standard business processes, and we have too many systems and that just drives auditors 

nuts because you cannot reconcile the data and it is very difficult 

for them. 

We have to move toward more standard processes, but I do not 

want to lose the effectiveness of the overall— of the ability to support the warfighters. That has to stay there. We have to find a way 

to do both, and that is the challenge. 

Senator CARPER. Yes, that is. 

I am not picking on the Army or the Air Force, but let me just 

take this opportunity to ask either Mr. Fanning, Ms. McGrath, or 

Mr. Hale, what do you think, in terms of lessons learned from the 

work that is going on in the Navy and the Marine Corps in particular, but what are some of the lessons learned from the Marine 

Corp’s Statement of Budgetary Resources audit? 

Ms. MCGRATH. If I can start—— 

Senator CARPER. Would you? 

Ms. MCGRATH. Mr. Hale identified a few of the challenges in 

terms of our business processes and the fact that our systems are 

not interoperable. When the auditors sort of taste the paper in 

terms of the audit trail, it really highlights, I will say, how broken 

the business processes are or how much more we need to document 

what they are. And I mentioned a few minutes ago the importance 

of this thing called business process reengineering, understanding 

how you do what you do. It really highlights how well we are not 

documented when we are going through audit. 

And so we use that as a big lesson learned in terms of our future 

investments, so sort of the systems on the board, they are taking 

the lessons learned from the Statement of Budgetary Resources 

audit from the Marine Corps and saying, what did we find and how 

do we influence our systems and our processes going forward, because if we do not capitalize those lessons, then shame on us for 

not then applying those to the future investment. 

So that is a critical area that we have learned, and I also mentioned earlier, I used a term cross-functional, meaning all different 

types of businesses in organization. They almost participate, and in 

the audit, they almost participate in order to achieve the 

auditability in the records, and again, that is a big lesson learned 

as we are implementing these new systems such that it is not just 

the financial folks with their implementation. It takes the entire 

organization, Army, Navy, Air Force, or department to successfully 

implement these, and those are significant lessons that we are 

learning from the Marine Corps audit that will drive both behavior 

going forward and also systems implementation. 

Senator CARPER. Mr. Fanning. 

Mr. FANNING. I would really just echo what Ms. McGrath said. 

I think as big as the Marine Corps is, we are dependent on agencies and organizations outside to reach a clean opinion, which is 

why we need to work on this together, which is why Mr. Hale has 

pulled us all together. 

Mr. HALE. I could bore you to death with what we have learned 

from the Marine Corps audit, however, I will only give two examples to give you a sense of what we learned. 

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We have struggled to balance our checkbook with Treasury—it is 

formally known as Funds Balance with Treasury but because we 

do not have the data and the systems that track it in the detail 

that auditors expect, I do not know whether we have finally gotten 

the beginning balance right. 

The other example I will give you is contract close-out. We have 

a habit in the Department that when we complete the contract and 

get what we ordered, there is a little money left. The contract has 

to be formally closed. There has to be reconciliation. Sometimes 

there has to be an audit to determine the final payment amounts 

and if everything is correct. Many of those things do not get done 

because people are busy. That is part of the job for those 20,000 

folks that we need to add to the acquisition workforce. Therefore, 

we have many open contracts that have caused us problems in this 

audit. 

There are two pages in my notes of things we have learned. I 

cannot remember them all, but I hope it gives you a flavor. It is 

not sexy stuff. It is blocking and tackling. We have just got to get 

better at it. 

Senator CARPER. OK. I am tempted to just ask—we have a little 

bit of time here—I am just tempted to ask each of the witnesses, 

let us kind of go back to—you have heard some of the questions 

my colleagues and I have asked. You have heard the responses that 

you have given, that your fellow witnesses have given. You all had 

a chance to give an opening statement, an abbreviated or truncated 

statement because you just could not talk forever. Otherwise, we 

would never get out of here. Just any thoughts that kind of occur 

to you as we are going through this hearing that you would like 

to put on the table, as well? 

And while you are thinking about that, let me ask a question 

that kind of goes back to a comment I made at the end of Senator 

McCain’s questioning. He was asking, has anybody been fired for 

their inability to move the ball down the field in terms of these 

goals that we are talking about? A question I said, ‘‘Maybe it is not 

just a firing issue, but maybe a hiring issue, as well.’’ And we 

talked about the 20,000 people who work in acquisition. 

And I always go back—Mr. Hale, did you know John Young? 

Mr. HALE. Yes. 

Senator CARPER. Does Ash Carter have his position now? Is that 

the way—— 

Mr. HALE. Yes. 

Senator CARPER. OK. Among the things, and we have a lot of 

hearings that we sit through, I will never forget that day the fellow 

who was then John Young’s deputy who came in and testified, he 

said, basically—I mentioned this earlier—he said—we asked him 

what kind of turnover he got from his predecessor and he said, 

‘‘Well, the guy left 18 months before I got here.’’ And how many 

direct reports do you have, and he said, ‘‘I am supposed to have six, 

but we only had two when I came on board.’’ 

That suggests to me that the Department of Defense was not 

doing a very good job, in some cases, of filling key positions. And 

maybe it partly is our problem, not doing a good enough job confirming, or the administration, whether it was President Bush or 

President Obama, doing a good enough job of nominating people, 

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good people, to serve in these positions. Probably no one is devoid 

of blame. 

But on the hiring side, on the confirmation side, on the nominating and vetting side, what more can be done? That is not sexy 

stuff, but it is blocking and tackling, and let me just ask, how are 

we doing there? 

Mr. HALE. I have been through confirmation twice. My wife made 

me swear I would never do it again. 

Senator CARPER. Did you take the oath? You said you would 

never do it again, or—— 

Mr. HALE. She made me promise I would never do it again. I did 

not agree. [Laughter.] 

It is an onerous process. I understand why the President and the 

Congress or the Senate would expect to have a thorough vetting of 

candidates. It does take a long time, and frankly, it often gets tied 

up in other issues—I did not get put on hold this time, but when 

I was the Air Force FM nominee, I was on hold for about 4 months 

because a member wanted some more C–130s at a base. It had 

nothing to do with me. It is just the process. Can we do better? 

Yes, we need to find a way to speed it up and I make that statement in a bipartisan fashion. I think it applies to both parties. 

Most of the FMs—it is a little less true in acquisition. I only have 

one—— 

Senator CARPER. Let me just follow up on this a little bit. Do you, 

in your experience—and anybody else who wants to respond to 

this, feel free—but in terms of the positions that we have in the 

Department of Defense that you are aware of that are confirmable 

and those which do not require confirmation, do we have too many 

that require confirmation? 

Mr. HALE. Oh my goodness. Well, probably. I mean, now you are 

going to ask me which ones—— 

Senator CARPER. No, I am not going to ask you—— 

Mr. HALE. There are about 50 confirmable positions in the Department of Defense, about 30 in the Office of the Secretary of Defense, 20 in the services. So you can draw the conclusions you 

want. I think there probably are enough and maybe too many. 

Senator CARPER. Right. 

Mr. HALE. One of the things that I always look for is the continuity of civilian senior leaders—of career civilian senior leadership, because there will be a hiatus when we go through changes 

of administration. It is inevitable. Therefore, you need to have a 

back-up plan in terms of who will run the show in the absence of 

the confirmed appointees. 

I must say, I spent a long time—I have never been in the civil 

service, but I worked for the Congressional Budget Office and was 

more or less career person for a number of years before taking political appointments. Being a political appointee changes your point 

of view. It changes your time horizon. I know I only have a couple 

of years, both because of my wife and probably because of the politics. Meanwhile, I want to get something done, and that is why you 

hear me talk about interim goals with regard to this and other aspects. 

I think there is a proper place for confirmed appointees. We may 

have a few too many but there is a place for them. 

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32 

Senator CARPER. Speaking of getting something, I go back and 

forth to Delaware at night and come back on the train in the morning, and usually I drive from my home to the train station, which 

is not that far away. Sometimes I will listen to National Public 

Radio (NPR) coming in and catch the morning news. A couple of 

weeks ago, they had a report on a study that was done where they 

asked—it was not NPR that did the study, it was someone else that 

did the study, and they asked what were the factors that gave people satisfaction in the work that they did. What gives you joy or 

satisfaction in the work? And they asked a whole lot of people 

around the country what gave them—and they asked, is it salary? 

Is it benefits? Is it your working conditions, the people you work 

with, your office space or whatever work space you have? What is 

it? 

And the winner was, getting something done. People really want 

to feel like they are getting something done that is worthwhile, and 

as a recovering Governor, one of my frustrations here is, especially 

in a little State like Delaware where Democrats and Republicans 

kind of like each other—— 

Mr. HALE. Mm-hmm. [Laughter.] 

Senator CARPER [continuing]. And we have a tendency to actually 

work together more often than not, it is a real frustration, just getting something done. 

Mr. HALE. I call that driving home satisfaction. It does not happen every day, but there are times when you are driving home and 

I can think, I really was able to do something to help the people 

in the Department of Defense. 

Senator CARPER. Let me go on. I said I was going to ask each 

of you to see if there are some thoughts that occurred to you during 

the course of this hearing that you would like to put on the table. 

General Durbin, let me just start with you, if I could. Please, General Durbin. 

General DURBIN. Thank you, sir. Three quick comments. Back to 

Secretary Hale’s comment about the audit standards, I have 

learned more in the last 2 years and specifically the last 4 months 

associated with what audit readiness means in the audit standards, and I will tell you that at a certain point, you get to where 

your father would say, perhaps we have gone beyond the common 

sense, specifically with valuation, historical valuation and so forth. 

So I would ask that you favorably consider the request that Secretary Hale gave, because I think it has a lot of merit. 

Senator CARPER. OK. 

General DURBIN. We would still move the needle in the right direction and we would do what is right for the Department and we 

would manage it much better and we would support our soldiers, 

sailors, airmen, marines. 

The second is that perhaps the same request might come for 

some potential changes, I do not know what they might be and I 

do not know if they will be, but from the IT, the Information Technology Acquisition Reform Task Force that we are focused on inside 

the Department. I might also lay out some appropriate changes for 

how we handle the acquisition of IT much different than how we 

do for major weapons systems. I will tell you, there are significant 

differences. 

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33 

And then the third point would be I really appreciate you raising 

my competitive spirit in your comments about our sister service. 

Those who are my direct reports are probably really excited about 

you raising my competitive spirit. 

Senator CARPER. Good. Thank you. Mr. Tillotson. 

Mr. TILLOTSON. Thank you, Mr. Chairman. I will start with the 

reiteration, I think, of a message we all gave you. We are collectively committed and reasonably confident that 2017, for at least 

those priorities that Secretary Hale has set, are achievable. That 

goal is not without its challenges. You heard from Mr. Khan that 

the ERP systems, the Enterprise Resource Planning Systems, remain both a key contributor, but also a key challenge, and the 

breadth of that challenge is one of the things that keeps us at least 

us in the Air Force and me personally focused. 

So the good news and bad news is, we do have people paying attention, and I think that is a major message to give back to you, 

is the senior leadership within the Air Force, and I think you have 

heard from my colleagues, is very focused on achieving this outcome because of the second point, which is that Secretary Hale has 

focused the effort on some things that carry with it value to the 

Department, and more importantly, value not just to the financial 

side of the Department, but value to the mission side of the Department, as well. 

It is hard to argue with a value proposition that says it would 

be nice to know where your cash is and it would be nice to know 

where your equipment is. That is a hard thing for anybody to argue 

with, and there is huge benefit to the warfighters to finding both 

of those things because it means we will provide not just the information about those and enhance the decisions, but quite frankly, 

we will make sure that the warfighter in the field gets the things 

they need at the time they need it. So there is huge benefit to focusing on that and I applaud Secretary Hale for having focused 

that effort. 

The third thing—— 

Senator CARPER. Let me just interrupt you. That was a wonderful riff you just gave us there. It is good to know where your cash 

is. It is good to know where your equipment is. I am glad we got 

that one for the record. 

Mr. TILLOTSON. Yes, sir. I am the class dummy in the group, so 

I have to bring it down to my level, so there you go. 

The third thing I would note is that while I appreciate your challenge on—or the challenge of competition, joint warfighting is 

about, the way I phrase it from an old college phrase, cooperate 

and graduate. And so the truth of the matter is, we are watching 

with great interest what the Navy, Department of the Navy, and 

the Marine Corps are doing, because to Secretary Hale’s point, they 

are, in fact, kind of leading the way on this, which is very helpful 

to the rest of us. 

What is perhaps even more helpful is that there is a very open 

and transparent spirit amongst the people you see here. We talk 

to each other routinely. We share information. We share bad news 

stories along with good news stories because we learn from them, 

and I think that is a major foundation of success because it is the 

Department as a whole that has to succeed, to the point that Mr. 

H605-41331-79W7 with DISTILLER

34 

Fanning made. The Marine Corps can do a lot of things internally, 

but a lot of the information they get come from other services, 

other departments, other defense agencies, and so learning those 

lessons jointly is kind of a key and essential part. 

So while I love the competitive spirit component of this, I am 

also very much in the joint, let us cooperate and graduate, and 

quite frankly, I am gratified that all my colleagues share that view, 

and I think that is something that should be an encouragement to 

this Committee. 

Senator CARPER. All right. Thank you. Mr. Fanning. 

Mr. FANNING. Thank you, Mr. Chairman. A couple of things. 

First, business process reengineering. I think we still have not 

placed enough emphasis on that as a department. Ms. McGrath is 

leading the charge on that and I wholeheartedly applaud. I think 

part of why we have some problems with these systems that extend 

so far back is we made them acquisition programs too soon. I look 

at technology as an enabler and a tool, not as the solution. And 

until we get our governance structure and our business processes 

in place in very large scales, we should not be applying technology 

on top of them. What we are learning is that it is as easy to automate bad processes as it is to automate good processes, so we have 

to get the processes right first. 

The second thing in the category of be careful what you wish for, 

you asked what more you could do, and I think that the oversight 

from Congress, including the GAO, is very important in supporting 

what we do. These charts, these numbers definitely get the attention of the leadership, and without that level, at the four-star level, 

we really cannot get these things done, because in the Navy Department, for example, the commands are run by three-stars and 

it takes a four-star over the top to remind them that there is a 

larger enterprise than their command. 

And something that Mr. Tillotson said and others have said, the 

best way to get the attention of the leadership is to tie it to the 

warfighter, and these numbers do that because they see now how 

these numbers are competing against other things. But also, when 

they see the benefit of these programs, that it is not just the business side but it actually does lead to benefit for the warfighter, it 

gets their attention very fast, and I think they see that now in a 

way that they did not before. There is tremendous cost to all the 

departments and DOD as a whole, a whole level of oversight that 

I had not seen before. 

And finally, I just echo Mr. Hale and say for those of us who are 

political appointees, we are very sensitive to how little time we 

really have to impact things, and so we look at these 2017 goals 

and say, ‘‘What can we really get done? ’’ Where can we advance 

the ball for the next team, or what can we do to give escape velocity to something we are working on. 

Senator CARPER. Thanks very much. Those are good points. Ms. 

McGrath. 

Ms. MCGRATH. So I only have two that I would like to mention 

in closing, and one was mentioned by General Durbin, which is the 

information technology acquisition reform efforts. He mentioned a 

task force. Secretary Lynn has asked that I lead a task force within 

the Department focused on how do we deliver information techH605-41331-79W7 with DISTILLER

35 

nology capabilities faster than we currently do. And a lot of it goes 

to the requirements, conversations we have in terms of scoping the 

systems or capabilities to the right level, setting delivery timelines 

that are shorter, they are months not years, so months mean more 

like 18 months as opposed to 5 years so that we are actually delivering capability in a much more incremental fashion, closer to what 

the industry does today. So we will be providing our recommendations, some of which may require legislative changes, we are not 

sure just yet, but look forward to working with the Congress on enabling that capability. 

And the second is, frankly, thanks for the Chief Management Officer legislation. I think what you have heard today is not just 

today, it is what we do every day, and I think both—I think everyone has mentioned both the collaborative nature and the—through 

the interoperability that we have achieved within the Department. 

I think that structure is key, bringing the enterprise focus at the 

component level but also at the departmental level with the Deputy 

Secretary, the Under Secretaries of the military departments, and 

their deputies. So it has been critical, and for that I thank you. 

Senator CARPER. You are welcome. Mr. Hale. 

Mr. HALE. Mr. Chairman, we have talked about some of the technical things we need. Perhaps the most important other ingredient 

is, continuity of commitment. This has to survive at least one administration, maybe a couple, and it is a real challenge because the 

people in my job and others change and their knowledge and commitment to these kinds of issues is different. I would offer two 

thoughts about what we are trying to do, and one that you can do 

that would help. 

The one, we are trying—we just finished a round of briefings 

with the Under Secretaries and the Vice Chiefs and the DCMOs. 

My Deputy Chief Financial Officer is right behind me, Mark Easton, who has done a lot of the work—— 

Senator CARPER. Mark Easton, would you raise your hand? 

Mr. HALE. Say again? 

Senator CARPER. Mark—OK. I asked him to raise his hand. 

Mr. HALE. Right here. I really appreciate what he has done. 

Senator CARPER. I notice that as you speak, his lips move. I do 

not know—— [Laughter.] 

Mr. HALE. He is probably saying, what are you saying? 

Senator CARPER. You guys are pretty good at this. 

Mr. HALE. We try. We have asked the services to put some commitment to the interim goals that we have specified into the SES 

performance evaluations, or for the right people so that I hope we 

will begin to institutionalize some of this process in a way that will 

survive an administration or two, the amount of time that I think 

it will take to complete it. 

We are trying to do that and take other steps. It is not my habit 

to ask for hearings, but I would agree with Asif Khan that periodic 

hearings by the Congress are action-forcing events for the Department. They focus our attention and they are a good idea. I think 

it is something that—it is part of Congress’s job is an important 

way to establish that continuity of commitment. 

Senator CARPER. Thank you. Dr. Coburn said during the beginning of his comments, he said, this is not a ‘‘beat them up’’ sort of 

H605-41331-79W7 with DISTILLER

36 

hearing. We do not do hearings of that nature. We want to put people on the spot sometimes. We want to commend people and folks 

that are doing an above-average job. We want to find out what we 

can do better to enable good things to happen, in this case, in the 

Department of Defense. We believe we have an oversight responsibility. That is part of our job and we are trying to meet that part 

of it. 

Mr. Khan, do you want to offer a comment or two as we close? 

Mr. KHAN. Yes. Thank you, Mr. Chairman. I just want to comment that the plan for the most part, the how and the why has 

been defined. Now the ‘‘doing it’’ is very important. That is the implementation part. 

The other point I wanted to emphasis is that key to DOD’s financial management improvement effort is its ability to develop a sustainable processes, and not just for compliance to get the number 

for the financial statement. It is to have the information which is 

provided to management on a continuous basis, which is useful, reliable, and timely. It is critical. 

In that respect, if I may just respond very quickly to Mr. Hale’s 

comments about historical cost evaluation, we agree with his position that it is something which may not be cost effective. The 

standard does allow for estimation. However, we feel that on a goforward basis, capturing cost information is very important for 

DOD because that is going to provide the granular level of information to determine their cost drivers so you can compare programs 

amongst each other to see which one is more costly and where efficiencies could be derived. 

Third, the current leadership team is showing great commitment. 

We have said in the past that there should be a provision in the 

strategic plan implementation efforts for personnel turnover so 

there is continuity and sustainment turnover across administrations. 

Senator CARPER. All right. 

Mr. KHAN. Thank you. 

Senator CARPER. Good. Thank you. 

Well, let me close it out by again thanking each of you for joining 

us today. Thank you for your preparation. Thank you for especially 

the good work that is going on, not only by you, by the people that 

you lead, part of your team, and those that are part of that team. 

The other thing I want to say is there is kind of this recurring 

theme. This Subcommittee, and I think this Committee, maybe as 

much as any in this Senate, feel that we have an obligation to try 

to create this culture of thrift that I have talked about and to try 

to do a good job of providing in a constructive way oversight. And 

it is not something that we just started doing yesterday. It is stuff 

we have been doing for a while and are going to continue it as long 

as the three of us who were here today happen to serve. 

This hearing has focused, on a major challenge for the Department of Defense, and that is creating a modern and effective financial management system. Without doubt, there is good work that 

is taking place. You all have talked about some of it, and there are 

a lot of dedicated people who handle the work in the trenches and 

other places around the world doing very dangerous stuff. Even as 

we meet here today, there are people who are a lot closer to home 

H605-41331-79W7 with DISTILLER

37 

who handle the finances and the economy within the Department 

of Defense. And I think there is a growing commitment to improving. Everything I do, I know I can do better, everything, and we 

have to—I think we all realize that, we understand that, and we 

just have to be committed to that every day. 

Having said all that, this hearing has demonstrated there is a 

good deal more that can be done and that needs to be done, and 

all of us here in Congress share a responsibility to do as much as 

we can, as you do, to curb what we call waste and fraud and abuse. 

It is really this notion that we are spending all this money we do 

not have. We are spending all this money we do not have. It is just 

not sustainable. Otherwise, we will end up like Greece, and it is 

not what I want. I know it is not what you want. So this is just 

extremely important, really, I think, for our country and for the 

confidence that the people invest in us who send us here to work 

for them. 

Not only will achieving the goal of becoming ready to pass an 

audit help the Department of Defense ensure that billions of tax 

dollars are spent properly, but as some of you have pointed out, it 

will also have the benefit of making certain that our troops have 

the equipment that they need and have it where they need it. So 

again, we thank you for being with us today and for your preparation and your responses. 

We have some people on our Subcommittee who were not able to 

join us. I know they have an interest in these issues. And I think 

we have a little bit of time, do you know, Peter—2 weeks that we 

give our Subcommittee Members to send follow-up questions to 

you. If you receive those, we just ask that you respond to them 

promptly. 

We look forward to continuing this dialogue, this conversation, 

and we look forward to even more progress the next time we sit 

in this room at these tables and have that conversation. 

With that in mind, I think this—and let me say to our staffs, 

Democrat and Republican, thank you for the work in helping us 

prepare for today and for everyone on the other side of this dais, 

as well. Thank you. 

And with that, this hearing is adjourned. 

[Whereupon, at 4:28 p.m., the Subcommittee was adjourned.] 

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