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[Senate Report 112-230]
[From the U.S. Government Publishing Office]

                                                       Calendar No. 535

112th Congress                                                   Report

 2d Session                      SENATE                         112-230
_______________________________________________________________________

                  DHS AUDIT REQUIREMENT TARGET (DART)

                              ACT OF 2012

                               __________

                              R E P O R T

                                 of the

                   COMMITTEE ON HOMELAND SECURITY AND

                          GOVERNMENTAL AFFAIRS

                          UNITED STATES SENATE

                              to accompany

                                S. 1998

     TO OBTAIN AN UNQUALIFIED AUDIT OPINION, AND IMPROVE FINANCIAL 
  ACCOUNTABILITY AND MANAGEMENT AT THE DEPARTMENT OF HOMELAND SECURITY

                November 2, 2012.--Ordered to be printed
   Filed, under authority of the order of the Senate of September 22 
                 (legislative day, September 21), 2012

                                _____

                  U.S. GOVERNMENT PRINTING OFFICE

                          WASHINGTON : 2012
-----------------------------------------------------------------------
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20402-0001

        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware           SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana          RON JOHNSON, Wisconsin
CLAIRE McCASKILL, Missouri           ROB PORTMAN, Ohio
JON TESTER, Montana                  RAND PAUL, Kentucky
MARK BEGICH, Alaska                  JERRY MORAN, Kansas

                  Michael L. Alexander, Staff Director
       Beth M. Grossman, Deputy Staff Director and Chief Counsel
               Carly A. Covieo, Professional Staff Member
               Nicholas A. Rossi, Minority Staff Director
                Mark B. LeDuc, Minority General Counsel
           J. Kathryn French, Minority Deputy Staff Director
             Patrick J. Bailey, Minority Associate Counsel
  William H. Wright, Minority Staff Director, Subcommittee on Federal 
  Financial Management, Government Information, Federal Services, and 
                         International Security
    Steven E. Hutchinson, Minority Counsel, Subcommittee on Federal 
  Financial Management, Government Information, Federal Services, and 
                         International Security
                  Trina Driessnack Tyrer, Chief Clerk

                            C O N T E N T S

                              ----------                              
                                                                   Page
   I. Purpose and Summary.............................................1
  II. Background and Need for the Legislation.........................1
 III. Legislative History.............................................3
  IV. Section-by-Section Analysis of the Bill, as Reported............4
   V. Evaluation of Regulatory Impact.................................4
  VI. Congressional Budget Office Cost Estimate.......................5
 VII. Changes to Existing Law Made by the Bill, as Reported...........5

                                                       Calendar No. 535
112th Congress
                                 SENATE
                                                                 Report
 2d Session                                                     112-230

======================================================================

 
            DHS AUDIT REQUIREMENT TARGET (DART) ACT OF 2012

                                _______
                                

                November 2, 2012.--Ordered to be printed

    Filed, under authority of the order of the Senate September 22 
                 (legislative day, September 21), 2012

                                _______
                                

Mr. Lieberman, from the Committee on Homeland Security and Governmental 
                    Affairs, submitted the following

                              R E P O R T

                         [To accompany S. 1998]

    The Committee on Homeland Security and Governmental 
Affairs, to which was referred the bill (S. 1998) to obtain an 
unqualified audit opinion, and improve financial accountability 
and management at the Department of Homeland Security, having 
considered the same, reports favorably thereon with an 
amendment in the nature of a substitute and recommends that the 
bill do pass.

                         I. PURPOSE AND SUMMARY

    Since its inception almost ten years ago, the Department of 
Homeland Security (DHS or the Department) has been unable to 
obtain a so-called clean or unqualified audit of its financial 
statements--that is, a finding by an objective reviewer that 
the Department's finances are in conformity with generally 
accepted accounting standards. S. 1998 seeks to remedy that 
situation by directing the Department to take the steps 
necessary to obtain a clean audit by the end of fiscal year 
2013. So that Congress can monitor and oversee DHS's efforts in 
this area, the bill also requires DHS to provide Congress with 
specific details on its plans to achieve a clean audit, through 
eliminating material weaknesses in its internal financial 
controls and by modernizing its financial management systems.

              II. BACKGROUND AND NEED FOR THE LEGISLATION

    As the Government Accountability Office (GAO) has observed, 
``the federal government has a responsibility to have timely, 
reliable and comprehensive financial information enabling it to 
make decisions which impact on the lives of its citizens.''\1\ 
To ensure that agencies have that information, Congress, in the 
Government Management Reform Act of 1994, required executive 
branch agencies to submit to annual audits, performed in 
accordance with generally accepted government auditing 
standards by the agency's inspector general or an independent 
external auditor.\2\ The Department of Homeland Security is 
required to submit an annual audit pursuant to a 2002 amendment 
requiring each ``covered executive agency'' to submit annual 
audits.\3\
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    \1\GAO/AFMD-12.19.4 page 1 September 19, 1991.
    \2\Sec. 31 U.S.C. 3515.
    \3\Sec. 31 U.S.C. 3515(f)(1).
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    The Department of Homeland Security currently is one of 
only two major federal agencies to have failed to obtain an 
unqualified or clean audit on its full set of consolidated 
financial statements during the past decade.
    DHS is making progress on improving its financial 
management. Last year (for its FY 2011 statements), for 
example, DHS for the first time achieved a qualified audit 
opinion on its balance sheet and statement of custodial 
activity (two of the five financial statements), a step above 
the ``disclaimer'' it had previously consistently received. A 
qualified audit opinion means that, except for the issues to 
which the qualification relates, the audited financial 
statements present fairly, in all material respects, the 
financial position, results of operations, and cash flows of 
the entity in conformity with generally accepted accounting 
principles.\4\ A disclaimer of opinion, in contrast, states 
that the auditor does not express an opinion on the financial 
statements at all.\5\
---------------------------------------------------------------------------
    \4\GAO-12-365T page 9 March 1, 2012. ``Continued Progress Made 
Improving and Integrating Management Areas, but More Work Remains.''
    \5\ibid
---------------------------------------------------------------------------
    DHS has stated that it can achieve an unqualified opinion 
on all of its financial statements by the end of fiscal year 
2013. GAO, however, has observed that although DHS intends to 
obtain a clean audit by the end of 2013, ``there is no clear 
plan for how auditability will be achieved.''\6\
---------------------------------------------------------------------------
    \6\ibid
---------------------------------------------------------------------------
    Much of DHS's inability to receive a clean audit is due to 
its problems in implementing an integrated financial management 
system. Twice since 2003, DHS has tried and failed to implement 
an agency-wide financial management system, at the cost of 
millions of dollars to taxpayers.
    The first effort, known as the Electronically Managing 
Enterprise Resources for Government Effectiveness and 
Efficiency (eMerge2) project, began in January 2004 and was 
expected to integrate financial management systems across the 
Department and address existing financial management 
weaknesses. However, DHS officials ended the eMerge2 project in 
December 2005, acknowledging that eMerge2 failed, despite an 
estimated cost of $52 million. The second effort, begun by DHS 
in 2007, was called the Transformation and Systems 
Consolidation (TASC) program and was significantly delayed by 
bid protests and related litigation. In May 2011, DHS ended 
this program as well.
    After reviewing the situation, GAO reported that it is not 
clear whether DHS' current approach to financial system 
modernization will ensure that: (1) components' financial 
management systems can generate reliable useful timely 
information for day-to-day decision making; (2) the Department 
has the ability to comprehensively view financial information 
across DHS; and (3) DHS complies with related federal 
requirements.\7\
---------------------------------------------------------------------------
    \7\GAO-12-365T page 12 March 1, 2012. ``Continued Progress Made 
Improving and Integrating Management Areas, but More Work Remains.''
---------------------------------------------------------------------------
    DHS must do more to get its financial house in order, and 
this bill seeks to ensure it will do so. It directs the 
Department to do what is needed to obtain a clean audit by FY 
2013, and, so that Congress can make sure that the Department 
is taking those steps, it requires the Department to provide 
Congress with the Department's specific plans for achieving 
better financial management.

                        III. LEGISLATIVE HISTORY

    On December 15, 2011, S. 1998 was introduced by Senators 
Brown (Massachusetts), Carper and Johnson (Wisconsin) and 
referred to the Senate Committee on Homeland Security and 
Governmental Affairs. The Committee considered the bill at an 
April 25, 2012, business meeting.
    Senators Brown, Carper, and Johnson offered a substitute 
amendment recognizing the recent specific progress DHS made 
prior to the business meeting by receiving a qualified opinion 
on its FY 2011 financial statements. The substitute retains the 
requirement for the Department to meet its goals of achieving a 
clean audit. Due to the Department's successful effort to 
obtain a qualified opinion of its financial statements, the 
original requirement in subsection 2(b)(1) that DHS ensure that 
its balance sheet and statement of custodial activity be ready 
in a timely manner to obtain a qualified or unqualified opinion 
is no longer relevant, and the substitute struck that 
provision. The substitute also deleted subsection 2(b)(2) of 
the introduced version, which similarly required DHS to take 
the necessary steps to ensure that the full set of consolidated 
financial statements be prepared in a timely manner in order to 
obtain a qualified opinion. The substitute also changed the 
date by which the bill requires DHS to prepare the full set of 
consolidated financial statements from the end of FY 2016 to 
the end of FY 2013. The substitute changed the date in Section 
2(c) requiring DHS's Chief Financial Officer (CFO) to submit 
the report to Congress, from 270 days after enactment to 
November 15, 2013 and every year thereafter, in order to bring 
it in line with the date required in Section 2(b). The 
substitute amended Section 2(c) by further delineating the 
contents of the report required to be submitted by the DHS CFO. 
The substitute adds a requirement to the report that DHS 
include a plan addressing how the DHS will eliminate material 
weaknesses and significant deficiencies in internal controls 
over financial reporting and makes other minor technical 
changes. Lastly, the substitute deletes subsection (d) of the 
introduced bill, which required a GAO report on DHS efforts to 
modernize their financial systems.
    The Committee adopted the substitute by a voice vote. 
Members present for the vote were Senators Lieberman, Levin, 
Akaka, Carper, McCaskill, Begich, Collins, Coburn, Brown and 
Johnson. The Committee voted to report the bill, again by voice 
vote. Members present for the vote on the bill were Senators 
Lieberman, Levin, Akaka, Carper, McCaskill, Begich, Collins, 
Coburn, Brown and Johnson.

        IV. SECTION-BY-SECTION ANALYSIS OF THE BILL, AS REPORTED

Section 1. Short title

    Section 1 designates the name of the act as the ``The DHS 
Audit Requirement Target Act of 2012.''

Section 2. Improving financial accountability and management

    Section 2(a) provides the definitions in the bill.
    Section 2(b) requires that the Secretary prepare and have 
ready for submission all the relevant documents related to DHS' 
full set of financial statements by the end of fiscal year 
2013. The purpose of this preparation is to increase the 
probability that DHS will obtain an unqualified opinion on its 
full set of consolidated financial statements for fiscal year 
2013 and each year thereafter.
    Section 2(c) orders DHS to report to Congress on the 
progress of meeting the audit requirements in Section 2(b). The 
report shall be included in the agency's annual financial 
report. The report shall include a plan:
          (1) to obtain an unqualified opinion on the full set 
        of financial statements, which shall discuss plans and 
        resources needed to meet the deadlines under subsection 
        (b);
          (2) that addresses how the Department will eliminate 
        material weaknesses and significant deficiencies in 
        internal controls over financial reporting and provides 
        deadlines for the elimination of such weaknesses and 
        deficiencies; and
          (3) to modernize the financial management systems of 
        the Department, including timelines, goals, 
        alternatives, and costs of the plan, which shall 
        include consideration of alternative approaches, 
        including modernizing the existing financial management 
        systems and associated financial controls of the 
        Department and establishing new financial management 
        systems and associated financial controls.

                   V. EVALUATION OF REGULATORY IMPACT

    Pursuant to the requirement of paragraph 11(b)(1) of rule 
XXVI of the Standing Rules of the Senate, the Committee has 
considered the regulatory impact of this bill and has 
determined that the bill will have no regulatory impact within 
the meaning of the Rules. The Committee agrees with CBO's 
statement that the bill contains no intergovernmental or 
private-sector mandates as defined in the Unfunded Mandates 
Reform Act and would impose no costs on state, local or tribal 
governments.

             VI. CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

                                     U.S. Congress,
                               Congressional Budget Office,
                                       Washington, DC, May 3, 2012.
Hon. Joseph I. Lieberman,
Chairman, Committee on Homeland Security and Governmental Affairs, U.S. 
        Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 1998, the DHS Audit 
Requirement Target Act of 2012.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Mark 
Grabowicz.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

S. 1998--DHS Audit Requirement Target Act of 2012

    CBO estimates that implementing S. 1998 would have no 
significant cost to the federal government. Enacting the 
legislation would not affect direct spending or revenues; 
therefore, pay-as-you-go procedures do not apply.
    S. 1998 would direct the Department of Homeland Security 
(DHS) to improve financial management, internal controls, and 
documentation so that financial statements for fiscal year 2013 
and subsequent years are prepared for auditing. The bill's 
requirements are similar to those in current law and to the 
department's plans to improve financial reporting, so CBO 
estimates that implementing S. 1998 would not significantly 
affect DHS spending.
    S. 1998 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, or tribal 
governments.
    The CBO staff contact for this estimate is Mark Grabowicz. 
The estimate was approved by Theresa Gullo, Deputy Assistant 
Director for Budget Analysis.

       VII. CHANGES TO EXISTING LAW MADE BY THE BILL, AS REPORTED

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, there are no changes in existing 
law made by S. 1998 as reported.

                                  
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