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REVIEW OF THE INDEPENDENT AUDIT OF 

THE LABOR DEPARTMENT’S FISCAL YEAR 2010 

CONSOLIDATED FINANCIAL STATEMENTS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH, 

EMPLOYMENT, LABOR AND PENSIONS 

COMMITTEE ON 

EDUCATION AND LABOR 

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

HEARING HELD IN WASHINGTON, DC, DECEMBER 7, 2010 

Serial No. 111–77 

Printed for the use of the Committee on Education and Labor 

( 

Available on the Internet: 

http://www.gpoaccess.gov/congress/house/education/index.html 
(II) 

COMMITTEE ON EDUCATION AND LABOR 

GEORGE MILLER, California, Chairman 

Dale E. Kildee, Michigan, Vice Chairman 

Donald M. Payne, New Jersey 

Robert E. Andrews, New Jersey 

Robert C. ‘‘Bobby’’ Scott, Virginia 

Lynn C. Woolsey, California 

Rube ́n Hinojosa, Texas 

Carolyn McCarthy, New York 

John F. Tierney, Massachusetts 

Dennis J. Kucinich, Ohio 

David Wu, Oregon 

Rush D. Holt, New Jersey 

Susan A. Davis, California 

Rau ́l M. Grijalva, Arizona 

Timothy H. Bishop, New York 

Joe Sestak, Pennsylvania 

David Loebsack, Iowa 

Mazie Hirono, Hawaii 

Jason Altmire, Pennsylvania 

Phil Hare, Illinois 

Yvette D. Clarke, New York 

Joe Courtney, Connecticut 

Carol Shea-Porter, New Hampshire 

Marcia L. Fudge, Ohio 

Jared Polis, Colorado 

Paul Tonko, New York 

Pedro R. Pierluisi, Puerto Rico 

Gregorio Kilili Camacho Sablan, 

Northern Mariana Islands 

Dina Titus, Nevada 

Judy Chu, California 

John Kline, Minnesota, 

Senior Republican Member 

Thomas E. Petri, Wisconsin 

Howard P. ‘‘Buck’’ McKeon, California 

Peter Hoekstra, Michigan 

Michael N. Castle, Delaware 

Vernon J. Ehlers, Michigan 

Judy Biggert, Illinois 

Todd Russell Platts, Pennsylvania 

Joe Wilson, South Carolina 

Cathy McMorris Rodgers, Washington 

Tom Price, Georgia 

Rob Bishop, Utah 

Brett Guthrie, Kentucky 

Bill Cassidy, Louisiana 

Tom McClintock, California 

Duncan Hunter, California 

David P. Roe, Tennessee 

Glenn Thompson, Pennsylvania 

[Vacant] 

Mark Zuckerman, Staff Director 

Barrett Karr, Republican Staff Director 

SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR AND PENSIONS 

ROBERT E. ANDREWS, New Jersey, Chairman 

David Wu, Oregon 

Phil Hare, Illinois 

John F. Tierney, Massachusetts 

Dennis J. Kucinich, Ohio 

Marcia L. Fudge, Ohio 

Dale E. Kildee, Michigan 

Carolyn McCarthy, New York 

Rush D. Holt, New Jersey 

Joe Sestak, Pennsylvania 

David Loebsack, Iowa 

Yvette D. Clarke, New York 

Joe Courtney, Connecticut 

Tom Price, Geogia, 

Ranking Minority Member 

John Kline, Minnesota 

Howard P. ‘‘Buck’’ McKeon, California 

Joe Wilson, South Carolina 

Brett Guthrie, Kentucky 

Tom McClintock, California 

Duncan Hunter, California 

David P. Roe, Tennessee 
(III) 

C O N T E N T S 

Page 

Hearing held on December 7, 2010 ........................................................................ 1 

Statement of Members: 

Andrews, Hon. Robert E., Chairman, Subcommittee on Health, Employment, Labor and Pensions ............................................................................ 1 

Additional submission: independent auditors’ report ............................. 22 

Roe, Hon. Phil, Republican member, Subcommittee on Health, Employment, Labor and Pensions ............................................................................ 2 

Prepared statement of ............................................................................... 3 

Statement of Witnesses: 

Lewis, Elliot P., Assistant Inspector General for Audit, Office of Inspector 

General, U.S. Department of Labor ............................................................ 5 

Prepared statement of ............................................................................... 7 

Taylor, James L., Chief Financial Officer, U.S. Department of Labor ........ 10 

Prepared statement of ............................................................................... 13 

(1) 

REVIEW OF THE INDEPENDENT AUDIT OF 

THE LABOR DEPARTMENT’S FISCAL YEAR 2010 

CONSOLIDATED FINANCIAL STATEMENTS 

Tuesday, December 7, 2010 

U.S. House of Representatives 

Subcommittee on Health, Employment, Labor and Pensions 

Committee on Education and Labor 

Washington, DC 

The subcommittee met, pursuant to call, at 2:00 p.m., in room 

2175, Rayburn House Office Building, Hon. Robert Andrews [chairman of the subcommittee] presiding. 

Present: Representatives Andrews, Tierney, Kucinich, Fudge, 

Kildee, and Roe. 

Staff Present: Aaron Albright, Press Secretary; Ali Al Falahi, 

Staff Assistant, Tylease Alli, Hearing Clerk; Jose Garza, Deputy 

General Counsel; David Hartzler, Systems Administrator; Ryan 

Holden, Senior Investigator; Broderick Johnson, Staff Assistant; 

Sadie Marshall, Chief Clerk; Melissa Salmanowitz, Press Secretary; James Schroll, Junior Legislative Associate, Labor; Michele 

Varnhagen, Labor Policy Director; Matt Walker, Policy Advisor, 

Subcommittee on Health, Employment, Labor and Pensions; Michael Zola, Chief Investigative Counsel; Kirk Boyle, Minority General Counsel; Ed Gilroy, Minority Director of Workforce Policy; 

Ryan Kearney, Minority Legislative Assistant; Brian Newell, Minority Press Secretary; Molly McLaughlin Salmi, Minority Deputy 

Director of Workforce Policy; Ken Serafin, Minority Workforce Policy Counsel; and Linda Stevens, Minority Chief Clerk/Assistant to 

the General Counsel. 

Chairman ANDREWS. Ladies and gentlemen, the subcommittee 

will come to order. Good afternoon. I would like to thank my colleagues for attending and our colleagues from the United States 

Department of Labor and the IG’s Office for being with us. This 

hearing has a very narrow purpose, but it is one that is very important. Under House rule 11, clause 2, subclause O, when a department under our jurisdiction is unable to have its audit completed 

for a given fiscal year, the House rules require us to call a hearing 

to figure out exactly why that is. 

And that is the purpose of today’s hearing. I think it is an excellent example of transparency, and although it rarely happens, I am 

glad it is in our rules and I am very glad Mr. Lewis and Mr. Taylor 

are with us today. 
2 

A quorum being present, the hearing of the committee will come 

to order. I would note for the record that the chairman will yield 

time for the purpose of asking questions, unless the person asking 

for time makes a specific request otherwise. 

Here is the history of our situation here. In 2008, the prior administration recognized that the financial accounting system of the 

Department of Labor was unduly cumbersome and needed to be 

modernized. And so a process began and a contract was awarded 

to modernize that system. It took a while to get things rolling. My 

understanding is the system went live in January of 2010. By the 

end of the 2010 fiscal year, which would have been September 30th 

of 2010, when it was time to audit the 2010 fiscal year for the Department, the documents and materials necessary for the IG’s contractor to conduct that audit were not available, and that was because of implementation delays in the new financial accounting 

system. 

So the question that is before the subcommittee today is, what 

was the cause of that delay, number one? And number two, are we 

in a position where that is to be fixed? It is my understanding in 

being briefed for the hearing that the answer to the second question is apparently yes; that when the 2011 fiscal year ends on September 30, 2011, that the Department’s records will be fully 

auditable, we are assuming. But that would be, again, subject to 

this rule in the future if there are any further questions. 

So again, the purpose of the hearing is to simply look at the 

question of why the materials necessary to complete the audit were 

not available to the inspector general’s contractor for the 2010 fiscal year. 

And at this time, I would like to yield to my friend, the gentleman from Tennessee, Dr. Roe, for any opening statement he 

would like to make. 

Mr. ROE. Thank you, Mr. Chairman. Let me begin by thanking 

our distinguished panel for appearing today. As the notice announcing our hearing states, we will be reviewing an independent 

audit of the Labor Department’s financial records. This is the Department with roughly a $16 billion budget, 30 agencies, and more 

than 17,000 employees. A great deal of time and resources were invested in this audit, and for good reason. Addressing the country’s 

fiscal challenges will not be possible until every dollar spent by the 

Federal Government is accounted for. 

Aside from our public responsibilities to be good stewards of our 

taxpayers’ money, this year’s audit is significant for several additional reasons. For starters, this will be the first time separate financial and performance audits are presented to Congress. I hope 

this will provide a more thorough examination of the Department 

of Labor’s financial ledger, and we look forward to reviewing the 

performance audit early next year. 

This is also our first look at the Department’s new financial management system. This new system was implemented at the beginning of the year to better streamline and enhance the accountability of the Department’s finances, as stated by the chairman. 

We need to ask whether this has delivered the taxpayers the results that they deserve. The answer to our question may be connected to the final reason why this audit is so significant. For the 
3 

first time in more than a dozen years, the Department failed to 

achieve a clean audit. KPMG, the independent firm tasked by the 

IG’s Office with performing the audit, identified four material 

weaknesses in the Department’s finances. Just one material weakness is significant to trigger a failing grade. Witnesses cite the 

audit included a lack of adequate controls over financial reporting 

and budgetary accounting, a failure to properly control access to financial and support systems, were these weaknesses a result of a 

failure of the new financial system or were they the result of a failure of the Department’s leadership? Regardless of the cause, the 

result is still the same. 

We do not know if the Department’s financial records are accurate, and this is unacceptable. When an organization replaces a 

system responsible for tracking tens of billions of dollars, errors are 

not uncommon. However, it is the responsibility of that organization’s leadership to anticipate potential problems and put in place 

a plan that preserves transparency and accountability through the 

transition process. That responsibility is all more critical when 

dealing with taxpayer dollars. We need to learn what actions the 

Labor Department’s management team has undertaken to fix these 

weaknesses and what it plans to do in the future to ensure that 

this does not happen again. 

These are important questions, and that is why I am disappointed an important voice in this discussion will not be heard 

today, the voice of KPMG. It is regrettable that members will be 

unable to hear from the technical experts who spent the past year 

looking over the books in the Department of Labor. Not only is this 

regrettable, it is a missed opportunity for the committee. 

As we speak, the Federal Government is borrowing roughly 40 

cents for every dollar it spends, and our national debt is quickly 

approaching $14 trillion. The American people have demanded we 

restore fiscal responsibility to the Federal Government. Each Federal agency must demonstrate sensible, efficient, and transparent 

management of the resources it has been entrusted with. That is 

the significance of our hearing today and the responsibility we 

must fulfill in the weeks and months ahead. 

I am looking forward to hearing from our witnesses and exploring matters in the future. And I will say, Mr. Chairman, that this 

is my seventh audit that I have been involved in, six as a city commissioner and a city mayor, and I never one time attended an audit 

where the auditors weren’t there to answer questions. So with that, 

I will yield back the balance of my time. 

[The prepared statement of Mr. Roe follows:] 

Prepared Statement of Hon. Phil Roe, Republican Member, 

Subcommittee on Health, Employment, Labor and Pensions 

Thank you Mr. Chairman. Let me begin by thanking our distinguished panel for 

appearing today. 

As the notice announcing our hearing states, we will be reviewing an independent 

audit of the Labor Department’s financial records. This is a department with a 

roughly $16 billion budget, 30 agencies, and more than 17,000 employees. A great 

deal of time and resources were invested in this audit and for good reason: addressing the country’s fiscal challenges will not be possible until every dollar spent by 

the federal government is accounted for. 

Aside from our public responsibility to be good stewards of the taxpayers’ money, 

this year’s audit is significant for several additional reasons. For starters, this will 
4 

be the first time separate financial and performance audits are presented to Congress. I hope this will provide a more thorough examination of the Labor Department’s financial ledger, and we look forward to reviewing the performance audit 

early next year. 

This is also our first look at the department’s new financial management system. 

This new system was implemented at the beginning of the year to better streamline 

and enhance the accountability of the department’s finances. We need to ask whether this has delivered the results taxpayers deserve. 

The answer to our question may be connected to the final reason why this audit 

is so significant. For the first time in more than a dozen years the department failed 

to achieve a clean audit. KPMG, the independent firm tasked by the Inspector General’s office with performing the audit, identified four material weaknesses in the 

department’s finances. Just one material weakness is sufficient to trigger a failing 

grade. 

Weaknesses cited in the audit include a lack of adequate controls over financial 

reporting and budgetary accounting, and a failure to properly control access to financial and support systems. Were these weaknesses the result of a failure in the 

new financial system? Or were they the result of a failure of the department’s leadership? Regardless of the cause, the result is still the same: we do not know if the 

department’s financial records are accurate. This is unacceptable. 

When an organization replaces a system responsible for tracking tens of billions 

of dollars, errors are not uncommon. However, it is the responsibility of the organization’s leadership to anticipate potential problems and to put in place a plan that 

preserves transparency and accountability through the transition process. That responsibility is all the more critical when dealing with taxpayer dollars. We need to 

learn what actions the Labor Department’s management team has undertaken to 

fix these weaknesses and what it plans to do in the future to ensure this doesn’t 

happen again. 

These are important questions, and that is why I am disappointed an important 

voice in this discussion will not be heard today, the voice of KPMG. It is regrettable 

that members will be unable to hear from the technical experts who spent the past 

year looking over the books of the Department of Labor. Not only is it regrettable, 

it is a missed opportunity for the committee. 

As we speak, the federal government is borrowing roughly 40 cents for every dollar it spends and our national debt is quickly approaching $14 trillion. The American people have demanded we restore fiscal responsibility in the federal government. Each federal agency must demonstrate sensible, efficient, and transparent 

management of the resources it has been entrusted it with. That is the significance 

of our hearing today and the responsibility we must fulfill in the weeks and months 

ahead. 

I look forward to hearing from our witnesses and exploring these matters further. 

Thank you Mr. Chairman and I yield back. 

Chairman ANDREWS. I thank the gentleman. 

I would note for the record that under the rules of the committee, 

the minority was certainly free to invite anyone as its witness. And 

my understanding is there was not a formal invitation extended to 

the KPMG witnesses; is that correct? 

Mr. ROE. I think there was, but I think they had a scheduling 

difficulty. 

Chairman ANDREWS. Well, I want the record to reflect that the 

majority in no way discouraged or is opposed to that witness being 

present. The witness simply isn’t present. Pursuant to committee 

rule 7(c), all members may submit an opening statement in writing 

which will be made a part of the permanent record. 

At this time, I am going to begin by introducing the witnesses 

that we have with us today. 

Mr. Elliot P. Lewis is the assistant inspector general for audit of 

the Office of the Inspector General at the United States Department of Labor, and he is responsible for all audits within the Department. Prior to his appointment as AIGA, he served as the deputy assistant inspector general for audit. Mr. Lewis is a CPA in the 
5 

State of South Carolina and received his B.S. from the University 

of South Carolina. Welcome, Mr. Lewis, to the committee. 

Mr. James L. Taylor was confirmed by the United States Senate 

as the chief financial officer for the Department of Labor on June 

22, 2010. Prior to this position he served as deputy inspector general for the Department of Homeland Security, where he assisted 

the inspector general in managing over 600 auditors, inspectors 

and investigators. He received his B.A. from Old Dominion University and an M.P.A. from the University of Delaware. Welcome, Mr. 

Taylor. We are happy to have you with us. 

I think you are both veterans of Capitol Hill hearings and know 

that our practice is that your written statements, without objection, 

will be accepted as part of the written record. We would ask you 

to offer us a 5-minute summary of your written testimony, beginning with Mr. Lewis. At the conclusion of those summaries, we will 

go to questions from the members of the subcommittee. 

I am sure you know the light system; that green means go, yellow means speed up, unlike when you are driving a car, and red 

means come to a screeching halt. I know we certainly would want 

you to finish your comments. 

Mr. Lewis, we begin with you. Welcome to the subcommittee. 

STATEMENT OF ELLIOTT P. LEWIS, ASSISTANT INSPECTOR 

GENERAL FOR THE OFFICE OF AUDIT, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF LABOR 

Mr. LEWIS. Thank you, Mr. Chairman. Mr. Chairman and members of the subcommittee, thank you for the opportunity to discuss 

the audit of the U.S. Department of Labor’s Fiscal Year 2010 Consolidated Financial Statements. The independent public accounting 

firm, KPMG, conducted the audit under a contract with the Office 

of the Inspector General. 

My name is Elliot Lewis, and I am the assistant inspector general for audit at the Department of Labor. As you know, the OIG 

is an independent agency within the Department, and the views 

expressed in my testimony are based on the independent findings 

and recommendations of the audit work and are not intended to reflect the Department’s position. 

The CFO Act requires the OIG to audit and report on the Department’s consolidated financial statements. OMB requires the 

audit be completed by November 15th each year. To enable the 

auditors to meet this deadline, the Department must provide significant financial information and supporting documentation 

throughout the year. Therefore, an inability on the part of the Department to produce the necessary information in a timely manner 

affects the successful completion of the audit and results in a less 

than favorable opinion for the Department. 

As I will detail in my testimony, Mr. Chairman, for the most part 

it was the Department’s inability to provide timely and accurate financial data that resulted in the Department receiving a disclaimer of opinion on its 2010 consolidated financial statements. 

The Department was unable to provide this data due to a host of 

system migration, integration and configuration problems that occurred when it implemented a new financial system. It is impor-
6 

tant to note that prior to this, the Department had received an unqualified opinion on its annual financial statements since 1997. 

In the mid-2000s the Department decided that its financial system, DOLAR$, was outdated and no longer able to efficiently and 

effectively meet the Department’s financial management requirements. In July 2008, the Department contracted to obtain a new 

system, which it named the New Core Financial System, or New 

Core. The Department planned a 15-month implementation period 

that would conclude at the end of fiscal year 2009. Upon implementation in January 2010, the Department encountered many unforeseen complications that in some cases it is still working to address 

today. 

It is important to highlight the Department experienced much 

turnover in key leadership positions in the Office of the Chief Financial Officer during the time it was planning, developing, and 

implementing New Core. This included the retirement of its two 

top senior executives shortly after New Core was implemented. 

The OIG contracted with KPMG to create a pre-implementation 

audit of New Core prior to its original scheduled deployment in October 2009. During this audit we issued two alert memoranda to 

inform the Department of issues requiring immediate attention: 

training of staff prior to implementation of the new system and 

timely completion of transaction workbooks to be used to record financial activity occurring after DOLAR$ was shut down before 

New Core became available. 

The audit identified 11 implementation risks to future integrity 

and availability of the Department’s financial data and recommended the Department take these risks into consideration 

when making its decision to implement New Core. The Department 

disagreed with many of our reported results and went forward with 

the implementation. 

Following implementation, our attention turned to preparing for 

the consolidated financial statement audit. We issued several more 

alert memoranda regarding our concerns that problems resulting 

from the transition to New Core were preventing the Department 

from providing KPMG with the necessary information to complete 

the audit. While the Department worked to meet its goal of producing auditable financial statements, it continued to experience 

difficulties and ultimately was unable to do so, resulting in the disclaimer of opinion. 

As stated in the audit report, the Department’s ability to assure 

the accuracy and completeness of its financial statement balances 

and provide data necessary for audit testing was hindered by data 

migration, integration, reconciliation, and configuration issues. The 

audit report contained 24 specific recommendations related to findings that contributed to the disclaimer of opinion. The Department 

generally concurred with the recommendations and noted that 

many of them corresponded with corrective actions planned or already taken. 

Going forward, the most important financial management issue 

facing the Department is the need to correct the New Core implementation issues in order to either reissue corrected financial statements or provide accurate and complete information for the auditors to audit the opening balances for 2011. The Department indi-
7 

cated that it plans to reissue its 2010 consolidated financial statements in early 2011. The OIG will continue to monitor the Department’s actions. 

There is much to be done, but the challenges are not insurmountable if appropriate resources are timely dedicated to the necessary 

corrective actions. 

Thank you, Mr. Chairman, for the opportunity to present the results of the audit. I would be pleased to answer any questions that 

you or other members of the subcommittee may have. 

Chairman ANDREWS. Mr. Lewis, thank you for your service and 

for your testimony. 

[The prepared statement of Mr. Lewis follows:] 

Prepared Statement of Elliot P. Lewis, Assistant Inspector General for 

Audit, Office of Inspector General, U.S. Department of Labor 

Mr. Chairman and Members of the Subcommittee, thank you for the opportunity 

to discuss the audit of the U.S. Department of Labor’s Fiscal Year (FY) 2010 Consolidated Financial Statements. The independent public accounting firm KPMG LLP 

conducted the audit under a contract with the Office of Inspector General (OIG). My 

name is Elliot Lewis and I am the Assistant Inspector General for Audit for the Department of Labor. As you know, the OIG is an independent agency within the Department of Labor, and the views expressed in my testimony are based on the independent findings and recommendations of the audit work and are not intended to 

reflect the Department’s position. 

Background 

The Chief Financial Officers Act of 1990, P.L. 101-576, requires the OIG to audit 

and report on the Department’s consolidated financial statements in accordance 

with generally accepted auditing standards, Government Auditing Standards, and 

OMB guidance. OMB requires that the audit be completed by November 15 of each 

year. This audit is of such complexity that, in order to meet this deadline and complete all steps necessary to render an opinion on the Consolidated Financial Statements, the Department must provide significant financial information and supporting documentation throughout the year. Therefore, an inability on the part of 

the Department to produce the necessary information in a timely manner affects the 

successful completion of the audit and results in a less than favorable opinion for 

the Department. 

As I will detail in my testimony, Mr. Chairman, for the most part, it was the Department’s inability to provide timely and accurate financial data that resulted in 

the Department receiving a Disclaimer of Opinion on its FY 2010 Consolidated Financial Statements. This was the result of a host of system migration, integration, 

and configuration problems that occurred when the Department implemented a new 

financial management system. It is important to note that prior to this, the Department had received an unqualified opinion on its annual consolidated financial statements since 1997. 

By way of background, Mr. Chairman, audits of the Department’s financial statements are important as they provide an independent assessment of whether the Department’s financial position and condition are fairly stated, so that policy makers 

can rely upon them to make informed decisions. The financial statement audit also 

includes reports on internal controls over financial reporting and compliance with 

certain laws, regulations, contracts, and grant agreements. 

The audit report includes a formal opinion on the financial position of the entity 

in conformance with generally accepted accounting principles (GAAP). An auditor 

may express four types of opinions in their report: unqualified, qualified, adverse, 

or disclaimer. 

Unqualified opinion: issued when the financial statements presented are free from 

material misstatements and are presented fairly in accordance with GAAP. 

Qualified opinion: issued when the financial statements, except for specific matters which do not comply with GAAP, are presented fairly. 

Adverse opinion: issued when the auditor determines that the financial statements presented are materially misstated and when considered as a whole, do not 

conform with GAAP. 

Disclaimer of opinion: issued when the auditor could not complete all of the necessary work to render an opinion because of a scope limitation(s). A disclaimer of 
8 

opinion does not indicate the financial statements were materially misstated or did 

not conform with GAAP. However, since under those circumstances the auditors are 

not able to complete all of the necessary audit work, it also means that additional 

problems that have not yet been identified and reported to the Department may 

exist. 

System migration history 

The Department of Labor comprises 30 agencies and more than 17,000 employees 

throughout the United States. Prior to January 2010, the Department’s financial 

management functions, processes, and activities related to its core mission responsibilities were centered on the Department of Labor Accounting and Related Systems (DOLAR$) mainframe accounting system. DOLAR$ had been in service since 

1989. 

In the mid-2000’s, the Department decided that DOLAR$ was outdated and no 

longer able to efficiently and effectively meet the Department’s financial management requirements. As a result, the Department began planning to migrate from 

DOLAR$ to a new financial management system. Through the implementation of 

this new system, the Department planned to automate previously manual processes 

and establish more effective internal controls. 

After several failed attempts to procure a new system, in July 2008, the Department contracted with an external third-party shared service provider. The shared 

service provider offered the Department a pre-configured environment, with customized modules and sub-modules to meet the requirements of the Department’s 

business processes. The Department named this new system the New Core Financial Management System (NCFMS). 

The Department planned a 15-month implementation period that would conclude 

at the end of FY 2009. The Department planned to shut down DOLAR$ and start 

up NCFMS in October 2009. 

Originally, NCFMS was scheduled to be fully operational by October 14, 2009. 

However, the Department postponed the deployment of the new system until January 14, 2010. Upon implementation, the Department encountered many unforeseen 

complications in the implementation of the new system that, in some cases, they are 

still working to address today. 

It is important to highlight that the Department experienced much turnover in 

key leadership positions in the Office of the Chief Financial Officer during the time 

it was planning, developing, and implementing NCFMS. This included the retirement of its top two senior executives shortly after NCFMS was implemented. 

System pre-implementation audit 

The OIG contracted with KPMG to conduct a pre-implementation audit of NCFMS 

prior to its original scheduled deployment in October 2009. During the audit, we 

issued an Alert Memorandum to the then-Acting Chief Financial Officer (CFO) in 

August 2009, expressing concerns that staff be adequately trained prior to implementation of the new system. In particular, we noted that the conversion to NCFMS 

would have the greatest impact on 400 users of DOLAR$. Ensuring that these users 

received appropriate training before conversion would be critical to the success of 

the conversion. At that time, 93 of the 400 DOLAR$ users had not completed required training in any of the available training modules. In addition, none of the 

5,125 secondary users—primarily those individuals involved with sub-systems such 

as Procurement, Grants, and Purchase Cards—had completed the required training. 

The then-Acting CFO concurred with our assessment of the importance of training 

users in the new system and the importance of this training to the success of the 

implementation. She indicated that her office was starting an intensive hands-on 

training phase that would run through the planned October 2009 ‘‘Go Live’’ date, 

and beyond. Despite the Department’s efforts, lack of sufficient user training resulted in many data entry errors in the new system. 

In September 2009, we issued another Alert Memorandum raising concerns about 

the timely completion of the NCFMS Transactions Workbook. These workbooks were 

electronic spreadsheets to be used to record financial transactions during the period 

of time when DOLAR$ was expected to be unavailable and when NCFMS would become available—referred to as the Cut-Over period. The then-Acting CFO responded 

that the Department had delayed implementation of NCFMS until January 2010, 

and the Cut-Over plan would be reevaluated. As the auditors were unable to test 

much transactional data from NCFMS, we could not determine the extent to which 

cut-over issues caused problems. 

The NCFMS pre-implementation audit report was issued in final on January 13, 

2010, but we had provided the Department a draft containing our audit results on 

December 18, 2009. The report identified 11 implementation risks related to the de-
9 

sign and execution of user acceptance testing, batch interface testing, real-time integration testing, and mock data conversion. The report concluded that these issues 

presented risks to the future integrity and availability of the Department’s financial 

data. 

We recommended that the Department take into consideration the risks we had 

identified when making its decision to implement NCFMS. The then-Acting CFO 

disagreed with many of our reported results, and the Department went forward with 

implementing NCFMS on January 14, 2010. 

Audit of Consolidated Financial Statements 

Following implementation, our attention turned to preparing for the Consolidated 

Financial Statements audit. In March 2010, we issued an Alert Memorandum expressing our concern that the Department would be unable to issue financial statements in sufficient time to allow KPMG to complete its audit by November 15, 2010, 

as required by OMB. Specifically, we raised concerns that the Department had not 

adequately verified that all data had migrated correctly, and that it had not developed procedures for certain key financial reporting processes. 

We followed up in April highlighting certain key dates that the Department needed to meet in order to allow KPMG sufficient time to complete the necessary audit 

procedures. We noted that failure to meet these dates with complete and accurate 

information would critically impact KPMG’s ability to complete its audit procedures 

and issue an opinion. 

In July, the newly confirmed CFO indicated that the Department had encountered 

NCFMS implementation problems with accounting codes, configuration and migration of transaction level data, and ensuring transactions and general ledger account 

balances properly mapped to and supported the Department’s various internal and 

external reports. The CFO stated that the complexity and volume of these transactions and mapping efforts had been underestimated, that much progress had been 

made, and that they were making up time after the initial delays. The CFO indicated that the initial conversion level errors and delays, once corrected and validated, would not result in continued delays in generating required reports. 

Despite the Department’s efforts, it was unable to meet KPMG’s deadline for submitting second quarter financial data for audit testing. In June, we informed the 

Department that KPMG may not be able to complete a full scope audit by the OMB 

reporting deadline, which could result in the issuance of a disclaimer of an opinion. 

In response, the CFO reported that his office was working diligently to resolve 

the NCFMS implementation issues. He indicated that additional staff had been assigned to this high priority effort, with a primary focus on the production of timely, 

accurate, and complete annual financial statements for FY 2010 in time to allow the 

completion of the audit work. 

While the Department worked to meet its goal of producing auditable financial 

statements, it continued to experience difficulties and ultimately was unable to do 

so. On August 18, we informed the Department that, although audit work would 

continue until November 15, it was probable that the audit would result in the 

issuance of a disclaimer of an opinion, which in fact occurred. 

Specific reasons for disclaimer of opinion 

The audit report contained 24 specific recommendations related to findings that 

contributed to the disclaimer of opinion. The Department generally concurred with 

the recommendations and noted that many of the recommendations corresponded 

with corrective actions planned or already taken. The Department’s ability to assure 

the accuracy and completeness of its financial statement balances and to provide 

data necessary for audit testing was hindered by data migration, integration with 

other systems, reconciliation, and system configuration issues as follows: 

Data Migration: 

The Department experienced numerous issues with the migration of data to the 

new system. For example: Certain internal agency codes and general ledger accounts in DOLAR$ were incorrectly cross-walked to NCFMS during migration, causing data errors at the fund 

and general ledger account level. 

Certain transaction identifiers were not properly captured in NCFMS when mi- grated from DOLAR$. For example, certain obligations were not properly classified 

between direct and reimbursable. In addition, various issues related to the identification and coding of intra-governmental transactions by trading partner, including 

incomplete vendor information, were encountered as a result of data migration errors. Because of these issues, the Department was not able to provide representations as to whether the intra-governmental balances presented in the financial 

statements were materially correct. 
10 

Integration with Other Systems 

Interfaces between the NCFMS and subsystems were not properly working subsequent to the implementation. For example, grant expense information from the 

grant sub-system was not transferred to NCFMS in a complete manner. In addition, 

certain grant obligations were not transmitted properly from NCFMS to a thirdparty service provider in order for grantees to drawdown funds. The Department 

subsequently developed and implemented certain ‘‘work-arounds’’ to address these 

issues. 

Data from Treasury and the Department’s own Integrated Federal Employees’ 

Compensation System could not be uploaded into NCFMS. As a result, the Department was unable to record the majority of transactions related to the Unemployment Trust Fund and the Federal Employees’ Compensation Act timely. Additionally, once recorded, significant differences existed between the data uploaded into 

NCFMS and these subsystems. 

Reconciliation 

The Department was unable to complete in a timely manner certain account reconciliations as of September 30. For example, the Department was unable to reconcile its disbursement and collection activity with the U.S. Department of the 

Treasury’s accounts. The Department was also unable to reconcile its underlying 

supporting data for certain Unemployment Trust Fund balances to the general ledger in a timely manner. Additionally, significant differences between the NCFMS 

property module and the general ledger existed. 

System Configuration 

NCFMS was not configured properly to record certain transactions in compliance 

with the United States Standard General Ledger (USSGL). As a result, the Department implemented manual processes, such as adjustments directly to the financial 

statement, to correct these errors. As of September 30, 2010, NCFMS was still not 

properly configured to record such transactions in accordance with the U.S. Standard General Ledger. 

Going forward—what remains to be done 

The most important issue facing the Department is the need to correct NCFMS 

implementation issues and related control deficiencies in order to either reissue corrected financial statements or provide accurate and complete information for the 

auditors to audit opening FY 2011 balances. 

The Department has indicated that it plans to reissue its FY 2010 Consolidated 

Financial Statements in early 2011. Among the actions the Department still needs 

to take in order to produce the financial statements are: 

promptly resolving the classification issues related to intra-governmental balances, 

ensuring that any remaining interface errors are promptly resolved and that all 

necessary financial reports are developed and available to the program agencies in 

the Department, 

completing all necessary initial reconciliations of module and subsystem data to 

the NCFMS general ledger and ensuring that routine reconciliation controls are implemented and performed, and 

reviewing significant transactions for USSGL compliance and make any necessary 

corrections. 

The OIG will continue to monitor the Department’s actions to correct the problems that resulted in the disclaimer of opinion. There is much to be done, but the 

challenges are not insurmountable if appropriate resources are timely dedicated to 

all the necessary corrective actions. 

Thank you, Mr. Chairman, for the opportunity to present the results of the audit. 

I would be pleased to answer any questions that you or other members of the Subcommittee may have. 

Chairman ANDREWS. Mr. Taylor, welcome to the committee. 

STATEMENT OF JAMES L. TAYLOR, CHIEF FINANCIAL 

OFFICER, U.S. DEPARTMENT OF LABOR 

Mr. TAYLOR. Thank you, Mr. Chairman and members of the subcommittee. I appreciate the opportunity to come before you to discuss the financial management at the Department of Labor. And 

specifically, I do understand that the purpose of this hearing is to 
11 

understand why the financial statement audit opinion for the Department of Labor fell from an unqualified opinion, or clean opinion, to a disclaimer. And a qualified opinion means that the independent auditors have determined that the financial statements 

fairly represent the position and activities of the Department. The 

disclaimer of opinion the Department of Labor received for 2010 

means simply that the independent auditors could not complete the 

detailed effort required to opine on these statements. It does not 

necessarily mean that they found any statements materially in 

error. 

In the case of the Department of Labor, this inability to complete 

the audit resulted from our transition to the New Core Financial 

Management System and the issues which arose. Irrespective of 

the cause, the Department’s leadership is disappointed in this result. The fact that other agencies have experienced similar problems when replacing systems and also lost a clean audit opinion 

does not make this experience less disappointing. We have already 

taken steps to overcome these problems and we are working every 

day to bring the Department’s financial systems into compliance 

with the highest financial standards. 

It is because of this progress that I do intend to resubmit our financial statements to the Office of Inspector General within the 

next few months and request they fully audit our 2010 financial activities and possibly reissue their opinion. 

To better put the financial system’s effort in context, the Department spent $35 million between 2003 and 2008 in an effort to replace an old legacy system which had been in use for over two decades. When this previous effort failed, the Department awarded a 

contract for the development and implementation of the New Core 

Financial Management System in July of 2008. The Department 

was able to eliminate much of its risk by contracting for a product 

that was already in use within the Federal Government. And since 

the Department decided to use a shared service provider, we do not 

own any hardware or software associated with the implementation 

or the product. This eliminates the need for costly infrastructure 

maintenance and in-house technical resources. It also integrates a 

number of internal feeder systems, including procurement, travel, 

grants management and—procurement, travel, grants management 

and payroll, which produce realtime cross-platform financial data 

and reduces the transaction processing errors that result when 

those systems reconcile manually to the former system. 

New Core took 18 months to implement at an initial cost of less 

than $15 million and an annual operational cost of approximately 

$20 million in program use 2010, and $11 million in 2011. The initial ‘‘go live’’ date was October 1st, but as has been mentioned, the 

launch was delayed until January 14, 2010 to provide additional 

time to train users and continue data migration activities. 

The Department had failures during the New Core implementation. First, New Core user requirements were significantly underestimated during the contract development. The initial contract envisioned less than a quarter of the users who are now actually 

interfacing with the system. Having significantly underestimated 

the user base, the original contract did not account for the additional need for user training, system support from the contractor, 
12 

and general system loading resulting from the more than double 

the number of day-to-day users. 

Second, the new system also brought substantial business process changes that were not fully anticipated when the contractor 

was selected. We had dramatically changed how we process things 

like invoicing and travel payments and it is a more automated 

process. But that really impacted a cultural change in how the Department does business. And that was a lot for the Department, 

which has been doing the same way of business for 20 years, to 

swallow. 

Third, we have a significant challenge with data migration from 

the old system to the new. This involved the transfer of detailed 

data, some of it decades old, from legacy financial computer systems to New Core. For instance, the financial data in the Department’s legacy financial system was never reconciled with the financial data of the procurement system. Before being migrated to New 

Core, this was a task that had to be accomplished so that both systems could use the same financial information. These migration 

issues also impacted our ability to provide timely and accurate financial reporting. 

Finally, the Department experienced significant turnover 

amongst the senior financial managers, as my colleague has already mentioned. The Department lacked a Senate-confirmed chief 

financial officer from January 2009 until I was confirmed in late 

June of this year. The Department career deputy CFO and the associate deputy CFO overseeing the implementation both retired 

shortly after the system launched in January 2010, leaving the Department without any permanent financial management leadership. 

In spite of all these issues I have discussed, it is important to 

note that none of these problems impacted the mission of the Department. During 2010 we made a conscious decision that the first 

priority would be in supporting the activities of the Department’s 

agencies. We succeeded in that objective. The necessary financial 

activities to provide unemployment benefits, job training grants, 

and support costs for workplace and mine safety inspections continued without interruption. 

In closing, Mr. Chairman, the challenges which have occurred 

with implementation of the Department’s new system are unfortunate, and I take responsibility for making sure they are overcome 

in a timely manner. While I was confirmed by the Senate in late 

June, I was detailed for my position as deputy IG in the Department of Homeland Security to serve as an advisor to the Deputy 

Secretary of Labor from late October 2009 to February 2010. And 

this was in order to assist the Department in identifying issues and 

trying to mitigate the problems prior to going live. So, I am very 

familiar with the issues the Department faces. 

In addition to auditing DHS’s financial activities immediately 

prior to coming to this position, I was previously charged with implementing financial systems as deputy CFO at FEMA and the Department of Commerce. While the process at DOL has certainly not 

been a seamless one, I have seen difficult implementations at other 

agencies, and I have no doubt that the challenges we have encountered at DOL can and will be overcome. Thank you, Mr. Chairman. 
13 

[The prepared statement of Mr. Taylor follows:] 

Prepared Statement of James L. Taylor, Chief Financial Officer, 

U.S. Department of Labor 

Thank you, Mr. Chairman, Ranking Member Price and Members of the Subcommittee. I appreciate the opportunity to come before you today to discuss financial management at the Department of Labor (DOL). Specifically, I understand this 

hearing is in response to the Department’s financial statement audit opinion dropping from an unqualified, or clean, opinion to a disclaimer. 

An unqualified opinion means that the financial statements present fairly, in all 

material respects, the financial position, results of operations, and cash flows of the 

audited entity in conformity with generally accepted accounting principles, while a 

disclaimer states that the auditor does not express an opinion on the financial statements. As the auditors noted, the primary reason for the disclaimer was the transition to a new financial management system, and the implementation issues which 

arose during that effort. The Department shares the Committee’s disappointment in 

this outcome, and we are committed to working with the Office of Inspector General 

(OIG) to identify and resolve the financial audit findings. We have already taken 

many steps to overcome the problems which disrupted our initial transition and we 

continue to work every day to bring the Department’s financial systems into compliance with the highest accounting standards. 

We are currently focused on normalizing financial operations, and plan to resubmit our FY 2010 statements within the next few months for review by the OIG. We 

are confident these actions will prove the 2010 disclaimer a temporary hiccup in 

what has been, and will again be, a long record of unqualified opinions and sound 

financial management at the Department. 

When I was confirmed by the Senate to the position of Chief Financial Officer in 

late June, I knew that my first year on the job would be dominated by the challenges of completing the modernization of the Department’s financial management 

systems—a process that began and was substantially defined by the previous Administration. 

I have worked in the federal financial management community for a number of 

different agencies. I have either implemented or audited the implementation of several financial management modernization projects. I have found that the complexity 

of implementing these initiatives almost always makes it difficult initially to obtain 

clean opinions from auditors. While the process at DOL has certainly not been a 

seamless one, I have seen difficult implementation problems at other agencies and 

I have no doubt that the challenges we have encountered at DOL can and will be 

overcome. 

Introduction 

The Department spent $35 million between 2003 and 2008 in an effort to replace 

an old financial system which failed to comply with applicable statutory and regulatory requirements. When this previous effort failed, the Department awarded a 

contract for the development and implementation of the Department’s New Core Financial Management System (New Core or NCFMS) in July 2008, with a goal of 

replacing the legacy system which had been in use for over two decades. New Core 

is based upon a pre-configured software suite that is commercially available. The 

system generally met agency requirements and was preconfigured and pre-integrated to comply with all major Federal business processes. The Department was 

able to eliminate much of its risk by contracting for a product that was already in 

use within the Federal government, while also reducing development costs and accelerating the timeline for implementation. The Department does not own any hardware or software associated with New Core, eliminating the need for costly infrastructure, maintenance, and in-house technical resources dedicated to system maintenance. 

This system will provide users with a modern set of software tools and resources 

to automate manual processes and produce operational efficiencies, and establish, 

monitor, and enforce more effective internal controls to ensure resources were being 

safeguarded and used appropriately. The new system will also allow the Department to more readily adapt to new Office of Management and Budget (OMB), Treasury, and Congressional requirements, and improve the accuracy and timeliness of 

financial reports. It will also integrate a number of internal, independently developed feeder systems, including procurement, travel, and grants management systems, producing real-time cross-platform financial data and reducing transaction 

processing errors that resulted when those systems were reconciled in the former 

core accounting system. 
14 

New Core took 18 months to implement at an initial cost of less than $15 million, and an annual operational cost of approximately $20 million in program year 2010 

and $11 million in program year 2011, and would have been in alignment with the 

recent OMB directive on systems modernization. The initial ‘‘go live’’ date was October 1, 2009; however, the launch was delayed until January 14, 2010, to provide additional time to train users and continue data migration activities. While this delay 

was necessary from an operational perspective, it added to the growing pains during 

the transition that led to problems for the FY 2010 audit cycle. 

In summary, Labor had failures on a number of fronts including: an underestimated user base; a lack of understanding of the substantial changes to business 

processes; and data quality problems. I will go into detail on each of these issues 

that are unfortunately common within the Federal space when implementing a financial system. The system was not the failure; the identification of system requirements and project planning were lacking. But we will overcome the transition and 

be back on track within a year through aggressive corrective actions that I have put 

into place with the support of the Department’s leadership. 

Underestimated User Base 

New Core user requirements were significantly underestimated during contract 

development. The initial contract envisioned only 300 transactional users, or those 

with access to the day-to-day accounting system. As of September 2010, we have 

over 625 users requiring this level of access. Further, the Department estimated 

only 200 users who could query the system for reports. As of September 2010, we 

have over 1,400 users requiring this level of access. Having significantly underestimated the user base, the original contract did not account for the additional need 

for user training, system support from the contractor, and general system load resulting from more than double the number of day-to-day users contemplated, and 

seven times the number of users requiring financial reports to ensure they are within their spending limits in order to run their programs effectively. 

Lack of Understanding of Substantial Business Process Changes 

The new system also brought substantial business process changes that were not 

fully anticipated when the contractor was selected. With real-time feedback on errors, automated invoice processing, and other enhancements, users were required to 

learn an entirely new way of performing the Department’s financial management 

functions. Career staff, who had been performing functions a certain way for decades, were required to relearn basic processes and perform their functions in an entirely new environment. This change in business practice impacted every financial 

activity performed in the department, from processing grants and procurement actions to travel and personnel actions. While training in the National Office and regional sites was increased and an onsite training room with live system access and 

onsite support to aid individual users was created to address this shortcoming, the 

Department nevertheless had to play catch-up for months following the launch of 

the system as users became accustomed to a new way of tracking financial transactions. 

We have also faced challenges adjusting to the more transparent internal controls 

environment that New Core provides. Numerous controls are embedded in the new 

system to prevent improper payments, Anti-Deficiency Act violations, fraud, and 

abuse. In the previous environment, these controls were largely performed manually 

by the CFO’s office out of the general user’s view. Now, real-time funds checks performed by New Core create error messages that the user sees and transactions will 

not be processed if the error messages are not resolved. These messages are interpreted by the user as system errors rather than spending controls because they 

were never visible to the user before. It has taken time for our travel, grants, and 

procurement user communities to become acclimated to seeing and resolving error 

messages related to transaction validation rules. As users realize that these are not 

system errors, we can focus more attention on resolving real data migration and system integration issues affecting our system and its users. 

Data Quality Challenges 

While working through the issues caused by an expanded user base, we have also 

faced significant challenges with data migration from the old system to the new one. 

This involved the transfer of significant amounts of granular data, some of it decades old, from legacy financial and feeder systems to a modern system. For instance, 

the financial data in the Department’s legacy financial system was never reconciled 

with the financial data in the procurement system. Before being migrated to New 

Core, the contract data had to be reconciled so that both systems would use the 

same financial data. This synchronization required enormous manual effort for 

NCFMS program staff and Department contracting staff, and was significantly more 
15 

time consuming than anticipated. This situation was exacerbated with the migration 

of old vendor data, some of which was outdated and included erroneous banking 

data. This had a negative impact on the Department’s ability to make timely vendor 

payments. We had to dedicate significant staff resources to this effort, as data transfer issues between systems have affected day-to-day financial information and hampered operations. These migration issues also affected our ability to provide timely 

and accurate financial reporting, both to DOL managers and externally to OMB, 

Treasury, and the audit team. This, in turn, significantly contributed to the disclaimed opinion. 

The decision to delay the launch of New Core from October 2009 to January 2010 

also meant that we operated two accounting systems during one fiscal year. Migrating previous fiscal years’ data was challenging but the numbers were largely static. 

Migrating ‘‘live’’ financial data between systems for the same fiscal year was extremely difficult due to the inherent fluctuations in the numbers. Transactions initially processed in one system had to be reconciled with the new system while new 

transactions were posted for the current period, essentially doubling the workload 

for our staff and creating a significant resource burden. 

Consistent Project Management 

The Department experienced significant turnover amongst its senior financial 

managers during most of the system’s implementation and post-launch phases. The 

Department lacked a Senate-confirmed Chief Financial Officer from January 2009 

until my confirmation in June 2010. The Department’s career Deputy Chief Financial Officer and the Associate Deputy Chief Financial Officer overseeing the implementation both retired shortly after the system launched in January 2010, leaving 

the Department without any permanent financial management leadership. Coming 

at a critical period in the implementation, this gap in leadership led to delays in 

identifying and resolving some of the problems encountered during the startup of 

the new financial system and the business process re-engineering required to adapt 

DOL’s existing procedures to the new system. 

In spite of all the issues I have discussed here, it is important to note that the 

implementation issues I have been outlining did not impact the mission of the Department. During 2010, we made the conscious decision to focus on ensuring the 

mission was accomplished. We succeeded in that objective. The activities necessary 

to provide unemployment benefits, job training grants, support costs for workplace 

and mine safety inspections continued to function. In addition, we have made significant progress in addressing all of the challenges outlined earlier; and I am 

pleased to report that in 2011 we will be able to provide more accurate financial 

reporting and support for the Department’s programs. The Department has nearly 

reached pre-implementation late payment rates and expects to improve operational 

efficiencies in 2011 beyond the benchmarks of the previous system. Additional data 

migration activities have substantially improved throughput despite the implementation of system-enforced internal controls and segregation of duties. Our issuance 

of grants, travel payments and procurements is consistently performed accurately 

and timely by New Core, nearly eliminating the need for manual workarounds previously necessary to release funds due to system integration and data migration 

issues. We continue to work closely with OMB, our Inspector General, and our component agencies to resolve remaining financial reporting issues and do not expect 

these issues to have a material impact on the FY 2011 financial audit process. In 

fact, since we have made so much progress in resolving the implementation and financial reporting issues, it is my intention to resubmit our financial statements to 

the Office of Inspector General within the next few months to provide it the opportunity to fully audit our 2010 financial activities and potentially issue a revised 

opinion. As examples of our progress, New Core is now properly recording all grant 

obligations, costs, and payments. We also had difficulty preparing and reconciling 

the monthly submissions of the Statement of Transactions (SF-224) for several 

months following implementation of NCFMS, an issue which has also been resolved 

as the SF-224 reports are now being reconciled on a monthly basis and submitted 

timely. 

In closing, Mr. Chairman, I have been involved in federal financial management 

for 30 years, both in the CFO and Inspector General communities. I’ve also directed 

the implementation of new financial systems on several occasions. The challenges 

which have occurred with the implementation of the Department’s new system are 

unfortunate and I take responsibility for making sure they are overcome in a timely 

manner. The fact that other agencies have experienced similar problems when replacing older systems, and also lost their clean audit opinions, does not make this 

experience any less disappointing. However, we are confident that this situation is 

temporary and we remain on the right track to regain our clean audit opinion. 
16 

Thank you for your time, and I would be happy to answer any questions you may 

have. 

Chairman ANDREWS. Thank you, gentlemen, both very much. I 

appreciate it. We will begin with questions. Mr. Taylor, I think I 

heard you say that some time in the next few months the Department should be ready to present to the auditing firm consolidated 

financial statements that are auditable; is that correct? 

Mr. TAYLOR. Yes, sir, it is. 

Chairman ANDREWS. Do we know about when that will be? 

Mr. TAYLOR. Our goal is to have it by the end of July—end of 

January, I’m sorry. 

Chairman ANDREWS. January of 2011? 

Mr. TAYLOR. Yes, sir. 

Chairman ANDREWS. And although I know you can’t assure the 

future, is it your opinion that when fiscal year 2011 closes on September 30, 2011, that the statements, the consolidated financial 

statements, will be auditable at that point for 2011? 

Mr. TAYLOR. I am very comfortable that they will be. 

Chairman ANDREWS. And Mr. Lewis, I assume it is then your 

agency’s decision as to whether to issue a supplemental report or 

not, based upon those new consolidated financial statements? 

Mr. LEWIS. That is correct. But we have been working very closely with the CFO’s Office with the Department on that note, and 

that is exactly what we plan to do. If the Department wants to reissue and get a new opinion, we will certainly do that. 

Chairman ANDREWS. Speaking only for myself, not for the other 

members of the committee, I think it will be a very desirable result 

so that we have your imprimatur on that. 

Let me ask—well, let me ask one other question, Mr. Lewis. And 

I know that because you are dealing with unaudited—with really 

unauditable statements at this point, you really can’t give a definitive answer. But in the review of the unauditable statements that 

your contractor looked at for fiscal 2010, was there any evidence 

whatsoever of fraud or theft? 

Mr. LEWIS. No. 

Chairman ANDREWS. Was there any evidence of any nefarious 

misconduct that you saw? 

Mr. LEWIS. No. 

Chairman ANDREWS. So am I correct in characterizing this as an 

absence of sufficient information to make a qualified audited judgment? 

Mr. LEWIS. Correct. 

Chairman ANDREWS. Mr. Taylor, let me ask you a question which 

is a bit broader, which I think concerns a lot of members of the 

committee. And I do understand that you did not get confirmed 

until June 22nd of 2010, which is nearly 6 months after, I guess 

more than 6 months after the system went live, around 6 months, 

so I am not in any way accusing you when I ask these questions. 

But a taxpayer would certainly wonder the following. In July of 

2008, long before Secretary Solis took office, by the way, in July of 

2008 the Department makes a decision to implement a new financial management accounting system. That system is not yet in a 
17 

position to produce auditable financial statements by November 

15th of 2010. Why? What happened? 

Mr. TAYLOR. That is a very legitimate question. The actual implementation took 18 months. And 18 months in the Federal 

sphere is actually a very short period of time. And OMB is pushing 

other departments to—— 

Chairman ANDREWS. We may want that sphere to change. 

Mr. TAYLOR. I totally agree. And other systems I have been involved in took years to accomplish the same end. The planning for 

the implementation and the actual cut-over of 18 months is actually a very reasonable time frame in my history of doing this. 

Chairman ANDREWS. I will confess to you that my governmental 

experience is at much smaller levels of government, county government, and my private sector experience is really limited to being 

an observer, obviously. But I don’t know many publicly traded companies who can get away with that explanation to the shareholders 

that it will take 18 months to implement. As a matter of fact, I 

think the Securities and Exchange Commission would never accept 

that explanation. 

Again, I am not in targeting these questions at you, holding you 

accountable, because you didn’t arrive until June of 2010. But what 

do you think we could do to implement a system the next time we 

do such a thing more expeditiously? I mean, why does it take 18 

months at a minimum? And my understanding is there is no allegation of any software malfunction; is that right? 

Mr. TAYLOR. That is correct. 

Chairman ANDREWS. It is more a matter of training people how 

to use it and how to do the data entry and what practices they 

should follow; is that right? 

Mr. TAYLOR. A lot of the time is used up in making sure that you 

undergo the proper training and that the interfaces are set up appropriately. 

Chairman ANDREWS. Are all of the users of the system employees 

or contractors of the Department of Labor, or do nonemployees and 

contractors also use it? 

Mr. TAYLOR. Employees of the Department of Labor. 

Chairman ANDREWS. So really everybody who uses this is being 

compensated somehow by the Department? 

Mr. TAYLOR. Correct. 

Chairman ANDREWS. And again, I understand this goes back to 

prior to Secretary Solis, and I am not asking this question in any 

kind of partisan method at all, but I must say that taxpayers 

would wonder why it takes so long to implement such a thing, and 

I think it is a lesson we could all learn to avoid such a thing. When 

this amount of money is being handled, you know, the possibility 

that we don’t know where it is and what it is being spent for, because the system is not auditable, is not a very good result. 

Now, on the other side of the coin, it looks to me like you have 

made a lot of progress since June. And I am encouraged to hear 

Mr. Lewis says he will be receiving these reports. And I hope that 

the sequel to this riveting hearing is that a letter has been issued 

by the auditor, which gives a clean audit to the Department. We 

certainly hope that will be the case. 

I thank you, and I would ask Mr. Roe for his questions. 
18 

Mr. ROE. Thank you, Mr. Chairman. And just briefly, a couple 

of questions. The way I understand this is that the IG is an independent agency within the Department of Labor, correct? 

Mr. LEWIS. Correct. 

Mr. ROE. And also in reading your testimony was that you didn’t 

feel like you needed—and I agree with you—the resources to carry 

on this audit. And that is why the outside firm was—which I think 

also was a good idea—they had the resources. That is why I think 

it would be very important for them to be here. 

Because you just made a statement a minute ago that I have to 

disagree with a little bit, which is you stated that—and you may 

be absolutely right in doing this, but I would be reluctant I think 

to say it—that you didn’t see any fraud, abuse or anything. If you 

don’t have all the information available to you it would be hard, 

I think, to make that statement when the material weaknesses, 

and that is whatever a serious problem is, and I guess that is are 

you a little bit overweight, I am not sure what a serious problem 

is, a definition of that. But a material weakness would be a lack 

of sufficient controls over financial reporting. So you really couldn’t 

make that statement if you didn’t have those controls, could you? 

Mr. LEWIS. Well, let me make that more distinctive. In what we 

could look at—because you are right, we were limited; we didn’t 

see, which that is different to me than saying there is not any 

there. If I was asked, is there any fraud or malfeasance there, I 

couldn’t answer that question. Probably even if we had completed 

the entire audit, I wouldn’t be able to answer that. To the extent 

of what we were able to look at, we didn’t see that in what we were 

able to look at. But you are correct, there was a lot that we could 

not look at. 

Mr. ROE. Well, it appears to me that we went from an older system, the so-called legacy system that you had, and we had 12—I 

mean, since 1997 all the audits were fine, and then we switched 

to this new system and all of a sudden there were all kinds of findings that didn’t allow you to have a clean audit. So, I agree that 

something happened. And I think we need to know what that 

something is, whether, as the chairman said, whether it is personnel that are there and so on to clean this up. Because I don’t— 

I am not implying there is any intent, I am just saying there is no 

way that you could say there is not, that something didn’t happen 

when you don’t have information there. 

And Mr. Taylor, I appreciate you haven’t been on board very 

long, so just a few months. How much did the DOL spend initially 

on the 2010 audit and how much will be spent cleaning up this; 

do you know? 

Mr. LEWIS. The normal cost for a year is around $4 million. We 

have spent maybe $400,000 over that at this point because of the 

additional work that had to be done as a result of this. We are 

right now, as we sit here, negotiating with the firm in terms of 

what would be the additional cost to finish and what would be the 

additional cost if we actually reissued the statements and reissued 

the opinion in the middle of the year, which we wouldn’t have to 

do. 

Mr. ROE. And those costs were about the same for either system, 

the new automated system or the legacy system you were using? 
19 

Mr. LEWIS. Yes. 

Mr. ROE. So the cost for auditing were about the same? 

Mr. LEWIS. Yeah. The audit cost was comparable this year to previous years, had we not run into the problems we did. 

Mr. ROE. And Mr. Taylor, when do you see this being—I know 

the chairman asked these questions—when do you see this being 

brought to fruition when we no longer will have this problem? 

Mr. TAYLOR. Well, in terms of the problem themselves, many of 

them have already been resolved. The auditors simply have not 

had a chance to come in and reaudit the activity. So we are convinced that the operational issues that were identified in the audit 

report, they have been resolved. Day-to-day activities in the Department have better internal controls and are processing very 

smoothly. 

In terms of getting the auditors to come in and read and look at 

our work and be able to look at the financial reports that we didn’t 

give them the opportunity to do before, by the end of January. 

Mr. ROE. The other question is, it is over now, but I would have 

thought when you switched to a new system you might want to 

parallel it the first year to make sure that they balanced up. I 

would have thought when you switched to an entirely new system 

you would have run your old along there at the same time. Have 

you thought of doing that? 

Mr. TAYLOR. That comes up a lot. And in some IT systems that 

makes sense. But I have done this about 3 or 4 times now and 

never been involved in an activity where we ran parallel financial 

systems, because the financial systems are the systems of record. 

And in order to keep two systems operating at the same time for 

an extended period of time and keep them in sync is a very resource-intensive effort and it is really difficult to do successfully. In 

fact, part of the problems we have this year was the fact that because we delayed doing the implementation until January, that 

meant the first quarter was all on the old system. We did run parallel for the first quarter in trying to complete better training and 

do some other things to mitigate the problems going forward. And 

that posed a lot of problems for us that resulted in what you saw 

here with the disclaimer. 

Mr. ROE. Thank you, Mr. Chairman. I yield back. 

Chairman ANDREWS. I thank the gentleman from Tennessee. The 

chair recognizes the gentleman from Michigan, Mr. Kildee, for his 

questions for 5 minutes. 

Mr. KILDEE. Thank you, Mr. Chairman. Mr. Lewis, why was a 

decision made to replace the old accounting system in the year in 

question? Was this an appropriate time to undertake such a complex task? And, maybe, also why has that not been replaced earlier? 

Mr. LEWIS. Well, there had been other efforts to replace the system earlier that did not succeed for various reasons, lack of funding. But I think it was replaced because it was a very old system. 

Although it was functioning, I think it took more work to meet the 

demands of what is expected from an agency or entity, any entity 

today, in terms of having realtime financial information that the 

old system wasn’t capable of providing. Although it could eventually comply with what needed to be done, it didn’t really have the 
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realtime capability to provide information. So I think that was an 

appropriate reason for replacing a system that had been around 

since the mid-1980s. 

Mr. KILDEE. Mr. Taylor, you had been auditing in various agencies. Are there similar problems that you worry about in maybe 

some other agencies of government similar to the problems that we 

found here in the Department of Labor? 

Mr. TAYLOR. Well, without having direct knowledge of other departments, I can tell you that what I have seen in my career is 

that whenever you try to replace a legacy system you run into similar problems. I have seen them before, experienced them before. 

And in my prior job as deputy IG we were working with the Department of Homeland Security so that they could actually produce 

an integrated system. They are working on that at the same time 

on a much grander scale than the Department of Labor, but they 

have the same issues. 

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

Chairman ANDREWS. I thank the gentleman. The chair is happy 

to recognize the gentlelady from Ohio, Ms. Fudge, for her questions 

for 5 minutes. 

Ms. FUDGE. Thank you very much, Mr. Chairman. And thank 

you both. I certainly do thank both the chair and the ranking member for asking questions that everyday citizens would ask. I think 

it is very important. I happen to have served actually in every level 

of government from local, county, State, and now Federal. And with 

the exception of the Federal, I have dealt with these kinds of issues 

on a number of occasions. And I would say that 18 months really 

is very good, quite frankly, especially when you are dealing with 

an agency as large as the Department of Labor. And people who 

have been used to a system for very long, all of us know that most 

of us are resistant to change, and it is a very difficult process. 

Clearly, I would hope that as you look at the findings, that we 

would in fact have a clean or unqualified audit in the near future. 

And I too am concerned about the fact that our auditor, KPMG, 

as large a company as it is, could not find one person to be here 

today. Certainly timing with us is an issue. It is an issue for us 

sitting here. But to have a company that size that has received 

these kinds of resources from the government, I would have to believe that some one person could have shown up today. Just in 

terms of a time frame—and the ranking member mentioned this to 

you as well—do you believe that you are 80 percent there, 60 percent there? If you could please, Mr. Taylor, or Mr. Lewis? 

Mr. TAYLOR. Well, in terms of performing financial reporting on 

a day-to-day basis, we are there. We can do the financial reporting 

right now with the current—with the new system. In terms of providing the extracts, data extracts and the information that the 

auditors need to complete their work and the samples, I think we 

are just about there as well. And I think that by the end of January we will definitely be there. 

Ms. FUDGE. So then you no longer have the problem of trying to 

transfer data from one system to another. You have complete information. All that you need to have right now to get this thing 100 

percent operational and to be put in a position to either file a new 

report and/or get a clean audit, you are saying are there? 
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Mr. TAYLOR. If I could make a clear distinction. In terms of being 

operational, we are 100 percent operational. We are supporting the 

day-to-day activities of the Department as we speak. There is no 

grant, no contract, no personnel action that cannot be accomplished 

in the current system. In terms of providing all the information to 

the auditors that they require, I think we are pretty much there 

now, but I think that by the January time frame I think that we 

will have it all. 

And there will always be issues that arise in any operation. But 

the idea when you are on the audit side, you look at materiality. 

And the question is, materially do you have any issues? And right 

now, materially, I don’t think I do have any issues. 

Ms. FUDGE. And my last question is, so you are the person that 

would be held responsible if in fact by the end of January this 

thing doesn’t come out the way it should? 

Mr. TAYLOR. If I cannot provide the information to the auditors 

by the end of January, yes, I am the one who is accountable for 

that. 

Ms. FUDGE. Thank you so much, Mr. Chairman. I yield back. 

Chairman ANDREWS. I thank the gentlelady. I would ask the 

ranking member if he has any concluding comments. 

Mr. ROE. Just very briefly, again, I agree with Congresswoman 

Fudge that it would have been a lot better, I think, had the auditors been here. But you all have been very forthright and forthcoming. I think we will know by the end of January. 

When will we be able to—in this subcommittee—be able to have 

that information when the auditors have looked, because I would 

like to know that this has been cleared up, that there are no findings. When can we expect to find that? 

Mr. LEWIS. Well, of course, that will be dependent on exactly 

what the Department provides us and when they provide it. But 

probably within a couple of months after they have given us the 

final clean information and that there are no problems with it, that 

is probably the earliest we would see something. 

Mr. TAYLOR. April time frame, assuming that we meet our schedule. 

Mr. ROE. The subcommittee should be able to have findings of a 

clean audit when the auditors have looked at all the data that is 

there, issue a report on whether it is clear or not? 

Mr. LEWIS. Correct. 

Mr. ROE. Well, I appreciate you being here, and I thank you for 

your testimony. 

Chairman ANDREWS. I thank my friend, I thank my colleagues, 

and especially thank the witnesses. 

It occurs to me the committee then has three agenda items going 

forth from today. 

Number one is we would encourage, Mr. Taylor, you and the Department to, as you are, expeditiously meet the deadline of providing the consolidated statements to the IG. 

Number two, when the IG and its contractor have completed 

their thorough review of those statements, we would be eager to receive your conclusions in April or whenever that is. 

And then number three, I think all members of the committee 

are interested in the more generic problem of how we can avoid 
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this kind of delay in the future so that we never again have a situation, if we can avoid it, where the Labor Department or any other 

department is in a position where there is an inability to provide 

auditable and complete data by the deadline. 

And we appreciate, Mr. Taylor, your efforts in solving this problem. Mr. Lewis, we appreciate you and your organization being 

very vigilant for the taxpayers and for those who depend upon the 

Department. 

And, without objection, members will have 14 days to submit additional materials or questions of the hearing record. 

[An additional submission of Mr. Andrews follows:] 
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Chairman ANDREWS. And, without objection, the hearing is adjourned. 

[Whereupon, at 2:41 p.m., the subcommittee was adjourned.] 

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