U.S. GOVERNMENT PRINTING OFFICE

67–250 CC WASHINGTON : 2000

RESULTS OF THE DEPARTMENT OF AGRICULTURE’S FISCAL YEAR 1999 FINANCIAL

STATEMENTS AUDIT

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

INFORMATION, AND TECHNOLOGY

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

MARCH 21, 2000

Serial No. 106–166

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

DAVID M. MCINTOSH, Indiana

MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida

STEVEN C. LATOURETTE, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

BOB BARR, Georgia

DAN MILLER, Florida

ASA HUTCHINSON, Arkansas

LEE TERRY, Nebraska

JUDY BIGGERT, Illinois

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

HELEN CHENOWETH-HAGE, Idaho

DAVID VITTER, Louisiana

HENRY A. WAXMAN, California

TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

CHAKA FATTAH, Pennsylvania

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

HAROLD E. FORD, JR., Tennessee

JANICE D. SCHAKOWSKY, Illinois

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

DAVID A. KASS, Deputy Counsel and Parliamentarian

LISA SMITH ARAFUNE, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION, AND TECHNOLOGY

STEPHEN HORN, California, Chairman

JUDY BIGGERT, Illinois

THOMAS M. DAVIS, Virginia

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

JIM TURNER, Texas

PAUL E. KANJORSKI, Pennsylvania

MAJOR R. OWENS, New York

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

J. RUSSELL GEORGE, Staff Director and Chief Counsel

BONNIE HEALD, Director of Communications/Professional Staff Member

BRYAN SISK, Clerk

TREY HENDERSON, Minority Counsel

(III)

C O N T E N T S

Page

Hearing held on March 21, 2000 ............................................................................ 1

Statement of:

Viadero, Roger, Inspector General, Department of Agriculture, accompanied by Robert W. Young, Deputy Assistant Inspector General for

Audit; Linda Calbom, Director, Resources, Community, and Economic

Development, Accounting and Financial Management Issues, Accounting and Information Management Division, U.S. General Accounting

Office, accompanied by McCoy Williams, Assistant Director; Sally

Thompson, Chief Financial Officer, Department of Agriculture, accompanied by Keith Kelly, Administrator, Farm Service Agency; James

Newby, Senior Policy Advisor for Rural Development, Department of

Agriculture; and Vincette Goerl, Deputy Chief for Finance, U.S. Forest

Service ............................................................................................................ 4

Letters, statements, et cetera, submitted for the record by:

Calbom, Linda, Director, Resources, Community, and Economic Development, Accounting and Financial Management Issues, Accounting and

Information Management Division, U.S. General Accounting Office,

prepared statement of ................................................................................... 23

Goerl, Vincette Deputy Chief for Finance, U.S. Forest Service, information concerning depreciation rates ............................................................... 70

Horn, Hon. Stephen, a Representative in Congress from the State of

California, prepared statement of ................................................................ 3

Thompson, Sally, Chief Financial Officer, Department of Agriculture, prepared statement of ........................................................................................ 45

Viadero, Roger, Inspector General, Department of Agriculture, prepared

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

(1)

RESULTS OF THE DEPARTMENT OF AGRICULTURE’S FISCAL YEAR 1999 FINANCIAL

STATEMENTS AUDIT

TUESDAY, MARCH 21, 2000

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

INFORMATION, AND TECHNOLOGY,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 2 p.m., in room

2154, Rayburn House Office Building, Hon. Stephen Horn (chairman of the subcommittee) presiding.

Present: Representatives Horn, Walden, and Owens.

Staff present: Russell George, staff director; Louise DiBenedetto,

GAO detailee; Bryan Sisk, clerk; Bonnie Heald, director of communications; Jean Gosa, minority staff assistant; and Trey Henderson,

minority counsel.

Mr. HORN. The subcommittee on Government Management, Information, and Technology will come to order. This hearing is the

third in a series of hearings to examine the results of the financial

audits of selected Federal agencies. We began this series in February and have examined financial audits of the Internal Revenue

Service and the Health Care Financing Administration.

Today we will focus on the Department of Agriculture, one of the

oldest and ablest Departments in the Federal Government. President Abraham Lincoln established this agency in 1862 calling it

the People’s Department. As the Nation’s economy expanded beyond agriculture, the Department’s scope of responsibilities also

broadened. From the farm supports and soil conservation programs

of the 1930’s and the food supplement and inspection programs of

the 1960’s, the Department is now responsible for administering $118 billion in assets and $122 billion in direct loans and outstanding loan guarantees.

Despite this vast financial responsibility, the Inspector General

has been unable to verify the reliability of the Department’s financial statements for the last 6 years. The Departments’s underlying

financial information is simply not reliable.

For the past 3 years, this subcommittee has been grading the financial management of the 24 largest departments and agencies in

the executive branch. Because of its long-standing financial weaknesses, the Department of Agriculture has consistently received an

F. Now, I happen to have the highest regard for Secretary Glickman. He was a very fine legislator. And I am sure that, under his

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leadership, the necessary actions will be taken to correct those

problems.

The Inspector General and the General Accounting Office have

both reported that the Department is unable to make reasonable

cost estimates on its loans and loan guarantees. In 1990, Congress

passed the Credit Reform Act precisely because it wanted to know

the cost of these programs. We are interested today in hearing why

the Department still cannot estimate these costs, and what actions

are being taken to resolve this unacceptable situation.

[The prepared statement of Hon. Stephen Horn follows:]

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Mr. HORN. We welcome our witnesses today and look forward to

their testimony. Panel one will include the Honorable Roger

Viadero, Inspector General, Department of Agriculture, who is accompanied by Robert W. Young, Deputy Assistant Inspector General for audit; Linda Calbom, Director, Resources Community and

Economic Development, Accounting and Financial Management

Issues, Accounting and Information Management Division, U.S.

General Accounting Office. Now that’s got to be something for Paul

Light and some of his—— Ms. CALBOM. Hard to get on a business card.

Mr. HORN. And she is accompanied by McCoy Williams the Assistant Director. Sally Thompson the Chief Financial Officer, Department of Agriculture, is accompanied by Keith Kelly, Administrator of the Farm Service Agency; James Newby, Senior Policy Advisor for Rural Development, Department of Agriculture; and

Vincette Goerl, Deputy Chief for Finance, U.S. Forest Service. So

if you will—all the names that I named out there you’re sitting at

the table or behind, please stand, raise your right hand and take

the oath.

[Witnesses sworn.]

Mr. HORN. The clerk will note that eight have responded to the

oath.

And the way we operate here is to go down the line of the witness list and your full statement is automatically put in the record.

A lot of you know that. You’ve been here before. But there are

some newcomers. So full statement automatically goes in the

record. I don’t need to make another motion and so forth. But we

would like you to summarize that statement and not read it to us.

We can read. But we would like just from your heart what you say

there. And we would appreciate it if you could do it within 5 minutes. If you will go to 10, I won’t be pained by it; but Mr. Viadero

has to leave at 3:30 as I remember; and we want to accommodate

you and get in some questions also. So we will begin with the Inspector General. And it’s all yours.

STATEMENTS OF ROGER VIADERO, INSPECTOR GENERAL, DEPARTMENT OF AGRICULTURE, ACCOMPANIED BY ROBERT

W. YOUNG, DEPUTY ASSISTANT INSPECTOR GENERAL FOR

AUDIT; LINDA CALBOM, DIRECTOR, RESOURCES, COMMUNITY, AND ECONOMIC DEVELOPMENT, ACCOUNTING AND FINANCIAL MANAGEMENT ISSUES, ACCOUNTING AND INFORMATION MANAGEMENT DIVISION, U.S. GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY MCCOY WILLIAMS, ASSISTANT DIRECTOR; SALLY THOMPSON, CHIEF FINANCIAL OFFICER, DEPARTMENT OF AGRICULTURE, ACCOMPANIED BY

KEITH KELLY, ADMINISTRATOR, FARM SERVICE AGENCY;

JAMES NEWBY, SENIOR POLICY ADVISOR FOR RURAL DEVELOPMENT, DEPARTMENT OF AGRICULTURE; AND

VINCETTE GOERL, DEPUTY CHIEF FOR FINANCE, U.S. FOREST SERVICE

Mr. VIADERO. Thank you, Mr. Chairman, and members of the

committee. I’m more than pleased to be here today to testify about

the Department of Agriculture’s financial management. And with

me today, as you mentioned, Robert Young, Deputy Assistant IG

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for Audit. In order to be effective, management must have reliable

financial information. For the Department to fulfill its mission and

otherwise serve the public, it must know how much money has

been received, spent, and is needed. It must know where the assets

are and where they need to be repaired or replaced. It must know

the cost of its operations to make informed decisions and to identify

where efficiencies and economies need to be implemented.

Financial information in USDA is on whole not reliable. We have

issued disclaimers of opinion for the past 6 years. In other words,

the books and records of the Department have been so poorly maintained that we have been unable to compile and analyze sufficient

evidence to enable us to reach an opinion. What we are saying is

that we don’t know how fairly the financial numbers of the Depart- ment such as the $118 billion in assets are presented. More critically, this also means that the managers of the programs and operations also don’t know. And in the absence of this essential information, their capability to perform their jobs is significantly impaired.

I’m going to briefly discuss the primary problems preventing

USDA from getting an improved or hopefully in the future a clean

opinion on its financial statements. The financial management systems of the Department process almost $10 billion in collections

and over $64 billion in program costs. One of the Department’s

most critical systems is the national finance—is at the National Finance Center’s central accounting system [CAS]. The problems

with CAS has been well chronicled. It is poorly documented, provides only summary and not detailed data, and does not meet governmentwide accounting requirements.

Only one clear course of action is apparent to enable this Department to emerge from the murky pool of bad data, simply jettison

the system. The Department is therefore developing a new system

to replace CAS. This new system is called the Foundation Financial

Information System [FFIS]. The core of FFIS is a commercial offthe-shelf product that is compliant with government accounting

and system requirements.

A critical decision was made, however, at the outset in implementation of that FFIS that has stymied the implementation and

significantly driven up the cost. Specifically, the Department in

concert with the user agencies opted to retain many of the legacy

or feeder systems and interface them with the core off-the-shelf

package. Because the feeder systems are old and poorly maintained

and documented, retaining them has had the effect of reintroducing

the same old blood after a transfusion.

Another long-standing highly complex and very material encumbrance to the Department’s efforts to secure a clean opinion has

been its implementation of the credit reform legislation. USDA has

several highly unique loan programs subject to credit reform that

total over $70 billion. The original loan accounting systems were

not equipped to provide the extensive detail necessary to fulfill the

requirements of credit reform.

In the absence of reliable historical data, USDA agencies have

extensively used the judgment of program managers to estimate future loan performance. No studies or analysis are on hand to support these critical assumptions. The breadth and the complexity of

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the issue is extraordinary, though the Department, GAO, and my

office are all working in tandem to attempt to resolve it.

Another major problem confronting the Department is the Forest

Service accounting for real property. The Forest Service has about

$2.6 billion in real property assets. About 60 percent of the dollar

value or about $1.5 billion is attributable to what is referred to as

‘‘pooled assets,’’ preliminary roads. The remainder represents individual assets such as buildings. The Forest Service is unable to

support the valuation of these pooled assets, again estimated at

about $1.5 billion. A significant problem also persists in the valuation of individual real property assets. We statistically sampled in

our audit and projected that these assets were overstated by about

$135 million and understated by about $80 million.

Now let me address what the Department needs to do to

strengthen its system and obtain an upgraded audit opinion. First,

FFIS must be fully functional, the feeder system problem corrected,

and data conversion from existing systems successfully accomplished. These are extraordinary barriers to overcome by the end

of this fiscal year.

Second, the Department must compile and analyze supportable

credit reform data and implement workable cash-flow models. It

appears unlikely that this hurdle will be done this year.

Third, resolution of the Forest Service real property accounting

weaknesses will require considerable resources just to compile the

inventory valuation data, and the pooled asset issue must be further studied and a viable methodology to estimate the values of assets where supporting documentation has not been retained and

must be developed. This remains a major impediment to an improved audit opinion.

All that having been said, in my 6 years as the Inspector General

at USDA, and after having issued six disclaimers, I would like to

say something on behalf of the current top financial management

of this Department. They have brought a new philosophy, a level

of commitment and focus to this critical function. They are making

progress. And they do deserve a significant amount of credit for

their accomplishments. It’s difficult to make improvements when

you have to do it piecemeal based upon the antiquated legacy central accounting system. Mr. Chairman, this happily concludes my

statement, and I’ll be more than happy to answer any questions

you or any of the other Members have.

Mr. HORN. Thank you very much.

[The prepared statement of Mr. Viadero follows:]

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Mr. HORN. As you know we go to the next witness, and then we’ll

open it up to questions after the third principle witness. So we

have Linda Calbom, the Director of Resources, Community, and

Economic Development and in the General Accounting Office.

Ms. CALBOM. Thank you, Mr. Chairman. And thank you for allowing us to be here today to talk about the Department of Agriculture’s financial management issues. As Mr. Viadero just testified, USDA has been trying for a number of years to get its financial house in order. But it continues to have serious problems with

the accountability over its $118 billion in assets and its well over

$100 billion in taxpayer funds provided annually for its operations.

In my written statement I outlined a number of key issues that

USDA needs to address before it can get its financial house in

order. I want to just talk about three issues here today. Mr.

Viadero has touched on some of those, as have you. First is this

inability to estimate the cost of the loan programs. The second

thing is the unreconciled fund balance with Treasury accounts. And

last, I want to mention a little bit about where Forest Service

stands in its financial management issues.

As far as the loan program goes, as you mentioned, Mr. Chairman, the Credit Reform Act of 1990, as well as Federal accounting

standards that were effective in 1994, require credit agencies to estimate up front what the cost of their loan programs will be. These

estimates are then used as a basis to determine the amount of

loans that will be made available to these programs. Because these

are up-front estimates and they’re very complex, you have to make

projections of the cash going out and the cash coming in over the

life of the loans.

Unfortunately, USDA has not kept very good track of the historical information needed to make these projections and doesn’t have

good systems for capturing the information they do have. The CFO

established a task force in March 1999 to assist in resolving the

agency’s problems in this area. However, to date USDA has not

provided the resources needed to properly address this problem. So

progress has been slow.

There are some major ramifications to this problem. USDA is the

largest direct lender in the Federal Government with over $70 billion in outstanding loans, which is material to the U.S. Government’s consolidated financial statements. The agency’s inability to

properly account for these loan program costs is one of the key reasons GAO is unable to give an opinion on the U.S. Government’s

consolidated financial statements. In addition, because the program

costs drive the amount of lending authority provided to the agency,

the lack of reliable cost estimates means that Congress does not

have valid data in making decisions about whether to scale back

or increase some of these loan programs.

The next issue I want to cover is fund balance with Treasury.

This is a particularly critical account because nearly all the disbursements and receipts of the agency flow through this account.

In that sense it’s very similar to a checking account. And as you

know, if we can’t balance our checking account, that means that

we’ve either made a mistake or the bank has made a mistake or

we’re just not very good at math.

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USDA is currently undertaking significant efforts to reconcile

these accounts; but until they complete this process, the agency

can’t be sure that all funds spent and received are properly accounted for. And just as important, the agency needs to establish

a process so that going forward on an ongoing basis they’ll be able

to keep these accounts in balance and be able to feel comfortable

that their receipts and disbursements are being properly recorded.

Until they do this, the integrity of much of the agency’s financial

data is questionable; and the agency is actually exposed to inappropriate use of these funds.

Last, I want to mention a little bit about Forest Service. I have

testified before this subcommittee before about the serious financial

management problems that plague the Forest Service. As you

know, because of the pervasive nature of these problems, we designated Forest Service financial management as a high-risk area

back in January 1999. Forest Service has made good progress, particularly in implementing their new accounting system, which they

did last October. And this new system is a critical step toward

cleaning up some of their other basic accounting deficiencies.

However, the secondary systems that feed data into the main accounting system still remain problematic. And as you know, if you

feed bad data even into a good accounting system you’re still going

to get bad accounting data. So it’s still a very big problem. This is

the USDA-wide problem. This is a system Mr. Viadero was talking

about, this FFIS. So this problem has to be cleaned up before real

accountability can be achieved, not only at Forest Service but

USDA-wide.

In addition, the Forest Service still doesn’t seem to have a good

handle on the assets that it has out in the field. That includes its

equipment, its buildings, and its massive system of roads. As you

recall from prior testimonies, their system of roads exceeds the

number of miles in our whole national highway system. So it’s pretty massive. The accountability for these assets is hampered by the

autonomous field structure that Forest Service maintains. This

structure makes it very difficult for headquarters to carry out the

efforts needed to address their problems accounting for property

and equipment as well as to correct just the other basic accounting

deficiencies.

Currently, consideration is being given to establishing Chief Financial Officer positions in each of the regions and we believe that

creation of these positions with direct reporting links to headquarters would help Forest Service make great strides toward accountability over its field assets.

In conclusion, USDA is a large complex agency with many difficult issues to address before it can be accountable to you the Congress, and to taxpayers, for the money provided it to carry out its

varied missions. Many of these problems are deep rooted and will

take time to correct. They’ll take significant upper-management

oversight, and substantial resources. Therefore, continued congressional oversight such as this hearing is really essential to ensure

that USDA focuses adequate attention on getting and keeping its

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financial house in order.

Thank you, Mr. Chairman.

Mr. HORN. Thank you very much, Ms. Calbom. We’ll be getting

back to a lot of your statement when we get to the question period.

[The prepared statement of Ms. Calbom follows:]

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Mr. HORN. Sally Thompson is the Chief Financial Officer of the

Department of Agriculture. And we’re delighted to have your statement.

Ms. THOMPSON. Thank you. Good afternoon, Mr. Chairman, and

to you, Mr. Congressman Walden. I would like to take the next few

minutes to outline the highlights from the testimony that I turned

in to you. I would first like to say that Secretary Glickman and

Deputy Secretary Rominger put a very high priority on the financial management in USDA, as well as the senior management team

that’s here with me today representing Farm Service Agency, Rural

Development, and the Forest Service.

I have been the CFO for about 2 years and previous to that time,

we did not have a CFO except for about 18 months there. However,

and I came in as you know—the Department has been highly decentralized over the years. And sometimes I feel that the Federal

Government is a lot like the Titanic ship in that it wasn’t built to

make sharp turns. However, unlike the Titanic, at USDA we are

making significant progress, even though we have a ways to go.

I would like to focus on the five major areas that I see as preventing USDA from getting a clean opinion, tell you a little bit

where we’ve been, where we are, and where we’re going.

The first is the financial statement. As I describe, it is a picture

frame of our reliability, timely and accurate information. But probably more importantly is we need good financial information for

our program managers to be able to make decisions. No. 1 in that

area is we must resolve our credit and debt management issues. As

was mentioned here today, we have formed an executive Department-wide team that is dedicated to working both with GAO and

the Inspector General that have given us a lot of dedicated resources. In that time we have a new model in rural development

that does a subsidy estimating model for rural utilities and for the

Community Advancement Program and GAO and the Inspector

General have worked through to make sure that it is compliant.

Second, as was mentioned, we must fully implement our new financial management accounting system. I am pleased to be able to

say that right now as of last October, we had 40 percent of the Department up, including the Forest Service; and by this October, we

will have over 80 percent of the Department up. But as was mentioned today, that is the accounting system that is the middle of

1970’s technology feeding into all these feeder systems that feed in

our accounting system.

The Secretary recognizes this. He formed an executive team, sent

out a memo to all of the agencies saying I have asked this executive team, chaired by the CFO, to come up with a plan to have corporate systems in place over the next 18 to 24 months. This would

mean systems in the area of procurement, travel, property, and

also budget formulation. We are moving along very quickly. And I

am sure that we plan to have a full time schedule, budget and plan

in place by the end of April to achieve that.

As was mentioned also, we must address the fund balance at

Treasury. This has been a high priority of ours this year. We have

dedicated over 80 staff who have been working on this project between outside accounting firms as well as internal staff at the cost

of about $3 million. But the good news is by March 31st our balVerDate 11-MAY-2000 09:59 Dec 29, 2000 Jkt 000000 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 C:\DOCS\67250.TXT HGOVREF1 PsN: HGOVREF1
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ance with Treasury will be reconciled and it has never been reconciled before. But more importantly, there will be a process in

place that will continue to reconcile on a monthly basis so that we

will never again be in this position.

We also must strengthen the accounting for property, plants, and

equipment. And we have, as was mentioned, close to $3 billion, a

large part of that in the Forest Service. They have done a significant amount of work in inventorying that property and equipment

and their real challenge was mentioned today was to locate the

documentation to support the cost, which again, has never been

done before.

In each of these areas we are making significant progress but,

Mr. Chairman, we have a major issue here and that major issue

is funding. Over the last few years, take rural development for instance, their program dollars, which they manage, have gone up

over 51 percent; but their staff dollars to manage that program

have been decreased 28 percent. A big gap. And every dollar that

they spent on systems is a dollar they have to take out of staff

costs to be able to deliver programs. The same is true in farm service agencies as well as the risk management area.

Now, we feel that of course the spending that we have received

over the last few years from programs are very critical to the Department’s mission and to those emergency funds to get out. But

somewhere along the line we need to come up with the right funding mix for also to be able to achieve the systems technology that

we need.

One of the things that I’m asking for is the rural development

to be able to use those liquidating balances that were set aside

with the Credit Reform Act that were there to be able to absorb

losses in the prior years. Now we are far enough down the road to

realize we do not need as much of a set aside. If we could use those

for our loan modeling, that GAO has identified that we need, I

think that we could significantly improve our process.

Another success story that we have is in our collectible debt. In

1999, we collected over $136 million in delinquency debt. That is

a 90 percent increase over the 1997 figure. And considering between 1982 and 1996 we had only collected a total of $55 million

in delinquent debt, overall our debt percentage of outstanding loans

has gone in the last 3 years from 8 percent to 6 percent. Once

again progress, but certainly not there. Of the $7 billion of delinquent debt outstanding, $6 billion of this is noncollectible. It’s in

either foreign loans or bankruptcy. However, of the $1.3 billion

that’s remaining, a billion of that is food stamps that is delivered

by the States, which means that information is in 53 different systems that can’t talk to Treasury and they average about $88 per

claim.

So Mr. Chairman, these are the major issues. We have made

progress. We are working very hard to get there. But I would be

glad to answer any questions that you have.

[The prepared statement of Ms. Thompson follows:]

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Mr. HORN. Thank you very much. We will now go to questions.

It will be 10 minutes for each Member alternating between the majority and the minority. And I now yield for the first 10 minutes

to my colleague from Oregon, a diligent member of this committee,

Mr. Greg Walden. The gentleman from Oregon; 10 minutes for

questioning.

Mr. WALDEN. Thank you, Mr. Chairman. Ms. Thompson, I want

to go to you because the numbers you put up, please take no disrespect in this because I think you are doing a good job in trying

to get a handle often this agency’s problems. But how am I supposed to trust the data you just gave us after listening to the GAO

and the Inspector General’s testimony about the lack of accountability and ability to audit the books of these various agencies and,

you know, $97 million in vehicles, $11 million in microscopes. How

am I supposed to sit here and know the data you just referred to

is accurate and trustworthy?

Ms. THOMPSON. That’s a very good question, Mr. Congressman.

Let’s just say I’m sure that it’s relative and it’s in perspective.

Whether it’s totally accurate, I cannot attest to that either. I’m a

CPA and was in audit for a long time, so no, it’s not auditable. But

I do believe it can show you a trend.

Mr. WALDEN. I don’t disagree with that. Again, I say I think

you’ve done good work in what we’ve heard so far.

Mr. Viadero, we first met in the AG subcommittee in March 1999

when you gave a similar overview of the Forest Service’s budget or

Forest Service’s accounts and all. And I remember you said then

that your opinion, this is quoting from your testimony, ‘‘was a disclaimer I could not do enough work to draw a conclusion. This has

become the pattern since the annual audit of financial statements

became law in 1990.’’ I take it from your testimony there hasn’t

been much improvement since then in the Forest Service budget in

the last year?

Mr. VIADERO. Forest Service has made improvements. However,

the Forest Service gets a disclaimer of opinion, as I noted. They

had an overstatement of inventory of $135 million, an understatement of $215 million. Now if we get the information or we’re supplied the documentation to look at these accounts, we still may not

come up with a better opinion then a disclaimer. So I don’t want

to mislead anybody by saying if they come up with additional documentation it’s going to be an improved opinion. It will be the first

step to get an improved opinion, but until we go in and look at it.

We cannot determine what the opinion will be.

Mr. WALDEN. And what has changed since March 1999 to well,

March 2000 to improve your ability to go in and look for that documentation?

Mr. VIADERO. Well, the overall—this is going to sound different.

The overall ability of the management concerned. Forest Service

now has a Chief Financial Officer who operates under the umbrella

of the Department’s Chief Financial Officer. Speaking from the Inspector General’s point, this is the first time we have all these people on the same sheet of music, so to speak. The problem began before these people arrived at USDA. Mr. Young and myself sat at

the table with the Deputy Secretary and literally beat on the table,

we wanted both systems, both the old system and the new system

58

to run parallel for at least one quarter or a half a year so that the

testing would be concurrent. And we were given all this rigamarole

from people that used to be there that the reports, we won’t be able

to generate the same reports.

Now, as Ms. Thompson—I too am a CPA and 32 years an investigator. I always thought debits have to equal the credits regardless of what the reports say. The old system was very unreliable.

Yet we took the old systems, and they flipped the switch like everything is going to work. Now, here is 32 years of cynicism. I’m looking in the corral at what’s on the ground; I’m saying there must

be a pony in here some place. It just didn’t add up right.

Now, what these two people have done is gone in and literally

reconstructed much of the old data. And that’s a hand-entry job.

Forest Service also has a reimbursable with my agency, for people

that will never work, say again, never work on the Forest Service

financial statement and GAO has concurred to this as has OMB

that we have people in there working so it doesn’t hinder our independence and definitely hasn’t with a disclaimer to work with them

to develop the methodology and the ability to reconstruct much of

this data.

Mr. WALDEN. I was especially troubled today on the $70 billion

in loans that seem to be problematic. If that were a major U.S. financial institution, would it be open tomorrow with the books in

the state that these books are in?

Ms. THOMPSON. We can account for, Mr. Congressman, every

payment that was made individually. Where our main weakness is

is in estimating those subsidy rates out for 20 years. That is something you don’t do in the private sector. GAO went out and surveyed the private sector for us so we could see if there was a loan

system out there from Citibank, Chase Manhattan, one of those,

and found it just could not work in the Federal Government.

So our real issue there is sometimes like in farm service, they

have 44 variables of estimating that subsidy. I have been trying to

get things streamlined. I think there is probably about 6 to 10 at

the most of very critical variables, unemployment, GPA, interest

rates, those kind of things to estimate out 20 years. Because

they’re still estimates. But that’s where our real weakness is. We

have got one of the models up and running for rural development.

We have another one for guaranteed loans. And farm services is

working. And where our real need now is in that single family residential loan area.

Mr. WALDEN. So this is not an issue that your books don’t balance on the payments in and the money out, so you can track all

those loans and know what is current and default rates and all of

that.

Ms. THOMPSON. Yes.

Mr. WALDEN. So this would pass a standard bank audit.

Ms. THOMPSON. I think so.

Mr. WALDEN. Mr. Viadero, if you were a bank auditor, would you

give them a green light to keep operating this way?

Mr. VIADERO. Not at this time. Sir.

Mr. WALDEN. Ms. Calbom.

Ms. CALBOM. As Ms. Thompson said, the issue is not so much

that they can’t keep track of the loans they have per se, but the

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issue is what’s the cost of the loans. And in the private sector, we

have loan loss reserves where we try to estimate the cost of the

loans. We have a similar thing in the Federal Government; but it’s

a bit more complex because you have to estimate at the time you

make the loan how much cash is going to come in, how much is

going to go out, and you have to make projections of things like

when is a borrower going to pay late, when is a borrower maybe

going to pay early—because that affects the cash-flow too—when

are they not going to pay at all. It can be quite complicated.

The only good way to make those kind of projections is to look

at past borrower behavior. Unfortunately, the records have not

been maintained in such a way that they can be easily accumulated so you have a basis to make those projections. So that is the

big problem with the loans. But it’s key in the Federal Government

because the way we account for the loans and the subsidies on the

financial statements is exactly the way they’re budgeted for. So if

you can’t do it right for financial statements, it definitely calls into

question what’s happening on the budget side too.

Mr. WALDEN. Which leads to my next question, which is we hear

that you may need more money to hire more people or do whatever

you need to do. How do we know this float that’s going—there must

be a float of some sort if you don’t know how much money is actually on the financial statement versus what we’re budgeting for.

Ms. CALBOM. What happens is an estimate is made of what the

cost of these loans is going to be. Then later if they find out that

they what the cost is going to be, then they have to actually go

back and use permanent and indefinite authority in order to get

more money to cover these loans. So what happens is Congress approves what they think is a certain level of loans at a certain cost,

then it ends up to be different. Then the agency has to go back for

more money. It can go the other way too. If you were to overestimate the cost of the loans initially, you make a certain level of

loans based on that estimate, well you’re kind of leaving money on

the table. You could have been making more loans, but because you

didn’t have a good handle on it, you’re kind of stuck where you are.

Mr. WALDEN. Let me go back then, Ms. Thompson, to your other

chart there that showed program moneys versus employment. Are

we talking about the loan programs?

Ms. THOMPSON. Yes, we are.

Mr. WALDEN. If you have a permanent authority to go after more

money to pay for the cost of administering those loans, why is

there a shortfall? Unless your cost estimates are off.

Ms. THOMPSON. What we’re showing there is the loan money that

goes directly out. And we do not have the authority to use that

money for administrative money, which would be where your staff

costs are and where your loan system development costs are.

Mr. WALDEN. I’m confused then.

Ms. CALBOM. That’s right. The cost of the loan programs don’t include administrative costs. It includes costs of defaults.

Mr. WALDEN. So like a loan loss reserve system.

Ms. CALBOM. Exactly.

Mr. WALDEN. Not for the cost of it. Why wouldn’t you budget in

the cost of each loan your estimated cost of administering the loan

as part of the whole package?

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Ms. CALBOM. Actually, under the law the costs of administration

are not to be included. So that’s the—— Mr. WALDEN. So that’s a separate allocation you request then.

And what’s happening with your request for that administrative,

for the budget authority or appropriation of what the administration has put forward versus what Congress?

Mr. HORN. Would you define yourself and the position you have.

Mr. NEWBY. I am James Newby, Senior Policy Advisor for Rural

Development. One of the problems we have had for the past—— Mr. HORN. Excuse me. Do you report directly to the Secretary or

who do you report to?

Mr. NEWBY. Directly to the Under Secretary for Rural Development.

Mr. WALDEN. Could you move that mic just a little closer to you.

I have a cold and bad ear.

Mr. NEWBY. I have a bad voice.

Mr. HORN. We all do this time of year.

Mr. NEWBY. Our request for administrative expenses for the past

5 years has been relatively constant, but on top of that—the appropriation level has been relatively constant. In addition we’ve had

to absorb about $80 million for pay cost increases because this

money is not appropriated. So in actuality there’s about an $80 million shortfall.

Mr. WALDEN. Could you put that in perspective for me in terms

of your overall request.

Mr. NEWBY. Our overall request for 2001 is $581 million; $417

million of that is just for salaries of our people, about 7,000 people.

$52 million is for IT expenses, information technology, and that is

a maintenance level only. There is no new development cost associated with that. And about $80 million for general support for travel, training, rent, utilities.

Mr. WALDEN. So you have 7,000 people.

Mr. NEWBY. Roughly 7,000, yes.

Mr. WALDEN. And so we’re funding 7,000 FTE. Would that be

correct?

Mr. NEWBY. Yes.

Mr. WALDEN. Those are all filled? Are those all filled positions?

Mr. NEWBY. No, we have about 100 vacancies at the moment.

Mr. WALDEN. Is that pretty much an average to have?

Mr. NEWBY. Well, at the moment it’s almost forced. We imposed

a hiring freeze last October basically so we could make it through

the year. In order to keep everyone on board, we reduced general

support costs by almost 22 percent.

Mr. WALDEN. I overshot my time, Mr. Chairman; but I’ll come

back for a second round when we get there. Thank you very much.

Mr. HORN. I thank the gentleman. And I now yield 10 minutes

to the gentleman from New York, Major Owens; 10 minutes to the

gentleman from New York.

Mr. OWENS. Thank you, Mr. Chairman. The problem that I always ask about I would like to get back to it, when can we expect

results with regard to USDA corrective action plan to overcome

noncompliance with credit reform requirements that were first discussed in this committee in 1994? Have we done any—made any

strides toward repairing, again these deficiencies wiped out—it

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goes much further back than 1994. I remember being astounded by

the fact that under Ronald Reagan they put people on these credit

committees that had been given great loans, some of them were

multimillionaires and not paid back the loans. And that whole

problem has really stuck with me for some time because I’m a veteran of administering social programs and community action programs and programs involving poor people. And they always ride

herd on us for every dime. And to find out that millions of dollars

were not being paid by people who sat on committees that made

decisions about getting the loans really shocked me. In that area

have we had any improvements? Let’s take the Farmers Home

Loan program. I think that the name of it was changed.

Mr. KELLY. My name is Keith Kelly, Administrator of the Farm

Service Agency, which now does incorporate the Farmers Home Administration with the ASCS. We have made progress over time as

the law was passed by Congress to sit there when these loans were

uncollateralized—— Mr. OWENS. They were $14 billion when we first started discussing this.

Mr. KELLY. That’s correct. When I came here about 3 years ago, we were still working down these millions and $500,000 loans that

were never collateralized, nor were they required to be

collateralized. I think we’re now about—I will use the million-dollar

category—we’re somewhere in the neighborhood of about 300 loans

out there that about 75 percent of them are going through some

bankruptcy or court or litigation process.

Mr. OWENS. Is the problem computers, financial system? What

was the problem? Why did that get out of hand?

Mr. KELLY. Those loans, why they got out of hand is the question

you’re asking, why the loans got out of hand?

Mr. OWENS. That’s the question.

Mr. KELLY. By law they did not have to be collateralized. If I borrow money, I have to put up something for collateral to the bank.

And if I don’t pay my loans, they can come and repossess my car

or my house. Those loans are uncollateralized loans. And with

that—there was an emergency, they were economic emergency

loans. In that economic crisis that happened in the mid-1980’s,

those loans were made available hoping they would be paid back.

Well, there was—— Mr. OWENS. Hoping they would be paid back. They made money

available hoping. There were million-dollar loans made.

Mr. KELLY. Yes.

Mr. OWENS. Where are we now? What’s it down to now?

Mr. KELLY. In the total, I do not have that information.

Mr. OWENS. The system won’t tell you that?

Mr. KELLY. We have the information. I just do not have it here

at this hearing for you. I’ll provide it for you.

Mr. OWENS. Your system can give us that information.

Mr. KELLY. Yes, our system can give us that information.

Mr. HORN. Without objection, that answer will be put at this

point in the record.

Mr. OWENS. You cite—a number of deficiencies have been cited

this morning. Can you give us some areas that there have been

some improvements in at this point?

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Ms. THOMPSON. Mr. Congressman, one of the areas of improvement is bringing in the new accounting system. We now have over

40 percent of the Department up on the new accounting system. By

this October 1, we will have over 80 percent. We will have all of

our large agencies up on the new accounting system. That is going

to make a significant difference of being able to give accurate, timely, and reliable data. We still have a ways to go. We still have got

a lot of old systems that are feeding into that accounting system.

But the Secretary is very actively addressing that. We have an executive committee that’s being chaired by myself that includes the

senior management at USDA to put in place a plan to replace the

procurement system, the property system, the travel system, and

also budgeted formulation system as well as some human resource

systems and a new payroll system. This will allow us to have within the next—hopefully to get to a qualified opinion by this October

and to a clean opinion by the following—— Mr. OWENS. Could you just clarify for me, the chart here implies

that the number of employees should increase in proportion to the

amount of money you’re loaning, and it’s gone down instead of

going parallel up.

Ms. THOMPSON. That’s exactly right. It’s not just employees, but

it is also what we said we needed money for systems. We need—— Mr. OWENS. So it’s not just employees. It’s the cost of systems as

well as employees.

Ms. THOMPSON. In that bottom line. In the top line—— Mr. OWENS. Fewer employees, but you might have to put more

money into your computers.

Ms. THOMPSON. That’s right. The money for salaries and expenses which would include systems have gone down 28 percent

and our program dollars that needed to be delivered have gone up

about 51 percent. There is that gap. This is Rural Development.

Farm Service Agency could show you the same chart there. That’s

what I’m talking about is that gap, you know, not that it should

be right on top of each other; but we’re certainly needing more dollars for both salaries and systems.

Mr. OWENS. Is it true that the Department of Agriculture has— the number of employees in the Department of Agriculture is second only to the number of employees in the Department of Defense?

Ms. THOMPSON. I believe we’re somewhere around the fourth or

fifth largest Federal agency.

Mr. OWENS. It’s not true then.

Ms. THOMPSON. I don’t believe we’re second, no. I believe the

State Department is and——

Mr. OWENS. Anybody have a figure as the number of employees

you have in the Department of Agriculture?

Ms. THOMPSON. We have right around about 100,000. Maybe

around 92,000 93,000.

Mr. OWENS. Before these systems have gone—as these systems

go into effect, does that go down proportionately? The number of

family farms versus agri-businesses need less people to service

them?

Ms. THOMPSON. That’s absolutely true too. But I will say since

Secretary Glickman came in in 1994, I believe that we were about

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138,000 employees. And now we’re down, I think, around 92,000

93,000.

Mr. OWENS. So going back to my first question, according to the

Inspector General, some of USDA’s lending agencies were not in

full compliance with some of the provisions of the debt Collection

Improvement Act. Specifically, which programs were not in compliance and what is being done to correct these deficiencies? Does that

overlap with what you said in the first place about the Farmers

Home Loan program?

Ms. THOMPSON. I believe that some of those are referring to the

amount of debt that’s turned over to Treasury to be collected. We

have made significant improvement in the dollars that we have

turned over, and we will have an even larger improvement this

year. There were some dollars that we were waiting to turn over

because they were looking at the National Finance Center as to

whether it should have been a debt collection center. Because

Treasury needed some help in their Birmingham area, they were

able to get that up to speed. And they just let us know in January

that the National Finance Center would not be a debt collection

center. So we’re in the process of getting those loans being ready

to be turned over to Treasury for collection.

Mr. OWENS. Can somebody clarify for me what the procedure is?

How long do you wrestle with the problem of repayment of loans,

and when do you turn it over to the Treasury debt collection?

Ms. THOMPSON. The average is around 180 days. However, that

varies from the type of loans. We obviously don’t—— Mr. OWENS. Even collateralized loans that we were talking

about, they get longer time to incubate before they go to the Treasury?

Ms. THOMPSON. Yeah, because those are very old loans. I am

talking about the newer loans. If they’re home loans—— Mr. OWENS. The older the loan is the less attention is paid to it?

Is that what you’re saying?

Ms. THOMPSON. No, that’s not true. I think what Mr. Kelly is

saying they have applied a lot of effort to collecting some of those

old loans. But when they’re not collateralized and you have no assets to go after, it takes much longer in court. If that person has

any other assets that the court can—it has to go through the court

system at that point.

Mr. OWENS. Is there any regulation or rule of privacy that prohibits you from making available to this committee the list of the

people who have had loans more than 180 days overdue?

Ms. THOMPSON. I don’t think there is. We can get back to with

you that answer. I think it’s going to vary on the type of loan.

Now——

Mr. OWENS. Some loans are covered by privacy.

Ms. THOMPSON. Whether they’re a home loan, as you know

there’s much different regulations in place.

Mr. OWENS. You don’t keep a public record of loans that are

made?

Ms. THOMPSON. Oh, of course we do.

Mr. OWENS. So it is a public record. The answer to my question

is that there is no reason to—there’s no prohibition on making public the information.

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Ms. THOMPSON. That’s true, but what I’m saying is it’s not all

loans are delinquent in that 180 day. They may be delinquent, but

they’re not collectible. If they’re bankruptcy, if they’re foreign

loans, if they’re in the court system——

Mr. OWENS. Why shouldn’t we have information on those that

are not collectible?

Ms. THOMPSON. Oh, you can have the information.

Mr. OWENS. We still want to know where they are.

Ms. THOMPSON. I’m not saying you can’t have that.

Mr. OWENS. How soon can we get that information?

Ms. THOMPSON. We’ll certainly work on that and probably I

would think in the next 30 days.

Mr. OWENS. Mr. Chairman, I ask unanimous consent that we ask

for the——

Mr. HORN. The unanimous consent order is to all of this data we

would like put in on the background of it. Well, let’s put it at a

certain—the whole reason I authored the Debt Collection Act of

1996 was because of agriculture loans that you gave a couple of

million bucks to a guy that defaulted in northern California. He

then went to live in pretty posh Santa Barbara in California and

lo and behold they gave him a loan again. And so, yes, we would

like to see who the deadbeats are that aren’t paying back their

loans.

Mr. OWENS. Let the record show this is a bipartisan request.

Mr. HORN. I am for family farmers, having been one; but I am

not for defaulters. We ought to set it, Major, at some part, you

know, over a million to start with or over $500,000.

Ms. THOMPSON. That’s what I was going to say.

Mr. OWENS. I am just interested in those over a million that is

all.

Ms. THOMPSON. OK. That we can do.

Mr. OWENS. Thank you, Mr. Chairman.

Mr. HORN. Thank you. Those are good questions. Let me just

yield—well, we’ll give you 10 on your own. So go ahead.

Mr. WALDEN. Go ahead.

Mr. HORN. Let me ask you this, Ms. Thompson. If you put it in

a nutshell, what is it that the Department has to do besides the

people investment in capital? I’ll get to that in minute. What—how

would you put it so we don’t see this same material pop up every

6th year of the 6 years? What would you do to get the job done?

I realize you aren’t the CIO; you’re the CFO. But tell us what

needs to be done, in a nutshell.

Ms. THOMPSON. OK. I may not be the CIO, but I am responsible

for financial systems. So I guess that puts—and when you start to

think about that, almost everything we do at the Department has

a financial system impact on it. And I guess that that’s what I really need to do, I need to finish getting the accounting system up.

We’re working very diligently on that. And we will have everybody

up a year from this October, but 80 percent up this October. I also

need to get those feeder systems, as we’ve talked about, which are

all of those auxiliary systems that feed into that accounting system

that are also built in the 1970’s, get good information, you know,

get those systems up and running.

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We will have gone a long ways. And that includes the loan systems as well. Because they obviously feed in—if you think about

everything that feeds into our financial statement, those are the

systems that I need to get out of the 1970’s technology, up to date,

and feeding into our accounting system that produces our financial

statements. We need to get some training done in the Department

because obviously you put new systems in, you have got a lot of

business processes that need to be reengineered that makes the Department also more effective and more efficient. What I am finding

is so often not only in our National Finance Center but also

throughout the Department is that we need good training and financial management. We need some stronger staff in financial

management.

Mr. HORN. Now, is that your responsibility, or is that personnel’s

responsibility, or how do you get that supervision and training and

retraining and retraining?

Ms. THOMPSON. It needs to come—one of the things that we do

as a CFO office is direct that. We are responsible for the leadership

of financial management in the Department. And I’m finding that,

you know, we’ve got all the cooperation that we need within the

Department in the agencies, but the problem is resources. It always comes down to, do we put the staff in the program area versus putting it in the financial management area.

Mr. HORN. Ms. Thompson, to what extent did the Department reprogram funds at the end of the fiscal year? How much were reprogrammed and moved elsewhere in the Department?

Ms. THOMPSON. Wish I could say we had—we were able to do

that. But when I went out to find out how much unobligated funds

we had out there, we could not tell that because we didn’t have

good enough systems.

Mr. HORN. So you can’t go back—you kicked all of that back to

the Treasury then.

Ms. THOMPSON. That’s right. One of the pieces of legislation that

I tried to put through last career that’s coming back again this

year is to be—to allow us to use those unobligated funds amount

to about $50 million a year. And out of a 5-year period of time

that’s $250 million. Now, they could only be used if they don’t score

against us because obviously if you gave us $50 million to use but

took $50 million out of our budget, we haven’t gained anything.

Now which means you would have to convince the CBO not to score

it.

Last year they for a while they said they would, and then when

they came right down to it, the appropriators approved a pilot program that would have allowed us to use 1 year’s funds to see, you

know, how it worked. And then CBO came back and said they

would score it. Certainly, OMB is supporting that legislation again.

We will try it. If you have any influence with CBO that would go

toward a long ways toward solving that problem for us.

Mr. HORN. When you were asked about the number of employees,

you noted that since Mr. Glickman came, it went from about

138,000 down to 93,000.

Ms. THOMPSON. Yes, sir.

Mr. HORN. So you should have gained some money by having

45,000 less employees.

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Ms. THOMPSON. Well I think—— Mr. HORN. Do you not have your personnel records and your financial records all tied to those salaries? That’s how you aggregate

a budget.

Ms. THOMPSON. That’s true sir. But if you look at this chart

where it shows that we have dropped 28 percent in our S and E

budget, that takes care of most of the drop in the Department.

Mr. HORN. The corporations that did the same thing during the

recession at the beginning of this administration, they found that

they were more efficient, their systems, and they were better off.

And it just seems to me somebody has got to make a tight judgment and somebody did over there. They can’t take credit and then

damn it, because the fact is that’s exactly what they did. They had,

I think, 108,000 in Internal Revenue Service, got down to 100,000.

That was the Gore initiative.

So what happened to the money is what I’m asking and why

wasn’t that put to either lower-paid people that come in. That’s

usually why they do the $25,000 bit and get the higher-paid people

out to retirement, and just seems to me that that was a pretty good

chunk of money that could have brought the people that you need

to get this job done. Now, when I look currently, there’s an out-ofbalance amount of $5 billion that the Inspector General notes they

can’t reconcile the checking account. Now, with some of those people, it wouldn’t take 38,000 or it wouldn’t take 45,000 people; it

would take just a few hundred here and a few hundred there, I

think, you would agree with proper training.

Ms. THOMPSON. I would agree with that, sir. I think, though, you

look at the Department of Agriculture and if you take out the

emergency funds that have been given to us over the years, you

would find that our budget is straight lined, in fact even down a

little bit. And as Mr. Newby mentioned, from rural development we

have absorbed the pay cost and the inflation of just supplies and

that sort of thing. And in Rural Development alone that costs $80

million over the last 5 years, as he mentioned. So a lot of the savings as you are looking at it on the salaries that were either those

dollars were cut or they’ve been absorbed by inflation and pay

costs.

I certainly haven’t been able to find them, and I have been

digging everywhere I can look for dollars. Our systems, if you get

good systems in place, they will pay back over a 5-year period of

time. But the problem is you need an up-front investment. One of

the things I’m even looking at is the possibility of borrowing some

funds from Treasury, knowing that I can pay that back as like a

loan with the efficiencies that I can gain by getting rid of some of

those old systems and being able to streamline the staff that would

be running those systems.

Mr. HORN. In the Debt Collection Act of 1996, we provide that

you get money back when you collect the debts. And you might

want to explore that part of the law. The whole thing was to give

an incentive to upgrade computing with both the capital and

human investment as well as the capital in hardware and software.

So I would take a look at it because you have a real loan collection

problem. There are others that have bigger ones, but you’ve got

one. And it’s manageable.

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And I think, as you say, if you can get it down to manageable

pieces here, why, it will work. But it won’t work and that’s why I

want to just off the top of your head from what do we have to get

to. What is priority one? What is priority two? So forth. So can you

tell me that?

Ms. THOMPSON. Yes, I certainly can. Priority one is the financial

systems, which include both the accounting and all of those feeder

systems. Priority two is getting the credit reform. Again, that’s another system, but it’s also getting all of the data verified and collected. A lot of that data is in the counties out there in those files

that we need that is a priority two. Priority three is getting the

property system in place for the Forest Service, getting the inventory done and getting the documentation needed to substantiate

that.

Mr. HORN. What does that take in the Forest Service? Is it just

agreeing on what is a piece of property or what is a tree or what

is it? I mean, how are you going to deal with that?

Ms. THOMPSON. Sir, that has to do when I talk about documentation is what was the cost. And probably the roads are a classic example there. And I would like to if you—if it’s all right, I would

like to have the Chief Financial Officer from the Forest Service tell

you exactly what she’s doing to be able to, for instance, inventory

the roads.

Mr. HORN. This is Ms. Goerl.

Ms. GOERL. Yes. I’m Vincette Goerl, and I’m the Deputy Chief for

the Office of Finance and Chief Financial Officer; and I report to

Mike Dombeck. In our process of getting good valuation for not

only an inventory but a good valuation of the real and personal

property, one of the largest challenges that Mr. Viadero spoke to

was the value of pooled assets on the roads. What we’re talking

about there is the collection of costs associated with the building

of the roadbed over time. We’re talking about a road system of

nearly 400,000 miles, a significant amount of those built over the

last 50 to 60 years.

So when you go back to establish a baseline cost or valuation of

that property, finding those records would be and are next to impossible. So what we have been working with at the Inspector General this past year on a methodology for going back and establishing one-time baseline cost for these pooled prior to 1995. We have

collected the cost documentation since that time and have the costs

for those road improvements.

Within the next few weeks we will have finalized all of our discussions with both GAO and the Inspector General on how we establish that one-time base cost; and we would apply it this year

through an acceptable methodology. Then we would have a baseline from which to work in the future for those costs. That’s a

major issue. Because that’s a significant amount of valuation of our

assets.

What was also mentioned is we completed our first and most

thorough inventory of real and personal property this past year.

That was a huge undertaking when you’re looking at 150,000

trails, 400,000 miles of roads, 45 thousand facilities and such. We

also implemented a new systems module in Infrastructure, our real

property system where we could collect property information along

68

with valuations which we had to establish for all of that real property, to come up with the valuation or plant, property and equipment for our financial statement. It lacked, however, the pooled assets because we had yet to agree on the methodology to establish

values for those assets.

Mr. HORN. So that road condition that factor tell how well the

role—that the road had survived? So it’s a matter of say maintenance and preventative maintenance.

Ms. GOERL. There’s two aspects to the inventory that we took.

One was on where the roads are, how many roads are there, how

many facilities are there. And then what is the cost or value of that

property so that we can run it through a depreciation model. The

second aspect is deferred maintenance on a survey of the condition

level of that property. Those are two different sets of issues. Our

deferred maintenance for the roads alone is around $9 billion. And

having to do the work to do the survey of all those roads accurately

has taken us some time. That does not include the rest of the

maintenance on our facilities and other things like that. It’s probably closer to $10 to $12 billion. We have to come up with separate

methodologies on each type of property and the approaches toward

completing the total survey of all of our real property. That is also

being collected in this new system.

This is a huge undertaking and we were very proud of the effort

we completed last year. This is the first time we have ever included

all that data in the system to determine its value. We had problems with ensuring that everyone did this in the same manner,

that the documentation was there, and that the valuations were

inputted correctly. An initial audit by the Inspector General did

demonstrate there were problems. We’re working right now on

going back and correcting that information and we just initiated in

the last couple of weeks this year’s full inventory again. We will

be asking for that inventory to be completed by the end of June.

We are working with the Inspector General so that we can go

through a full audit year on real and personal property.

Mr. HORN. What you say makes a lot of sense to me now. It

sounded like you’re also getting management decision points where

people can decide do they need that, don’t they, and this kind of

thing, what’s the level of maintenance, what’s our long-term budget

for preventative maintenance.

Ms. GOERL. Extremely valuable information. The fact that this

information is auditable provides much more credit with our appropriations committees and internally in the Forest Service as we decide which maintenance approach we will take for both roads or

other real property but also what it will take over time dollarwise

to bring the maintenance level up for this property.

Mr. HORN. I guess I would ask you in—well, I think my time is

over. I’m going to get my other colleagues back in this. And then

I’ll talk to you about measurement. Because I think that’s the key

to a lot of what every agency is doing. And it’s—it shouldn’t just

be an accounting data obviously. Are think we kid ourselves, we

need to make sure nobody stole it. But we also need to make management decisions. And sounds like you’re on the right track. The

gentleman from Oregon, 10 minutes.

69

Mr. WALDEN. Thank you, Mr. Chairman. Let me read from again

the testimony from last March 11 by Mr. Viadero who said, ‘‘First

of all’’—this is reference to the Forest Service, oh, she left the

table. Oh, don’t go away.

First of all, real property, accounting for real property is by far the most significant accountability problem the Forest Service has. Unfortunately, though, the Forest Service may be able to see the forest for the trees it’s uncertain as to what is

in the forest, where it is or how much it is worth. In fiscal 1997, we could not verify

the 8.2 billion in real property reported by the Forest Service because the agency

had not inventoried enough of its assets nor put a value on them.

It goes on to talk about the work that was being done. That was

last year. What is the current value of the assets of the Forest

Service?

Ms. GOERL. Well on the balance sheet it’s around—I’m going to

guess here because I don’t have it in front of me it’s around $3 billion with depreciation, I believe for the total real property.

Mr. WALDEN. So you’re taking the value of the roads and are depreciated cost over how many years, 20, 30?

Ms. GOERL. I think what we’re looking at is a 50-year depreciation of the road pools when we get through with our methodologies.

I can’t remember them all right now, I can provide them for the

record if you wish; but there are specific depreciation schedules for

each of the different types of property that have been established.

The key objective is to have the correct valuation of the property

in the beginning before you apply the depreciation not only have

a problem in getting accurate information in the system but the accurate costs validated and then running the depreciation schedules.

[The information referred to follows:]

70

71

Mr. WALDEN. I am very sympathetic to the challenge you face,

and I am glad these improvements are taking place. They’re obviously long overdue. I guess the question is as this administration

and through the Forest Service pushes through at a very rapid rate

the new roadless regulations for the Forest Service which will cover

40 million acres and the chief has made it clear he wants that done

by the end of the year, what effect will that have on the balance

sheet? Has anybody ever talked to you about what difference is

that going to make if these areas are suddenly going to be become

roadless and—— Ms. GOERL. Well I think there’s two different issues here. First,

I think there’s what is the financial and the inventory information

that we have about our assets. The second thing is obviously if any

of that information will be used in determining some of the policy

decisions and where that feeds into the regulatory process. Of

course you want valid information from which to make your management decisions on the policy, but I think the two are very distinct. Obviously one feeds management information into the other

for determination of what you will do given whatever regulation

you are considerating. Obviously we’re using this type of information from the infrastructure system to support the analysis on the

roadless initiative and others, but we’re using other policy and rearrangement information as well.

Mr. WALDEN. You don’t have a dollar figure that’s what I was

after.

Ms. GOERL. A dollar figure for the investment in the roadless initiative?

Mr. WALDEN. Yeah, if those regulations are passed.

Ms. GOERL. I do not have any information. I can provide that for

the record on the impact I know we’re spending about $8 million

on the analysis and the development.

Mr. WALDEN. $8 million.

Ms. GOERL. The estimated costs equal $8.6 million in fiscal year 2000 an additional $1.2 million in fiscal year 2001.

Mr. WALDEN. OK. Let me see here. I want to go back to those

issues of the loans that the chairman and Major Owens spoke of

too. Because I understand the committee is going to get the one

over a million. I wonder if we could get just a statistical analysis

by number of loans and values in some categories below a million

so we can get a look at is a million a small segment of those loans

and really the problem is below that but we don’t want your 20-

feet-high stack of information.

Ms. THOMPSON. Absolutely. If in the back of the financial statements of which I’m sure that you have, they break down the loans

in quite a bit of categories. This would be on page, starting on page

44 of the financial statement.

Mr. WALDEN. Oh, very good.

Ms. THOMPSON. It would give you the balances of direct loans

both prior to 1992 to after 1992, the default on the guaranteed

loans, again broken those down, the guaranteed loans outstanding

and then some of the subsidy information that GAO was talking

about is also there. But it gives you a gross loan balance broken

down between housing and utilities and——

Mr. WALDEN. But it wouldn’t have it by size of loan.

72

Ms. THOMPSON. We’ll work on that one, yes. We’ll have to get you

that type of information. But we can do that.

Mr. WALDEN. OK. You’ve got bigger challenges I know and I

don’t want to throw—if it’s a big burden don’t worry about it.

Ms. THOMPSON. Need to take a look at those.

Mr. WALDEN. That would be helpful. I guess back on the Forest

Service issue, while I realize it’s important to figure out these

pooled assets—see you thought you could get away, no way. The

pool asset issues is of course important to the balance sheet but I

remember again Mr. Viadero your comments about the receivables

and payables last year was and quoting again from the record in

the ag committee, ‘‘Since 1993 the Forest Service has historically

computed its account payable balance statistically by identifying

the extent of errors likely to have occurred and projecting them

over the universe of transactions then adjusting the total.’’ Has

that been fixed?

Ms. GOERL. It’s definitely fixed when we moved to the new financial system because we had subsidiary accounts receivable and accounts payable systems which we did not have in CAS. That, of

course, went into effect October 1. But, of course the audited financial statements are on fiscal year 1999.

Mr. WALDEN. This year.

Ms. GOERL. We expect that this year we will be able to take

away one of our major areas of material weakness because we’re

using a certified standard general ledger in the financial system.

Mr. WALDEN. So you’re comfortable we don’t have this statistical

projection to get to balance.

Mr. VIADERO. I know I’m the IG for Agriculture. I want to use

my colleague in State Department’s comments, we’re cautiously optimistic.

Mr. WALDEN. So are we. Oh, I have a question too back on this

issue of, you know it’s a constant struggle either in the private sector or public sector trying to figure out how many people or how

much money do you need to run a program. I guess the question

I have is do you look at private sector models in terms of how many

loans a loan officer can manage and the volume of those loans and

compare that against what is going on with your, say, on this example the rural development program? And if so how does the Federal Government stack up?

Ms. THOMPSON. We have done that, and I will let Mr. Newby address that. I guess I would just like to say having come out of the

private sector, in fact I was a bank president at one time, there is

a big difference between the loan portfolio in it and the Federal

Government. We don’t say we’re the lender of last resort anymore.

We say we’re the lender of opportunity. I think that makes a big

difference. But what I’m saying is not only is the clientele a much

different clientele that they’re dealing with than you do in the private sector, and certainly Mr. Newby can describe a little bit of

that for you. You know our people need to be able to speak five languages. They’re dealing a lot with senior citizens, disabled people,

low-income people, uneducated people, the whole thing; we’re dealing—but so that makes our statistics means that it takes us longer

to manage that. And with that I’ll turn it over to Mr. Newby.

73

Mr. WALDEN. Before you do that since you were a bank president

I spent 5 years on a bank board, what is the rate of non-performing

loans by percent?

Ms. THOMPSON. Ours is, as you know, between 6 and 7 percent

which is pretty good, you know. It depends upon—and if you’re

talking about residential loans, you know you’re down around 3

percent there. If you’re talking about commercial loans and you get

into oil loans—I was in Denver during that period of time where

it went to 20 to 30 percent. You know, so again, that’s what I was

trying to tell Congressman Owens is it’s the type of portfolio you’re

looking at. And then you got geographical differences too. And

when the housing market just bottom fell out of it up here in the

Northeast but in the Southwest it was very strong. You know that

sort of thing.

Mr. WALDEN. Good point.

Mr. NEWBY. We haven’t collected data in the last few years that

would compare the number of loans per individual loan officer with

the private sector. I can provide that for the record that will show

you some that were 4 or 5 years ago. The reason we haven’t is that

we changed about 30 percent of our workload by centralizing all

the single family housing loans. We had a very decentralized servicing system. We centralized all of that in St. Louis and now providing tax and escrow services for the borrowers for the first time

after 20—almost 20 years after Congress told us to. That changed

about 30 percent of our workload. So we need to do a new analysis.

But I can show some data from 3 or 4 years ago.

Mr. WALDEN. Would that be useful to us though?

Mr. NEWBY. It would. The number of loans each loan officer handles for us is significantly higher than you would find in the private sector.

Mr. WALDEN. And more difficult according—— Mr. NEWBY. More difficult.

Ms. THOMPSON. Very much more difficult. If you go out to that

loan servicing center at St. Louis, we brought in a manager from

Citibank that’s running it, doing an incredible job. And all through

that area you’ll see charts up on, you know, how many calls linked

up through the day what the number of minutes were, how that

compares to the private sector. So they really are running that

servicing center much as would you in a commercial market.

Mr. WALDEN. Very good. Thank you, Mr. Chairman.

Mr. HORN. I thank the gentleman. And I have a few questions

here before the Inspector General leaves. Let me note that he reported 32 State agencies do not have claims systems in place that

can accurately report and collect on over-issued food stamps. How

much do you estimate was the total over-issuance of food stamps

in fiscal year 1999? Do you have those figures, Ms. Thompson?

Ms. THOMPSON. I have a cumulative figure of about $1 billion.

But I don’t have it broken down for 1999.

Mr. HORN. 1998 was $1.3 billion.

Ms. THOMPSON. Yes. Right. I just got a 1998—yes that’s $1.3 billion. They will have the 1999 figure in May.

Mr. HORN. We’ll leave a space in this record for that letter.

Ms. THOMPSON. Mr. Chairman I’m sure you already realize and

know but maybe not everybody realizes that the States determine

74

the eligibility on that. They also control the collectibility on those

as well. And that’s part of the problem as I mentioned in my testimony in being able to turn that over to Treasury. And I have had

very long sessions with Treasury. Of that $1.3 billion, it’s made up

of a million accounts and they average about $88. There is also

some regulations on the—that you can’t go against, I believe, somebody that is currently receiving food stamps to collect. So the

States have, you know, they may have gotten some over-funding at

one time; but, you know, they’re still eligible for food stamps. The

problem is also the States can’t turn that over for collection because their systems can’t talk to Treasury.

Mr. HORN. Are the States not turning it over because Congress

passed a law that it’s none of our business or what?

Ms. THOMPSON. No.

Mr. HORN. I mean some authorization—let’s face it they’re not

concerned about money. They’re just concerned about keeping people happy. So I’m just wondering is that a law that we can’t collect

it and the States should collect it?

Ms. THOMPSON. Yes. The States are—now they can turn that

money over to Treasury, but Treasury can’t accept it. They can’t accept paper, and they can only accept electronic transfer. And

there’s 53 different systems at a minimum out there to be able to

turn that over.

Mr. WALDEN. Mr. Chairman, if I might, I believe Congressman

Goodlatte is working on legislation to make for a unified system

where all the States would be able to talk to Treasury as I recall.

Doesn’t he have legislation? It seems to me we had a hearing on

that in the subcommittee.

Ms. THOMPSON. Yes he does. You know, the States were so involved also in Y2K as you know and becoming compliant. So even

those that had system changes on the drawing board got put to the

back.

Mr. WALDEN. So there may be some hope there.

Mr. HORN. Does the Inspector General have some thoughts on

this.

Mr. VIADERO. Yes. First of all Mr. Chairman it’s incumbent on

the States to get this money back. However the States can send the

tapes to Treasury and let Treasury do the collection for them. So

actually USDA is out of it. The States know what they have to get

the money, but nobody is really pressuring the States to collect

money. It just stays out there. As Mr. Walden said, it’s sort of a

float; and it’s a float of $1 billion approximately. But the States can

send the tapes back to Treasury under the legislation, and Treasury can collect it, not USDA.

Ms. THOMPSON. That’s true. But the problem with Treasury is

that they can’t accept those tapes because they’re not formatted in

the same way that their systems can accept it. At least that’s what

Treasury tells me. You know you got 53 different systems out there

from 53 different States and territories.

Mr. VIADERO. I don’t want to be a cynic again, Mr. Chairman,

but if the States can work with Treasury when it comes to receiving money then certainly the States can work with Treasury when

comes to getting the money back.

75

Mr. HORN. In other words, you’re saying it’s a one way system

the way the States see it give us the money, and put it on the

stump and run.

Mr. VIADERO. That’s another way of putting it, yes, sir.

Ms. THOMPSON. Mr. Chairman, if I could, I do have somebody

here from Food and Nutrition, and they just handed me the note

that says that in fiscal year 1999 the States collected about $213

million from recipients that had been overpaid. As an incentive,

States receive a portion of the collected claims. So there is some incentive there. I’m not saying that the Inspector General isn’t right,

that whether that incentive is enough. I know I have talked to

Roger about what hammer do we have; and he has said, well we

could stop issuing the State food stamps. But you know that that

doesn’t sound very realistic.

Mr. VIADERO. What I said was hold back the administrative costs

until they get the money back. We never want to hold back benefits

from the recipient. These people need it. But the States—if a State

has a debt and we held back the administrative cost until the

States did their job I think we would be in better shape.

Mr. HORN. Well, we found that out in Y2K. They’re partners and

we’re partners with them. And unless you keep on it, everybody is

going to say, hey, we can just keep that money.

Mr. VIADERO. Mr. Chairman, something else, if I can, since this

is also the IT committee, or is the IT committee of particular interest to us—and I don’t want to sound like I don’t want to be left

off the cry poor band wagon, but my staff has gone down in the

last 3 years, 24 percent because we’re viewed as a staff organization.

We get nothing funded. Either we get flat lined in the House and

the Senate gives us a modest increase which doesn’t cover the raise

or it’s vice versa. Right now I have about 72 people on average doing CFO and CIO work. And to that end, it will take almost $1

million for us to get a computer lab to perform IT security reviews.

GAO issued a report on the computer hacking and just by coincidence it happened when there was an international hackers convention going on. Timing is everything. And Ms. Thompson we had

what 12,000 hacks a second into the National Finance Center. Now

that, to me, is exceptionally disturbing. Given the amount of dollars that go through the National Finance Center and the other

payment centers and collection centers that we have, 12,000 hacks

a second. It’s phenomenal.

I have a small group of folks that sit in an unknown place, and

they do unknown work—no. What they do they’re my hackers, they

try to hack into systems. And you know we’ve gotten through in

some of the systems, particularly some of the loan systems we just

left a message there, hey we were here. Actually we were going to

get a loan in the name of Dan Glickman and put it in and give him

a statement that his loan has been paid. But we opted not to do

that in fairness to the Secretary. But we could use a hand on the

IT side in helping us with our committee’s as far as getting a test

lab through so we can further prevent the hackers from coming in.

Mr. HORN. Now, do the CIO’s have a committee on this? I believe

they do, don’t they?

Mr. VIADERO. There’s a CIO committee, yes.

76

Mr. HORN. Are they talking to Inspector Generals and CFO’s

also.

Mr. VIADERO. Probably not.

Mr. HORN. Because the question was, we would welcome your

thoughts. We’re trying to put a standards on computers security so

that we will be able to grade them, same as we did on Y2K.

Mr. VIADERO. Our response is in for SR 1993.

Mr. HORN. We could welcome those of you on the firing line to

say what are the basic minutes an agency has to have if you are

going to be serious about computer security so if they haven’t come

in, just mark it personal. I would like to see it before I give it to

the staff.

Mr. VIADERO. Yes, sir.

Mr. HORN. So I appreciate that. I hope the CFO’s have a crew

working on that. That to me is very essential. A lot of it is going

to be government funded of other governments in a number of

things around here, rather than individuals but we need to protect

ourselves from both. The individual, the happy smart type in high

school and community college and universities, except I think a few

are sitting in Federal prison now and a few more will be, but we

do want some basic things that make some sense that would be respected by the community that’s got to administer it.

Mr. VIADERO. We will have it up to you Mr. Chairman and addressed to you personal.

Mr. HORN. And then one on let’s see here, well the unreconciled

balance with Treasury, and then you can depart.

Mr. VIADERO. Thank you, sir.

Mr. HORN. Just seems to me that that ought not be that difficult.

Now you’re saying the source documents, and they’re so old and the

equipment and the processing, you mean they don’t talk to Treasury. So what you would need then I take it, Ms. Thompson, is a

whole new computer set that interfaces with Treasury. Is that it?

Is that what we’re trying to guide for? We’re asking the GAO to

go out and look at all of these things, hardware, software. And so

we can be serious about it in both the executive branch and up

here in the legislative branch and know what we’re talking about.

So we’re hopeful that they will carry that.

Mr. VIADERO. I think Mr. Young can shed some light on this for

us.

Mr. YOUNG. I think that the National Finance Center needs to

keep on top of it. What the problem was, they used to plug the

number, in other words to make them match. And they didn’t work

the reconciliations on a timely basis. So as a result, they buildup

over time. As they buildup, each month, each day it gets older it

makes it more difficult to go back and track why there is a difference. So what they need to do is to have a system that identifies

any time there is a difference; and once that difference is identified, to trace it back and find the answer for it so it doesn’t buildup

over time and make it an impossible situation.

Mr. HORN. Well I can believe that. Let me ask you this: I think

the Inspector General brought to the attention of the CFO the need

to update user fees to accurately reflect the cost of providing services and other things of value. Now, this year we learned that despite your direction to do so, one agency did not update its user

77

fees and therefore lost millions of dollars it was entitled to. What

agency are we talking about?

Ms. THOMPSON. You’re absolutely right, Mr. Chairman. And—— Mr. HORN. What’s the agency?

Ms. THOMPSON. Food Safety and Inspections Services, FFIS. One

of the advantages again this comes back to that new accounting

system, they did come up on October 1. If they had been getting

accurate and timely information and reviewing those reports, this

they would have seen on the very timely basis that the income

wasn’t coming in and expenses were coming in as budgeted. They

have since obviously gone back and reviewed those and have increased those fees and certainly now they will be getting timely information. I have about 13 agencies that are—have fees coming in

about 305 different programs. But I’m pleased to say that this last

year in the 1999, 9 of the 13 have reviewed the fees or are just

about finished in reviewing those fees. So we are making progress

in that area.

Mr. HORN. What about this one agency. It seems to me if I were

the CFO and they were crossing me I would either take care of it

and scare the living daylights out of them or I would go to the Deputy Secretary and the Secretary and say look, are you going to back

me up on this or aren’t you?

Ms. THOMPSON. They have a new CFO in place now.

Mr. HORN. They do. So you will have cooperation then.

Ms. THOMPSON. Yes, sir.

Mr. HORN. OK. Well that’s a plus. So I mentioned the need for

measurement standards on a lot of these programs. Is the IG and

the CFO and—GAO I know is working on this, has worked on it,

where are we getting the help at the grassroots such as Agriculture

as what are sensible measures as the effectiveness and the efficiency, not just in the money, we’ve always focused on money but

are these programs working? Are they getting done? Are our partners working with us? So what kind of work is going on at the

grass roots and agriculture on that?

Ms. THOMPSON. We have a very active group working on performance measurements. We are just in the process of reporting to

Congress our first annual performance report that does measure

those. Now, again, that goes back to having the right systems in

place to be able to measure. It also goes back to having the right

performance goals. We’re still learning on that. And it’s still evolving. I’m in the process of trying to pull that together. We had 1,600

annual performance goals for the Department of Agriculture.

Now, I know we’re very large and we’re very diverse but that

does not really tell you what the Department of Agriculture’s really

about and where they’re priorities are and what they’re effectiveness is. So this next year as we go through the process, we’re updating the strategic plan; and we will have one strategic plan for

the Department. And then that will have it set for annual performance goals, and we’ll no longer have 23 or 28 different individual

plans and 1,600 performance goals, but we’ll have some really

meaningful goals for you in each of the three major goals for the

Department.

Mr. HORN. If one asked you, take one measurement from all the

diverse agencies that you work with, what is the key measurement

78

that ought to be asked about and ought to be utilized in the strategic plan?

Ms. THOMPSON. Well I think it would vary from program to program, but I would look at productivity and the effective that—you

know, not how many loans you made but what of the effect of the

loans, the results of the loans that you made.

Mr. HORN. Now, on the loan issue do you think, since a number

of your agencies have major loaning operations, how do you get at

it other than the fact that they seem satisfied, they’re still in business or whatever it is, what did you think is the question to be

asked?

Ms. THOMPSON. Think since we’re responsible for rural America,

you know, we’re making our loans in rural America whether it’s a

farm loan, whether it’s a single family housing or whether it’s a

community loan or a utility loan in rural America. So what affect

did that loan have on the community.

Mr. HORN. Are you going to judge that, and who is going to judge

it, the partner at the grassroots.

Ms. THOMPSON. Think if you look at utilities, you know, what

was needed and did it provide utilities to how many homes out

there is as a percentage of the homes that needed utilities. If it’s

a community development loan, you know, for a small business,

you would look at it, you know, was it a critical business that was

needed to keep rural America going? If it’s a farm loan, you know,

did it keep—not only did it keep the farmer on the land but was

he productive in what he produced?

Mr. HORN. That’s quite a bit of information really.

Ms. THOMPSON. It is. It is.

Mr. HORN. You think that’s the one we’re all about.

Ms. THOMPSON. Right.

Mr. HORN. Makes sense.

Mr. VIADERO. Mr. Chairman, we’re conducting an audit right

now on the overall Department and how it stands on its performance measures. We are also performing an audit on the Forest

Service—we’re doing one on the Department and one the Forest

Service separate. The one on the Forest Service will be out in May,

and the one on the Department will be out in late September. We’ll

be happy to send you copies as soon as they’re available.

Mr. HORN. GAO have any thoughts on this? You have done some

work, I know, on performance measures.

Ms. CALBOM. Well, you know, I think that it doesn’t matter what

you choose to measure, to me one of the real key things is being

able to say what did it cost me to get me there. I mean I think you

always have to be doing a cost benefit analysis and saying this was

a good thing we did but at what cost. And that’s why it’s so key

to get the financial house in order so that you can be able to give

the taxpayer that information, what did the taxpayer get for their

money. And so it goes hand in hand.

Mr. HORN. Before the Inspector General leaves, since he seems

to like it here, isn’t going to miss—isn’t going to make—— Mr. VIADERO. It’s always a pleasure to appear before you Mr.

Chairman.

Mr. HORN. Just remember you’re under oath with statements

like that.

79

What do you think of the efforts the Department has taken to

correct the credit reform problems? How is that? What do you

think?

Mr. VIADERO. That’s a good closing statement.

Mr. HORN. Are you pleased with the progress? We’ve heard a lot

of words like progress going on around here.

Mr. VIADERO. I ask my able-bodied assistant.

Mr. YOUNG. There are a lot of things happening. I guess there

are some problems that won’t be taken care of this current fiscal

year. One is the working on just getting the models in place to

make these projections. And that’s one problem we have. The other

problem is just making sure they have all the information necessary to make the projections. In other words, going back to get

a good history what was—has taken place so they can more accurately estimate what the subsidies are. It’s a very difficult process.

And I don’t see it happening in this current fiscal year.

Mr. HORN. Well, so we wait till when, next spring of 2001, 2002?

What’s realistic.

Mr. YOUNG. I guess we’re tracking it. I guess a lot of things depend on just like everywhere else on the amount of resources and

the expertise—having the expertise to be able to use the models

and produce the actual subsidy numbers. They’re moving along. It’s

just a slow process. As far as when it’s going to be completed, I’m

hoping it will be completed next year. But I will have to wait and

see.

Mr. HORN. Now, is this seen as a management job or is it seen

more as a budget job?

Ms. THOMPSON. Would say it’s a budget job. I’ve got the management in place. I don’t have the resources. We certainly need additional people. They’re very hard to find. When they do, we all fight

over—we found one the other day and we had three agencies bidding for that person. So there is that expertise issue that Mr.

Young mentioned but as a budget issue, you know, if I had $2 million tomorrow I could get that single family residential loan model

in place.

Mr. HORN. Now, are the individuals you’re trying to recruit are

these people that have just come out of community colleges or universities or what?

Ms. THOMPSON. We’re looking for people that have credit reform

background. You know even out of industry there needs to be a lot

of training as I mentioned. There’s a big difference between financial loan accounting and a banking industry for instance than in

our—in the government. But we can train them. But I have to tell

you who would want to come to work in the government. I can tell

you that our beginning accountants, agreed accountants we are offering them $22,000 to $24,000 a year. They’re not going to get

anybody out of school. So you don’t have to worry about getting

somebody green out of school. There isn’t anybody who wants to

come to work for us at that point. Then when you move up the

chain and try to find somebody at that mid-level with credit reform

or lending experience, when they can make twice as much in industry or at least 50 percent more makes it very tough.

Mr. HORN. Well are you working with, I know, you’re very decentralized in agriculture and you have soil conservation this and that

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and the old days and so forth, but are—have you got a team that

can go down there and analyze how you deal with this when they

don’t necessarily have to put the paper up do they? If there’s a default. Or do you require that within agriculture.

Ms. THOMPSON. Now we do.

Mr. HORN. You do.

Ms. THOMPSON. Uh-huh. That was what Congressman Owens

was talking about, are old loans when there was a time there when

the legislation didn’t require collateralizing. But yes we’ve got a

Department-wide across the Department team working on this. I

think Ms. Calbom wants to make an issue.

Ms. CALBOM. If I could make a comment, Mr. Chairman, I think

one of the things that we’ve seen at the other credit agencies that

have been able to successfully implement credit reform is that

they’ve had to go out and get contractors to get this baseline of information pulled together because it is a very arduous task. And

that takes some money. It’s going to take you know, $2, $3 million

to get that done. But that is what the other agencies have had to

do in order to establish that historical base so you can make these

projections.

Mr. HORN. You find them reliable, the ones that are doing this

now.

Ms. CALBOM. There are some contractors that we have certainly

had experience with that, understand this issue quite well and

have done a good job.

Mr. HORN. What about the office of personnel management do

they understand what your needs are and are trying to improve recruiting or trying to improve the amount of money that goes with

a certain job?

Ms. CALBOM. I was surprised to hear Ms. Thompson’s comment

on that because that’s a little lower I think than we bring in our

starting accountants. So I don’t know what your situation is.

Ms. THOMPSON. There’s a 5, 10 accountant. $22,000. Grade 5,

maybe grade 7.

Mr. HORN. That’s grade 5 at what step.

Ms. THOMPSON. A grade 5 to 7 is the 22,000 to 24,000. And

that’s—— Mr. HORN. Those have usually been the GS numbers when you’re

getting out of college unless he had a Ph.D. or something then it

was say 9 to 11 or something.

Ms. THOMPSON. Yes.

Mr. HORN. But they adjusted those salary scales at OPM.

Ms. THOMPSON. I have only been in the government 2 years, and

I can’t answer that.

Mr. HORN. The government isn’t like banks or corporations

where their CPO’s work on everybody else’s board and all get their

salary up. It’s a different animal here.

Ms. THOMPSON. No. I understand from what the people back here

that have been around for awhile they have not adjusted those salaries.

Mr. HORN. Well, should they?

Ms. THOMPSON. Absolutely.

Mr. HORN. Well, I think I have great respect for the civil service.

We have to make sure we’re getting the next generation of people

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that want to serve the public. But it’s going to have to mean face

up to the kind of reality of life in Washington, life anywhere else

in America, with rare exceptions you can’t get even a decent house

in most places. So maybe Agriculture will have a lot of loaning to

do, just going to call it something other than a farmer I guess. But

that you got to deal with your authorizing committee.

Ms. THOMPSON. Yes.

Mr. HORN. Well, thank you. Is there anything any of you would

like to add that you think we’ve missed? Mr. Williams. We welcome

any thoughts you have.

Mr. WILLIAMS. I think we have covered all the points that we at

GAO have expressed an interest in. Well actually we could add a

little bit about that.

A lot of these issues that we’ve talked about in the Forest Service

over the last 5 or 6 years if you take a look at the Inspector General’s report one of the issues that always seems to come up is that

there’s erroneous data coming from the field. So we put a lot of emphasis on the need to have the CFO’s in the regional office. So

that’s something that we continue to encourage the agency to take

a look at because they think that it’s important that you have these

quality staff out in the regions producing and monitoring the financial information that’s coming in because you need to have accurate

information. It needs to be coming in on a consistent basis because

you get into problems when you’ve got individuals in one region

producing information one way and you have individuals in another region in some cases not as concerned about the financial

management issue as they should be.

That consistency and the reliability of having the CFO’s out in

the regions would definitely be an improvement. So that’s why we

really focus in to try and get a structure out there that is similar

to what the Forest Service has implemented at the headquarters.

Because one of the things that we noticed is that that commitment

that we observed at headquarters with the new CFO, we think a

structure similar to that out in the regional offices could improve

the operations considerably.

Mr. HORN. That’s a very helpful statement. Anybody else want

to say anything on this?

Ms. GOERL. I would just like to respond to that. I think one of

the key things is quality staff and quality in these positions. It’s

very difficult in a highly competitive arena that we are here now.

In the Forest Service we are initiating a study very shortly and we

have set up the work group for the support to review our field

structure. Not only the cost of staffing, the level of staffing, but

also the organizational and reporting responsibilities.

And my personal belief is that with the new financial system

that we need a different kind of structure out there. We can probably manage more directly with the new system apply policies more

consistently. But we still need some more commonality and uniformity in the manner in which we manage those functions in the

field. And, I think we could probably do it with less people.

Mr. HORN. Do you find that people in the field understand that

the management systems we’re trying to get here and the measurements you’re talking about which make a lot of sense to me that

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that’s to help their situation or do they look at it as something

that’s going to hurt their situation?

Ms. GOERL. I think initially because of the autonomous nature of

the Forest Service which goes back years, there was a little bit of

a threat to the likelihood that they would lose some sort of control,

which can always be a concern. But, I think when we brought them

in with us to reengineer the processes and see the new systems, we

got a lot more support, a lot more really good ideas, and a lot more

consensus around the idea that we need to do something different.

We need to be much more uniform.

That experience has set us in a pretty good position to take the

next step at looking at this new technology where we have a lot

more options on how we can manage in the future, especially when

we look down the road to getting the feeder systems changed too.

Those still require enormous amounts of manual interaction by a

lot of people, all through the Forest System. And every time you

add that dimension, you add more errors and more opportunity for

misinterpretation. So anything that we can look at that streamlines and more uniformly looks at how you interpret and enter data

for a financial system is a real value. We’re getting a lot of consensus around that. We need to continue to work with them and bring

them along or we will have people who are suspect of what we are

planning.

Mr. HORN. How about the hardware and the software? Are you

trying to get it off the shelf and are there analogies that one could

make with the private sector or university sector whatever it is on

planning and this kind of thing.

Ms. GOERL. Oh, absolutely. I think the—that there is no reason

in today’s environment to not use off-the-shelf systems. And I come

to this from my experience as a CFO at Customs Service and prior

to that as a Controller at GSA. I would not look anywhere but offthe-shelf at this point. And the sophistication of those for government use have really grown, especially in the last 5 to 6 years. So

there is no reason not to consider that.

One of the advantages I think that has helped government but

more specifically Forest Service, is Y2K. We upgraded our infrastructure—hardware and telecommunication infrastructure so we

can not only use that off-the-shelf software a lot easier and implement it more quickly, but we can use Web-enabled systems. These

systems can be developed quickly, and allow us to make them

available across the country. When you have the number of people

that we have that interact with our financial system which is close

to 2,000 across the country, anything that I can implement easily

on the Web I want to use. I think we’re positioned very well for

that. But we’re still relying on, even with our new financial system,

very archaic legacy feeder systems that still require still a lot of

people to work with them. So as much as I want to streamline and

improve our infrastructure, until I get the feeder systems replace,

I will have only so far I can improve. But we’re confident that we’re

going to get there in the next couple of years.

Mr. HORN. Well that’s good. So you want to add anything Mr.

Young?

Mr. YOUNG. No. I think we’ve said or covered most everything

that we had.

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Mr. HORN. OK. Mr. Newby you want to add anything?

Mr. NEWBY. No.

Mr. HORN. Anybody who wants to say anything this is your

chance. We’re very democratic.

Ms. THOMPSON. Could I just wrap it up a little bit to say that

I am really appreciative of all of the help that both GAO and the

Inspector Generals have given our Department this last year. I am

very encouraged with where we’re going and where we’re going to

be. And to give you just one example of what Ms. Goerl was talking

about was we’re looking at a procurement system right now that’s

being used by the Department of Interior which again is one of

those off the shelf. But we do a lot of the Bureau of Land Management and with Park Services.

We bring that procurement system in, having the information on

that as well, we will be getting not only the savings that we need

and upgrading those systems but also being able to get a great deal

of efficiency in the field by all three of those agencies being able

to share the same system. At the same time, I am working very

hard to get us a Federal payroll system where all the Federal Government is using the same payroll system. Because we desperately

need a new payroll system. I have talked with VA and the DOI

which are the two biggest payroll servicers along with us so I think

there’s a lot of partnership going on out there which the Federal

Government and the taxpayer is going to benefit significantly and

hopefully we can all get that economies of scale as well and move

along faster.

Mr. HORN. That would be primarily at your New Orleans facility.

Ms. THOMPSON. It would be the same payroll system used by the

VA and DOI and New Orleans so that means that every time a

Federal employee changes agencies they wouldn’t have to start all

over with paperwork almost as a new employee. There’s plenty of

business out there for all of us. There is no need for all of us to

be competing on systems development. Let’s compete on service delivery and let’s all use the same system.

Mr. HORN. I guess I can say amen to that. Or ‘‘a-woman’’ as the

case may be. So thank you all for coming. I want to thank the staff

that prepared this hearing which I found it very interesting, the— there he is in the door, J. Russell George, staff director and chief

counsel for the Subcommittee on Government Management, and to

my left and your right the detailee from the General Accounting

Office professional staff member on the committee for Louise

DiBenedetto. And we thank her for all the work she’s put in.

Bonnie Heald, director of communications. I don’t see her here. But

I know she’s listening to this. It’s going on House channel 21.

Bryan

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Sisk, clerk, Ryan McKee, the staff assistant. For the minority staff,

Trey Henderson, counsel, and Jean Gosa, minority clerk and our

faithful court reporter is Julie Thomas. We thank you. So with

that, we’re adjourned.

[Whereupon, at 3:56 p.m., the subcommittee was adjourned.]

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