U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

37–354 PDF 2008

S. Hrg. 110–355

MEETING THE CHALLENGE: ARE MISSED

OPPORTUNITIES COSTING US MONEY?

HEARING

BEFORE THE

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, FEDERAL SERVICES, AND 

INTERNATIONAL SECURITY SUBCOMMITTEE

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

JUNE 28, 2007

Available via http://www.access.gpo.gov/congress/senate

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs

(

(II)

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

BARACK OBAMA, Illinois 

CLAIRE McCASKILL, Missouri 

JON TESTER, Montana 

SUSAN M. COLLINS, Maine 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

PETE V. DOMENICI, New Mexico 

JOHN WARNER, Virginia 

JOHN E. SUNUNU, New Hampshire

MICHAEL L. ALEXANDER, Staff Director 

BRANDON L. MILHORN, Minority Staff Director and Chief Counsel 

TRINA DRIESSNACK TYRER, Chief Clerk 

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, 

FEDERAL SERVICES, AND INTERNATIONAL SECURITY SUBCOMMITTEE 

THOMAS R. CARPER, Delaware, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

BARACK OBAMA, Illinois 

CLAIRE McCASKILL, Missouri 

JON TESTER, Montana 

TOM COBURN, Oklahoma 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

PETE V. DOMENICI, New Mexico 

JOHN E. SUNUNU, New Hampshire

JOHN KILVINGTON, Staff Director 

KATY FRENCH, Minority Staff Director 

LIZ SCRANTON, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

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

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

Senator McCaskill ............................................................................................ 10

WITNESSES 

THURSDAY, JUNE 28, 2007

McCoy Williams, Director, Financial Management and Assurance, U.S. Government Accountability Office, accompanied by Keith Rhodes, Chief Technologist, Applied Research and Methods, Center for Engineering and Technology, U.S. Government Accountability Office ................................................. 6

David Norquist, Chief Financial Officer, U.S. Department of Homeland Security, accompanied by Scott Charbo, Chief Information Officer, U.S. Department of Homeland Security ................................................................................. 8

ALPHABETICAL LIST OF WITNESSES

Charbo, Scott: 

Testimony .......................................................................................................... 8

Joint prepared statement with Mr. Norquist ................................................. 40

Norquist, David: 

Testimony .......................................................................................................... 8

Joint prepared statement with Mr. Charbo ................................................... 40

Rhodes, Keith: 

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

Joint prepared statement with Mr. Williams ................................................. 27

Williams, McCoy: 

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

Joint prepared statement with Mr. Rhodes ................................................... 27

APPENDIX 

Questions and responses for the Record from Mr. Norquist ................................ 47

Charts submitted for the Record by Senator Coburn ........................................... 75

(1)

MEETING THE CHALLENGE: ARE MISSED 

OPPORTUNITIES COSTING US MONEY? 

THURSDAY, JUNE 28, 2007

U.S. SENATE,

SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT,

GOVERNMENT INFORMATION, FEDERAL SERVICES,

AND INTERNATIONAL SECURITY, 

OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 3:03 p.m., in Room 

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

Chairman of the Subcommittee, presiding. 

Present: Senators Carper, McCaskill, and Coburn. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. The Subcommittee will come to order. First, let 

me just welcome back my colleague, Dr. Coburn, who was out for 

a week or two, bounced back from an operation, and he is back. He 

said to me yesterday he is about 80 percent back to where he was. 

Dr. Coburn at 80 percent is better than most of us at 180 percent, 

so we are happy you are back and feeling well. 

Senator COBURN. Thank you. Glad to be with you. 

Senator CARPER. I want to say a special welcome to our witnesses today. This is a conversation we have been having for a 

while and this is really the continuation of a conversation that we 

have had and need to have. I think it was last June, Senator 

Coburn and I asked GAO to determine three things. 

The first thing we asked them to do was to look at the Department of Homeland Security and to tell us whether or not they had 

fully developed plans for implementing or migrating to an integrated Department-wide financial management system. That was 

the first thing we asked them to do. The second thing we asked 

them to do was to tell us whether or not the work produce received 

for the funds spent on the eMerge 2 modernization effort could be 

used. And finally, the third thing we asked them was how the Department could incorporate best practices into its plan for migrating to an integrated Department-wide financial management system moving forward. 

Today, we are going to hear what GAO found, and unfortunately, 

the news is not as good as we had hoped it might be. GAO is certainly here to speak for themselves, but GAO found that the Department continues to lack a clearly defined financial management 

2

strategy and a plan to move forward with financial management 

modernization efforts. 

We will also hear today from two knowledgeable take-charge Department officials about the ongoing efforts to transform, to consolidate, to integrate their financial management systems, and we look 

forward to hearing what progress the Department is beginning to 

make, as well. 

As we all know, the Department has faced a number of overwhelming challenges since its creation in 2003, and while the Department has made some progress, a whole lot of work remains to 

be done. I sort of liken that your job at Homeland Security is a little bit like what we used to do in Navy Aviation. Every now and 

then, you have to change an engine on your airplane, and it is a 

job that took maybe 24 hours. It took a while. It is not easy to do. 

But the job that they are trying to do in terms of developing a financial management system that is good, that is effective, and to 

run the Department well, it is a little like changing an aircraft engine with the aircraft airborne, and not an easy thing to do, and 

we realize that. But aircraft engines need to be changed and we are 

looking for better progress here in the months to come. 

I think it is unfortunate that this iteration of the eMerge 2 

project has been officially pronounced, maybe denounced, as dead, 

particularly after some $50, $52 million or so was spent trying to 

make it operational. But in declaring it dead, the Department did 

something that Federal agencies rarely do, and what you did is you 

stopped a flawed and failing program before even more money was 

wasted, and for that, I think the Department should be commended. 

I look forward to hearing from GAO and the Department as to 

what, if anything, can be salvaged from the work products developed for eMerge 2 and for all the money that was spent in paying 

for these efforts. Most importantly, I am interested in learning how 

the situation can be avoided in the future. 

Given the enormity and the complexity of the problems facing 

the Department over 4 years following its creation, I am personally 

not surprised that eMerge 2 failed. Bringing together 22 different 

organizations with different missions and different cultures is not 

an easy thing to do. It is sort of like trying to merge, if you will, 

22 large corporations, not just two large corporations into one, but 

22 large corporations with different missions, different personnel 

systems, different cultures and putting them in together and make 

it work. That is not easy and this hasn’t been easy and we realize 

that. 

But we have to make sure that the Department has learned from 

its failures so we don’t repeat the same mistake as the Department 

moves forward. We all share, I believe, the same objective, and that 

is how can the Department of Homeland Security successfully 

transform and modernize its financial management systems so that 

you can do your jobs better, and when we have a Hurricane 

Katrina or we have threats to our homeland, that you are there to 

protect us and do the job. 

I have a couple of questions I am going to be asking later on, but 

I will just telegraph them now. Here are several of my questions. 

Where do we go from here? What tools does the Department need 

3

to accomplish that objective or those objectives? What assurances 

do we have that the Department will not fail as you undertake the 

transformation and systems consolidation program? In other words, 

have the lessons learned from the eMerge 2 failure been incorporated into your plan for moving forward, and how can Congress 

play a constructive role in that path forward? 

The Department of Homeland Security has needed a Chief Financial Officer who puts taxpayers first and who is committed to 

sound financial management and transparency, and Mr. Norquist, 

by all accounts, you are making a diligent and, I am told, impressive effort to do just that. As I am sure you know, your partnership 

with Mr. Charbo is central to the success of that effort. Additionally, your ability to incorporate GAO’s recommendations with 

which the Department concurs is also critically important. 

Sound financial management is critical to the success of the Department and to all of our departments. It is the foundation of any 

organization, any program, or any activity. 

Last year, there were reports by the GAO and Inspector General 

of the Department revealing delays, revealing cost overruns, revealing design inadequacies and operating deficiencies in the Deepwater contract, the largest contract ever awarded, I believe, by the 

Coast Guard. A separate GAO report released this past January estimated that the total wasted funds related to Hurricane Katrina 

relief may top $2 billion, largely as a result of the continuing prevalence of no-bid reconstruction contracts. The $52 million that went 

into eMerge 2 is yet another example of that. 

As elected Members of Congress, our greatest stakeholders are 

the American people and we have an obligation to ensure the dollars are being used as effectively and efficiently as possible. The 

war in Iraq has cost us roughly a half-trillion dollars. The deficit 

this year is forecast at roughly $180 billion, and although that is 

better than last year, it is nothing to brag about. Such sectors as 

housing are experiencing challenging times. Consumer spending is 

down. This is a time not to be frivolous with our hard-earned 

money. 

In closing, let me just add, Congressional oversight, I believe, 

and Senator Coburn knows, and Senator McCaskill, who is a Member of this Subcommittee and will probably join us, we were in Kuwait and Iraq about 10 days ago doing oversight there on a lot of 

the contracting work that had been done, no-bid contracts, costplus contracts, sole-source contracts, not the kind of thing that 

would make most of us proud. But I think we are doing a better 

job of oversight there and I think they are starting to clean up 

their act over there, at least in that regard. 

But Congressional oversight is imperative to make sure that Federal agencies like this Department are stepping up to the plate, 

confronting the waste of precious taxpayer dollars, and taking immediate corrective actions so our dollars are supporting the real 

mission of the Department, and that is protecting our country and 

nearly 300 million Americans who live here. 

We look forward to hearing from each of you and we look forward 

to continuing to work closely with GAO and with the Department 

in achieving a successful implementation of modern financial management systems. 

4

With that, Dr. Coburn. 

OPENING STATEMENT OF SENATOR COBURN 

Senator COBURN. Thank you, Mr. Chairman. I have a statement 

that I would like to have submitted for the record. 

Senator CARPER. Without objection. 

Senator COBURN. I want to welcome you. I want to say again how 

much I appreciate GAO and the work that they do. I continue to 

be impressed by all aspects of GAO and their dedication to helping 

us solve the problems that we find in front of us. 

I also want to thank you, Mr. Norquist. We spent some time in 

my office and I am not sure I can make any judgment about what 

you have done yet. I think it is way too early, and so I am not critical at this juncture. 

I think the most important thing, and we saw on the vote—this 

whole week has been a great week for America because what you 

saw is America tuned in to what is happening in Washington, and 

I don’t think there is anybody sitting at that table that can be 

proud of the financial mess that we have, and not just at Homeland 

Security, but in many other areas. And with that comes about $200 

billion a year in waste, fraud, abuse, and duplication. I think there 

is a rumble in America. I think they are awake. I think they are 

listening, and what they are wanting is transparency and accountability. 

The real problem is you can’t manage what you can’t measure, 

and you all can’t measure it. Now, that is not necessarily your fault 

sitting at this table because you haven’t been in the position of responsibility. But I think we are very blessed to have GAO help us 

and to be a positive critique in the areas where you may not have 

the insight or you may not be looking at all the areas when you 

thank you are. 

So we look forward to your testimony. I do have to excuse myself 

early and I apologize for that. Again, I am not going quite at the 

speed that I would like to go, and so I can’t accomplish everything 

that I want to accomplish in a day, but I am encouraged by the 

attitudinal change. I am encouraged by the prospects of change. 

Don’t let the American people down. Change it. Fix it. Make it to 

where it is auditable. Make sure that the $40 billion that comes 

your way, you can account for, they can see it in a transparent 

way, and they can make a judgment about whether or not you are 

good stewards with their hard-earned money. Thank you. 

[The prepared statement of Senator Coburn follows:]

PREPARED STATEMENT OF SENATOR COBURN 

I am under no illusion that the theme of this hearing is glamorous or will catch 

many headlines. Frankly, the arcane and technical nature of financial management 

will probably never grab the attention of the American people as well. But what the 

American people do care about is results. When the job can’t get done and security 

is compromised, people are not likely to have sympathy simply because financial 

management systems were not working properly—they will only ask why we didn’t 

get it right. When Katrina victims were trying to get assistance to rebuild homes, 

or find temporary housing, nobody wanted to hear about problems with DHS financial systems. 

The Department of Homeland Security gets tens of billions of dollars every year. 

We will soon be debating an almost $40 billion approps bill for the Department. 

Without proper financial controls, we have no way of ensuring that this money is 

5

buying us the security Americans expect. DHS does not have an operational management plan currently in place to effectively manage it finances. 

For example, this past month the DHS Inspector General published an audit report on grant management for American Samoa. In it, the Inspector General examined homeland security grant awards from fiscal years 2002 to 2004, totaling more 

than $12 million. Of that total, the IG found over $1.7 million in questionable 

spending. Money was spent sending staff on questionable trips to Las Vegas and 

Hawaii, fancy furniture, and an illegal interagency transfer with the National 

Weather Service. 

I do not need to remind people of the travesty that befell New Orleans and the 

Nation in August 2005. Hurricane Katrina displaced hundreds of thousands of residents from their homes, leaving vulnerable families and individuals to depend on 

the government for assistance in the wake of the unspeakable tragedy. Regrettably 

and inexcusably, DHS and FEMA subsequently made over $800 million in improper 

payments in assistance efforts following Katrina. Let’s put that figure in more tangible terms: For $800 million, FEMA could have provided over 13,000 trailers for 

families to live in for 18 months. The Gulf Coast and the Nation deserve better. 

These examples are no surprise, given how dysfunctional financial management 

is at DHS. The Departments independent auditor, KPMG, noted that The Department of Homeland Security is out of compliance with eight separate laws and regulations—and these include our most basic financial management statutes. DHS also 

has never received an Unqualified Audit Opinion (UAO)—This means that the financial information they have is not timely, reliable, or DHS has never gotten an 

auditor to say that DHS’s financial statements, on the whole, are presented fairly 

in all material respects in conformity with Generally Accepted Accounting Principles. In other words, they can’t undergo an audit, much less pass one. If Congress 

applied the same standards to DHS that we have forced on the private sector, Secretary Chertoff and most of his senior management would be in jail. 

That’s not to say that DHS is staffed by bad actors, or incompetent managers. 

Congress created this behemoth bureaucracy as a knee-jerk reaction to 9/11. The 

Department faced the nearly insurmountable task of integrating and streamlining 

22 disparate agencies upon the Department’s inception in 2003. The first attempt 

at comprehensive integration ended miserably, with the failure and abandonment 

in 2005 of the Electronically Managing Enterprise Resources for Government Effectiveness and Efficiency project, otherwise known as Emerge 2. Clearly, The Department of Homeland Security is now at an important crossroads regarding financial 

management. DHS must implement a plan that will successfully carry the Department to a reliable, consistent, and functional financial management operating system. 

First we need political will at the highest levels of leadership. This will force the 

interagency coordination and the prioritization required to get results. Next, we 

need transparency. I’m expecting to get clear commitments for deliverables in this 

project today, and a public reporting on a regular basis of progress against those 

commitments. Specifically, I would like a commitment for a timeframe on producing 

an auditable financial statement and also a detailed strategy to clean up the financial management disaster at the Coast Guard. 

I would like to commend the efforts at DHS, and David Norquist in particular 

who has an unenviable task, to say the least. I also want to thank GAO, who is 

truly fulfilling its mission as our investigator and auditing arm, investing the time 

and resources into a level of detailed oversight that we are not able to invest directly. I look forward to hearing your testimonies, thank you.

Senator CARPER. Thank you, Dr. Coburn. 

I am not going to provide in the introductions the background. 

Biographies of all of our witnesses—although I would ask that, I 

call them the PG versions of your biographies, that I could disclose 

those, but they were not provided, so we are just going to provide 

for the record what we received. 

Some of you have been before us a couple times before. We are 

delighted that you are here again. McCoy Williams from GAO, we 

are delighted that you are here again and we would ask you to go 

ahead and present your testimony. If you have full testimony you 

would like to present for the record, we will certainly, for every one 

of our witnesses, that will be presented and included in the record, 

and if you want to summarize, fine. I would say, just try to keep 

6

1The prepared joint statement of Mr. Williams with Mr. Rhodes appears in the Appendix on 

page 27. 

your testimonies fairly close to 5 minutes, but if you go 6 or 7 minutes, we are not going to shut you down. Welcome. 

TESTIMONY OF McCOY WILLIAMS,1 DIRECTOR, FINANCIAL 

MANAGEMENT AND ASSURANCE, ACCOMPANIED BY KEITH 

RHODES, CHIEF TECHNOLOGIST, APPLIED RESEARCH AND 

METHODS, CENTER FOR ENGINEERING AND TECHNOLOGY, 

U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. WILLIAMS. Thank you, Mr. Chairman. Mr. Rhodes and I 

thank you for the opportunity to discuss our recent work related 

to DHS’s efforts to transform its financial management systems. 

As you know, the Department of Homeland Ssecurity has faced 

a difficult challenge of bringing together 22 diverse agencies. Since 

2003, when DHS began operations, GAO has designated implementing and transforming DHS as a high risk. Our related report 

released today discusses the significant problems we identified with 

DHS’s financial management system modernization efforts. Today, 

we would like to provide our perspectives on the importance of 

DHS following best practices in developing and implementing its financial management systems. 

First, since we last testified in March 2006, DHS officials ended 

its eMerge 2 program. eMerge 2 was expected to establish the strategic direction for modernization and integration of DHS financial 

management systems, processes, and policies. DHS officials have 

stated that approximately $52 million in total was spent on this 

project before it was halted, although DHS did not provide us documentation to support these reported costs. DHS’s decision to end 

the project before spending an estimated $229 million on a financial management system that would not provide the expected system functionality and desired performance was prudent and we 

support the decision to cut its losses. 

According to DHS officials, several of the work products developed for eMerge 2 will be useful as they move forward with their 

financial management modernization efforts. However, we found 

that the usefulness of these work products is questionable due to 

the lack of disciplined processes in their development. 

Second, we would like to point out key financial management 

system transformation challenges at DHS. While DHS officials 

have recognized the need for an integrated financial management 

system, the Department has not developed a transformation effort 

that includes key elements, such as standard business processes, a 

human capital strategy, and effective internal controls. 

In March 2007, DHS issued its Internal Controls Over Financial 

Reporting Playbook, a high-level plan intended to address existing 

internal control weaknesses. DHS officials have acknowledged that 

the Playbook has a policy and process focus and does not comprise 

a strategy for financial management system modernization. DHS’s 

high-level financial management system strategy, called Transformation and Systems Consolidation, focuses on leveraging existing systems investments across DHS components and is still in the 

early stages of development. More detailed implementation strateVerDate 0ct 09 2002 12:25 May 01, 2008 Jkt 037354 PO 00000 Frm 00010 Fmt 6633 Sfmt 6601 P:\DOCS\37354.TXT SAFFAIRS PsN: PAT
7

gies will be necessary to fully address financial management system integration efforts. 

The Transformation and Systems Consolidation strategy calls for 

DHS to consolidate its financial management systems into one of 

two models, the Transportation Security Administration systems 

model, or the U.S. Customs and Border Protection Systems model, 

which the Department refers to as shared baselines. DHS and 

OMB officials told us that OMB approved DHS’s decision to rely on 

its in-house core financial management operations. Our concern is 

that these components have numerous financial management 

weaknesses and consequently do not appear to be good models for 

an entity with an annual budget in excess of $40 billion. 

For example, the financial statement auditors for TSA reported 

that TSA was unable to support key fiscal year 2005 and 2006 

transactions and account balances. It is imperative that DHS fully 

understands the weaknesses at TSA in order to prevent these 

issues from affecting subsequent users. 

Finally, we would like to highlight the building blocks that form 

the foundation for successful financial management transformation. 

Our previous testimony and our current report pointed out that 

careful consideration of these four concepts, each one building upon 

the next, will be key to the success of DHS’s strategy. The four concepts are developing a concept of operations, defining standard 

business processes, developing a migration and/or implementation 

strategy for DHS components, and defining and effectively implementing disciplined processes necessary to properly manage the 

specific projects. 

Fully embracing human capital best practices will be another 

critical success factor. For example, DHS will need to have people 

with the right skills in the right place and at the right time. 

In conclusion, Mr. Chairman, given that DHS is one of the largest and most complex Executive Branch agencies in the Federal 

Government, modernizing its financial management systems represent a monumental challenge. This challenge is compounded by 

the poor condition of the legacy financial and related business systems it inherited. If properly implemented, the recommendations 

included in our related report, which are based on best practices, 

will help reduce the risk associated with a project of this magnitude and important to an acceptable level. Ultimately, DHS will 

be able to provide reliable, useful, and timely financial management information so that DHS leadership and the Congress are 

well positioned to make fully-informed decisions to secure America’s homeland. 

We look forward to continuing to work with you to monitor 

DHS’s progress in this area. Mr. Chairman, this concludes our 

statement. We will be pleased to respond to any questions that you 

may have. 

Senator CARPER. Mr. Williams, thank you very much. Are you 

still the Director of Financial Management and Assurance at GAO? 

Mr. WILLIAMS. That is correct. 

Senator CARPER. And how long have you been in that post? 

Mr. WILLIAMS. I have been a Director in that team for approximately 7 years, 2 of those years in an acting position. 

8

1The prepared joint statement of Mr. Norquist and Mr. Charbo appears in the Appendix on 

page 40. 

Senator CARPER. This may not be a fair question, but at GAO, 

who is your Chief Technologist for Applied Research and Methods 

at your Center for Engineering and Technology? Who does that 

work? 

Mr. WILLIAMS. That would be Keith Rhodes. 

Senator CARPER. The fellow sitting right next to you. 

Mr. WILLIAMS. That is correct. 

Senator CARPER. I understand he is taking a pass on testifying, 

but he is here to respond to any questions that Senator McCaskill 

and I might have? 

Mr. WILLIAMS. That is correct. 

Senator CARPER. All right. Good. We will save the really tough 

ones for him. 

Mr. WILLIAMS. OK. [Laughter.] 

Senator CARPER. I was fortunate to travel with Senator 

McCaskill back about a week and a half ago. I talked about that 

a little bit earlier and the work that you and your staff have done. 

Wendy Anderson and I were just privileged to go with you to see 

the efforts that are underway there to try to fix our contracting 

problems and we appreciate your work to help this Department get 

its act together. We know that they are trying to, and we know 

that your efforts are helpful there. 

Mr. Rhodes, we welcome you here today and we look forward to 

asking you some questions a little later, too. 

The Chief Financial Officer at the Department of Homeland Security is David Norquist and he is joined today by Scott Charbo, 

who is the Chief Information Officer (CIO). We are happy you are 

both here. You have been in your job for about a year, is that right, 

Mr. Norquist? 

Mr. NORQUIST. That is correct, sir. 

Senator CARPER. And Mr. Charbo, how long have you been at it, 

a couple of years? 

Mr. CHARBO. It will be 2 years in July. 

Senator CARPER. Alright. Does it seem longer? 

Mr. CHARBO. There is normal time and there is DHS time, yes, 

sir. [Laughter.] 

Senator CARPER. Well, we are glad you are here today, and Mr. 

Norquist, you are recognized. Again, your entire statement will be 

made a part of the record. Proceed as you wish. 

TESTIMONY OF DAVID NORQUIST,1 CHIEF FINANCIAL OFFICER, ACCOMPANIED BY SCOTT CHARBO, CHIEF INFORMATION OFFICER, U.S. DEPARTMENT OF HOMELAND SECURITY 

Mr. NORQUIST. Thank you, Senator. Mr. Charbo and I have a 

joint statement. Thank you, Chairman Carper, Members of the 

Subcommittee, for allowing us this opportunity to testify before you 

regarding financial management system modernization at the Department of Homeland Security. Scott Charbo and I are pleased to 

discuss with you the Department’s strategy and progress in transforming and consolidating financial management systems throughout the Department. We also appreciate the work done by the GovVerDate 0ct 09 2002 12:25 May 01, 2008 Jkt 037354 PO 00000 Frm 00012 Fmt 6633 Sfmt 6601 P:\DOCS\37354.TXT SAFFAIRS PsN: PAT
9

ernment Accountability Office and concur with all six of their recommendations. 

The Department of Homeland Security was formed from the 

merger of 22 distinct agencies. Given our origin, it is not surprising 

that we would have multiple financial systems. In the long run, 

however, this is not cost effective. Too many systems complicate financial reporting, internal controls, systems security, and software 

maintenance. 

In 2003, to address this problem, the Department began an initiative called eMerge and contracted out for the development of a 

financial solution that integrated finance, accounting, procurement, 

and asset management systems. That integration effort ran into 

technical challenges and, as GAO describes it, the Department 

made a prudent decision to cut its losses. 

This, however, is not the end of the story. With Department approval, Customs and Border Protection successfully implemented 

the SAP Financial Package that includes finance, accounting, procurement, and asset management. This strengthens CBP’s financial reporting and internal control processes, and last year, CBP received an unqualified opinion on its financial statement. 

About the same time, the Transportation Security Administration needed to migrate off the system it used at the Department 

of Transportation. In response, the U.S. Coast Guard provided TSA 

an Oracle package that also included procurement and asset management. Other offices expressed an interest in this solution, and 

over the last 2 years, the Department has migrated the Federal Air 

Marshals Service and the Domestic Nuclear Detection Office to the 

same solution. While TSA is still addressing some material weaknesses, it is now the system that stands between them and a clean 

audit opinion. 

When you review the different systems the Department has, 

these two agencies’ solutions stand out. They use core accounting 

applications that are also used by other large Federal agencies with 

unqualified audit opinions. They were successfully and broadly implemented inside DHS, so we have people who are experienced 

with these applications. The products are also commercially available and supported by multiple vendors, which promotes competition. 

So rather than pursue the acquisition, configuration, and implementation of a new system within DHS, we will leverage our existing investments by continuing the migration of components to 

these two proven financial management systems. We have briefed 

the system, called Transformation and System Consolidation, to 

the Office of Management and Budget and we meet with OMB routinely to discuss progress. 

The next stage of the consolidation plan will begin with the migration of small components, such as the Office of Health Affairs 

and Science and Technology. The goal is to repeat, refine, and build 

upon each successful migration. The plan will continue with the 

migration of larger components, such as FEMA and Immigration 

and Customs Enforcement. By fiscal year 2009, we expect 50 percent of DHS components to be on the Consolidated Financial Management System. By fiscal year 2011, we expect 97 percent of the 

Department will be on these systems. 

10

After the completion of this consolidation plan, a single baseline 

will be chosen. Migration onto a single baseline will then be 

planned and implemented. The Department is committed to a single baseline as the end state for its financial management needs. 

There are a number of financial and performance benefits associated with this initiative. This includes a reduction in maintenance 

cost, a significant cost avoidance for future integration expenses, 

and it promotes competition for systems operation and maintenance services by making sure that you can have multiple vendors 

to support your system. It also provides more accurate, timely, and 

reliable financial data, provides a foundation for effective internal 

controls and segregation of duty, and reduces the errors by the removal of manual processes. 

Modernizing financial management systems is an inherently 

complex and challenging endeavor. It requires careful planning, patient implementation, and strong collaboration among senior leaders. The strategy I have described today provides for improving financial systems by migrating components to existing DHS systems 

that are proven and for which we have a record of successful implementation. I am confident that, working together, we will be successful. 

Sir, I thank you for your leadership and your continued support 

of the Department of Homeland Security, and if I may add, I also 

appreciate the close working relationship I have been able to develop with your staff. I have been up here before to give them updates. They are a very good group to work with and I appreciate 

the ongoing dialogue that we have. 

Senator CARPER. We appreciate your saying that and thank you 

for being so accessible and your willingness to come here. That is 

much appreciated. 

We have been joined by Senator Claire McCaskill of Missouri. 

Senator McCaskill, if you have a comment or two you would like 

to offer, and why don’t you lead off with the questions. 

OPENING STATEMENT OF SENATOR MCCASKILL 

Senator MCCASKILL. Thank you, Mr. Chairman. I am a little discombobulated about leading off. 

Senator CARPER. You don’t have to. 

Senator MCCASKILL. That is not the way it works around here. 

I am very concerned about financial management systems at 

Homeland Security. Frankly, you are in a little better shape than 

the Department of Defense. I think they have been on the high-risk 

since, if my memory serves me correctly, since 1991, would that be 

right, Mr. Rhodes? 

Mr. RHODES. [Nodding head.] 

Senator MCCASKILL. And since you have not been around long 

enough, we hope that you beat them off the list and that would be 

a great thing. 

I am going to spend my time talking about accountability issues, 

and I know it is slightly off topic in terms of financial management 

systems, but let us start with this. The $52 million that you have 

indicated was spent on eMerge, is it possible for you to document 

in any way how that $52 million was spent? 

11

Mr. NORQUIST. We have provided from my office a spreadsheet to GAO on the range of things. Of that amount, $18 million, for example, went specifically to the contractor. The $52 million is a 

broader range of initiatives that occurred during this time period. 

It is my understanding that the documentation that couldn’t be 

achieved was out of our procurement office, and I am happy to go 

back and find out why that wasn’t available and to follow up on 

that for you. 

Senator MCCASKILL. Yes. I am really worried about that procurement office. I couldn’t help notice that the Washington Post did not 

do your Department a favor by the article that appeared this morning in light of this hearing coming. The procurement office is problematic. What percentage of the money that you have spent in trying to get off the high-risk list would you say has been spent on 

private contractors? 

Mr. NORQUIST. I wouldn’t know the number for that. 

Senator MCCASKILL. Would you hazard a guess? More than 50 

percent? 

Mr. NORQUIST. I can only use my own office as an example. I 

have in my office about $12 million that we spend on salaries of 

government officials and $8 million that we do on other contract 

support, which is heavily contracted individuals, internal controls, 

improper payments, that sort of area. So it is not a 50–50 split. It 

is less than that. 

In fact, in my office, when we submitted our budget request, I 

notified the Appropriations Committee of my intent to increase the 

number of government employees that we have. As we were created at DHS, there was an initial shortage of career civil servants 

that wwould be used to build with, so people relied on contractors. 

Over time, we have tried to move away from that. I am doing that 

within my own organization to increase our reliance on career civil 

servants. I myself started as a GS–9 back in 1989, and so I have 

got a lot of initiatives focused on training them, getting the skill 

sets. I believe that in the long run, they are more important to our 

stable success. 

Clearly, there are places where we need contractors for independent verification, validation, other functions, but I think that in 

the near-term, at least in my organization, there is a need to shift 

and I have indicated so in our budget submissions. 

Senator MCCASKILL. Do you have a sense that the leadership at 

the Department of Homeland Security has your bias as it relates 

to the apparent inefficiencies of contracting that we are witnessing 

at the Department of Homeland Security? 

Mr. NORQUIST. There are trade-offs between the two, and in 

meetings, I have been with the Deputy Secretary as we build the 

budget. He has gone and raised the issue with components of what 

do you have in your organization that is only contractor because 

that is the way you started and tell me when you can do that and 

what your hiring skills are. So I know he shares that interest. I 

know he recognizes that as an opportunity for improvement. 

We can’t leave the function undone, but in my office, for example, 

we had staffing shortages a year ago. We weren’t able to fill our 

own positions. We went and created a number of efforts to improve 

recruiting and retention. Working with our Chief Human Capital 

12

Officer, there have been job fairs and advertisements. We have 

tried to make life easier for people to find us. I have a little business card that simply says, CFOjobs@dhs.gov. Send me an e-mail. 

So when we reach people and we go to areas where there are skill 

sets that I am looking for, financial management communities, we 

have promoted that in order to get the folks inside and get them 

in the government service. 

We have been successful. We have filled the positions that Congress has provided us, and we have, and again, as I mentioned before, told them that we are looking to go beyond that and in exchange drive down the amount of money that I spend on contractor 

support for these types of functions. 

Senator MCCASKILL. Well, as the CFO, do you feel like that you 

have information Department-wide in terms of the way money is 

being spent within the Department? 

Mr. NORQUIST. You can do it by various categories. It is hard to 

break it out the way people normally ask the question. For example, if you buy something, you are usually buying a service or a deliverable, not a number of people, and so you cannot easily get a 

contractor number. That is why in my office I use the dollar 

amount. I don’t know if I tried to ask that question departmentwide how the numbers would come up or how we would present it. 

Senator MCCASKILL. Well, did you read the article in the Washington Post this morning? 

Mr. NORQUIST. Yes, I did. 

Senator MCCASKILL. OK. And do you think taxpayers should be 

worried? 

Mr. NORQUIST. My understanding of the article was the need to 

stand up the staffing and the requirement to use contractor support in the first place. I can’t speak to the contracting procedures 

that were used to do that, but I know that there is an essential 

mission that they are trying to perform. And this is one of the challenges I run into in financial management, is I put a great emphasis on internal controls, on strengthening procedures, and I need to 

be cognizant of the component’s requirement to perform its mission, and so we work very closely with others to ensure that we accomplish both at the same time. 

Senator MCCASKILL. Are you aware of any contracts currently 

within the Department of Homeland Security that are not competed? 

Mr. NORQUIST. I actually wouldn’t know. I am generally only 

aware of the ones in my office and I believe those are all competed, 

but I will check that for the record. 

Senator MCCASKILL. Well, for the record, Mr. Chairman, I would 

basically summarize as follows. We have a project in Homeland Security that began in 2003 with a $2 million contract. It was no-bid. 

It soared by millions of dollars per month, and in December 2004, 

the payments had exceeded $30 million and 15 times the contract’s 

original values. When the Department lawyers looked at it, they 

said it was grossly beyond the scope of the original contract and 

that it violated government procurement rules. The lawyers then 

advised the Department to immediately stop making payments 

through the contract. 

13

That did not happen. Payments continued under the contract. In 

fact, the payments to the consultant more than doubled again 

under the second no-bid arrangement, this time to $73 million. And 

it goes on to set out in some detail that this was a situation where 

the rules were waived, routinely waived, to, in fact, continue to 

support this contract. 

I think that this is one of those situations that if we do not get 

to the bottom of what has actually happened at the Department of 

Homeland Security, we have no lessons learned, and I think Congress, when they created the Department of Homeland Security, 

had an old-fashioned notion that they were consolidating and making something more efficient. I don’t think that people anticipated 

that the skill sets were not going to be present within this newlycreated Department to do basic functions that were being given to 

it, and I don’t think anybody—I can’t imagine they envisioned that 

we would embark upon a protracted period of time with vague contract requirements, with no-bid contracts blowing the lid off the 

original scope of the contracts, and I know that this is not your Department. However, when you have the title CFO and you are part 

of an organization that has this kind of systemic problems, whether 

it is bringing together financial systems or whether it is appropriate oversight of procurement, I think it is fair to make this part 

of the record. 

I am going to ask the Secretary specific questions about the Boos 

Allen consultant contract that was delineated in the newspaper 

this morning and I am particularly interested how many other contracts like this are out there. I mean, the cost of these contract employees is an average of $250,000. That is an expensive government 

employee. I don’t have anybody in my office making $250,000 a 

year, and I am willing to bet there is nobody in your office making 

$250,000 a year. 

I am trying to figure out why we have gotten into this privatization, this wave of privatization where we are blowing the top off 

average costs of work being done. I have never been opposed to privatization as a principle, but the way it is being done right now, 

whether we are in Iraq and we are talking about what is happening in Iraq or we are talking about within the Department of 

Homeland Security, something is terribly wrong and I think it is 

really incumbent upon Congress and this Subcommittee to get a 

handle on it, and I appreciate, Mr. Chairman, the opportunity to 

put that in the record and certainly appreciate the opportunity to 

participate in this hearing today. I thank you all for being here. 

Senator CARPER. You are quite welcome, and we are just delighted that you are here. 

Does anybody want to respond to some of what Senator 

McCaskill has stated or asked? 

Mr. NORQUIST. Just one follow-up, because among the things 

that do fall under the CFO is the budget. In the President’s budget 

submitted to the Hill, there are a number of initiatives that we 

have supported, particularly to strengthen——

Senator CARPER. Is this the budget for 2008? 

Mr. NORQUIST. This is the budget for 2008, the one that is on the 

Hill—to strengthen the Office of the Chief Procurement Officer precisely to ensure that she has the training programs, the hiring proVerDate 0ct 09 2002 12:25 May 01, 2008 Jkt 037354 PO 00000 Frm 00017 Fmt 6633 Sfmt 6601 P:\DOCS\37354.TXT SAFFAIRS PsN: PAT
14

grams, and the initiatives to strengthen her oversight of the program in the same way the Congress has been supportive in 

strengthening the Chief Financial Officer’s program. So I hope you 

would give consideration to those and recognize how directly related they are to helping her organization get a similar handle on 

the challenges that they face. 

Senator MCCASKILL. You will never have to worry about me supporting more money for GAO, more money for IGs, or more money 

for procurement officials. I am there. 

Mr. NORQUIST. Thank you, ma’am. 

Senator CARPER. I think you can take that to the bank. [Laughter.] 

I want to back up just a little bit, if we could, back to the time 

that this Department was created some 4 years ago, and it was created, some of the early work was done by the Committee on which 

Senator McCaskill and I serve, and we acknowledged at the time 

that what we were putting together was a little bit of a dog’s 

breakfast in terms of all these different 22 agencies coming together with a wide variety of responsibilities. I know there was 

some discussion about how well their financial systems would 

blend together and it has been every bit as challenging to get the 

Department formed up, staffed, getting people to sort of understand who is doing what and developing relationships and trying 

to be effective. 

At the time when we created the agency, we never talked about, 

at least in my recollection, about eMerge 2, and what I want really 

for my first question is I would like for somebody to back up and 

just give us the history, if you will, for this initiative and explain 

it in terms that regular lay people can understand. Sometimes we 

get talking about this stuff and you hear it and you say, what did 

they really say? So just kind of put it in layman’s terms. Could 

somebody give us the history, what we were trying to accomplish 

within the Department when eMerge 2 was launched? 

When I heard about it, my question to my staff was, whatever 

happened to eMerge 1, and it turns out there was no eMerge 1. 

They went right to eMerge 2. I was going to say, three strikes and 

you are out. If you don’t get eMerge 3 right, you are really in trouble. But there was no eMerge 1, so whatever comes next, and I 

think you have mentioned what comes next, will be the second time 

out. But it is important to get that one right. 

But would somebody give us a little bit of history on eMerge 2, 

please, someone who feels comfortable with it? Everybody looks the 

other way. [Laughter.] 

Mr. NORQUIST. Well, I was just expecting that they had probably 

been on this topic——

Senator CARPER. Yes, you are probably right——

Mr. NORQUIST [continuing]. Since I wasn’t here. 

Senator CARPER. You all can just give me a team effort in giving 

us the history, if you will. 

Mr. NORQUIST. Well, let me start with just a general overview, 

recognizing that I wasn’t here at the time, so I don’t want to put 

words in their mouth, but they came together and they realized 

that they had a large number of different financial systems and 

that creates a lot of challenges. 

15

The first challenge it has is every time you want to build something to go with it, a travel system, something else, you have to 

build a link between your new application and every different system that you have, and in some cases, it is not just different systems, there are multiple variations on the same system. We have 

a number of different types of Oracle that are being run inside the 

Department. So you end up spending a lot of money building more 

bridges than you need to make a link to each of these. So there is 

an opportunity for cost avoidance if you can get down to fewer systems. 

In addition, the shared data across the system is a challenge if 

you are operating differently. 

Another essential one is if you want your—if you don’t have an 

integrated system, when your procurement office enters a PO into 

their system, they then take a hard copy and walk it down the 

hallway and give it to their finance office, who logs it into their accounting system. You have two opportunities here for a problem. 

One is the time delay. Timely and accurate data runs into trouble 

every time you are depending on somebody walking a stack of documents down the hall, and accuracy suffers every time you require 

somebody to re-enter it. So to have a system of when it is entered 

on the contracting side it automatically appears correctly on the accounting statement gives you much better timely and accuracy in 

your data. 

And so those types of accomplishments, those are the things you 

are looking for. In addition, if you have the right system, it is a 

big benefit for internal controls. So, for example, if you have a policy that says in order to commitment the government to so much 

money, you have to have a warrant of greater than that amount, 

now, you can have manual processes to enforce that, but if your financial system looks at the warrant of the person entering the data 

and says, I am sorry, you don’t have a high enough warrant to do 

this, I am rejecting the transaction, the system is reinforcing that 

control. 

Or if it is looking at a place where you have multiple—you want 

to have segregation of duties. You don’t want the same person ordering the item as the one who has accepted it as the one who is 

paying for it. You break those up, you greatly complicate fraud. If 

the system doesn’t let that data get entered by those three as the 

same individual, it is reinforcing your internal processes. 

So when somebody looks at that, having a modern, integrated financial system is a huge step forward. Now, the challenge is how 

you get there, and there are a number of different ways to do it. 

The one they chose probably had the biggest potential payoff, but 

I would also suggest had the biggest risk. You have somebody, you 

make a list of the thousands of requirements, which they did. I 

think GAO counted and said 8,000 and climbing. 

Senator CARPER. Now say that again. When they are trying to 

create the system, or envision it, they had 8,000 requirements that 

were laid out? 

Mr. NORQUIST. Well, if I ask you, what do you need your accounting system to do, the list is endless if you approach it that way, 

and then you turn to someone and say, please deliver me a system 

that does this, and then they have to do software development, and 

16

software development is also very challenging. All of those steps 

add risk. 

The reverse of that is, for example, what our approach would be. 

We have an accounting system and an integrated system at CBP 

and over at TSA. You go to somebody who is moving and saying, 

why can’t that meet your needs? Give us an example of what it 

does that you need to. So rather than do thousands of requirements, you are doing what is called gap analysis. All of those make 

it easier. 

But their approach to the solution, I think, had a high opportunity for payoff, but it is a very challenging task and I think the 

way they went about it probably increased the risk. But having not 

been there at the time, I think I will of defer to GAO now in terms 

of having looked at the records, anything they found about the 

challenges in that approach and what went wrong. 

Senator CARPER. Good. That is very helpful for background. 

Can you just take it up from there and fill in the gaps? 

Mr. WILLIAMS. Yes, I can, and I think just to summarize it real 

short, I was asked by the full Committee to take a look at what 

the agency was doing to consolidate its operations from a financial 

management standpoint when the agency was formed, and we basically concluded that eMerge at the time, that it was really too soon 

to tell whether it would succeed or not, that it appeared to be a 

good idea, that if you wanted to consolidate all your systems, because you had these 22 agencies. 

The bottom line was Homeland Security was basically looking at 

a situation in which there were all these agencies coming together, 

components coming together, and everybody was basically carrying 

out their operations based on what they had been accustomed to 

doing from wherever they came from, and the concept was, we will 

have one system that will be able to gather data and produce data 

that will be consistent across the entire Department. 

A case in point was at the time, I was asked to do a job at FEMA 

and there were some issues that had been raised about some capitalization thresholds and just how they were accounting for their 

property. And we had some suggestions and were basically told 

that we cannot make these changes for FEMA because the Department is looking at everything that is going on in the financial management arena, from systems to policies to procedures, and we are 

going to try to standardize everything so that everything can be 

done across the agency the same way so we will have the consistency. 

So that was the objective when this whole process started, we 

wanted one system that can gather data for all of these agencies 

or components that we are bringing together and we will have this 

one system. We will have the consistency. We will also be able to 

reduce our costs because we will cut down on a lot of the redundancy that is going on. So that was the basic overall agenda when 

this process first started. 

Senator CARPER. Where do you think it started to come apart? 

Mr. WILLIAMS. I will let you take that one. 

Mr. RHODES. In the requirements, the requirements failure regarding eMerge. So you have 22 pieces of broken pottery, and I 

don’t know what the pot looks like. Now I am supposed to glue 

17

them all together and make something of it. I am not an accountant. I am an engineer. But my accounting colleagues have sat me 

down and showed me a 32-column piece of paper and said the number in the lower left-hand corner is supposed to add up to something. Fine. Now what do I feed into that eMerge 2 system? 

Well, none of the systems that the Department of Homeland Security inherited—and that is the key term, they inherited them—

none of them had actually been designed. They had all evolved. 

Like all the departments they came from, they had evolved. They 

were unique. They were one of a kind. They were, oh, we do things 

differently here designs. They were, gee, we can’t actually get a 

clean opinion system, but now DHS has to take that system and 

bring it in. 

So it begins with a requirement set. One of the reasons it was 

8,000 and climbing is that if you don’t apply the discipline to say, 

you are done, you are done, you are done, I don’t want to hear from 

you anymore, we are going to do it this way, if either you don’t do 

that or you can’t do it, then you are in the position of having zero 

discipline in your process. You are just trying to draw all of the requirements together into the dog’s breakfast, as you are talking 

about, and say, oh, well, whatever comes up will come up, which, 

of course, is a vendor’s dream and the oversight’s nightmare. 

Senator CARPER. Mr. Charbo, do you want to add anything? 

Mr. CHARBO. No, I think that was well said. At the end of the 

day, if we were successful in that new system, you still had the 

challenge of the internal control processes and migrating things 

that didn’t add up into a new system. Those were a lot of the points 

that we were pointing out to the Department as I came in in July 

and trying to point out some of the flaws, as well, which led to 

some of the cancellation of the contracts and deciding to move on 

with another strategy. I think all those points were well said. 

Senator CARPER. Alright. Fair enough. Senator McCaskill. 

Senator MCCASKILL. So 8,000 requirements is ludicrous on its 

face. Was there no one there to say that is too many? Are you saying there were 8,000 requirements because they were trying to accommodate 22 different evolved systems and everything that they 

had traditionally gotten out of their product, they wanted all of 

that to come out of this new product? 

Mr. RHODES. In effect, the lack of discipline that they were applying was doing that by default. You are correct. I don’t know that 

anyone was getting up in the morning and saying, gee, let us just 

have it be all things to all people. But what we saw in the initial 

reviews was that no one knew how to put the brake on, and therefore the requirements list goes up and the money goes out and the 

oversight on the part of DHS was not in place. 

Contracting out, fine. That is not supposed to be abdication of responsibility. It is contracting out. It is not abdication. It is not, because then the contractor—I have been a contractor. I came out of 

the contracting world. All it takes is money and I will make you 

happy. Well, fine. So you keep giving me enough rope in terms of 

dollars and I will keep weaving a basket out of it. That is what was 

happening. There wasn’t anything in place to stop throwing coal 

into it to keep the engine burning. 

18

Senator MCCASKILL. And I have to assume, in the private sector, 

you have mergers and acquisitions as commonly as you have anything else. I have to assume there are products even off the shelf 

that could be adjusted to accommodate different functions coming 

together for the first time. 

Mr. RHODES. You are correct. There are products out there, but 

often, commercial off-the-shelf does not mean one-size-fits-all. Likewise, just because you have bought commercial software does not 

mean that you now give up being ultimately the system engineer. 

Senator MCCASKILL. Right. 

Mr. RHODES. You have to understand your requirements. You 

have to come in with a discipline. You have to lay them out. You 

have to say, what is my concept of operations? What is my target? 

What am I trying to do? Well, if I am trying to be all things to all 

people, there is nothing on the shelf that is going to——

Senator MCCASKILL. Right. It is not going to be there and it is 

going to cost—— 

Mr. RHODES. Forever. 

Senator MCCASKILL [continuing]. $52 million and then you are 

going to cancel the contract. 

Mr. RHODES. It is going to cost forever. 

Senator MCCASKILL. Do you believe that the problem of discipline when it comes to financial management has, in fact, been 

addressed at the Department of Homeland Security? 

Mr. RHODES. I cannot say that I have hard evidence that it has. 

The movement to kill eMerge is a sign. The movement—as the 

CFO stated, they concur with everything we have said. 

Senator MCCASKILL. Sometimes that feels like kissing your sister. We don’t get it fixed. 

Mr. RHODES. Right. Exactly. 

Senator CARPER. To which my sister would say, even sisters need 

to be kissed. [Laughter.] 

Senator MCCASKILL. Well, do you sense that they now have that 

discipline, though? I know you are saying you have no hard evidence that the discipline is now in place to not abdicate? 

Mr. RHODES. Right. 

Senator MCCASKILL. Alright. 

Mr. RHODES. I do not have the hard evidence. I will have to see 

what goes on from now. I have good words. I have good intentions. 

I do not believe I am being lied to. Fine. Now let us see, because 

our joint testimony this year is no different than our joint testimony last year. 

Senator MCCASKILL. Right. And do you all have a sense that 

there is any hope of discipline at the Department of Homeland Security as it comes to the abdication that was documented in the 

Washington Post concerning contract oversight? 

Mr. RHODES. Do you want to take that? 

Mr. WILLIAMS. It is a process, a discipline that must be put in 

place in the financial management arena, and I would say in looking at the overall process, you are talking about internal controls 

within the entire Department. And I have done a lot of work over 

the years in the area of internal controls and working with what 

we call our Green Book, which basically lays out the framework of 

what you need to have in place, and I think that it is important 

19

that the agency as a whole take a look at those five pillars, as I 

call them. 

I think the key one is that we talk about the tone at the top, and 

that is that you have to start at the top of any organization and 

make sure that the right tone is set as far as we will have the good 

controls in place. We will have accountability in place. And that 

has to filter down throughout the organization. 

Once you start with that and you take those other four concepts 

that are laid out in that document, then you have the framework 

in place to make sure that you have good controls. 

Mr. RHODES. Let me make one additional point about that tone 

at the top. The tone at the top has to last longer than the life expectancy of the appointee. It has to be institutional. It can’t be, 

fine, all well and good, Mr. Norquist, and he has the good intentions and then he leaves after his half-life of 18 months or——

Senator MCCASKILL. Maybe gets hired by one of those contractors. 

Mr. RHODES. Perhaps. 

Senator MCCASKILL. Because he could make $250,000 a year. 

Why would he hang out with us poor saps on the public payroll? 

[Laughter.] 

Mr. RHODES. Yes, ma’am. The point is that whoever comes in has 

to be able to keep that target in mind, and that is why we talk 

about concept of operations, discipline in the process, and Mr. Williams’ discussion about internal controls. If those are there and 

they are taken seriously, then it doesn’t really matter who is in the 

seat. They are still acting according to this road map. 

Senator MCCASKILL. Well, and this reminds me that there are so 

many similarities between the Department of Defense and the Department of Homeland Security because the context of the mission 

overshadows the need for fiscal accountability. In other words, the 

piece this morning in the Washington Post, it was about the intelligence operation. So it was like what we are trying to do is so important, we don’t need to worry about cost value. We don’t need to 

worry about whether or not we are following Contracting 101. We 

don’t need to worry about whether or not we are actually overseeing the contract in a cost-effective way, because this is way 

more important than how much it costs, which is what you hear 

from sometimes commanders in the Department of Defense and the 

military. What we are doing is so important, who cares if the contract is not specific and is cost-plus and it costs billions of dollars 

more than it should? I shouldn’t say, who cares. That is not fair. 

But the point is, do you believe that we need to do something in 

the process of confirming the secretaries of these departments as 

it relates to commitment to financial accountability? 

Mr. WILLIAMS. Just a quick history on this. I have heard that 

statement before. I also have responsibility for the financial management issues at the Department of Defense and I can recall 

when we were trying to get——

Senator MCCASKILL. You poor thing. [Laughter.] 

Mr. WILLIAMS [continuing]. Financial data related to Desert 

Shield. This was back in 1991, I believe, and I think the response 

that I got was that I do not have time to stop and keep these 

20

records. I am fighting a war. So I have heard that story for many 

years going back. 

But my response then and my response now is that if you put 

good policies, good procedures in place and you have that structure 

there, when you go to war, there will be policies and procedures, 

that information will be rolled up. It is not something that you 

want to have to just stop while you are in the middle of a war to 

put in place. You want to have that in place well in advance. You 

want to have the internal controls. You want to have the policies 

and procedures. You want to have the systems. 

And as I always like to point out, you need to have all of those 

things because that old saying about you are only as strong as your 

weakest link, you can have the good systems, poor internal controls, you are still going to have problems. You can have the best 

system in the world, but if you lack the quality staff to either run 

and to manage your operations, you are still going to have some 

problems. 

So you have all those components that you need to have in place 

and you need to put that structure in place. Whether you require 

that from management or leadership of the organization, anything 

that we can do to make sure that there is good accountability within an organization when it comes to financial systems, financial reporting, it has got to be a good idea. You have to look at it from 

a cost-benefit standpoint, of course. But improving it through holding people accountable, GAO has always supported that. 

Senator MCCASKILL. Thank you, and I hope, Mr. Chairman, that 

the testimony next year is different. I can only hope. 

Senator CARPER. Well, I hope so, too. I know we will be here asking for your testimony, and I think that is an important thing for 

us in exercising our oversight responsibilities, is to make sure that 

GAO, in the exercise of your responsibilities, that we are there 

backing you up and we appreciate your support and working with 

the IGs and the CFOs. 

A member of my staff handed me a note. It said, maybe the 

CFOs shouldn’t be Presidentially appointed, and I am sure we have 

some Presidentially appointed that are quite good, but I worry 

about the turnover, and someone said 18-month half-lives in some 

of these positions. 

Mr. Norquist, any thoughts along those lines? 

Mr. NORQUIST. Yes, a couple. First is, originally, the CFO at 

DHS was not. It was the DHS Financial Accountability Act that required Senate confirmation and hence I am here. 

The thing I would say to also reassure the Subcommittee about 

continuity is in the entire financial management community at 

DHS, I am the only political appointee. I am there because of the 

Senate confirmation rules, but everyone below me, the CFO and 

the Deputy CFO of FEMA, CBP, ICE, and so forth, my own deputy, 

all career civil servants. I am happy either here or later to talk 

about the initiatives we have to mentor and develop the next generation of CFOs. That is one of the initiatives that I have been 

pushing, because we have no natural career pipeline. We are only 

4 years old. And I want to make sure that we keep that path of 

career civil servants strong. 

21

The other side is I have great support from my leadership. I have 

strong backing from the Secretary and the Deputy and the Under 

Secretary for Management. I meet with them regularly, not just 

about this, but also the entire audit, the financial statements, how 

we are doing on the corrective action plans. But GAO, and you are 

right in that at a certain point in time, all of us will be asked to 

move on. Others will come in, and making sure that the leadership 

down the pipeline shares the same commitment that our current 

Secretary has is very important. I convey it to my staff. 

The thing that is interesting about what they call sort of the tone 

at the top and what your staff says is, does anyone care about me, 

is it shows up. They know when the Deputy Secretary shows up 

to the new hire training program for the Financial Management 

staff and tells them about how important it is, what they are doing. 

They know when the Secretary is asked at the hearing, every appropriation budget hearing, about the status of the audit. They understand when the leadership provides us an additional SES position to strengthen our Finance and Accounting Office. All of those 

things that are the tone at the top are conveyed to the career civil 

servants and they understand and appreciate that commitment. 

But they are right. If I didn’t have that, I am not even sure I 

would undertake an endeavor because I wouldn’t be confident in its 

success. 

Senator CARPER. Thank you for that statement. 

I want to move on to a couple different questions, if I could. Mr. 

Charbo or Mr. Norquist, your Department has already embarked 

on a new project you have alluded to. I just want to thank you for 

not using the acronym, but I think it is called the Transformation 

and Systems Consolidation. And I think you have embarked on a 

new project without fully implementing GAO’s recommendations 

that were released in their report today. Did you agree with that 

assessment, and if you do or don’t, within the Department, how 

will you avoid repeating the problems and failures, if you will, that 

we realized in eMerge 2? 

Mr. NORQUIST. There are some of them we have done. There are 

some of them that still remain to be done, and I certainly appreciate their feedback on any one that we can make stronger. We 

have the software development life cycle documentation. We have 

done our analysis of alternatives. Certain ones, like the concept of 

operation, which as GAO points out is so essential, we developed 

one for DNDO and we moved them in the fall of last year and we 

will update each component that we move. The CONOPS will be 

specific to that move. Likewise, the reengineering which they 

talked about which is so important is part of our A–123 process, 

and we go through each item over a 3-year period. 

So I think the answer at the beginning is, I believe we had made 

significant progress in each of these areas, but it is important that 

we see them through because I think their recommendations are 

sound. I have relied on them in other areas and I think that those 

things are very important. 

In terms of how do you avoid repeating the mistakes, I think it 

gets back to understanding what they did and trying to do it differently. For example, we are not asking people to develop thousands of requirements and then hoping a vendor can fire into a 

22

wave meeting them. We have two components that use applications 

that are widely used by the government and they are the private 

sector, and we are saying to folks, we are ready to move you to one. 

Tell me why it can’t meet all your needs. And I suspect that if it 

can’t, the problem may be with the organization I am trying to 

move, not with the system. If you don’t like the process, I think you 

may need to fix the process before we change the system. 

There will be some exceptions. ICE has to handle bonds. Our system that CBP and others have don’t necessarily do that. We are 

happy to build that specific item that the system was not designed 

to accommodate. But this will be by exception, and my general inclination will be if it works for other large Federal agencies and 

major corporations, what makes you special? I think this is the 

place where the discipline comes in. But it is not trying to gather 

the 8,000, it is trying to operate with something you have and you 

use today. 

Senator CARPER. Good. Alright. Thank you. 

Mr. Rhodes, I believe the GAO has reported that many longstanding problems that plague financial management system improvement efforts, do you think the Department was just not getting the message before? 

Mr. RHODES. In our experience, public pain is what gets the message across. 

Senator CARPER. Is this sufficient, do you think? Are we inflicting enough today, or did we last year? 

Mr. RHODES. I think that they have gotten part of the message, 

and they did kill eMerge. They didn’t continue eMerge. We have 

certainly other examples where far more than the money claimed 

there that was lost was lost, upwards of hundreds of millions of 

dollars. So when it becomes so unavoidable that it is public and 

people are being chastised publicly through oversight, they tend to 

get the message. 

I go back to my earlier point. Everything that has been said relative to our report, the complete concurrence, what Mr. Norquist 

just said, that is the right thing to say. But it is a function of, now 

let us see the integration plan and the critical path for tying all 

these systems together. 

Yes, you are moving to a shared baseline. You are also running 

multiple instances of one part of that baseline right now and it has 

unique applications running on it. How will you migrate away from 

that and not lose functionality? I mean, yes, I am putting on my 

propeller hat and being the engineer here at the moment, but that 

is ultimately where it starts to break down, and coming to someone 

and saying, tell me why you are not unique, and you say, well, I 

am unique because of this and this and this. A lot of times, it is 

not somebody necessarily coming up and saying, well, I am unique 

because my requirements are special. It is coming up and saying, 

I am unique because I am running software that I can’t get anywhere else, or I have software and I am not really certain what it 

does, but it serves this function and we have used it forever. Now 

you are in a decomposition and a reengineering and an understanding of the requirement as established in the piece of software 

that is already there. Those are the complicating factors. 

23

Senator CARPER. OK. How should this Department especially incorporate some of the lessons learned to avoid unwise spending, 

unneeded, unnecessary spending on projects that are doomed to 

fail? 

Mr. WILLIAMS. Well, I think, as we stated earlier, that the bottom line is that if they follow those recommendations that we have 

in the report and if they follow the discipline processes as they go 

forward, if they utilize the results from their A–123 assessments, 

because I think in those assessments, if properly done, in the internal control area, there should be some efficiencies that should come 

out of that from the standpoint of looking at the internal controls, 

they will probably find that in some places, that they have too 

many in place. In other places, they might find that they have gaps 

to fill. So I think if they utilize all of the tools and all of the things 

that we have talked about here, in going forward, you have got the 

framework for making some progress. 

The thing that I guess I reflect back on in this overall process 

is something that I also mentioned earlier, and that was a report 

that I did about 4 years ago, and I believe it was done for Senator 

Lieberman, in which I basically concluded that at this particular 

point in time, eMerge is a project that is just too soon to tell, but 

if things are done as laid out, then you have laid the groundwork 

for success. Four years later, I am basically saying the same thing, 

that we have a process here that is laid out. If successfully carried 

out, then we have an opportunity for success. It sounds like, in my 

mind, that I am repeating myself 4 years later. 

The other component of that is that I reflect back again to the 

early 1990s when I was detailed to Congress and involved in drafting of the Chief Financial Officer Act. The big debate then was why 

do you put these laws in place, and the bottom line conclusion on 

that was you put these laws in place so that you will have them 

there because Administrations will come and Administrations will 

go, so you want to have a framework in place for what you are trying to accomplish, it doesn’t matter who is there. 

So I think it is another area that is good for debate, is what type 

of structure do you need to have in place to make sure that regardless of who is in place, that there are continuous efforts to achieve 

progress in these areas and you have that continuity and that consistency. 

Along that line, as GAO has testified in the past, we have kicked 

around the concept and supported the concept of maybe a Chief 

Management Officer for agencies in which you have situations in 

which you have these major management challenges. So it is something I think we need to continue to debate and have more discussions about. 

Senator CARPER. Alright. Thank you. 

Let me yield to Senator McCaskill. We have a vote underway, 

the first of four votes, and I would ask Senator McCaskill to ask 

questions for a bit if she will and then I will ask one more and we 

will call it a day. 

Senator MCCASKILL. I only have one more question. There was 

previous testimony earlier in the year where I had read that Homeland Security was putting lawyers in the room with GAO auditors 

when GAO auditors were coming in to do audit work and that they 

24

were—the Department lawyers were sitting in on interviews between the auditors and the employees there. I had questioned Secretary Chertoff about that, was not thrilled with the answer I got 

because it appeared to me he didn’t understand that there is review up-chain of an audit. You don’t put a lawyer in the room with 

the government official that you are getting information from during the process of the audit. 

Is there any indication that practice is still being done at the Department of Homeland Security? Are they still putting lawyers in 

the room during interviews with GAO auditors, to your knowledge? 

Mr. WILLIAMS. To my knowledge, I can speak about this particular job. There were no attorneys present with the work that my 

staff was performing on this particular assignment. I will admit 

that we did have some delays at one point in time, and to the credit of this Subcommittee, we placed a couple of phone calls and we 

were able to get some assistance and information that we needed 

was provided in a timely manner. But to my knowledge, I do not 

recall any attorneys during our assignment. 

Senator MCCASKILL. Mr. Norquist. 

Senator CARPER. Mr. Norquist, is it true that those two rows of 

people behind you are lawyers? 

Mr. NORQUIST. No, sir. Actually, they are the good career civil 

servants, and I asked them if there were any lawyers—I asked the 

same question he just answered, which was I have had many meetings with GAO without lawyers present. Did you have lawyers during our meetings? And they said the same thing, which was they 

didn’t. I actually once a month meet with a representative from 

GAO and have opted to go through the status of things that GAO 

has asked for and whether or not they are getting it in a timely 

manner in order to ensure that we respond to items for GAO. That 

is just one of the additional things I do. Frankly, I am used to having my auditors in the room. I am used to having the IG in the 

room. So I get kind of familiar with having those folks around. 

Senator MCCASKILL. Thank you. Thank you, Mr. Chairman. 

Senator CARPER. Thanks so much for being here and for your 

comments and your excellent questions. 

Mr. Rhodes and Mr. Williams, I believe the Department of 

Homeland Security is required by law to prepare expenditure plans 

for some of its information technology projects. I believe these expenditure plans must then be approved by the Office of Management and Budget, and I think reviewed by GAO before Department 

management can obligate any project funds. 

First, is that a correct assumption, and second, if it is, what level 

of oversight is needed and by whom? 

Mr. WILLIAMS. The first answer is yes. That is our understanding, also, is that is the process. 

I would say in general that I would consider this process to be 

an internal control, because you are basically putting a process in 

place in which, first of all, you are putting some visibility over 

what is being spent and you are putting some discipline in that 

process in which the information is basically out there for review. 

Now, the concern, what could be a problem with that is that 

when you put those numbers out there and nothing is done about 

them or there are no controls, that is where you basically have 

25

form over substance in which you are going through an exercise. 

The key is not so much the exercise but what is done as a result 

of the exercise, and I think that is where the focus needs to be, is 

to make sure that there is some action behind putting those numbers out there. 

Senator CARPER. Alright. Do you want to add anything or take 

anything away, Mr. Rhodes? 

Mr. RHODES. I wouldn’t dare take anything away——

[Laughter.] 

But the point I would emphasize is that an expenditure plan has 

to have what went on before and what goes on after, so there is 

an audit—there has to be a continual audit function around it so 

that the expenditure plan is not just some document sitting in isolation. They can be extremely valuable. They can be very helpful. 

And they can also be a paper exercise, as Mr. Williams said. It is 

a function of the oversight that goes on around it. 

Senator CARPER. Mr. Charbo, you have not had a chance to say 

a whole lot here today. Do you want to give the benediction for us 

or add anything before we leave? 

Mr. CHARBO. I would just add on the last question that Secretary 

Chertoff did pass or create a management directive around IT investments in the Department which does provide oversight on the 

budget side on the capital planning for IT investments. That is coordinated very closely between the CFO and myself, as well as IT 

investment acquisition reviews, which also was a requirement in 

the appropriations act. So if it is over $2.5 million, it requires the 

CIO to review that expenditure, and we do look to assure that it 

is meeting certain expenditure requests. I don’t believe all expenditures go through to GAO. We do submit our CPIC, our investment 

guidelines, after the budget is released. Those are submitted over 

to GAO. Appropriations do require certain expenditures to be submitted for approval to the Congress and then back over to GAO. 

We appreciate the opportunity. 

Senator CARPER. Fair enough. Let me just say in closing, again, 

our thanks to each of you for being here today. Thank you for your 

testimony and for responding to our questions. Thank you for your 

stewardship to our taxpayers and for helping us in our exercise of 

our constitutional responsibility to conduct oversight in instances 

like this. 

I would like to think that all of our Federal agencies and our departments perform major and important responsibilities for our 

taxpayers, for the citizens of this country. A few departments really 

exist that are more important in providing our security. I know 

when we created the Department of Homeland Security, we knew 

it would be a bumpy start and we knew it would not be easy. We 

look back at the creation of the Department of Defense all those 

years ago and we recall how difficult it was for them to get their 

act together. In fact, some would argue they are still trying to get 

their act together in certain respects. 

But we need for Homeland Security to get this right, and you 

had an opportunity to try to get it right the first time, which 

eMerge 2 didn’t. You wisely pulled the plug. And now you have an 

opportunity to get it right this second time. 

26

I would just urge you to do all that you can to restore, particularly in this regard, a measure of our faith and confidence in the 

ability of this Department to stand up and begin to handle, in this 

case it is financial affairs, in a way that we can all be proud of and 

you can be proud of. 

I think with that having been said, we are going to stay on this 

and we will be here to be helpful, not just to be critical. We will 

be here to be helpful, as well, and to partnering with GAO and 

your IGs and the other folks that work with and for both of you, 

Mr. Norquist and you, Mr. Charbo. 

With that having been said, this hearing is adjourned. Thank 

you. 

[Whereupon, at 4:22 p.m., the Subcommittee was adjourned.] 

(27)

A P P E N D I X 


37354.001
28


37354.002
29


37354.003
30


37354.004
31


37354.005
32


37354.006
33


37354.007
34


37354.008
35


37354.009
36


37354.010
37


37354.011
38


37354.012
39


37354.013
40


37354.014
41


37354.015
42


37354.016
43


37354.017
44


37354.018
45


37354.019
46


37354.020
47


37354.021
48


37354.022
49


37354.023
50


37354.024
51


37354.025
52


37354.026
53


37354.027
54


37354.028
55


37354.029
56


37354.030
57


37354.031
58


37354.032
59


37354.033
60


37354.034
61


37354.035
62


37354.036
63


37354.037
64


37354.038
65


37354.039
66


37354.040
67


37354.041
68


37354.042
69


37354.043
70


37354.044
71


37354.045
72


37354.046
73


37354.047
74


37354.048
75


37354.049
76

Æ


37354.050