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DHS FINANCIAL MANAGEMENT: EVALUATING

PROGRESS IN IMPROVING INTERNAL CONTROLS

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

FINANCE, AND ACCOUNTABILITY

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

SEPTEMBER 13, 2006

Serial No. 109–258

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

CHRISTOPHER SHAYS, Connecticut

DAN BURTON, Indiana

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

CANDICE S. MILLER, Michigan

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

JON C. PORTER, Nevada

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

CHARLES W. DENT, Pennsylvania

VIRGINIA FOXX, North Carolina

JEAN SCHMIDT, Ohio

BRIAN P. BILBRAY, California

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. DUTCH RUPPERSBERGER, Maryland

BRIAN HIGGINS, New York

ELEANOR HOLMES NORTON, District of

Columbia

———

BERNARD SANDERS, Vermont

(Independent)

DAVID MARIN, Staff Director

LAWRENCE HALLORAN, Deputy Staff Director

BENJAMIN CHANCE, Chief Clerk

PHIL BARNETT, Minority Chief of Staff/Chief Counsel

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, FINANCE, AND ACCOUNTABILITY

TODD RUSSELL PLATTS, Pennsylvania, Chairman

VIRGINIA FOXX, North Carolina

TOM DAVIS, Virginia

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

JOHN J. DUNCAN, JR., Tennessee

EDOLPHUS TOWNS, New York

MAJOR R. OWENS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

EX OFFICIO

HENRY A. WAXMAN, CALIFORNIA

MIKE HETTINGER, Staff Director

TABETHA MUELLER, Professional Staff Member

ERIN PHILLIPS, Clerk

ADAM BORDES, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on September 13, 2006 ..................................................................... 1

Statement of:

Norquist, David, Chief Financial Officer, Department of Homeland Security .................................................................................................................. 7

Zavada, David, Assistant Inspector General, Department of Homeland

Security .......................................................................................................... 16

Letters, statements, etc., submitted for the record by:

Norquist, David, Chief Financial Officer, Department of Homeland Security, prepared statement of .......................................................................... 9

Platts, Hon. Todd Russell, a Representative in Congress from the State

of Pennsylvania, prepared statement of ...................................................... 3

Towns, Hon. Edolphus, a Representative in Congress from the State

of New York, prepared statement of ........................................................... 5

Zavada, David, Assistant Inspector General, Department of Homeland

Security, prepared statement of .................................................................. 18

(1)

DHS FINANCIAL MANAGEMENT: EVALUATING

PROGRESS IN IMPROVING INTERNAL CONTROLS

WEDNESDAY, SEPTEMBER 13, 2006

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

FINANCE, AND ACCOUNTABILITY,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

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

2247, Rayburn House Office Building, Hon. Todd Russell Platts

(chairman of the subcommittee) Presiding.

Present: Representatives Platts and Towns.

Staff present: Mike Hettinger, staff director; Tabetha Mueller,

professional staff member; Erin Phillips, clerk; Seth Lennon, staff

assistant; Jean Gosa, minority assistant clerk; and Adam Bordes,

minority professional staff member.

Mr. PLATTS. A quorum being present, this hearing of the Government Reform Subcommittee on Government Management, Finance,

and Accountability will come to order.

Five years ago on this day, we were still reeling from the devastating attacks of September 11th. Over the course of the next

year, the President and Congress took steps to transform the Federal Government. The result was the creation of the Department

of Homeland Security, an ambitious and sweeping change in focus

that brought 22 agencies together to combat terrorism and to better protect the security of our citizens here at home.

One of the primary objectives was to streamline our operations

and create economies of scale, to spend less on overhead and more

on the mission at hand. Sound financial management is an important part of that equation, and DHS inherited agencies with significant problems in this area. In order to ensure that DHS would

have the best chance to establish sound business practices, I, along

with the ranking member, Mr. Towns, introduced H.R. 4259, the

DHS Financial Accountability Act, which President Bush signed

into law on October 16, 2004.

The DHS Financial Accountability Act mandated a structure in

line with the Chief Financial Officers Act of 1990, establishing a

Senate-confirmed CFO with direct access to the Secretary. We certainly are pleased to welcome this new CFO, the Honorable David

Norquist, who will be with us and testify here today. In addition,

the act imposed on the Department the most stringent audit requirements of any Federal agency, an audit of internal controls.

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Internal controls are the checks and balances intended to prevent

and detect mistakes. They are the key to accountability. Unfortunately, financial audits of DHS have identified 10 material weaknesses in internal control. These problems affect more than just financial reports. They can adversely impact operations. In 2005, the

Bureau of Immigration and Customs Enforcement experienced

some budget shortfalls because of accounting problems, and the

Federal Emergency Management Agency’s internal control problems contributed to millions of dollars in misspent funds in response to Hurricane Katrina.

By subjecting DHS to increased scrutiny through the audit process mandated in the DHS Financial Accountability Act, our intent

was to address the root causes of these problems. We did not intend for the internal controls audit to be a paperwork exercise; and

I am pleased to hear that DHS is taking a proactive, collaborative

approach. In order to fix weaknesses, not just identify them, the

Office of the Inspector General is working alongside the CFO performing ongoing audits that focus on specific goals and action

plans. These audits set specific goals and measure progress. The

end result will be a Department that can focus more effectively on

its critically important mission.

Today, we are focused on the results of the first several audits

and provide the subcommittee with the chance to discuss the results of these audits.

We are pleased again to be joined by Mr. Norquist, as well as

Mr. David Zavada, Assistant Inspector General for Audits, who will

testify today. We thank you both for being here. As always, we appreciate your written testimony ahead of time to give us some more

in-depth background on what we will discuss today. We certainly

look forward to your opening comments and expect that we will

have a very good dialog as we move forward.

[The prepared statement of Hon. Todd Russell Platts follows:]

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Mr. PLATTS. I am now pleased to yield to our ranking member,

Mr. Towns, from New York.

Mr. TOWNS. Thank you very much, Mr. Chairman, for holding

this hearing today to discuss ways in which we can improve the internal controls over financial management at the Department of

Homeland Security. I am hopeful that today’s witnesses can shed

some light on the progress being made toward this important goal.

The creation of DHS in 2003 was daunting, as it required the

merging of 22 separate legacies agency into one management

framework. Unfortunately, the integration of uniform financial

management practices has proved overwhelming to agency leadership at all levels, and DHS continues to demonstrate significant

material weaknesses in its financial reporting process and internal

control functions.

In response, Chairman Platts and this subcommittee worked to

enact the Department of Homeland Security Financial Accountability Act, which finally brought DHS under the CFO Act umbrella for

all financial management activities. It also requires DHS to assess

their internal control functions on an annual basis in order to insure that appropriate safeguards are built into agency financial

practices.

I am hopeful our witnesses today will be able to explain how the

weaknesses identified in the DHS fiscal year 2005 review of internal controls are being addressed for future financial reporting activities. With many State and local governments dependent upon

DHS for vital resources, it is imperative that controls be in place

to govern the disbursement and collection of revenues for all agency operations.

Once again, I thank my friend and chairman for his tireless

work. He has done a major job in terms of keeping this in the forefront and continuing the discussions. He realizes how important it

is, and I would like to say to him I really appreciate that.

This concludes my statement, and I yield back.

[The prepared statement of Hon. Edolphus Towns follows:]

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Mr. PLATTS. Thank you, Mr. Towns; and I appreciate your kind

words. But it truly has been a team effort with you and your staff

working with our staff on the Republican side, and I think it is a

good example that partisanship doesn’t happen here in this subcommittee. It is about good work and the joint effort to just ensure

that the taxpayer funds are well invested and a good return for our

citizens back home.

So we will turn to our witnesses. If I could ask both of you to

stand. Our practice is to swear in both of our witnesses before your

testimony. If you could raise your right hands.

[Witnesses sworn.]

Mr. PLATTS. Mr. Norquist, we’ll begin with you; and we’ll give

you roughly, I guess, a 6-minute timeframe. But if you need to go

over, we’re glad to have you here; and if you need a little more time

than that, feel free to take that. Then we’ll go into questions.

So, Mr. Norquist.

STATEMENT OF DAVID NORQUIST, CHIEF FINANCIAL

OFFICER, DEPARTMENT OF HOMELAND SECURITY

Mr. NORQUIST. Thank you, sir.

Chairman Platts, Ranking Member Towns, thank you for this opportunity to testify before you today.

As you have heard from past witnesses, DHS has many challenges to overcome to improve its financial management. My purpose before you today is to report to you on what I am doing about

those challenges, consistent with the language and spirit of Public

Law 108–330, the Department of Homeland Security Financial Accountability Act.

My goals as CFO of Homeland Security are to make measurable

progress in a number of areas, to include providing timely, accurate

and useful financial data; improving our systems and processes

eventually leading to sustainable, clean audit opinions; and implementing a sound internal control program.

I firmly believe that success in achieving these goals begins by

recognizing that strengthening financial management is about

more than systems. To address the root cause of the problem, we

must address people, policies, processes, systems and assurance.

Regarding people, I have met with the agency chief financial officers to evaluate their hiring and training challenges. I believe

there is a core set of knowledge that all financial and management

employees should be trained to when they come on board in DHS.

I have formed a task force to make that happen. I am also starting

a DHS-wide CFO mentorship program so that we can identify and

train the next generation of chief financial officers.

With regard to policy, DHS needs to develop a Department-wide

financial management regulation. We are developing one DHS way

of conducting financial management. One set of regulations will

give us a common standard and understanding from which we will

operate. It will simplify our control environment and provide us the

standards for training and accountability.

The centerpiece of our effort to improve our financial processes

is our Internal Controls Over Financial Reporting Playbook. The

Playbook will be completed this fall and is the culmination of an

effort led by my office and supported by the Inspector General’s OfVerDate 11-MAY-2000 15:46 Oct 27, 2008 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 C:\DOCS\44768.TXT KATIE PsN: KATIE
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fice to identify the root causes that underlie the material weaknesses. This will lead to more robust and detailed corrective action

plans and to achieve the goals of the Financial Accountability Act.

With respect to our systems modernization efforts, let me state

that eMerge2 is dead. We do not have plans to launch the development of a new, Department-wide financial management system.

The project documentation created at the inception of eMerge2

identified the right goals. Its goals run along the same lines as

these I have outlined as my goals for DHS financial management.

However, the approach was not balanced well enough across the

framework of those five areas I mentioned: people, policy, process,

systems and assurance.

DHS still has a need to improve its resource management systems, but before we begin making migrations we must have a solid

business case and know how the migrations tie into our longer

range plans. We need to separate our process problems from the

true system problems so we know which of our existing systems

can be our foundation to buildupon.

The final piece is assurance. DHS must have in place a means

by which we can test whether our internal controls are well designed and operating effectively and for management to be in a position to find what is wrong and fix it. To this end, I am creating

the CFO’s assurance team to check our controls and to direct and

monitor our execution of the Playbook.

I would like to particularly thank the Office of the Inspector General for their support of this effort.

We are working with the OIG on the internal control audit for

this year, as required under the Financial Accountability Act. But,

in addition, the IG is conducting a series of performance audits

that are helpful in improving our corrective action plans, and I appreciate their strong participation.

DHS has come a long way since its inception in financial management. During my tenure as the CFO, I intend to move DHS’s

financial management beyond that of an agency in transition. I

know from my 3 months on the job that I have a big task in front

of me.

Thank you for your leadership and your continued support of the

Department of Homeland Security, and I would be happy to answer

any questions you may have.

Mr. PLATTS. Thank you, Mr. Norquist.

[The prepared statement of Mr. Norquist follows:]

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Mr. PLATTS. Mr. Zavada.

STATEMENT OF DAVID ZAVADA, ASSISTANT INSPECTOR

GENERAL, DEPARTMENT OF HOMELAND SECURITY

Mr. ZAVADA. Good afternoon, Chairman Platts, Ranking Member

Towns and members of the subcommittee. Thank you for inviting

me to testify before the subcommittee today on DHS financial management and internal control.

Strong financial management and accountability are essential to

effectively and efficiently accomplish DHS’s mission. The Congress

recognized this in establishing the Department of Homeland Security Financial Accountability Act by emphasizing financial management leadership and internal control as essential elements of a

sound financial management system.

Financial management has been a management challenge for

DHS since its creation in 2003. DHS was created by consolidating

22 separate domestic agencies with different business processes

and pre-existing internal control weaknesses. In addition, DHS

needed to create-a-department wide capacity to lead, manage and

oversee financial management.

For fiscal year 2005, DHS was unable to receive an opinion on

its financial statements, and 10 material internal control weaknesses were reported for the 2nd straight year. The number and

extent of these weaknesses across the Department’s components

are indicative of the challenges the Department faces in improving

financial management and producing timely and reliable financial

information.

To move forward, DHS must develop a comprehensive financial

management strategy that addresses organizational resources and

capabilities, inconsistent and flawed business processes, and unreliable financial systems. An initial step in this process is to prepare

well-developed and comprehensive corrective action plans to address known internal control weaknesses.

During 2006, we anticipated progress in addressing internal control deficiencies. The Department identified four areas for priority

attention and improvement this year. These priority areas were financial management oversight, financial reporting, fund balance

with Treasury and actuarial liabilities.

Over the past several months, we conducted a series of performance audits to assess the effectiveness of DHS’s corrective action

plans to address internal control weaknesses. The audits are intended to provide ongoing feedback to the Department as they develop and implement their plans. To date, we have completed two

audits focused on assessing the overall corrective action plan process and specific corrective action plans for 4 of the 10 material

weaknesses. These weaknesses are attributable to significant internal control problems within the Office of the Chief Financial Officer, ICE and Coast Guard.

We recommend that the DHS take greater responsibility for assessing internal control deficiencies and provide additional tools for

identifying root causes of weaknesses. Further, we recommend that

they closely integrate their corrective action plans with the assessment being implemented as part of OMB Circular A–123, Management’s Responsibility for Internal Control, and also with corrective

17

action plans being implemented to address information technology

weaknesses.

The Office of the Chief Financial Officer has initiated a Department-wide corrective action plan process and begun to actively

monitor progress. However, its own corrective action plans need

further development.

Weaknesses within the OCFO related to financial management,

oversight and reporting continue to exist. The OCFO plans to conduct a comprehensive organizational staffing and human resource

needs study. We endorse this type of comprehensive assessment in

gap analysis.

At ICE, we found its corrective action plans and priority areas

to be comprehensive and well-developed. On its own initiative, ICE

began its corrective action plan processing in the first quarter of

fiscal 2006. Consequently, they are further along in developing and

executing corrective action plans than the other DHS components.

The Coast Guard does not yet have a well-developed corrective

act plan. They have not yet thoroughly analyzed the business processes and financial systems to determine the underlying causes for

many of its internal control weaknesses. This analysis is crucial to

identifying and implementing the appropriate steps to actually

move forward and correct these weaknesses.

Financial management will continue to be a high priority area

for the OIG. We intend to continue our proactive and engaged approach to overseeing DHS financial management improvement efforts through our financial statement audit and through a series of

performance audits. We look forward to conducting these audits

and providing the results to the Secretary and the Congress.

Mr. Chairman, this concludes my prepared remarks. I would be

happy to answer any questions.

[The prepared statement of Mr. Zavada follows:]

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Mr. PLATTS. Thank you both for your testimony. And I appreciate

both of you in your written and referencing in your oral testimony

the importance of financial management as it relates to the core

mission of the Department of Homeland Security, that if we get

this right it will enhance that mission capability and effectiveness.

I want to start with maybe a question to both of you. In response

to the DHS Financial Accountability Act and the audit of internal

controls, you have kind of jointly moved forward with the work on

the performance audits and relating to the corrective action plans.

Can you summarize, maybe each of you, how you see what’s the

greatest benefit of those corrective action plans and the performance audits of them as we go forward? What are you really looking

for that will get us further down the path to what we all want,

which is good financial management across the Department?

Mr. Norquist, if you would.

Mr. NORQUIST. Sure. Let me start with the performance audits.

One of the major advantages of the performance audits is the

way that the IG is doing them, which is as we are developing the

corrective action plan so that their recommendations and their

findings are able to be built into these corrective action plans from

the beginning, this allows us to start the process with much stronger corrective action plans and with a much stronger process. So I

really appreciate that working relationship we have with them and

the value of those performance audits.

I think the advantage of the CAPs is it maps the way forward.

It gives a tool for myself to use with the components to say, here

was your problem, here was your plan. We’ve sat down and had

workshops to discuss was it sufficiently detailed, is it effective.

Now I’m going to be meeting with you on a regular basis to discuss

your progress against these plans.

Not every corrective action plan will move forward on schedule.

There will be hiccups. But it gives me a basis by which to meet

with them and say, are you addressing these? Is it moving forward? It gives us performance metrics, it gives us milestones to

have, and it provides a map of the way forward. I think that’s an

essential part of solving the problem, and I think that’s why these

two things are so essential.

Mr. ZAVADA. In terms of the performance audits, what the performance audit—the benefit of that was that we were able to craft

an audit that specifically addressed a particular element of financial management, as opposed to a financial statement audit which

would be much broader. So what we’ve been able to do is put a

spotlight on an issue that we feel is very important, the development of good corrective action plans.

Second, as David mentioned, certainly being able to provide

input to management on a real-time basis, to be able to validate

and work with them as they are developing this program was certainly a secondary benefit.

In terms of corrective actions themselves, we see this as the beginning of a process to implement A–123 effectively to get to a

clean opinion and to provide positive assurance on internal control;

and that is why we emphasize corrective actions in the performance audit.

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Mr. PLATTS. I share that perspective of the benefits that we can

achieve here and the kind of benchmarks that these corrective action plans will give us.

One of the concerns—and I do appreciate, Mr. Norquist, this may

be not a fair question to you because of your recent arrival. But one

of the issues that the IG has pointed out is the fact that there is

not a Department-wide corrective action plan. It wasn’t begun until

the third quarter and I believe is still a work in progress. It seems

that would be pretty important to send that message through all

the agencies. Here’s our Department-wide, you know, plan, and

then it breaks down into the individual agencies and programs that

you are looking at.

Can you give us an update of where that is? Why, I guess, was

there such a delay?

ICE moved forward right away with their individual plan. But—

and I don’t know if you can adequately answer because of not having been there. But your best understanding why the delay to the

third quarter and where do we stand now for that Departmentwide approach.

Mr. NORQUIST. Sure. Let me talk to that.

There’s actually two parts to this. There is the corrective action

plan that relates specifically to the Office of the Chief Financial Officer, as well as the Department-wide, which is one we are going

to build from the components. So let me talk to both of those

pieces.

The Office of the CFO contributes to some of the material weaknesses, particularly on oversight; and I wasn’t here at the time that

the original weakness was identified or that the process began, so

I may turn it over to David to talk to some of that.

I suspect part of the problem was simply a workload issue. As

you’ve commented on before, we’ve been doing a lot to try and

strengthen the size and the training base of our work force. We are

continuing to do that. And so there was a challenge as one financial audit ended and we began the other to have the people identified to also build the corrective action plan.

One thing I would note is when you commented about sort of the

different status of the corrective action plans of the components,

ICE, for example, under Assistant Secretary Julie Meyers and CFO

Debra Bond, were both in place by January and have begun very

aggressively tackling this issue.

The new head of the Coast Guard, the new CFO of the Coast

Guard came in in about June of this year, and so I think you see

that sort of a lag. I see a similar energy and focus from them; and,

hopefully, in several months we’ll see the same type of achievements that we are seeing out of ICE.

But there is a clear connection, I believe—and I’ll let the IG comment on this—between the leadership coming in and grasping challenge and taking it as their own and providing that sort of focus

and energy. So when you see one place have that change and then

another not, it’s OK. When you see the other leadership change

and the same type of energy coming in behind it you can anticipate

and look forward to working with them to achieve similar results.

The Department, in terms of tackling the corrective action plan

for the Office of Chief Financial Officer, there were several weakVerDate 11-MAY-2000 15:46 Oct 27, 2008 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 C:\DOCS\44768.TXT KATIE PsN: KATIE
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nesses identified. One is the number of people. We have about 20

who are doing the accounting type of functions. We have five people

we have identified for hiring that are coming on board. We will be

getting additional positions, I believe, in the appropriation bill.

Both the House and the Senate supported it. So that will continue

to strengthen our hand.

As David pointed out, we’ll also be doing a study of skill mix,

which is, do our people who are there, many of whom—all of whom

are very talented, but do they have the particular training and the

skill sets to match the tasks we have? And where there are gaps

we’ll provide the training classes. We’ll get them that experience so

we can eliminate and close those weaknesses. We will make a point

of addressing the CFO corrective action plan and fixing it. And I

appreciate their comments and their insights on the draft.

The second step is, once all the corrective action plans are done—

or not literally all because we will continue to generate corrective

action plans as management identifies problems that need to be addressed—but as we wrap those up at the end of September and October, we’ll produce a Department-wide plan which is the summation of those. This is similar to what the Department of Defense

did, which is to allow everybody else to understand, here is how we

are going to tackle this issue across the Department. It gives a better idea as to when these weaknesses will be addressed.

Just for an example, one of the things we have to do is fix our

financial management policy. The order in which we tackle those

policies will be informed by the corrective action plans, where are

the weaknesses, where are the most urgent needs, and so we can

tie our training, our policy adjustments, our system migrations to

the schedule of the corrective action plans so we’re tackling them

in the right priority order. So that is sort of the overview of both

the CFO and the integrated Department-wide plan.

Mr. PLATTS. Mr. Zavada, maybe if you want to comment on your

assessment of that overall plan, the Department-wide plan, and

then specifically—and you touched on it in your testimony—with

the Office of CFO and where they stand, in your perspective, with

staffing, you know, the training and the skill sets and things as far

as being able to improve on the past.

Mr. ZAVADA. Well, in terms of the Department-wide corrective action plan, we are certainly hopeful that the Department will go

back and—as they get their bureau corrective action plans in and

take the input that we have given them in our performance audits

and develop a Department-wide corrective action plan. Certainly,

you know, we have not seen that yet. We understand that they

do—they are preparing that in what they are calling the ICOFR

Playbook, and we’re anxious to take a look at that, and we will in

future performance audits.

In terms of the OCFO specifically, from our perspective, DHS

needs to build a capacity there to do the things that every other

Federal agency, or most every other Federal agency, can do in financial management, and that is issue policies, that’s monitor

progress of the components, it’s facilitate solutions to financial

management problems within the agency and, finally, to prepare

and analyze financial statements and reliable financial reports.

Those capabilities are not there yet; and we are hopeful that

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through—by conducting a study and looking for gaps between the

current skills and future, to be a type model, that will give them

a better understanding of the issues and a clearer path to move forward.

Mr. PLATTS. And before I turn to the ranking member, just a followup there on the make-up of the staffing. I know that certainly

at the beginning it was simply numbers where the CFO started,

and as that office has grown and the number of personnel, still

that breakout. And, Mr. Norquist, of the roughly 80 employees

there, how do they shake out in general terms from budgetary versus accounting, you know, in the skill sets? And how does that relate, then, Mr. Zavada, to your office and seeing is the personnel

there not just in bodies but in actual skill to meet the challenges

that the office of the CFO is facing?

Mr. NORQUIST. Well, let’s see. We have—if you break out the 80,

there’s about 40 people doing what you call traditional budgeting

in one form or another. Part of those associated with the fact that

we provide budget support to parts of the headquarters as well,

like a component would. We have about 20 doing various forms of

accounting, and then the balance would be in places like program

analysis and evaluation, one of the requirements of the Financial

Accountability Act, as well as our link to the IG and sort of my immediate staff. Of those 20 accounting people, we have about seven

who are certified CPAs. We have—what I am very excited about,

we have four who are preparing to sit for the exam who are going

through that process.

I, frankly, am very supportive of providing the support and encouragement for people to get the professionalization. We are hiring five more that we have already identified. Of those, three are

CPAs as well. So, you know, when all of that is done, we will have

effectively doubled the number of CPAs. But that’s—you know,

that’s not a perfect measure, but, frankly, I think it’s an important

indicator, building that type of core skill set.

Mr. ZAVADA. I would just get back to my earlier answer and say

that I think the CFO office has a very dedicated staff. But we do

not believe—we believe that there is a lack of skills and capabilities to do the things that I had mentioned earlier that most other

agencies can do in the area of financial management, oversight and

financial reporting. We had reported this issue as early as 2004 in

terms of the lack of capability at that level. In some respects, it is

not an issue that is unique to financial management. We have seen

the same thing in acquisition management and reported on that at

DHS as well at the Department level.

Mr. PLATTS. Are you comfortable with the new individuals coming on board and with the training that is being pursued, that, in

your opinion, we are going to get the office of CFO in the near term

to its staffing level and skills that we need to address the concerns

that you have appropriately raised?

Mr. ZAVADA. No. No. We feel they need to undertake a more indepth study. They need to look more closely at the skill gaps, at

what they need to do and the current skills that they have. And

I don’t think it’s just a matter of training. I think the issues run

deeper than that.

30

Mr. PLATTS. And, Mr. Norquist, the additional—the new slots

that you are looking to come through the appropriations process,

what are they in this area of——

Mr. NORQUIST. They’ll be in both. They address a number of

areas. One of them will be particularly in the accounting side.

In addition, one of the things I feel is very important is we do

not—we need to not rely on the auditors to identify the weaknesses. Management should be identifying the weaknesses. Management should be making the statements that they have fixed

them. And the auditors have pointed this out to us on a number

of occasions, that we should be doing our own assurance tests and

not simply relying on the audit.

So I want to take some of those folks and build a management

assurance team that will go out and check our processes, check organizations who have asserted that they have completed their corrective action plans and have that accountability. So we will be

putting additional people against this as well, and part of this is

to make sure that when we post the advertisements and we do the

recruiting that we’re matching it to the skill sets that are needed

and identified by the study that he’s talking about.

Mr. PLATTS. And that study is under way or planned?

Mr. NORQUIST. I don’t know if they have actually begun the

study, but the steps to put it in place are under way, and it’s going

to happen soon.

Mr. PLATTS. I guess because in various agencies and departments

what we come back to often is that human capital issue and the

ability to have people in place, not just bodies, but who have the

skills to perform the duties. And it seems like from the IG’s perspective that there’s still a significant challenge in this area of

human capital and with the importance of the Office of CFO setting the example that, while I like the idea of the assurance teams

and that ability to kind of go out there and be that check and in

an urgent situation you have a team that you can call on to go out,

I hope that’s not going to be at the expense of that first responsibility, which is the staffing of the CFO office itself and to meet the

needs that have been identified by the Inspector General.

Mr. NORQUIST. I believe it’ll be complementary.

I think the other thing about the assurance team is much of

their work would probably involve support from contractors who

had a particular skill or expertise that you could employ for a

short-term basis to target an area, but you are going to have that

sort of government leadership on a continuing basis through it. But

I would not want to set it up in a way that it drew away from our

needing to address the material weaknesses that affect the Office

of the Chief Financial Officer.

Mr. PLATTS. As we go forward I hope and one of the purposes of

our hearing, of this one, is to encourage the communications. And,

obviously, there is a very good working relationship between the

CFO and the IG’s office, that continue, and especially here in the

concerns that still seem pretty strong about the human capital

within the Office of the CFO that there remains a good dialog and

interaction between your two offices on that human capital side.

Mr. Towns.

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

31

Let me begin with you, Mr. Norquist. I would like to know more

about the internal control committee. Could you tell us more about

how that works?

Mr. NORQUIST. We have a management process using the internal control committee that tries to ensure that the steps forward

on the internal control process brings in all the different components. Although the CFO has the lead in internal controls, many

of the weaknesses, many of the challenges to fix them extend into

procurement, asset management, information technology. So the internal control committee brings together those groups of players to

help make sure that there is that connection.

In addition to which, working alongside the internal control committee is the senior management committee. It will be the group

that makes a recommendation to the Secretary on his statement of

assurance, insures that there are accountable officials for the internal control plans, and represents sort of the leadership part of that

activity.

So I think this is an important function in order to make sure

that everyone understands that they are part of the internal control process, not simply it’s a delegated function to one person, because in that case it wouldn’t execute correctly.

Mr. TOWNS. I don’t want to start a debate between you and the

IG, but he said something that I think that we need to pursue. He

mentioned that the skill gap—now, is it that—first of all, do you

agree with that? I don’t want to put you on the spot, but is it a

fact that it is a big turnover or people are not paid enough? I mean,

that seems to be a problem of some sort. So what do you think the

problem might be?

I’m really not wanting to put you on the spot, but I really want

to see how we might be able to help you up here to be able to really

come to some kind of real—real working kind of agreement that we

can sort of move forward. Because there are some problems, and

I know you will agree with that. I’m happy that you’re on board,

and I know you have only been there 3 months, and we’re all excited about your being there, and I want you to know that. But

what—do you think that’s going on here, the reason we want to get

a fix?

Mr. NORQUIST. Well, I sort of accept the auditor’s—the finding

that there’s a skill gap. I mean, I’ve worked with these folks. I’m

comfortable in their abilities. But there’s a number of tasks they

have to be able to accomplish. I mean, there is a wide range; and

the fact that you’re good at one area doesn’t mean that the Department is covered in all of the areas it needs to tackle.

In addition, one of their findings a number of the auditors pointed out is, because of the amount of work they spend working with

the components, they’re not necessarily covering the tasks that the

headquarters is supposed to do. So some of this is workload.

But I do believe that there is a need to address the skills that

we have, and that’s why I agree with them on the need for the assessment study. I’m quite open to whatever the study comes back

and says is the required set of skills versus the ones we have, and

I’m committed to—you know, we have a lot of dedicated Federal

civil servants, and we need to make sure that if there is something

they need to be trained on to do their job that we get them that

32

training. If there’s a skill that you can’t simply train somebody to,

then we need to hire people with those backgrounds to make sure

we fill in those gaps.

If somebody comes into my organization and identifies a problem,

my initial reaction isn’t to disagree but to say, OK, let’s talk

through it. I’m happy to look into how we’re going to fix that problem; and if this is one of the underlying challenges, let’s dedicate

the resources and the people to tackling it.

Mr. TOWNS. Mr. Zavada, do you think that it might be connected

with how much they are able to pay them as to that might precipitate the skill gap? Because there is a correlation between salary

and performance. It should be.

Mr. ZAVADA. I’m not sure if pay is—would make a difference or

not. I do know that it’s not just DHS, that other agencies, to lesser

degrees, have trouble attracting and retaining good talent in the

area of financial management. So it is a broader problem. You

know, as the bars have increased in financial management and as

we have accelerated and lessened the time to prepare financial

statements, for example, we haven’t really adjusted governmentwide on the skills side. So it’s a broader problem. It’s just a little

bit more severe—much more severe at DHS, and I don’t know if

pay would make the difference or not.

Mr. TOWNS. What about the turnover? Is it a big turnover? Because I’m thinking about in terms of you’re spending time and

you’re training and you’re getting them ready to be able to assist,

and then all of a sudden they say goodbye.

Mr. NORQUIST. There is a lot of challenge with turnover. In our

actual—in our financial management shop, I believe our turnover

has been relatively low. But turnover throughout the Department

is a challenge. We lose chief financial officers who move on. We lose

individuals.

Sometimes they are moving from one component in DHS to another. In that case, I am actually pretty excited. I think the more

people DHS has who have worked for ICE and then for the Coast

Guard or for another organization, they get that integrated broader

view. I’m fine.

But the challenge becomes—for example, you train good government accountants, you teach them all they need to know to be good

on financial statements, and then a private sector comes along and

hires them because there’s a great demand for people who understand the government accounting system. It’s the type of challenge

that the information technology community had, both inside the

government. And so I think we need to be—to look at that. And

if——

You know, one of the points I made to the CFOs in our organizations is we can’t simply hire each other’s staff and think we’re solving the problem. If we need to go out and recruit, then we either

need to target the skill set or we need to find a different group of

employees, bring them in and train them and give them that skill

set so they can develop and grow inside our organization.

In some cases, you can find it. In some cases, you have to build

it. You find the right people with talent and enthusiasm and you

give them the training they need to tackle the mission.

33

You know, if it turns out that pay is a decisive factor in this, I’ll

be certainly happy to get back with you on that. Because I have

seen different places where the Congress has acted on that to address specific weaknesses in the hiring challenges; and if that’s the

case here, if that’s the result of the study, I’ll certainly get back

to you on that issue.

Mr. TOWNS. Also, a part of that, I’m concerned about whether or

not you have the resources to really recruit, which I think is also

an issue. So, I mean, I know you have additional funds coming in

the appropriations, but the point is that it might not be the kind

of thing that will fix—I mean, the point is that if you get additional

money and you’re able to hire a few more people but you still have

a turnover problem or the salary is not where it should be, they’re

got going to stay; and then we’ll continue to come and have these

kind of sessions as to how do we fix it.

Mr. NORQUIST. That’s right. It’s not how many you hire. It’s how

many you hire above what you’re losing on a given basis. And you

can easily be excited about how you’re bringing on board and then

watch a similar number of people move on to other things.

Mr. TOWNS. Right.

Mr. Chairman, I yield back. My time has expired. Thank you.

Mr. PLATTS. Thank you, Mr. Towns.

I want to just followup briefly on the human capital issue and

the reference to the other agency. And we’ve heard that in other

hearings, too, the challenge of getting sufficient qualified personnel

in financial management positions.

I guess one—in your experience, Mr. Zavada, at OMB and FAA,

I guess, in the past as well, do you have any gauge for a CFO office, out of 80, having 7 and going up to, say, 14 or so CPAs, is that

typical, that 10 percent or so? Or is that one of the issues that we

should have a higher percentage of actual CPAs for the challenge

that we are—what we’re demanding of this office?

Mr. ZAVADA. I don’t know what the exact mix is. I think that is

why it is very important to do this study and do some

benchmarking. You know, let’s see what other departments have.

Let’s see what their capabilities are to address these common needs

that other agencies have as well as DHS.

So I think we just need to take a little bit of a deeper dive on

the issue. It’s not just doing an internal assessment. I mean, we

have been very—we feel very strongly that an expert in the area

of human resources, probably an independent expert, you know,

really needs to come in and perform this study.

The CFO’s office has done an internal study. It was a very frank

study, an assessment, and I think it identified gaps generally, but

what we need now is a more detailed study done by somebody who

has—with expertise in this area, so that we can answer the questions that you’re asking: How does DHS stack up against other

agencies, and what are the right ratios?

Mr. PLATTS. This may be a question you don’t have the knowledge to give an informed answer, but is there, in your knowledge,

a CFO office in another Department or agency that you think does

kind of epitomize the role model for not just DHS but across the

board that jumps out that maybe, you know, we want to be looking

at?

34

Mr. ZAVADA. Well, I think, you know, if you look at the scorecard,

the President’s management agenda scorecard, there are seven or

eight green agencies. Those agencies have met the standards. Obviously, they are able to do the things that I outlined earlier. They

would probably be a good place to start.

I also think possibly looking into the private sector at private

companies that are the same size as DHS, maybe doing some

benchmarking there might be helpful.

Mr. PLATTS. Mr. Norquist, with the CFO Council and the fact

that the hiring and finding of qualified people is a challenge—and

I know there’s a lot of interaction with you and your colleagues on

the CFO Council—is there an ongoing dialog about a partnership,

you know, and going after, you know, a pool of individuals so it’s

not each of you competing and stealing from each other or competing with each other but you’re kind of a clearinghouse for qualified

financial management personnel that can then come into a kind of

a pool of applicants that each of you can turn to?

Mr. NORQUIST. I have talked to Linda Combs about this issue

and specifically talked about recommendations for CFOs, places to

go. She has several ideas on ways to search for CFOs, both in the

private sector and elsewhere, to bring into the government to give

us that expertise. She’s not as enthusiastic as my approach as to

go and find them and take them from other organizations because

she’s got that broader perspective.

But one of the points that I made to her and I asked for her to

think about and get back to me with some feedback is we also need

to start growing the civil servants who will become the next generation of CFOs. So one of the things I put forward is a proposal

to our CFO Council, is to say let’s take nominees from each of our

organizations, very talented, successful individuals, and give them

an opportunity to rotate for a period of time with different CFOs

in the Department so they see how other organizations inside DHS

work, not just the one they grew up in. Let them see the range of

tasks that a CFO does. Let them develop some understanding of

whether or not that’s something that interests them and start getting people who think ‘‘I can do that.’’

Then when it becomes time to find the next Deputy CFO in an

organization, you’ve got a group of people who are thinking of

themselves as potential future CFOs, who understand the range of

responsibilities, who can have—if they’ve got an accounting background, they’ve learned about budgeting; if they’ve got a budgeting

background, they’ve got to learn about accounting; and they’ve understood more than just their component.

I think all of that, you know, is a management responsibility. It’s

hard when you’re trying to deal with tomorrow’s task to remember

that part of this is the long-term solution.

Again, this gets to the sort of importance of the corrective action

plans and others, is to keep focusing. What’s not just the solution

for tomorrow, what’s the long-term solution? How do we keep growing the people, the skill set and so forth to address this as the longterm solution?

Mr. PLATTS. I think that the IG’s reference to the private sector—and I don’t know for certain if it’s still the case, but I know

in many years past a friend whose father was an executive within

35

McDonalds, and they had what they called Hamburger U, where

they brought management trainees from all over the country, all

the stores, to that central training program. I think that’s kind of

what you’re talking about, is let each Department or agency say

here’s one or two or three or four, whatever, this year, that we

would like to be part of a kind of a CFO training program that’s

governmentwide.

And something that, from the testimony that we have received,

probably bears some great merit of being looked at to address the

needs across the agencies and something that in our discussions

with Linda and those at OMB—because it’s certainly I know in the

individual agency departments finding that in your budget is not

going to be a case with the demands in the sense of whether that

can be something that’s led by OMB in looking long term.

Another question that relates to personnel and, Mr. Norquist, to

your interaction with all of the 22 agency CFOs out there that, ultimately, what they do impacts what you are able to do, and as the

Department CFO you’re the one that’s going to ultimately bear the

responsibility and have, you know, to answer for their actions.

Can you describe your relationship with them and how your authority—as far as having input into who is in those positions now

or in the future with the various agency heads and making sure

there is a good understanding of their relationship to you as the

CFO for the whole Department?

Mr. NORQUIST. Sure. I have a very good working relationship

with the CFOs in the Department. I have found them very responsive. I have found them very dedicated.

I meet with them in several different ways. One is, as the CFO

Council, we all have to come together as group. But I also have a

series of regularly scheduled meetings with particularly the large

components so that I sit down one on one on with the CFO from

the Coast Guard and with others to talk about what their issues

are, what’s going on in their organization to help me understand

and to work with them.

I haven’t had a problem with responsiveness or chain-of-command-type relationships. I do play a role in helping organizations

select their next CFO or deputy CFO. I play a role, and as we get

into the evaluation period and we will be more actively involved in

the evaluations of their performance for the year in setting their

standards.

I believe those types of things set out in the CFO Act are all very

helpful. I am frequently asked in these type of forums if it’s

enough, and the answer is I haven’t run into a problem yet in this

process, but if I discovered a place where the relationship was not

as effective as it would be because of something in the legislation,

I’d let you know. But I think, right now, it works very smoothly,

and the legislation accomplishes what it was intended to.

Mr. PLATTS. That’s good to hear. And we do always welcome and

are glad to have feedback if there’s areas of the law that need to

be fine-tuned, whether it’s the CFO Act or others.

In your answer, you reference especially the Coast Guard and

ICE and the importance and, in both of your testimonies, how critical a role that those two play in long-term success of getting a

clean and, you know, really a workable opinion that day to day

36

means good management practices at the Department as a whole.

Can you each describe your perspective on where you see ICE,

where you see Coast Guard today and what’s their biggest challenges remaining to get to good management practices? And then

comparison, you know, to each other. You know, maybe one needs

to be looking at versus the other and learning from each other.

Mr. NORQUIST. OK. Did you want to start or do you want me to?

Mr. ZAVADA. Sure. I don’t mind.

Certainly, ICE—the reason why ICE stands out is because they

started early. They have a—they have put together a solid plan.

They did the analysis to know what the underlying causes are of

some of their weaknesses. They have leadership support, both at

the CFO—in the CFO office with a strong CFO as well as at the

Assistant Secretary level; and they have dedicated resources.

What they’ve established is a project management office that’s

sole purpose is to oversee and execute corrective actions. Everyone

has another job to do, and if corrective actions are done as a collateral duty they’re less likely to get executed. So that’s what sets ICE

apart.

And ICE is at the point now where they are—and you see this

in the recommendations that we made to them. They’re further

along the continuum of corrective actions. They’re at the point

where they’re thinking about how do we validate some of the

things that we have done and how do we integrate the A–123 assessment process in terms of executing some of those validations of

corrective action. So they’re thinking further along the continuum.

They’re also thinking in terms of the project management office,

which is highly dependent upon contractor resources, how do we

transition that to be a more stable CFO office and CFO organization. So they’re just clearly further along in terms of their thinking

on corrective actions and the relationship between corrective actions and good financial management practices in the long run.

Coast Guard is one of our primary areas of concern when it

comes to financial management. Their organization, in terms of financial management, is in flux. They have not done that underlying root cause analysis to know what their problems relate to. They

are probably the exception within the Department in terms of looking more or needing to look more deeply at their financial systems

to understand what type of problems are short term and what type

of problems are long term. But the Coast Guard, as opposed to

ICE, is at the very beginning of the corrective action plan process,

at the beginning of the continuum.

Mr. PLATTS. Thank you.

Mr. NORQUIST. I think that’s a fair assessment.

One of the things I noticed, for example, is Debra Bond, the CFO

of ICE, is very aggressive, very forward leaning, very engaged on

the corrective action plans; and frequently she shows up at my office to discuss a financial issue. She’ll often have her Assistant Secretary, Julie Meyers, with her, which shows me the amount of support she’s getting from her leadership, that dedication that when

we move an organization is so critical for their success. So I see

that teamwork, and that’s reassuring.

I have found one of the valuable things in the performance audit

was it showed clearly, from the IG’s perspective, that they had

37

been making the progress, that energy and drive was producing results. It is my hope that is what we see from the Coast Guard in

a period of time. I have seen a similar shift with the new Coast

Guard leadership and the new Chief Financial Officer, the same

willingness to tackle the issue.

When I read the performance audits, I had a meeting I think the

next day with the Coast Guard. I said, we need to sit down with

ICE and have them talk you through what they did because, clearly, what they did is working. And as you begin to develop your

plans I want you to learn both—granted, they’re not perfect

matches. There’s going to be differences—but to learn the lesson of

what successes they have had to help you map the same way. Because I want the Coast Guard—and they’re equally important that

they get off on the right foot, and I don’t want that management

and leadership enthusiasm to sputter with the difficulty in executing a plan.

So I want to help them as much as possible and to capitalize on

the strong support they have from the top.

Mr. PLATTS. A quick followup, and I want to get to Mr. Towns

again.

Why hasn’t the Coast Guard been more proactive, and your

statement was that they have not really done that underlying root

cause analysis. Why not, since we know—I mean, you know early

on when we transitioned in the Department, we are now several

years down the path, and all along we have known the Coast

Guard is one of the challenges. Why hasn’t Coast Guard done it,

and, quite frankly, why hasn’t the Secretary of the Department

said, hey, you are behind the eight-ball here; we need to get on the

stick here and get this done? Why are we still talking about getting

them on the right track as opposed to them being on the right

track like ICE is?

Mr. NORQUIST. I actually defer to the IG on this because the new

leadership came in at the same time I did, so I am not sure of the

history of their predecessor.

Mr. ZAVADA. Since I’ve been at the Department since January,

I might be able to take the same route.

Mr. PLATTS. I think it is a question that we will probably be following up on and to the Secretaries and the—you know, the senior

leadership, that when you have within the Department two of the

key areas of focus, ICE and Coast Guard, you have one that is aggressively moving forward, the other one is not, and perhaps will

now with the new leadership. And that may be a part of the reason

why we have new leadership in the sense of the CFO efforts. But,

you know, it doesn’t really, you know, kind of come together well

as to why you know we are not seeing that same effort on the

Coast Guard’s part.

Mr. ZAVADA. Well, I will say that the Coast Guard is a contributor also to the departmentwide material weakness on financial

management oversight and reporting. It is not—those problems are

not just within the OCF at the Department level. So a lot of the

skill and capability issues are resident there, and they are trying

to inform a transformation team, and they are trying the deal with

those. But I think that to some extent there may have been a contributing factor in the past.

38

Mr. PLATTS. It is clear that until they get on the ball and get

working, the efforts of your office, no matter how well the office of

CFO for the Department is operating, we are never going to get to

what we are all after, which is a clean opinion that is not clean

once a year, but means year round we have good systems in place.

We are never going to get there until all entities, and especially the

large ones like Coast Guard—and I—my ranking member has been

very patient with me as I have gone way over my time.

So Mr. Towns.

Mr. TOWNS. Thank you very much. No problem.

You know, in the beginning, you know, we talked about the possibility of the culture of independence might be difficult, Mr.

Zavada, with some of the legacy agencies that would be difficult,

you know, to break. Have you encountered that?

Mr. ZAVADA. I have encountered that in my own office. It is—we

are a collection, as the rest of the Department, of a lot of different

pieces, a lot of different departments, and departments have different ways of doing things, and it is—it has been a challenge, and

I am sure it is a challenge DHS-wide to make those processes consistent and uniform. So, yes, I think that is something that I have

seen.

Also, I would say that getting back to when DHS was created,

as I said in my testimony, some of these problems do go back to

the way that some of these initial departmentwide management

functions were resourced from the start, and as I said, we have

seen—we have reported on issues related to acquisition management and the skills and capabilities there, and similarly within the

CFO’s office. So, you know, there is a lot of catch-up to do.

Mr. TOWNS. All right. Let me ask you one of the most significant

challenges you believe DHS will face in complying with 123 for internal controls.

Mr. ZAVADA. Well, in my view, implementation of Circular A–123

for DHS is about corrective actions. It makes no sense to document

processes that are broken, to test controls that are broken where

you know that there are already weaknesses that exist. So the ability for DHS to effectively implement Circular A–123 relies on their

ability to put together well-developed corrective action plans and to

execute those corrective action plans.

In our audit reports we have tried to identify the linkages as we

see them between the A–123 assessment process and the corrective

action plan process, and the Department understands this, and

clearly I am sure when their Echifer playbook comes out, it will be

reflective of that understanding and that linkage.

Mr. TOWNS. Let me ask both of you this. And ‘‘leave me alone’’

will not be an acceptable answer. What more can we do? What do

you see as Members of Congress that we could do to assist you both

of you? What more can we do? Is there anything that we need to

be doing?

Mr. NORQUIST. Well, first of all, let me start by expressing my

appreciation for everything you have done so far. As I have mentioned to people, this is not an area where I can have conversations

and get sustained interest and enthusiasm. It is important, but it

is important in a way that is hard for people to appreciate how inVerDate 11-MAY-2000 15:46 Oct 27, 2008 Jkt 000000 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 C:\DOCS\44768.TXT KATIE PsN: KATIE
39

ternal controls play into sound financial management and sound financial management plays into protecting tax dollars.

So I appreciate the seriousness this committee and the two of

you in particular have taken with this issue and the thoughtfulness

in this legislation as I have been part and parcel in going through

this, being one of the CFO Senate-confirmed positions the act calls

for. I have studied the language and appreciated the careful balance that was put into it.

I think that going forward there are several places of importance.

One is, for example, when we have identified solutions or areas

such as the additional people in the appropriations bill to make

sure that is not lost in the enactment in the bill. That is certainly

not a high-profile item that there will be additional finance and accounting people in the Office of the Chief Financial Officer in an

appropriation act. But making sure that is there—and, again, I appreciate the two committees because they’ve both been supportive

of this—but working in a Member-to-Member level to make sure

that people understand these small things make a difference, that

is certainly very valuable and greatly appreciated.

The other is the helpfulness of the individual meetings, being

able to get together with you, giving you an update of where we

are, letting people inside the Department and elsewhere know that

you are paying attention, that you care, that you are there to support us as we move forward, I think, is very valuable. People look

for that constructive engagement, and I appreciate that.

So I think those are two areas, and I mentioned everything, the

ability to go to you if I see something where it is beyond my capacity to fix because it requires a legislative change. Knowing that

there is a group of people who understand the issue, who will be

able to understand the point that they were trying to make in how

that would improve financial management is very valuable. It give

us a place to go to in working on a solution to go forward.

Mr. ZAVADA. I would agree with David in terms of your interest,

certainly the committee’s interest, in financial management, broad

interest in internal control, which is not a very sexy topic, but is

really the foundation of timely and reliable information and the beginning of being able to better manage programs. So certainly your

committee’s interest more broadly in financial management, your

committee’s interest in DHS, this hearing, being able to discuss

corrective action plans and put a spotlight on corrective action

plans as the beginning of the process toward financial management

improvement at DHS, I think, has been very helpful.

Mr. TOWNS. Thank you. On that note I thank both of you, and

I yield back, Mr. Chairman.

Mr. PLATTS. Thank you, Mr. Towns. And I often kid about getting interested in these topics which to me are so important because it is how we spend the public’s money and the effectiveness

in spending that money, and I joke that if I could get one of you

to admit that you have been using steroids, we would have a

packed room here. The media would be really interested in covering.

Mr. NORQUIST. Would it help me to get a clean opinion?

Mr. PLATTS. We—you know, maybe Mr. Towns’ next hearing, you

know, is going to be about how steroids is—it is unfortunate, you

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know, you talk about hearings on baseball players using steroids,

and you get a packed room. You talk about how we are spending

$2 trillion of the public’s money and how we are trying to improve

the effectiveness of that expenditure, and we are grateful for the

members of the media who are here, but it is a fraction of those

who cover the steroid hearings. So unfortunately, we think it is important, we know you do, and you are devoting your professional

lives to it, so we are glad to be partnered with you.

Let me—I have two other areas I want to touch on. One is relating to the financial management line of business and the consolidation of how you are operating now with your systems and who is

managing them, and I know ICE is serving some of them, Coast

Guard and the Federal Law Enforcement Center, Training Center,

is serving some of the smaller bureaus.

Is there, first, any plans internally for any further consolidation,

you know, to Coast Guard or the Federal Law Enforcement Training Center? I mean, where do things stand, and where do you see

yourself going?

Mr. NORQUIST. Here is the way forward as I see it. What I have

asked folks to do is, based on either audits that we have already

done, work that has carried over from the original merge, or from

additional work that we have to do, triage our component and their

financial systems. Some of them work fine. They support clean

opinions. They may not be the same system everyone else uses, but

they are doing just fine. They are not my first priority to fix. They

are not contributing to a material weakness.

The second group of those components show the system can operate fine, but there has either been some minor modification to it

or some process change about the way they are using it. This is

contributing to the problem, and the answer is let us tackle that

as part of the corrective action plan and fix it.

The third group would be those components who have either got

a version of the application that is no longer supported, does not

support a clean opinion, or has been so modified as to not necessarily be recoverable the way it is. And those are the places I

want to focus the migration strategy on, which is they are going

to be biggest improvement, they are going to make the biggest contribution to improving our financial statement. I will start by targeting them, and again, consistent with OMB line of business, the

question is let us not build a new system, let’s find an instance of

that system or different system we are already using we can migrate them to. My preference is let us find something that has a

track record or capability to support the clean opinion, to do the

things we know the system to do. And then let us spend our energy

moving that component over.

Migration is very time-consuming. It creates a lot of challenges.

It can create disruption. So I want to make sure we are very careful about the moves and the cost/benefit is there. But I want to target the ones that have the greatest challenges and make them the

lead cases to move, because then we will get the biggest results for

the most we make.

Mr. PLATTS. What is your understanding from OMB on the requirement for the line of business in either, you know, migrating

in house to identified Centers of Excellence, as they have been

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called, or having to go outside within government or outside privately? What is your understanding from OMB of how that is supposed to play out in the sense of doing that analysis of, you know,

competing possibilities, public to public or public/private, and the

timeframe from when you are expected to have your systems either

internally with the Center of Excellence or elsewhere with the Center of Excellence?

Mr. NORQUIST. Well, I have given them the same type of briefing

which is the basis of the statement that I have prepared for this

committee where I talk them through the types of changes I saw,

and one of them was this issue of triaging the system and identifying the ones to move first. The core principle which they have,

which is the same as ours, which is don’t build a new system, find

one to migrate them, we can do it by moving to somebody in house.

We can do it by moving to someplace in the private sector. I am

very open depending on what the analysis says is the most efficient

way to move forward both in terms of these and the migration and

the long-term savings to the taxpayer.

In terms of time line, you know, there is little patientce in letting

us do our analysis, but they would very much like us to be able

to lay out for them who is next and when do we see that migration

happening, and I told them I need more information to be able to

pick out which of the candidates are the ones that need to meet

first, and what the right pros and cons are, and how to move them.

But they have been meeting with us on this. We are going to work

very closely with them on it and make sure we are on board.

Mr. PLATTS. But at this point there is no date certain that you

have been told that you are expected to have the entire Department either migrated internally or externally to a Center of Excellence?

Mr. NORQUIST. They haven’t conveyed that to me, no.

Mr. PLATTS. OK. Also related to that is about building a data

warehouse or other enterprise data reporting solution. What is the

plan there? You know, how you are approaching that, that challenge?

Mr. NORQUIST. Well, timely and accurate financial data is absolutely essential. It is a very high priority for me. A data warehouse

is one way to get there. There are several options, so we are going

to look through those to figure out which one gives us the information we need. That is certainly an option we are going to consider,

but I haven’t made a decision that is necessarily the way to move

forward, but it is certainly one of our options.

Mr. PLATTS. OK. I think maybe a final question, Mr. Zavada. In

your remarks earlier talking about the benefits of the performance

audits and this dialog here internally within DHS, do you see the

approach that you are taking, partnering with the CFO and the

performance audits kind of hand in hand with the correction and

action plan development implementation, something that we

should be looking to help promote across the Department and agencies in the Federal Government, that it is a way to get to a better

foundation for financial management?

Mr. ZAVADA. Well, I think the most important element of solving

these problems is good communication between management and

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the auditors, and certainly we have that, and the performance audits have helped to facilitate that even further.

I think governmentwide there may be certain cases, certain material weaknesses that are intractable really, or there has been—

not really been activity on them, where putting a spotlight on it

through a separate, more flexible audit and providing more detailed recommendations as to how management can go about fixing

those problems could work. I don’t think it is something that across

the board you could say works in every situation, but there could

be cases where putting that spotlight on and providing that additional in-depth analysis can be helpful.

I think certainly in DHS’s case this has given us an opportunity

to work closely with the CFO’s office to improve management, to

improve financial management, and to provide some constructive

recommendations as plans were being developed. And we are trying

to do more of that in the work that we do. We are doing some of

that in acquisition management, where we are looking at procurement risks before you enter into procurements as opposed to looking after the fact and saying—pointing out errors. So this is very

much in line with the type of work that we would like to do in the

IG’s office.

Mr. PLATTS. Actually I have one final—more of a comment, and,

Mr. Norquist, it kind of comes back to the challenge that we have

touched on about Coast Guard and the critical role they play. I

kind of see it as a similar analogy when we have worked with

NASA and the CFO at NASA and the interactions between her and

all of the CFOs at the different centers around the country. And

thankfully she has a lot more direct input to the CFOs and authority relating to their reviews and who is in those positions. I think

it gives her a greater ability to have a good operation at the agency

level.

With your counterpart or colleague now, the new CFO at the

Coast Guard entity, is, in your dialog, is—we appreciate being new

and apparently about the same time I think as you came in, and—

but that while we are patient, we also do want to see the Coast

Guard take a more aggressive approach as we talked about with

ICE. And they would probably rather have you up here having to

take the questions than be here themselves. And as we have told

NASA, if we are not able to get the answers from you or, in the

case of NASA, with the agency CFO, that means we will have to—

the entity CFO—and because we certainly need to see improvement there if we are going to get to the departmentwide advancement, which is what we are all after in this particular effort.

Mr. NORQUIST. I will be happy to make that observation at the

next CFO council.

Mr. PLATTS. And that interaction—and I am sure they are wanting to do just that, and we have high hopes for their success because it does play such a critical role.

We again appreciate both of your testimonies here today, your

written testimonies, your work from your staff leading up to the

hearings, and just in general your dedication as public servants to

the good of our Nation and the benefits to our citizens.

We will keep the record open for 2 weeks, if there is any additional information that you feel the need to supply to us.

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We are grateful for your work, and this hearing stands adjourned.

[Whereupon, at 3:25 p.m., the subcommittee was adjourned.]

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