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82–273 PDF 2013

UNACCOUNTABLE GOVERNMENT: GAO REPORTS 

SHOW FEDS STRUGGLING TO TRACK MONEY 

AND PERFORMANCE 

HEARING 

BEFORE THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

JULY 10, 2013 

Serial No. 113–45 

Printed for the use of the Committee on Oversight and Government Reform 

( 

Available via the World Wide Web: http://www.fdsys.gov 

http://www.house.gov/reform 

(II) 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

DARRELL E. ISSA, California, Chairman 

JOHN L. MICA, Florida 

MICHAEL R. TURNER, Ohio 

JOHN J. DUNCAN, JR., Tennessee 

PATRICK T. MCHENRY, North Carolina 

JIM JORDAN, Ohio 

JASON CHAFFETZ, Utah 

TIM WALBERG, Michigan 

JAMES LANKFORD, Oklahoma 

JUSTIN AMASH, Michigan 

PAUL A. GOSAR, Arizona 

PATRICK MEEHAN, Pennsylvania 

SCOTT DESJARLAIS, Tennessee 

TREY GOWDY, South Carolina 

BLAKE FARENTHOLD, Texas 

DOC HASTINGS, Washington 

CYNTHIA M. LUMMIS, Wyoming 

ROB WOODALL, Georgia 

THOMAS MASSIE, Kentucky 

DOUG COLLINS, Georgia 

MARK MEADOWS, North Carolina 

KERRY L. BENTIVOLIO, Michigan 

RON DESANTIS, Florida 

ELIJAH E. CUMMINGS, Maryland, Ranking 

Minority Member 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

JOHN F. TIERNEY, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

JACKIE SPEIER, California 

MATTHEW A. CARTWRIGHT, Pennsylvania 

MARK POCAN, Wisconsin 

TAMMY DUCKWORTH, Illinois 

ROBIN L. KELLY, Illinois 

DANNY K. DAVIS, Illinois 

PETER WELCH, Vermont 

TONY CARDENAS, California 

STEVEN A. HORSFORD, Nevada 

MICHELLE LUJAN GRISHAM, New Mexico 

LAWRENCE J. BRADY, Staff Director 

JOHN D. CUADERES, Deputy Staff Director 

STEPHEN CASTOR, General Counsel 

LINDA A. GOOD, Chief Clerk 

DAVID RAPALLO, Minority Staff Director 

(III) 

C O N T E N T S 

Page 

Hearing held on July 10, 2013 ............................................................................... 1 

WITNESSES 

The Hon. Gene L. Dodaro, Comptroller General of the United States: Accompanied by Ms. Nancy Kingsbury, Steve Sebastian, Gary Engel, Asif Khan, 

Robert Dacey, Chris Migm 

Oral Statement ................................................................................................. 4 

Written Statement ............................................................................................ 7 

(1) 

UNACCOUNTABLE GOVERNMENT: GAO REPORTS SHOW FEDS STRUGGLING TO TRACK 

MONEY AND PERFORMANCE 

Wednesday, July 10, 2013, 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, 

Washington, D.C. 

The committee met, pursuant to call, at 9:36 a.m., in Room 2247, 

Rayburn House Office Building, Hon. Darrell Issa [chairman of the 

committee], presiding. 

Present: Representatives Issa, Mica, Turner, Duncan, McHenry, 

Jordan, Walberg, Lankford, Amash, DesJarlais, Gowdy, Woodall, 

Collins, Meadows, Bentivolio, Cummings, Maloney, Lynch, 

Connolly, and Duckworth. 

Staff Present: Ali Ahmad, Majority Communications Advisor; 

Molly Boyl, Majority Senior Counsel and Parliamentarian; Lawrence J. Brady, Majority Staff Director; John Cuaderes, Majority 

Deputy Staff Director; Adam P. Fromm, Majority Director of Member Services and Committee Operations; Linda Good, Majority 

Chief Clerk; Michael R. Kiko, Majority Staff Assistant; Mark D. 

Marin, Majority Counsel; Tegan Millspaw, Majority Professional 

Staff Member; James Robertson, Majority Senior Professional Staff 

Member; Katy Rother, Majority Counsel; Laura L. Rush, Majority 

Deputy Chief Clerk; Scott Schmidt, Majority Deputy Director of 

Digital Strategy; Peter Warren, Majority Legislative Policy Director; Rebecca Watkins, Majority Deputy Director of Communications; Jedd Bellman, Minority Counsel; Krista Boyd, Minority Deputy Director of Legislation/Counsel; Beverly Britton Fraser, Minority Counsel; Jennifer Hoffman, Minority Communications Director; 

Elisa LaNier, Minority Director of Operations; Dave Rapallo, Minority Staff Director. 

Chairman ISSA. The committee will come to order. 

The Oversight Committee exists to secure two fundamental principles. First, Americans have a right to know the money takes from 

them is well spent. And second, Americans deserve an efficient, effective government that works for them. Our duty on the Oversight 

and Government Reform Committee is to protect these rights. Our 

solemn responsibility is to hold Government accountable to taxpayers, because taxpayers have a right to know what they get from 

their government. It is our job to work tirelessly in partnership 

with citizen watchdogs and the GAO to deliver the facts to the 

American people and bring genuine reform to the Federal bureaucracy. 

2 

Imagine beginning every month not knowing how much money 

you have and not being able to track what money has been spent. 

Personally, in our family it is unthinkable. Yet month after month, 

year after year, that is exactly where the Federal Government operates. The American people are periodically reminded of this when 

we talk about the upcoming debt ceiling. And yet the debt ceiling 

seems to move not by hours or days, but by weeks and then months 

and often nearly a year, as money is somehow found and consumed 

that was claimed not to be there. 

That is not entirely a shell game, but rather the reality that 

until they go looking for it, they don’t know where it is. When they 

find it, they often don’t know how much they have. It is unbelievable, it is unverifiable. And it is unaccountable. We have no idea 

how much money is spent and how much we owe. We have yet 

close approximations. 

And more and more, President Obama keeps asking the American people to trust government and to give them more authority 

with your money. For all the promises of reform and modernization 

in government, the reality is, the promises have fallen short, no reform has occurred, and in fact, this committee has found that it is 

harder and harder to get execution of existing accountability. 

As chairman at this time, I have to remember that this is not 

a new problem. Is it a problem exacerbated by new government 

programs? Certainly the looming Affordable Care Act creates the 

likelihood that we will be administering over a large portion of our 

gross domestic product at a Federal level. 

In fact, later in this July session, we will be looking at whether 

we can secure the records of every American’s taxes, I repeat, every 

American’s taxes, when they are put out as part of the Affordable 

Care Act. This is a large undertaking, and one that involves huge 

privacy issues. 

Now, health care records and your income and financial spending 

wouldn’t seem to be linked, except they are all linked by whether 

or not computer systems work. They are all linked by whether accounting systems work, and they are all linked by whether or not 

the system the government employs to authorize people to make 

entry, to oversee entry and to analyze the actual current state all 

is the same. 

So the accuracy of your health care, the protection of your privacy and whether we can track tax dollars all are effectively the 

same problem. But rather than looking at an individual who finds 

themselves with their entire health record on the internet, or perhaps millions of veterans who find that their personal information 

was taken home on a laptop and somehow the laptop was lost and 

as a result personal information can be available on millions of 

Americans. 

In the case of the GAO’s look, and its blunt, straightforward 

analysis that this government is broken, allows us to see it quantitatively in dollars and cents. This is not to say that this problem 

began on this President’s watch, but it is this President’s watch, it 

is the ranking member’s watch and it is my watch. 

So today, we want to say to the American people, don’t expect 

miracles, but do expect government to begin performing basic math 

better. We live in the 21st century. There are companies who today 

3 

are trying to figure out how to reacquire tens of billions of dollars 

that are stranded overseas from their profits that did not exist, I 

repeat, did not exist when many on the dais came to Congress. 

Companies have been formed, accounting systems created, vast capability to analyze and be accurate to the penny and meet the requirements of public accounting have occurred with companies that 

did not exist a decade ago. 

If we can create great institutions from scratch, tilt them up and 

make their information secure and available to seven billion people 

around the world and do it in the time that Mr. Cummings and I 

have served in Congress, then how is it that we are worse off, no 

better off when it comes to government accountability than we 

were at the time that my ranking member and I came to Congress? 

That is part of why we will hear today, and I recognize the ranking 

member for his opening statement. 

Mr. CUMMINGS. Thank you very much, Mr. Chairman. And I 

thank you for holding this hearing. 

I want to thank you, Mr. Dodaro, for testifying today. I appreciate the work that you and your staff have put into the reports 

that form the basis for your testimony today. And I trust that you 

will express the appreciation of our committee for the very hard 

and excellent work. 

This hearing focuses on two areas that are the core of this committee’s jurisdiction: government financial data and government 

performance data. In order to be efficient and effective, the government has to know how much money it has, how much money it is 

spending, and whether that money is being spent wisely. The Government Accountability Office performs an audit each year of the 

consolidated financial statements of the government, which are 

prepared by the Department of Treasury in coordination with the 

Office of Management and Budget. 

In January, GAO reported that it could not, could not express an 

opinion on the audit of the government’s books for fiscal years 2011 

and 2012. This is not a new problem. GAO has not been able to 

express an audit opinion on the government’s books since it started 

performing these audits in 1997. 

The Department of Defense is one of the main reasons GAO is 

unable to give an audit opinion. The DOD is responsible for more 

than half of the Federal Government’s discretionary spending, but 

it is unable to prepare auditable financial statements. GAO has included DOD financial management in its high risk list in 1995. 

In its 2013 high risk report, GAO said this: ‘‘DOD is one of the 

few federal entities that cannot accurately account for its spending 

or assets. It is one of three major impediments that prevent GAO 

from rendering an opinion on the annual consolidated financial 

statements of the Federal Government. Without accurate, timely 

and useful financial information, the DOD is severely hampered in 

making sound decisions affecting its operations.’’ 

On the other hand, the Department of Homeland Security has 

made major improvements. For the first time, DHS received a 

qualified audit opinion for fiscal year 2012. This is the result of a 

concerted effort by the Secretary and other DHS officials to improve the Department’s financial management. It is also the result 

4 

of the work of this committee holding the Department accountable 

through hearings and briefings. 

Fiscal responsibility is about more than just balancing books. It 

is also critical for the government to know whether the money that 

is spent is doing what it was intended to do. In 2011, the President 

signed into law the Government Performance and Results Modernization Act of 2010. That law was sponsored by Representative 

Henry Cuellar and it was approved on a bipartisan basis by this 

committee. The Act required GAO to conduct assessments of the 

law’s implementation, and on June 26th, GAO issued its report. 

GAO found that the government has made major strides through 

implementation of the law. 

John Kominsky, a senior fellow with the IBM Center for the 

Business of Government, offered this conclusion as his takeaway 

from the GAO report: ‘‘The key story that stands out for me is that 

the conceptual framework of the GPRA Modernization Act and the 

actual use of its provisions, such as priority setting and data driven 

progress reviews, are seen as effective by agency managers.’’ 

GAO also found a number of areas that need improvement. For 

example, GAO found that agencies are not doing enough to track 

issues that cut across agencies, such as climate change and food 

safety. I look forward to hearing GAO’s recommendations for how 

the government can do better, both in terms of financial management and performance management. 

With that, I yield back. 

Chairman ISSA. I thank the gentleman. All members will have 

seven days to submit opening statements and extraneous materials 

for the record. 

We now recognize our panel. We recognize the Honorable Gene 

Dodaro, who is the Comptroller General of the United States. We 

ask the following GAO advisors accompanying Mr. Dodaro to stand 

and be sworn at the same time. And if there are any others other 

than the ones I mention, please let me know. 

Nancy Kingsbury, Gary Engel, Robert Dacey, Steve Sebastian, 

Asif Khan and Chris Mihm. Is that complete? Would you please 

rise and raise your right hand to be sworn? 

Do you solemnly swear or affirm that the testimony you are 

about to give will be the truth, the whole truth and nothing but 

the truth? 

[Witnesses respond in the affirmative]. 

Chairman ISSA. Let the record indicate that all witnesses answered in the affirmative. 

Mr. Dodaro, you have been here so often that to say please bear 

in mind that your entire statement will be placed into the record 

would be redundant. So I will dispense with that. The gentleman 

is recognized. 

WITNESS STATEMENT 

STATEMENT OF GENE DODARO 

Mr. DODARO. Thank you very much, Mr. Chairman, Ranking 

Member Cummings, members of the committee. I am pleased to be 

here today to discuss GAO’s Audit of the Consolidated Financial 

Statements of the Federal Government, and also our assessment of 

5 

the initial implementation of the Government Performance and Results Modernization Act of 2010. 

As it relates to the financial management of the Federal Government, we reported 21 of the 24 largest departments and agencies 

were able to receive an unqualified opinion for fiscal year 2012 

statements. However, as has been pointed out in opening statements, there are serious material weaknesses in internal controls 

and financial reporting that have prevented us from being able to 

give an opinion on the consolidated financial statements of the 

United States Government. The three major impediments are serious financial management problems at the Department of Defense, 

the inability to eliminate intra-governmental transactions among 

Federal departments and agencies, and an ineffective process to 

compile the financial statements of the Federal Government. 

DOD, OMB and Treasury are all seeking to rectify these weaknesses. But our assessment is that much more work needs to be 

done in order to address these issues and put the Federal Government in a position where it can get an opinion on its consolidated 

financial statements. 

We were also unable to express an opinion on the statement of 

social insurance, which covers Social Security and Medicare programs, due to the uncertainties associated with the estimates for 

restraining cost growth under the Medicare program. 

With regard to other areas we pointed out in that report, we also 

pointed out that there were internal control weaknesses in improper payments and computer security across the government, 

and made other observations and recommendations. 

Now, with regard to performance management, the Modernization Act of 2010, the initial implementation of setting up the requirements for the Act has taken place. The Administration has set 

interim cross-cutting goals, the agencies have set priority goals. 

They have assigned responsibilities as outlined in the Act for performance officers in the departments and agencies, and they are 

beginning to hold quarterly progress reviews, performance reviews 

that are required under the Act. 

However, there are a number of significant areas that we pointed 

out where there are remaining weaknesses and opportunities for 

improvement. First of all, we find little improvement in the use of 

performance measurements and information from the survey we 

did for this work in 2012, compared to 1997. So there is a need to 

really increase the use of the information and the usefulness of the 

information there as well. We also pointed out where there are 

areas where there have been difficulties in measuring performance 

that have yet to be overcome, for example, in the grants and contracts area. So there is a lot of room for improvement and actually 

developing better, more complete and useful performance measures. 

We found there were missed opportunities in cross-cutting areas 

across the government where programs were included to be measured, but not tax expenditures. So the performance at tax expenditures needs to come under greater scrutiny as well as to whether 

it is achieving its objectives or not, and assessing government-wide 

priority goals as well. 

6 

We also found the law requires that there be a public website set 

up to increase transparency. That has been done, but the website 

can be improved greatly in terms of its usefulness and transparency. We made recommendations that more work is done 

inassessing the needs of people in the Congress and the public to 

use that information to make it more transparent and useful to the 

American public. 

We also found little evidence of meaningful consultations with 

the Congress. 

Chairman ISSA. Could you repeat that? 

Mr. DODARO. Yes. We found little evidence that there were meaningful consultations with the Congress in this case, and made recommendations there be better documentation. One of the main objectives of this Act, even though the original 1993 Act required consultations with the Congress, the 2010 Act was to increase those 

consultations and require them to be documented by the agencies 

in their reporting. That hasn’t been done to, we think, the intentions and the expectations of the Congress. 

So we made many recommendations in all these areas to OMB. 

They have agreed to implement all the recommendations, so we 

will be tracking their progress in our future reports on these areas 

as well as on the consolidated financial statement. 

So just in closing, I would say, and I want to underscore, meaningful improvement in financial management and performance 

management will not occur without greater leadership on the part 

of the Executive Branch and rigorous oversight by the Congress. It 

is needed in order to have financial and performance data that are 

commensurate with dealing with the significant problems we have 

in the Federal Government, both fiscal management and performance. I applaud the committee for holding this hearing, and I look 

forward to continuing the work with you and the Congress and the 

Administration in bringing about meaningful reform. 

Thank you. 

[Prepared statement of Mr. Dodaro follows:] 

7 


Insert offset folio 1 here 82273.001

For Relea.;;e on Delivery 

Expected at 9,30 a.m. EDT Wednesday, July 10,2013 

GAO-13-752T 

United States Government Accountability Office 

Testimony 

Before the Committee on Oversight and 

Government Reform, House of 

Representatives 

FINANCIAL AND 

PERFORMANCE 

MANAGEMENT 

More Reliable and Complete 

Information Needed to 

Address Federal 

Management and Fiscal 

Challenges 

Statement of Gene L. Dodaro 

Comptroller General of the United States 
8 


Insert offset folio 2 here 82273.002

GAO 

Highlights 

Highlights of GAO-13-752T, a testimony 

before the Committee on Oversight and 

Government Reform, House of 

Representatives 

Why GAO Did This Study 

To operate as effectively and efficiently 

as possible and to make difficuH 

decisions to address the federal 

government's management and fiscal 

challenges, Congress, the 

administration, and federal managers 

must have ready access to reliable and 

complete financial and performance 

infonmation-both for individual federal 

entities and programs and for 

government as a whole. GAO is 

required to annually audit the 

consolidated financial statements of 

the U.S. govemment. In addition, GAO 

is required to periodically report on 

federal agendes' efforts to increase 

the use of performance infonnation in 

government and to take a more 

crosscutting and integrated perspective 

on performance. 

This testimony presents the results of 

GAO's recent audits and reviews 

related to (1) the U.S. govemmenfs 

consolidated financial statements for 

fiscal year 2012, and (2) executive 

branch implementation of key 

provisions of the GPRA Modemizatlon 

Act of 2010. 

What GAO Recommends 

Over the years, GAO has made 

numerous recommendations directed 

at improving federal financial 

management. The federal govemment 

has generally taken or plans to take 

actions to address GAO's 

recommendations. GAO has also 

made numerous recommendations to 

OMB to more fully implement the 

GPRA Modemization Act of 2010. 

OMS staff agreed with these 

recommendations, 

View GAO-13-7S2T. For more information, 

contact Robert F. Dacey or Gary T. Engel at 

(202) 512-3406, or J. Christopher Mihm at (202) 512-6806. 

FINANCIAL AND PERFORMANCE 

MANAGEMENT 

More Reliable and Complete Information Needed to 

Address Federal Management and Fiscal Challenges 

What GAO Found 

Three long-standing major impediments prevented GAO from expressing an 

opinion on the U.S. government's 2012 accrual-based consolidated financial 

statements: (1) serious financial management problems at the Department of 

Defense (DOD), (2) the federal government's inability to adequately account for 

and reconcile intragovemmental activity and balances between federal entities, 

and (3) the federal government's ineffective process for preparing the 

consolidated financial statements. Also, GAO was prevented from expressing 

opinions on the 2012 social insurance-related statements because of significant 

uncertainties primarily related to the achievement of projected reductions in 

Medicare cost growth reflected in the statements. 

DOD continues to work to address its financial management challenges with the 

goal of full financial statement auditability, but has much work to do if the 

department is to meet its audit readiness and financial management 

improvement goals. In addition, the Department of the Treasury, in coordination 

with the Office of Management and Budget (OMB), is taking actions to address 

issues related to intragovernmental activity and preparation of the consolidated 

financial statements, but additional efforts and sustained commitment are 

required to fully resolve these issues. 

The 2012 Financial Report of the Unffed States Government included 

comprehensive long-term fiscal projections, which provide a much-needed 

perspective on the federal government's long-term fiscal position and outlook. 

These, like GAO's simulations, include the savings provided by the Budget 

Control Act of 2011, yet still show an unsustainable long-term fiscal path. 

As GAO reported in June 2013, the executive branch has taken a number of 

steps to implement key provisions of the GPRA Modemization Act of 2010 

(GPRAMA or the act), such as the development of interim cross-agency and 

agency-specific priority goals and use of data-driven quarterly performance 

reviews. However, the executive branch needs to do more to fully implement and 

leverage the act's provisions to address governance challenges in the following 

five areas: (1) OMS and agencies have made some progress addressing 

crosscutting issues, but are missing additional opportunities such as assessing 

the performance of tax expenditures: (2) while key performance management 

practices hold promise, ensuring performance information is useful and used by 

managers to improve results remains a weakness, For example, GAO found little 

improvement in federal managers' reported use of performance information or 

practices that could help promote its use, based on its periodic government-wide 

surveys of federal managers since 1997. Moreover, only 37 percent of managers 

reported that a program evaluation had been completed in the past 5 years of 

any program or operation they were involved in; (3) agencies have taken steps to 

align daily operations with agency results, but continue to face difficulties 

measuring performance in areas such as grants and contracts; 

(4) communication of performance information could better meet users' needs; 

and (5) agency performance information is not always useful for congressional 

decision making. GAO found little evidence that meaningful consultations 

occurred with Congress related to agency strategic plans and agency priority 

goals. 

_____________ United States Government Accountability Office 
9 


Insert offset folio 3 here 82273.003

Chairman Issa, Ranking Member Cummings, and Members of the 

Committee: 

I appreciate the opportunity to be here today to discuss our reports on the 

U.S. government's consolidated financial statements for fiscal years 2012 

and 2011, ' and on the federal government's progress in implementing the 

GPRA Modernization Act of 2010 (GPRAMA or the act).2 The federal 

government is one of the world's largest and most complex entities, with 

about $3.5 trillion in outlays in fiscal year 2012, funding an extensive 

array of programs and operations. Moreover, it faces a number of 

significant fiscal, financial management, and performance management 

challenges in responding to the diverse and increasingly complex issues 

it seeks to address. 

To operate as effectively and efficiently as possible and to make difficult 

decisions to address the federal government's management and fiscal 

challenges, Congress, the administration, and federal managers must 

have ready access to reliable and complete financial and performance 

information-both for individual federal entities and programs and for 

government as a whole. The government has made important progress 

since the enactment of key federal financial management reforms in the 

1990s and continues to address significant financial management and 

long-term fiscal challenges. The act, which updated the Government 

Performance and Results Act of 1993 (GPRA),' was intended to help 

increase the use of performance information in government and to take a 

more crosscutting and integrated perspective on performance 

management. However, our reports on the U.S. government's 

consolidated financial statements and on the implementation of the act 

illustrate that further improvements to federal financial and performance 

management are urgently needed. I would like to commend you, Mr. 

1The Secretary of the Treasury, in coordinatIon with the Director of the Office of 

Management and Budget is required to annually submit audited financial statements for 

the U.S. government to the President and Congress, GAO is required to audit these 

financial statements. The Government Management Reform Act of 1994 has required 

such reporting, covering the executive branch of government, beginning with the financial 

statements prepared for fiscal year 1997. 31 U,S.C. 331(e). The federal government has 

elected to include certain financial information on the !egislative and judicia! branches in 

the consolidated financial statements as well 

2Pub L No. 111-352, 124 Stat 3866 (Jan. 4, 2011). 

'Pub. L. No. 103-62. 107 Stat 285 (Aug. 3. 1993). 

Page 1 GAO-13-752T 
10 


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Chairman, and this committee, for holding this oversight hearing on these 

important subjects. Congressional oversight is critical to assuring 

continued progress. 

This testimony is based on several reports issued in 2013. In January 

2013, we issued our report on the results of our audit of the U.S. 

government's fiscal years 2012 and 2011 consolidated financial 

statements, which along with the financial statements, are contained in 

the fiscal year 2012 Financial Report of the United States Government 

(Financial Report). 4 We performed sufficient audit work to provide our 

report on the consolidated financial statements, internal control, and 

compliance with selected provisions of laws and regulations. We 

conducted our audit in accordance with U.S. generally accepted 

government auditing standards. Our audit report would not be possible 

without the commitment and professionalism of inspectors general 

throughout the federal government who are responsible for annually 

auditing the financial statements of individual federal entities. 

The act includes provisions requiring us to review its implementation at 

several critical junctures' In June 2013, we issued a report highlighting 

the key findings from several reports issued over the past 2 years 

covering the executive branch's implementation of key provisions of the 

act and how the executive branch can more fully implement and leverage 

the act to address pressing governance challenges.' The report also 

included the results of our most recent survey of federal managers on the 

implementation of key performance management practices across 

4GAO, Financial Audit: US. Government's Fiscal Years 2012 and 2011 Consolidated 

Financial Statements, GAO-13-271 R (Washington, D.C.: Jan. 17,2013). The Financial 

Report is available through the Department of the Treasury at 

http://VV'INW.fms,treas,gov/fr/index.html. Also, see GAO, Understanding the Primary 

Components of the Annual Financial Report of the United States Government, 

GAO-09-946SP (Washington, D.C.: September 2009) 

5For more information on our reports reviewing initial implementation of the act, see GAO, 

Managing for Results.' Executive Branch Should More Fully Implement the GPRA 

Modernization Act to Address Pressing Governance Challenges, GAO-13-518 

(Washington, O.C., June 26, 2013), For more details on the scope and methodology for 

this work, see app. I of GAO-13-518 

6See GAO-13-S18 For the full results of our 2013 survey, see GAO, Managing for 

Results. 2013 Federal Managers Survey on Organization Perfonnance and Management 

Issues, an E-Supplemenf to GAO-13·518, GAO-13-S19SP (Washington. D.C: June 

2013) 

Page 2 GAO·13·752T 
11 


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Results of Our Audit 

of the U.S. 

Government's 

Consolidated 

Financial Statements 

for Fiscal Years 2012 

and 2011 

government-the fifth such survey we have undertaken since 1997. In 

addition to the survey, we reviewed the act, related Office of Management 

and Budget (OM B) guidance, and our past and recent work related to 

federal performance management and the act, as well as interviewed 

OMB staff. Based, in part, on some of the results of our federal managers' 

survey, we also issued a report in June 2013 on strategies to facilitate 

agencies' use of program evaluations. 7 In addition to the survey, we 

interviewed OMB staff and evaluators at five agencies within the 

Departments of Agriculture, Health and Human Services, and labor 

selected for their evaluation experience. We conducted our performance 

audits in accordance with generally accepted government auditing 

standards. 

The federal government was unable to demonstrate the reliability of 

significant portions of its accrual-based consolidated financial statements 

for fiscal years 2012 and 2011, principally resulting from limitations 

related to certain material weaknesses in internal control over financial 

reporting. 8 For example, about 34 percent of the federal government's 

reported total assets as of September 30, 2012, and approximately 21 

percent of the federal government's reported net cost for fiscal year 2012, 

relate to the Department of Defense (DOD), which received a disclaimer 

of opinion on its consolidated financial statements. As a result, we were 

unable to provide an opinion on the accrual-based consolidated financial 

statements of the U.S. government. Further, significant uncertainties, 

primarily related to the achievement of projected reductions in Medicare 

cost growth refiected in the 2012, 2011, and 2010 Statements of Social 

Insurance,9 prevented us from expressing opinions on those 

Program Evaluation: Strategies to Facifitate Agencies' Use of Evaluation in 

Program Management and Poilcy Making, GAO~ 13-570 (Washington, D.C.: June 26, 

2013). For more details on the scope and methodology for this work, see app. I of 

GAO-13-570. 

SA material weakness is a deficiency, or combination of deficiencies, in internal control 

such that there is a reasonable possibility that a material misstatement of the entity's 

financial statements will not be prevented, or detected and corrected, on a timely basis, A 

deficiency in internal control exists when the design or operation of a contra! does not 

allow management or employees, in the normal course of performing their assigned 

functions, to prevent, or detect and correct, misstatements on a timely basis, 

~hese uncertainties are discussed in Note 26 to the consolldated financial statements. 

Page 3 GAO-13-752T 
12 


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statements, 10 as well as on the 2012 and 2011 Statements of Changes in 

Social Insurance Amounts. Given the importance of social insurance 

programs, such as Medicare and Social Security to the federal 

government's long-term fiscal outlook, the Statement of Social Insurance 

is critical to understanding the federal government's financial ccndition 

and fiscal sustain ability. 

The federal government did not maintain adequate systems or have 

sufficient, reliable evidence to support certain material information 

reported in the U.S. government's accrual-based consolidated financial 

statements. The underlying long-standing material weaknesses in internal 

control contributed to our disclaimers of opinion on the U.S. government's 

accrual-based consolidated financial statements for the fiscal years 

ended September 3D, 2012 and 2011. \1 Specifically, these weaknesses 

concerned the federal government's inability to 

satisfactorily determine that property, plant, and equipment and 

inventories and related property, primarily held by DOD, were properly 

reported in the accrual-based consolidated financial statements; 

reasonably estimate or adequately support the amounts reported for 

certain liabilities, such as environmental and disposal liabilities, or 

determine whether commitments and contingencies were complete 

and properly reported; 

support significant portions of the reported total net cost of operations, 

most notably related to DOD, and adequately reconcile disbursement 

activity at certain federal entities; 

adequately account for and reconcile intragovernmental activity and 

balances between federal entities; 

ensure that the federal government's accrual-based consolidated 

financial statements were (1) consistent with the underlying audited 

unqualified opinions on the 2009 and 2008 Statements of Social 

11A more detailed description of the material weaknesses that contributed to our 

disclaimer of opinion, including the primary effects of these material weaknesses on the 

accrual-based consolidated financial statements and on the management of federal 

government operations, can be found on pages 237 through 242 of the Financial Report 

Page 4 GAO-13-752T 
13 


Insert offset folio 7 here 82273.007

entities' financial statements, (2) properly balanced, and (3) in 

conformity with U.S. generally accepted accounting principles (U.S. 

GAAP); and 

identify and either resolve or explain material differences between 

(1) components of the budget deficit that are used to prepare certain 

information in the consolidated financial statements and (2) related 

amounts reported in federal entities' financial statements and 

underlying financial information and records. 

These material weaknesses continued to (1) hamper the federal 

government's ability to reliably report a significant portion of its assets, 

liabilities, costs, and other related information; (2) affect the federal 

government's ability to reliably measure the full cost as well as the 

financial and nonfinancial performance of certain programs and activities; 

(3) impair the federal government's ability to adequately safeguard 

significant assets and properly record various transactions; and (4) hinder 

the federal government from having reliable financial information to 

operate in an efficient and effective manner. 

We also reported certain other material weaknesses,'2 including the 

federal government's inability to (1) determine the full extent to which 

improper payments occur and reasonably assure that appropriate actions 

are taken to reduce improper payments,13 and (2) identify and resolve 

information security control deficiencies and manage information security 

risks on an ongoing basis. 

Since the enactment of key financial management reforms in the 1990s, 

important progress has been made improving financial management 

activities and practices. For fiscal year 2012,21 of 24 Chief Financial 

Officers (CFO) Act agencies were able to attain unqualified audit opinions 

on their accrual-based financial statements, up from 6 CFO Act agencies 

for fiscal year 1996." Also, for the first time, the Department of Homeland 

12A more detailed discussion of these weaknesses, including the prImary effects of the 

material weaknesses on the accrual-based consolidated financial statements and on the 

management of federal government operations, can be found on pages 243 through 245 

of the Financial Report 

13Federal entities reported estimates of improper payment amounts that totaled 

$107.7 billion for fiscal year 2012, which represented approximately 4.4 percent of about 

$2.5 trillion of reported out!ays for the associated programs 

14See app, I for the fiscal year 2012 audit results for the 24 CFO Act Agencies. 

Page 5 GAO-13-152T 
14 


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Addressing Impediments 

to an Opinion on the 

Accrual-Based 

Consolidated Financial 

Statements 

Security (OHS) was able to obtain a qualified audit opinion on its 

department-wide financial statements-a significant achievement for 

OHS. Further, the preparation and audit of financial statements have 

identified numerous deficiencies, leading to actions to strengthen controls 

and systems. However, many of the CFO Act agencies continue to 

struggle with financial systems that do not meet the needs of 

management for reliable, useful, and timely financial information. 

The Federal Financial Management Improvement Act of 1996 (FFMIA) 

was designed to lead to system improvements that would result in CFO 

Act agency managers routinely having access to reliable, useful, and 

timely financial-related information with which to measure performance 

and increase accountability throughout the year. 15 FFMIA requires 

auditors, as part of the 24 CFO Act agencies' financial statement audits, 

to report whether those agencies' financial management systems 

substantially comply with (1) federal financial management systems 

requirements, (2) applicable federal accounting standards, and (3) the 

federal government's U. S. Standard General Ledger at the transaction 

level. 

For both fiscal years 2012 and 2011, auditors for 11 of the 24 CFO Act 

agencies reported that the agencies' financial management systems did 

not substantially comply with one or more of the three FFM IA 

requirements. Often, federal entities expend major time, effort, and 

resources to develop financial information that their systems should be 

able to provide on a daily or recurring basis. Therefore, it is important for 

the individual federal entities to remain committed to maintaining the 

progress that has been achieved in obtaining positive audit results and to 

build upon that progress to make needed improvements in federal 

financial management systems. 

Three long-standing major impediments continued to prevent us from 

expressing an opinion on the U.S. government's accrual-based 

consolidated financial statements: (1) serious financial management 

problems at 000, (2) the federal government's inability to adequately 

account for and reconcile intragovernmental activity and balances 

which is reprinted In 31 U,S.C. 3512 note 

Page 6 GAO~13"752T 
15 


Insert offset folio 9 here 82273.009

Improving Financial 

Management at DOD 

between federal entities, and (3) the federal government's ineffective 

process for preparing the consolidated financial statements. 

DOD continues to work toward the long-term goal of improving financial 

management and full financial statement auditability. The National 

Defense Authorization Act (NOAA) for Fiscal Year 2010 requires that 

DOD's Financial Improvement and Audit Readiness (FIAR) Plan set as its 

goal that the department's financial statements be validated as ready for 

audit by September 30, 2017. 16 In addition, the NOAA for Fiscal Year 

2013 requires that the FIAR Plan also describe specific actions to be 

taken and the cost associated with ensuring that DOD's Statement of 

Budgetary Resources (SBR) is validated as ready for audit by 

September 30, 2014.17 DOD's FIAR Plan and semiannual status reports 

define the activities, corrective actions, and interim milestones the 

department has deemed necessary to achieve auditability and the 

availability of reliable, useful, and timely information for management 

decision making. Under its FIAR Plan, DOD is focusing on improving 

controls, systems, and processes relied on to provide financial 

information in two areas that are critical to managing its operations: 

(1) budgetary information and (2) accountability over its mission-critical 

assets. 

Based on difficulties encountered in auditing the SBR of the Marine 

Corps, in August 2012, DOD's FIAR Governance Board approved a 

significant change to the FIAR methodology that will limit the scope of 

first-year SBR audits for all DOD components. As outlined in the March 

2013 revised FIAR Guidance, the scope of the SBR audits beginning in 

fiscal year 2015 will be on budget activity only in the current-year 

appropriations as an interim step toward achieving an audit of the SBR. In 

subsequent years, the components will commence audits of schedules of 

both current-year and prior-year audited appropriations and all related 

activity against those appropriated funds. 

16pub. L. No. 111-84. § 1003(a)(2)(A)(ii), 123 Stat 2190, 2440 (Oct 28, 2009) (reprinted 

in 10 U S.C. § 2222 note). Prior to enactment of this law, ~OD had been using the 

September 30, 2017 date as its internal goa! since 2008 

17NDAA for Fiscal Year 2013, Pub. L No. 112-239, § 1005(a), 126 Stat 1632, 1904 

(Jan. 2, 2013) (reprinted in 10 U.S.C. § 2222 note). 

Page 7 
16 


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While DOD has made efforts to improve its financial management, we 

found significant internal control, financial management, and systems 

deficiencies in DOD's processes and procedures for maintaining 

accountability for billions of dollars in funds and other resources. For 

example, we found that 

the Army and the Defense Finance and Accounting Service (DFAS) 

could not readily identify the full population of payroll accounts 

associated with the Army's $46 billion active duty military payroll 

because of deficiencies in existing procedures and nonintegrated 

personnel and payroll systems, 16 

OF AS could not detect and correct all errors in active duty military 

payroll disbursements because of deficiencies in its processes, 19 

DOD's improper payment estimates reported in its fiscal year 2011 

Agency Financial Report were neither reliable nor statistically valid 

because of long-standing and pervasive financial management 

weaknesses and significant deficiencies in the department's 

procedures related to estimating improper payments,20 and 

DOD continues to encounter difficulties in implementing its planned 

Enterprise Resource Planning (ERP) systems on schedule and within 

budget,21 due to significant operational problems and significant 

delays in deploying key ERP systems. 22 

DOD Financial Management: The Army Faces Significant Challenges in Achieving 

GAO*12*406 (Washington, D.C.: Mar. 22, 2012) 

19GAO, DOD Financial Management: Actions Needed to Address DefiCiencies in Controls 

over Anny Active Duty Military Payroll, GAO~13-28 (Washington, D.C.: Dec. 12,2012). 

2oGAO, DOD Financial Management: Significant Improvements Needed in Efforts to 

Address Improper Payment Requirements, GAO-13-227 (Washington, D.C .. May 13, 

2013). 

21The effective implementation of ERP systems wi!! be critical to the success of all of 

DOD's planned long~terrn financial improvement efforts. ERP systems are integrated, 

multifunction systems that perform business~related tasks such as genera! ledger 

accounting and supply chain management. DOD considers their implementation essential 

to transforming its business operations and achieving Its goals of audit readiness by fiscal 

year 2017. 

22GAO, DOD Financial Management: Implementation Weaknesses in Army and Air Force 

Business Systems Could Jeopardize DOD's Auditabifity Goals, GAOw12-134 (Washington, 

D.C.: Feb. 28. 2012) 

Page 8 
17 


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Reconciling Intragovemrnental 

Activity and Balances 

We have made numerous recommendations to DOD to address these 

financial management issues. While we are encouraged by DOD's 

sustained commitment to improving financial management and achieving 

audit readiness, several DOD business practices, including financial 

management, remain on GAO's list of high-risk programs. 23 DOD faces 

considerable challenges and has much work to do if it is to meet its audit 

readiness goals. DOD's continued oversight and monitoring will playa 

key role in ensuring that the FIAR Plan is implemented as intended, and 

lessons learned are identified and effectively disseminated and 

addressed." While DOD's May 2013 FIAR Plan status report reiterated 

the department's commitment to achieving its audit readiness goals, it 

noted that absent a stable budget environment, DOD's efforts were 

subject to increased risk. Continued congressional oversight of DOD's 

financial management improvement efforts will be critical to helping 

ensure DOD achieves its audit readiness goals. To assist Congress in its 

oversight efforts, we will continue to monitor DOD's progress and provide 

feedback on the status of its financial management improvement efforts. 

Since the first audit of the U.S. government's fiscal year 1997 

consolidated financial statements, we have reported a material weakness 

related to the federal government's inability to adequately account for and 

reconcile intragovernmental activity and balances between federal 

entities, as well as between federal entities and the General Fund." 

When preparing the consolidated financial statements, intragovernmental 

activity and balances between federal entities and between federal 

entities and the General Fund should be in agreement and must be 

subtracted out, or eliminated, from the financial statements. If the two 

federal entities engaged in an intragovemmental transaction do not both 

record the same intragovernmental transaction in the same year and for 

the same amount, the intragovernmental transactions will not be in 

agreement, resulting in errors in the consolidated financial statements. 

High-Risk Series: An Update, GAO-13-283 (Washington, D.C .. Feb. 14.2013) 

24GAO, DOD Financial Management: Challenges in Attaining Audit Readiness and 

Improving Business Processes and Systems, GAO-12-.642T (Washington, D.C: Apr 18, 

2012). 

25The General Fund is a centra! reporting entity that tracks core activities fundamental to 

funding the federal government (e.g., issued budget authority, operating cash, and debt 

financing activities). 

Page 9 GAO·13-752T 
18 


Insert offset folio 12 here 82273.012

The Department of the Treasury (Treasury) has grouped 

intragovernmental activity and balances into the following five categories 

and is working with federal entity personnel to identify and resolve 

reported unreconciled differences. 

Fiduciary activities include investments in Treasury securities with 

the Bureau of the Fiscal Service (Fiscal Service),26 borrowing from the 

Fiscal Service and the Federal Financing Bank and related interest 

receivable and payable, interest expense and revenue, and federal 

loans receivable and payable. 

Benefit activities include contributions by federal entities into 

employee benefit programs (retirement, life insurance, workers' 

compensation, and health benefits) administered by the Office of 

Personnel Management and the Department of Labor. 

Buy/Sell activities between federal entities include buy and sell costs 

and revenues, accounts receivable and payable, and advances to and 

from others. 

Transfers of funds include transfers payable and receivable, and 

transfers in and out without reimbursement. 

General Fund transactions and balances include fund balance with 

Treasury, appropriations received and warrants, and custodial and 

non-entity collections. 

The federal government has made progress in reconciling 

intragovernmental differences and the degree of progress varies by 

category. However, the federal government continues to be unable to 

adequately account for and reconcile intragovernmental activity and 

balances. For fiscal year 2012, amounts reported by federal entity trading 

partners for certain intragovernmental accounts were not in agreement by 

significant amounts. OMB and Treasury require the CFOs of 35 

significant federal entities to reconcile, on a quarterly basis, selected 

26According to Treasury officials, on October 7,2012, the Secretary of the Treasury 

(1) established the Bureau of the Fjscal Service as a bureau within the Department of the 

Treasury, (2) consolidated and redesignated the Bureau of the Public Debt and the 

Financial Management Service as the Bureau of the Fiscal Service, and (3) transferred 

the duties of the Bureau of the Public Debt and Financial Management Service 

commissioners to the Commissioner of the Bureau of the Fiscal Service. 

Page 10 GAO-13-752T 
19 


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Preparing the Consolidated 

Financial Statements 

intragovernmental activity and balances with their trading partners. As in 

prior years, a substantial number of the entities did not adequately 

perform the required year-end reconciliations for fiscal year 2012. Further, 

there continue to be hundreds of billions of dollars of unreconciled 

differences between the General Fund of the U.S. government and 

federal entity trading partners related to appropriations and other 

intragovernmental transactions. Currently, federal entities report their 

activity with the General Fund; however, the General Fund activity is not 

centrally reported, and therefore, a process does not exist for entities to 

confirm and reconcile all of their activity and balances with the General 

Fund. As a result of these circumstances, the federal government's ability 

to determine the impact of the un reconciled differences between trading 

partners on the amounts reported in the accrual-based consolidated 

financial statements is significantly impaired. 

Over the years, we have made several recommendations to Treasury to 

address these issues. Treasury has taken or plans to take actions to 

address these recommendations. During fiscal year 2012, Treasury 

expanded its ongoing efforts to help resolve and eliminate material 

differences in intragovernmental activity and balances. These efforts 

included developing and implementing a formalized resolution plan and 

related corrective actions intended to address long-standing 

intragovernmental challenges. As part of its plan, Treasury monitors 

entities' reconciliation efforts and compliance with Treasury Financial 

Manual guidance. For example, in fiscal year 2012, Treasury began a 

pilot program with 14 entities that included providing them with quarterly 

metrics and scorecards highlighting differences requiring attention. In 

fiscal year 2013, Treasury expanded the distribution of the quarterly 

metrics and scorecards to include all 35 significant entities. Further, 

Treasury is in the process of establishing separate reporting for the 

General Fund, which includes intragovernmentaltransactions. Resolving 

the intragovernmentaltransactions problem remains a difficult challenge 

and will require a strong and sustained cornmitment by federal entities to 

timely resolve differences with their trading partners, as well as continued 

strong leadership by Treasury and OMB. 

Treasury, in coordination with OMB, implemented corrective actions 

during fiscal year 2012 to address certain internal control deficiencies 

detailed in our previously issued reports regarding the process for 

preparing the consolidated financial statements, including obtaining and 

utilizing certain interim financial information from federal entities in 

preparing initial consolidated financial statement drafts and 

supplementing staff during the financial report preparation process. 

Page 11 
20 


Insert offset folio 14 here 82273.014

Treasury also began to develop a methodology to reconcile the budget 

deficit to the consolidated financial statements. Nevertheless, the federal 

governrnent continued to have inadequate systems, controls, and 

procedures to ensure that the consolidated financial statements are 

consistent WITh the underlying audited entity financial statements, properly 

balanced, and in conformity with U.S. GAAP.27 For example: 

Treasury's process did not ensure that the information in three of the 

accrual-based consolidated financial statements (Statement of 

Operations and Changes in Net Position, Reconciliations of Net 

Operating Cost and Unified Budget Deficit, and Statement of Changes 

in Cash Balance from Unified Budget and Other Activities) was fully 

consistent with the underlying information in the 35 significant federal 

entities' audited financial statements and other financial data. 

Treasury is unable to properly balance the accrual-based 

consolidated financial statements. To make the fiscal years 2012 and 

2011 consolidated financial statements balance, Treasury recorded 

net increases of $202 billion and $15.6 billion, respectively, to net 

operating cost on the Statement of Operations and Changes in Net 

Position, which were identified as "Unmatched transactions and 

balances."" Treasury recorded an additional net $1.8 billion and 

$6.0 billion of unmatched transactions in the Statement of Net Cost for 

fiscal years 2012 and 2011, respectively. The material weakness in 

federal entities' ability to account for and reconcile intragovernmental 

activity and balances, discussed above, significantly contributes to the 

unmatched transactions and balances and consequently impairs 

Treasury's ability to fully eliminate such intragovernmental activity and 

balances. 

27Most of the issues we identified in fiscal year 2012 eXisted in fiscal year 2011, and many 

have existed for a number of years, Most recently, in June 2013, we reported the issues 

we identified to Treasury and OMS and provided recommendations for corrective action 

See GAO, Management Report: Improvements Needed in Controls over the Preparation 

aftha US. Consolidated Financial Statements, GAO~13-540 (Washington, D.C.: June 28, 

2013). A detailed discussion of control deficienCies regarding the process for preparing the 

consolidated financial statements can be found on pages 239 through 241 of the Financial 

Report 

28Although Treasury was unable to determine how much of the unmatched transactions 

and balances, if any, relates to net operating cost, it reported this amount as a component 

of net operating cost in the consolidated financial statements. 

Page 12 GAO~13~752T 
21 


Insert offset folio 15 here 82273.015

Significant Uncertainties 

Result in Disclaimers of 

Opinion on the 2012, 2011, 

and 2010 Statements of 

Social Insurance, as Well 

as on the 2012 and 2011 

Statements of Changes in 

Sociai Insurance Amounts 

Treasury's reporting of certain financial information required by U.S. 

GAAP continues to be impaired and will remain so until federal 

entities, such as DOD, can provide Treasury with complete and 

reliable information required to be reported in the consolidated 

financial statements. 

Resolving these internal control deficiencies remains a difficult challenge 

and will require a strong and sustained commitment from Treasury and 

OMB as they continue to execute and implement their corrective action 

plans. 

Significant uncertainties, primarily related to the achievement of projected 

reductions in Medicare cost growth reflected in the 2012, 2011, and 2010 

Statements of Social Insurance, prevented us from expressing opinions 

on the 2012,2011, and 2010 Statements of Social Insurance, as well as 

on the 2012 and 2011 Statements of Changes in Social Insurance 

Amounts. 29 The Statement of Social Insurance presents the actuarial 

present value of the federal government's estimated future revenue to be 

received from or on behalf of participants and estimated future 

expenditures to be paid to or on behalf of participants, based on benefit 

formulas in current law and using a projection period sufficient to illustrate 

the long-term sustainability of the social insurance programs. 30 

These significant uncertainties include the following: 

Medicare projections in the 2012, 2011, and 2010 Statements of 

Social Insurance were based on benefit formulas in current law and 

included a significant decrease in projected Medicare costs from the 

2009 Statement of Social Insurance related to (1) reductions in 

Medicare payment rates for physician services (totaling almost 31 

percent in January 2013, as estimated in the 2012 Medicare Trustees 

$27.2 trillion, or 70.5 percent, of the federal government's reported total present 

value of future expenditures in excess of future revenue presented in the 2012 Statement 

of Social Insurance relates to Medicare programs reported in the Department of Health 

and Human Services' 2012 Statement of Social Insurance, which received a disclaimer of 

opinion 

3Grhe projection period used for the SOCia! Security, Medicare, and Railroad Retirement 

social insurance programs is 75 years, For the Black Lung program, the projections are 

through September 30. 2040. 

Page 13 GAO·13·752T 
22 


Insert offset folio 16 here 82273.016

Report)" and (2) productivity improvements for most other categories 

of Medicare providers, based on full implementation of the provisions 

of the Patient Protection and Affordable Care Act, as amended 

(PPACA),32 However, there are significant uncertainties concerning 

the achievement of these projected decreases in Medicare costs, 

As discussed in note 26 in the Financial Report, actual future costs for 

Medicare are likely to exceed those shown by the current-law 

projections presented in the 2012, 2011, and 2010 Statements of 

Social Insurance due, for example, to the likelihood of modifications to 

the scheduled reductions in Medicare payment rates for physician 

services,33 The extent to which actual future costs exceed the 

projected current-law amounts due to changes to the scheduled 

reductions in Medicare payment rates for physician services and 

productivity adjustments depends on both the specific changes that 

might be legislated and whether such legislation would include further 

provisions to help offset such costs, 

The Financial Report includes an illustrative alternative projection that 

is intended to provide additional context regarding the long-term 

sustainability of the Medicare program and to illustrate the 

uncertainties in the Statement of Social Insurance projections, The 

present value of future estimated expenditures in excess of future 

estimated revenue for Medicare, included in the illustrative alternative 

projection, exceeds the $27,2 trillion estimate in the 2012 Statement 

of Social Insurance by $10,1 trillion, 

Projections of Medicare costs are sensitive to assumptions about future 

decisions by policymakers and about the behavioral responses of 

consumers, employers, and health care providers as policy, incentives, 

the 2013 Medicare Trustees Report was Issued on May 31, 

2013, 

32PPACA, Pub, L No 111-148, 124 Stat 119 (Mar, 23, 2010), as amended by the Health 

Care and Education Reconciliation Act of 2010, Pub. L No. 111-152, 124 Stat 1029 

(Mar. 30, 2010) 

33Statutes have been enacted with provisions that prevented scheduled reductions in 

Medicare payment rates for physician services from taking effect from 2003 through 2013, 

including the most recent provision enacted in the American Taxpayer ReHef Act of 2012 

(ATRA), Pub, L No, 112-240, § 601, 126 Stat 2313, 2345 (Jan, 2, 2013), Some 01 these 

statutes also included provisions that reduced the federal government's spending on other 

categories of health care, which had the effect of helping to offset the increased costs 

related to the physician payment updates. 

Page 14 GAO·13·7S2T 
23 


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Long-Term Fiscal 

Challenges 

and the health care sector change over time. Such secondary impacts are 

not fully reflected in the Statement of Social Insurance projections but 

could be expected to influence the excess cost growth rate used in the 

projections. 34 Key drivers of uncertainty about the excess cost growth rate 

include the future development and deployment of medical technology, 

the evolution of personal income, and the cost and availability of 

insurance, as well as federal policy changes, such as the implementation 

of PPACA. Both the Statement of Social Insurance projections and the 

illustrative alternative estimate summarized in Note 26 in the Financial 

Report indicate that the Social Security and Medicare programs are not 

sustainable under current financing arrangements. 

The 2012 Financial Report includes comprehensive fiscal prOjections for 

the U.S. government that, consistent with GAO simulations, show that 

without changes in current policy, the federal government continues to 

face an unsustainable long-term fiscal path.35 Such reporting provides a 

much needed perspective on the federal government's long-term fiscal 

position and outlook. The projections included in the Financial Report and 

our simulations both continue to highlight the need to focus attention not 

only on the federal government's near-term budget outlook but also on its 

longer-term fiscal path. In the near term, deficits are expected to continue 

to decline from the recent historic highs as the economy recovers and 

actions taken by Congress and the President begin to take effect. Debt 

held by the public as a share of gross domestic product (GOP), however, 

remains well above historical averages. Debt held by the public at these 

high levels could limit the federal government's flexibility to address 

emerging issues and unforeseen challenges such as another economic 

downturn or large-scale natural disaster. 

34The excess cost growth rate is the increase in health care spending per person relative 

to the growth of gross domestic product per person after removing the effects of 

demographic changes on health care spending. 

35GAO, The Federal Government's Long-Term Fiscal Outlook, Spnng 2013 Update, 

GAO-13-481 SP (Washington, D.C.: Apr. 11, 2013), and The Federal Government's LongTerm Fiscal Out/ook: FBI/2012 Update, GAO-13-148SP (Washington, D.C .. Dec. 3,2012) 

The key difference between these two is that the Spring 2013 update reflects the 

enactment of ATRA, which among other changes, modified the 2013 and 2014 

discretionary spending limits, permanently extended many of the tax provisions that were 

previously set to expire under current law and limited the reach of the Alternative Minimum 

Tax. The overall effects of ATRA on the longer~term outlook under GAO's alternative 

simulation are relatively small 

Page 15 GAO·13~752T 
24 


Insert offset folio 18 here 82273.018

The Executive Branch 

Needs to More Fully 

Implement the GPRA 

Modernization Act to 

Address Pressing 

Governance 

Challenges 

Both the projections in the Financial Report and our long-term simulations 

reflect enactment of the Budget Control Act of 2011 (BCA).36 BCA set 

limits on discretionary spending for fiscal years 2012 through 2021. Under 

the enacted discretionary spending limits, discretionary spending as a 

share of the economy in 2021 would be lower than any level seen in the 

last 50 years. Even with the reductions from BCA, the government 

continues to face a significant structural imbalance between revenues 

and spending, driven on the spending side largely by the aging of the 

population and rising health care costs. Changing this path will not be 

easy, and it will likely require difficult decisions affecting both federal 

spending and revenue. Significant action to change the long-term path 

must be taken soon to minimize the risk that eventual policy changes will 

be disruptive to individuals and the economy, while also taking into 

account concerns about near-term economic growth. 

As we reported in June 2013, the executive branch has taken a number 

of steps to implement key provisions of the GPRA Modernization Act of 

2010 (the act). OMB has developed interim cross-agency priority goals, 

and agencies developed agency-specific priority goals. l? Agency officials 

reported that their agencies have assigned performance management 

leadership roles and responsibilities to officials, such as performance 

improvement officers, who generally participate in performance 

management activities, including data-driven quarterly performance 

reviews. Further, OMB developed Performance.gov, a government-wide 

website, which provides quarterly updates on the cross-agency priority 

goals and agency priority goals. The Performance Improvement Council, 

which consists of agency performance improvement officers, has also 

taken steps to facilitate the exchange of useful practices and tips and 

tools to strengthen agency performance management. Nevertheless, our 

work has shown that the executive branch needs to do more to fully 

implement and leverage the act's provisions to address governance 

challenges. 

Budget Control Act of 2011, Pub. L. No. 112-25, § 302, 125 Stat 240, 256-59 

2011), classified, as amended, in 2 U.S.C. § 901a 

l? GAO-13-51B. 

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25 


Insert offset folio 19 here 82273.019

OMB and Agencies Have 

Made Some Progress 

Addressing Crosscutting 

Issues but Are Missing 

Additional Opportunities 

Many of the meaningful results that the federal government seeks to 

achieve, such as those related to protecting food and agriculture and 

providing homeland security, require the coordinated efforts of more than 

one federal agency, level of government, or sector. For almost two 

decades we have reported on agencies' missed opportunities for 

improved collaboration through the effective implementation of GPRA. 

Under the act, OMB and agencies have identified many programs and 

activities that contribute to goals, as required, but our recent work 

continues to show that they are missing additional opportunities to 

address crosscutting issues. While agencies have implemented some of 

the act's provisions, their efforts have not included all of the relevant 

agency, program, and other contributors. For example, few have 

identified tax expenditures, which represent about $1 trillion in foregone 

revenue in fiscal year 2012, due to a lack of OMB guidance and 

oversight. Therefore, the contributions made by tax expenditures toward 

broader federal outcomes are unknown. In June 2013, we recommended 

that OMB take several actions to ensure that the contributions of tax 

expenditures to crosscutting and agency goals are identified and 

assessed. 38 OMB staff agreed with these recommendations. 

In addition, agencies are not consistently including all relevant 

stakeholders as they implement key provisions of the act in the following 

areas: 

Cross-agency priority goals: In May 2012, we identified additional 

agencies that should be named as contributors for 10 of the 14 interim 

cross-agency priority goals. 39 

Agency priority goals: In April 2013, we found that agencies 

identified contributors within the agency for each agency priority goal, 

but did not identify external contributors for 29 of the 102 agency 

priority goals we reviewed. In some cases, the goals seem to be 

internally focused, but in other cases, our work has shown that there 

are external contributors that were not listed." 

39GAO, Managing for Results: GAO's Work Related to the Interim Crosscutting Pn'ority 

Goals under the GPRA Modernization Act, GAO-12-620R (Washington, D.C.: May 31, 

2012) 

4oGAO, Managing for Results: Agencies Should More Fully Develop Priodty Goals under 

the GPRA Modernization Act, GAO-13-174 (Washington, D.C .. Apr 19,2013) 

Page 17 GAO-13-7S2T 
26 


Insert offset folio 20 here 82273.020

Ensuring Performance 

Information Is Useful and 

Used by Managers to 

Improve Results Remains a 

Weakness, but Key 

Performance Management 

Practices Hold Promise 

Quarterly performance reviews: In February 2013, we reported that 

while we found that quarterly performance reviews have shown 

promise in improving internal agency coordination and collaboration, 

few agency performance improvement officers reported that they were 

using the reviews to coordinate or collaborate with other agencies that 

have similar goals41 

We made recommendations to the Director of OMB to address each of 

these areas. OMB staff agreed with these recommendations. 

As we reported in June 2013, we found little improvement in federal 

managers' reported use of performance information or practices that 

could help promote its use, based on our periodic government-wide 

surveys offederal managers since 1997. In particular, as figure 1 

illustrates, the results from our 2013 managers survey show almost no 

statistically significant changes in managers' perceptions of their leaders' 

and supervisors' attention and commitment to use of performance 

information since our last survey in 2007 -with the exception of a decline 

in the percentage of managers who agreed to a great or very great extent 

that their agencies' top leadership demonstrates a strong commitment to 

achieving results. 

41GAO, Managing for Results: Data-Driven Performance Reviews Show Promise But 

Agencies Should Explore How to Involve Other Relevant Agencies, GAO-13-228 

(Washington, D.C.: Feb. 27, 2013) 

Page 18 GAO·13·752T 
27 


Insert offset folio 21 here 82273.021

Figure 1: Less Than Two-Thirds of Federal Managers Agreed in 2013 to a "Great" or 

"Very Great" Extent with Statements about Leadership and Supervisor Commitment 

and Attention to Performance Information 

My agency's top leadership 

demonstrates a strong 

commitment to achii:lVing 

resultsa 

My agency's top leadership 

demonstr(Jtes a strong 

commitment to using 

performance information to 

guJde decision makingb 

The individual I report to pays 

attention to performance 

information in decision makingb 

The individual I report to 

periodically reviews with me the 

results or outcomes of my 

program($)C 

H • • • • • n _ • m 

Percentage 

1997 

2007 

2013 

Notes: Percentage estimates for 2013 and 2007 have 95 percent confidence intervals within +/- 4 

percentage pOints of the estimate, and percentage estimates for 1997 have confidence intervals 

within +/- 6.1 percentage points of the estimate. 

Some survey items were abbreviated. For the full text, see items 10g, 10h, 11a, and 12c in 

GAO-13-519SP. 

aStatistica!ly Significant decrease between 2007 and 2013. 

bSurvey item was introduced in 2007 

"Statistically significant increase between 1997 and 2013. 

Importantly, agencies' quarterly performance reviews show promise as a 

leadership strategy for improving the use of performance information in 

agencies. According to our 2012 survey of performance improvement 

officers at 24 agencies, the majority (21 out of 24 agencies required to 

Page 19 
28 


Insert offset folio 22 here 82273.022

conduct these reviews) reported that actionable opportunities for 

performance improvement are identified through the reviews at least half 

the time. 42 In addition, most officials we interviewed at the Department of 

Energy, the Department of the Treasury, and the Small Business 

Administration attributed improvements in performance and decision 

making to their performance reviews. 

Building the capacity to use performance information is also critical to 

helping ensure that information is used in a meaningful fashion, and 

inadequate staff expertise, among other factors, can hinder agencies' 

use. Only about a third (36 percent) of federal managers reported in our 

2013 survey that they agreed to a great or very great extent that their 

agencies have sufficient analytical tools for managers at their levels to 

collect, analyze, and use performance information. The act lays out 

specific requirements for the Office of Personnel Management (OPM) to 

identify skills and competencies for performance management functions, 

among other actions. OPM has identified competencies and relevant 

position classifications and taken steps to work with agencies to 

incorporate the key competencies into agency training. However, we 

reported in April 2013 that these efforts have been broad-based and not 

informed by specific assessments of agency training needs.43 We 

recommended that the Director of OPM work with the Performance 

Improvement Council to identify competency gaps for agency 

performance management staff and use this information to identify and 

share relevant agency training. OPM agreed with these 

recommendations. 

Our 2013 government-wide survey found that most managers also lack 

recent program evaluation studies-a particular form of performance 

information-that can identify ways to improve program efficiency and 

effectiveness. 44 Only 37 percent of managers reported that an evaluation 

had been completed in the past 5 years of any program or operation they 

GAO-13-228. 

43GAO-13-356. 

44GAO, Program Evaluation: Strategies to FaciHtate Agencies' Use of Evaluation in 

Program Management and Policy Making. GAO-13-570 (Washington, D.c.. June 26, 

2013). Program evaluations are systematic studies that use research methods to assess 

the achievement of a program's objectives in context, to explore the reasons for observed 

results and isolate program effects from other influences, 

Page 20 
29 


Insert offset folio 23 here 82273.023

Agencies Have Taken 

Steps to Align Daily 

Operations with Agency 

Results but Continue to 

Face Difficulties 

Measuring Performance 

were involved in. Yet, 81 percent of the managers who had evaluations 

reported that evaluations contributed to a moderate or greater extent to 

implementing changes to improve program management or performance. 

As you know, we have issued three reports outlining numerous areas of 

potential fragmentation, overlap and duplication in federal programs. 45 

Comprehensive program evaluations that examine the coverage and 

effectiveness of a cluster of federal programs and policies aimed at 

achieving similar outcomes could be key in coordinating and streamlining 

programs so as to reduce duplication and overlap. In case study 

interviews, agency evaluators emphasized three basic strategies to 

facilitate evaluation influence on program management and policy 

making: (1) demonstrate leadership support by promoting the use of 

evidence and funding evaluation offices to promote and support the use 

of evidence; (2) build a strong body of evidence by attending to rigor in 

whatever methods are used; and (3) engage stakeholders throughout the 

evaluation process,aining their input to planning; providing assistance, 

training, and incentives; and disseminating usable messages. 

Agencies have established performance management systems to align 

individual performance with agency results. However, agencies continue 

to face long-standing issues with measuring performance, such as 

obtaining complete, timely, and accurate performance information, across 

various programs and activities. Given the Performance Improvement 

Council's responsibilities for addressing crosscutting performance issues 

and sharing performance improvement practices, our June 2013 report 

noted that it could do more to examine and address the difficulties 

agencies face to measuring performance across various program types, 

45GAO, 2013 Annual Report: Actions Needed to Reduce Fragmentation, Overlap, and 

Duplication and Achieve Other Financial Benefits, GAOw13~279SP (Washington, D.C.' 

Apr. 9, 2013); 2012 Annual Report Opportunities to Reduce Duplication, Overlap and 

Fragmentation, Achieve Savings, and Enhance Revenue, GAO-12-342SP (Washington 

D,C.: Feb, 28, 2012); and Opportunities to Reduce Potential Duplication in Government 

Programs, Save rax Dollars, and Enhance Revenue, GAO·11·318SP (Washington, D.C: 

Mar. 1, 2011) 

Page 21 GAO·13·752T 
30 


Insert offset folio 24 here 82273.024

Communication of 

Performance Information 

Could Better Meet Users' 

Needs 

Agency Performance 

Information Is Not Always 

Useful for Congressional 

Decision Making 

such as grants and contracts. 46.47 We recommended that OMS work with 

the Performance Improvement Council to develop a detailed approach for 

addressing these long-standing performance measurement issues. OMS 

staff agreed with this recommendation. 

Federal managers and potential users of Performance.gov reported 

concerns about the accessibility, availability, understandability, and 

relevance of performance inforrnation to the public. Potential users 

include Members and committees of Congress and the public. In our June 

2013 report reviewing Performance.gov, we noted that the website has 

the potential to increase the accessibility of performance information for 

users both inside and outside the federal government. 48 However, further 

outreach to key stakeholders could help improve how this information is 

communicated. We recommended in June 2013 that OMS work with the 

Performance Improvement Council and the General Services 

Administration, which are involved in the development of the website, to 

(1) clarify the specific ways that intended audiences could use the 

information on Performance.gov and (2) systematically collect information 

on the needs of intended audiences and collect recommended 

performance metrics that help identify improvements to the website. OMS 

staff agreed with these recommendations. 

Our work has found that the performance information that agencies 

provided to the Congress was not always useful for congressional 

decision making because the information was not clear, directly relevant, 

or sufficiently detailed. Consultations with Congress are intended, in part, 

to ensure that performance information is useful for congressional 

decision making. OMS and agencies are to consult with relevant 

committees, including this committee, about proposed goals at least once 

every 2 years. Specifically, OMS is to consult about the cross-agency 

47We also recommended in April 2013 that the Director of OMS work with the 

Performance Improvement Council to gather regular feedback from its members on its 

perfonnance and update its strategic plan, as appropriate. OMB staff agreed with these 

recommendations; see GAO~13~356, 

48GAO, Managing for Results: Leading Practices Should Guide the Continued 

Development 01 Performance.gov, GAO-13-517 (Washington, D.C.: June 6, 2013). 

Page 22 
31 


Insert offset folio 25 here 82273.025

Closing Comments 

priority goals and describe on Performance.gov how congressional input 

was incorporated into these goals. Similarly, agencies are to consult 

about their strategic plans, including agency priority goals, and describe 

in these plans or on Performance.gov, respectively, how that input was 

incorporated. However, in April 2013 we found little evidence that 

meaningful consultations occurred related to agency strategic plans and 

agency priority goals. 49 We recommended that the Director of OMS 

ensure that agencies provide a description of how input from 

congressional consultations was incorporated into each priority goal. 

OMS staff concurred with our recommendation, 

In February 2014, OMS and agencies will publish a new set of crossagency priority goals, agency priority goals, and updated agency strategiC 

plans. According to OMS guidance, agency consultations with Congress, 

including this committee, on updated strategic plans and agency priority 

goals should take place this summer. Similarly, OMS has stated plans to 

consult with this committee and other committees with broad jurisdiction 

on the next set of cross-agency priority goals prior to their publication, At 

the request of Congress, we developed a guide in June 2012 to assist 

Members of Congress and their staffs in ensuring that the consultations 

required under the act are useful for asseSSing agency performance. 90 

The guide outlines general approaches for successful consultations and 

key questions that Members of Congress and congressional staffs can 

ask as part of the consullation process. 

In closing, while progress has been made, much work remains given the 

federal government's long-term fiscal, financial management, and 

performance management challenges, Congress, the administration, and 

federal managers need to have more reliable, useful, and timely financial 

and performance information to effectively meet these challenges, 10 

make sound decisions, and to operate as effiCiently and effectively as 

possible. Agencies must continue to strive toward routinely producing 

such information to help guide decision makers on a day-ta-day basis, 

Federal entities' improvement of financial management systems will be 

50GAO, Managing for Results: A Guide for Using the GPRA Modernization Act to Help 

Inform Congressional Decision Making, GAOw12-621SP (Washington, D.C,: June 15, 

2012). 

Page 23 GAO~13-752T 
32 


Insert offset folio 26 here 82273.026

GAO Contacts 

essential to achieve this goal for their agency and the government as a 

whole. 

Meaningful improvement in financial and performance management will 

not occur without sustained commitment by executive branch leaders and 

managers and continued oversight by Congress. The single most 

important element of successful financial and performance management 

improvement efforts is the demonstrated commitment of top leaders. This 

commitment is most prominently shown through the personal involvement 

of leaders, especially with agency data-driven perfomnance reviews. 

Demonstrating leadership support for accountability and improvement by 

promoting capacity building and the use of evidence is also essential in 

helping facilitate program evaluation use in agency program management 

and policy making. Similarly, Congress can playa decisive role in 

fostering results-oriented cultures in the federal government by using 

information on agency goals and asking for and using financial and 

performance information as it carries out its various responsibilities. 

Chairman 15sa, Ranking Member Cummings, and Members of the 

Committee, this concludes my prepared statement. I would be pleased to 

respond to any questions that you may have at this time. 

For further information regarding this testimony, please contact Robert F. 

Dacey, Chief Accountant, at (202) 512-3406 or daceyr@gao.gov; Gary T. 

Engel, Director, Financial Management and Assurance, at (202) 512-

3406 or engelg@gao.gov; or J. Christopher Mihm, Managing Director, 

Strategic Issues. at (202) 512-6806 or mihmj@gao.gov. Contact points for 

our Offices of Congressional Relations and Public Affairs may be found 

on the last page of this statement. 

Page 24 GAO·13-752T 
33 


Insert offset folio 27 here 82273.027

Appendix I: Chief Financial Officers (CFO) 

Act Agencies: Fiscal Year 2012 Audit Results 

and Principal Auditors 

Agency auditor~reported 

Opinion expressed material weaknesses or 

CFO Act agencies by agency auditor noncompliancea Principal auditor 

Agency for International Development , Office of Inspector Genera! (DIG) 

Agriculture Unqualified OIG 

Commerce Unqualified KPMG LLP 

Defense Disclaimer OIG ------------------------------

Education 

Energy 

Environmental Protection Agency 

General Services Administration 

Health and Human Services 

Homeland Security 

Housing and Urban Development 

Intenor 

Justice 

Labor 

National Aeronautics and Space 

AdminIstration 

National SCience Foundation 

Nuclear Regulatory Commission 

Office of Personnel Management 

Small Business Administration 

Social Security Administration 

State 

Transportation 

Treasury 

Veterans AffaIrs 

(198729) 

Unqualified Ernst & Young LLP 

Unqualified KPMG LLP 

Unqualified OIG 

Unqualified KPMG LLP 

Ernst & Young LLP 

KPMG LLP 

Unqualified OIG 

Unqualified KPMG LLP 

Unqualified KPMG LLP 

Unqualified KPMG LLP 

Unqualified PricewaterhouseCoopers LLP 

Unqualified CliftonLarsonAllen LlP 

Unqualified CliftonLarsonAlien LLP 

Unqualified KPMG LLP 

Unqualified KPMG LLP 

Unqualified Grant Thornton llP 

Unqualified Kearney & Company 

Unqualified KPMG LLP 

Unqualified ~ KPMG LLP 

Unqualified -I CliftonLarsonAUen LLP 

"Reported noncompliance with applicable laws and regulations and/or substantial noncompliance with 

one or more of the Federal Financial Management Improvement Act requirements 

~he auditors of the U.S. Agency for International Development's {AID) fiscal year 2012 financial 

statements issued a qualified opinion because of the effects of a number of unsupported adjustments 

on AID's financial statements. 

'1"he auditors expressed an unqualified opinion on the Department of Health and Human Services' 

fiscal year 2012 accrual·based financial statements, but were unable to express opinions on the 

department's 2012 Statement of Social Insurance and 2012 Statement of Changes in Socia! 

Insurance Amounts. 

~he auditors of the Department of Homeland Security's (DHS) fiscal year 2012 financial statements 

issued a qualified opinion because of DHS's inability to provide sufficient evidence to support certain 

components of property, plant, and equipment and heritage and stewardship assets presented in the 

financia! statements and notes. 

Page 25 GAO·13-752T 
34 


Insert offset folio 28 here 82273.028

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35 

Chairman ISSA. Thank you. 

I will recognize myself for a series of questions. In your prepared 

statement, one of the things, and in the briefing that we received 

before this hearing, one of the things that you note is that when 

government does business with government, Federal Government 

agency to agency, something that we want to encourage in a number of ways. 

They actually do a very poor job of tracking that. This committee 

has passed previously the Data Act. It died in the Senate. Our belief is that it died in the Senate mostly because it pushed back on 

recipient reporting, that recipients of grants didn’t really want to 

be held accountable. But those were, and maybe that is not completely unfair, they complained it was burdensome. But clearly, 

that was one of the areas that we have continued to work on to 

try to make it more acceptable. 

But had the Data Act been passed with government systems 

being required to have meaningful meta data, so that in fact there 

is a transparency, would that have improved this government to 

government accounting? 

Mr. DODARO. Having data standards that are included in the 

Data Act and regular reporting would have been very beneficial to 

addressing these issues. That information then can be, and should 

be, tied to the financial systems and the agencies and having more 

rigor in place. I am very supportive of the Data Act that has been 

put forward. I commend the committee for its role in that area. I 

think without legislation, it won’t happen. And I think that is very 

important, and would be helpful in addressing these issues. 

Chairman ISSA. I might note for the record that a previous OMB 

director now in a new job is beginning to see the benefit of that 

information differently than when it was his task to do it without 

legislation. 

You mentioned the deficiencies in the government-wide website. 

Is part of that deficiency, in fact, that without meaningful structured data you are really not producing rich data in an automated 

way, but rather posting to the website as though it was an advertisement? I am not trying to belittle it, but isn’t that a certain 

amount of what that website is, is manually grabbed information 

posted to try to make people aware of what is going on? 

Mr. DODARO. The website, if you look at it, there is a lot of information on it, but it is hard to find exactly what you need. And it 

is not as searchable, for example, as the recovery.gov website. I 

think more effort needs to be put into making sure people understand how the public, Congress and other people want to use the 

information. It is not very user-friendly. 

Chairman ISSA. Let me ask you a question, and you may have 

to go to one of your assistants. When we are looking at the 21st 

century, the word website versus data mineable data base available 

to the public, isn’t there a huge difference in which a website is 

fine for a novice to go search and hopefully find the form they need 

or the information they need? Well, if we were to mandate truly 

data mineable bases, then companies and innovators who want to 

create these Apple apps and so on could in fact mine that data, 

that public data, and make it available in very easy format at no 

cost to the government? 

36 

Mr. DODARO. Exactly. I think there is great opportunity to make 

government data available to enhance the ability of people, researchers, companies and others, the public, to use that information. But the one thing we pointed out, whether we are looking at 

usaspending.gov, the Data Act or data.gov, performance.gov, is the 

quality of the information and the reliability and accuracy of the 

data. That I think is paramount. That always isn’t really assured, 

Mr. Chairman. I think that is a real limitation. 

We can make a lot of data available. But if it is not reliable and 

it is not accurate, it is not as helpful as possible. 

Chairman ISSA. We are trying to look for examples that do work. 

Would one of those examples perhaps be where the FAA opened up 

the core data of where aircraft are within the system, so that people could track their incoming flight with apps that were made 

available after the fact? That is my understanding, is both weather 

and FAA are examples of data that has become available for independent development. 

Mr. DODARO. I would have to get back to you. 

Chairman ISSA. I would appreciate if you would do that for the 

record. I would like to the greatest extent possible for the public 

to understand, and we will create a link to some of those examples, 

if we can work with your staff. 

Now, you mentioned food safety. This is the committee of oversight, but it is also the committee of reform. Some years ago, the 

President noted that food was controlled by multiple agencies in 

rather obtuse ways. If I remember right, his examples were, where 

salmon were swimming affected where they were under their control. And then of course, that was live. Then when you get into various foods and food groups, you could be at the FDA, Department 

of Agriculture, a number of others. 

Should this committee consider consolidated food safety a reorganizational plan that would make food a single point of accountability, whether or not it leveraged existing agencies, so that the 

American people could see food safety as a single point of accountability? 

Mr. DODARO. Yes. 

Chairman ISSA. Thank you. 

I love a great witness. For all of you here today, that is an example of a really great witness. 

[Laughter.] 

Chairman ISSA. My time is expiring. I mentioned in my opening 

statement the challenge of data accountability under the Affordable 

Care Act. I know that that is not the primary concern of this hearing. But for the GAO, is this not by definition next year’s high risk, 

the fact that in 70 days, we theoretically will implement the Affordable Care Act, and at that point, this IRS data and a confluence 

of other information to exchanges not even yet up and running, and 

in some cases not defined, will become law? 

Mr. DODARO. That is an area we are definitely going to focus on. 

I have been concerned. In fact, we have computer security as a government-wide high risk area. And we have focused on that for a 

time. We have looked at the exchanges. Some of them are going to 

have difficulties making sure they are established on time, which 

37 

leads you to believe they may be taking shortcuts to be able to get 

up and running on time. 

So I think it definitely has all the characteristics of a potential 

high risk situation. 

Chairman ISSA. Thank you. My time is expired. I recognize the 

ranking member. 

Mr. CUMMINGS. Thank you very much. 

I just want to follow up on what the chairman was just asking 

Mr. Dodaro. Tell me what form, tell me how that has come about 

that you are looking at the Affordable Care Act. Tell me what form 

that is taking. Do you follow me? I just want to know how that 

course of action started and what you are looking at. 

Mr. DODARO. Right. We have been asked to look at a number of 

areas on implementation of the Affordable Care Act. For example, 

we were asked by the Congress to look at the status of exchanges 

that were set up either by the States who were going to run the 

exchanges, or the Federal Government’s actions to set up exchanges for that, both for the general public, also for small businesses as well. We have issued a series of reports on those areas. 

We have looked at some of the initial implementation issues at 

the IRS, and I would ask Mr. Mihm to come up and explain a little 

bit about what we are doing there. But we are going to be doing 

a little bit more work on this in the future. 

Mr. CUMMINGS. Mr. Mihm, would you tell us what kind of guidance, if any, you are giving to any agencies with regard to the Affordable Care Act? 

Mr. MIHM. Yes, sir. The primary areas that we have been focused 

on in regards to IRS has been the extent to which they have been 

using a disciplined approach to risk management in understanding 

the risks that they face in order to implement their responsibilities 

under the Affordable Care Act, whether or not they have identified 

those risks, have risk mitigation plans in place, the right set of 

leadership structure on that. We made a series of recommendations 

to them about how they needed to strengthen that, and in particular how they needed to work better with HHS. 

Now, this was a year and a half, two years ago. We need to follow up on that work again and go back and make sure that the 

recommendations that we had have been effectively implemented. 

But the last time that we looked, which would be about six months 

ago that they were making progress in those areas of understanding at least how they needed to manage risk in that regard. 

Mr. CUMMINGS. And so when do you all plan to follow up to see 

whether they have been implementing those things? In other 

words, the status of your suggestions or recommendations? 

Mr. MIHM. We have routine requirements in GAO that we have 

to follow up periodically on them. Obviously, given the interest of 

this committee we will make sure that it is the very highest priority. 

Mr. CUMMINGS. Very well. 

Mr. DODARO. We have had, Mr. Chairman, if I might elaborate 

a little bit further, we had a number of mandates in the actual Patient Protection and Affordable Care Act for us to do certain work. 

I would be happy to provide a complete listing to this committee 

38 

of the work that we have done so far, and what our plans are going 

forward. 

Mr. CUMMINGS. I would appreciate that. 

Now, Mr. Dodaro, as your report notes, the Defense Department 

is responsible for more than half of the government’s discretionary 

spending, but it has never been able to produce a reliable financial 

statement. Twenty years ago, in 1993, GAO issued a report with 

the following conclusion: ‘‘In our opinion, efforts to address deficiencies and improve financial management have been slow with 

DOD.’’ 

Four years later, in 1997, GAO issued a similar report that said 

this: ‘‘Longstanding serious weaknesses in the Department’s financial operations continue not only to severely limit the reliability of 

DOD’s financial information, but also have resulted in wasted resources and undermined the Department’s ability to carry out its 

stewardship and responsibilities.’’ 

Another four years later, in 2001, GAO examined DOD’s plan for 

reliable financial statements and said this: ‘‘This plan presents the 

military services and DOD’s components stovepiped approaches to 

information and financial management and does not clearly articulate how these various efforts will collectively result in an integrated DOD-wide financial management system.’’ 

Yet another four years later, in 2005, GAO said this: ‘‘To date, 

tangible evidence of improvement has been seen in a few specific 

areas. DOD is still in the very early stages of a department-wide 

reform that will take years to accomplish.’’ 

You see the pattern. 

Mr. DODARO. I have seen it first-hand. 

Mr. CUMMINGS. Yes. Here we are in 2013, and you are still telling us again the DOD still cannot get a clean audit. Why is that? 

I kind of think the American people would be shocked that we can’t 

get that done. What seems to be the problem? Is it a matter of will? 

Is it too big to account for? What is it? 

Mr. DODARO. There are several different factors that we have observed. We have had it on our high risk list since 1995, DOD financial management. 

Mr. CUMMINGS. So it is getting ready to reach its 20th anniversary. 

Mr. DODARO. Yes. There are a couple of issues. One, they operated for many years, and decades, without a requirement to 

produce audited financial statements. The first requirement that 

was ever in effect was for fiscal year 1996, across the Federal Government. So they operated many years, so their systems were developed and still are in existence that aren’t able to communicate 

with one another, they don’t have common data standards across 

the department, et cetera. So you have a huge enterprise that has 

operated without fiscal discipline for many, many years. 

Secondly, right after the Act was passed, I don’t think that their 

commitment was anywhere near as strong as it was today. I think 

the Congress has become increasingly concerned, and now has 

mandated that they be auditable by 2017, and their statement of 

budgetary resources by 2014. So Congress has gotten more involved, but it needs to stay more involved in these efforts. They finally have a good plan, they are focusing on budget data right now. 

39 

I think originally the department managers didn’t believe they 

needed audited financial data in order to carry out their responsibilities. So right now, they have focused on budget information, 

which everybody agrees they need and should have, and the existence and completeness of assets, which they need to carry out their 

mission. 

So I am hopeful this will produce the results. But they have very 

serious problems. And it is not going to happen overnight. It won’t 

happen without continued focus. 

Mr. CUMMINGS. To the chairman’s credit, and to the credit of this 

committee, we have constantly tried to concentrate on efficiency 

and effectiveness. I am just trying to figure out, how bad a problem 

is it? In other words, is it such a crucial issue that we may be losing billions of dollars and not even know it? 

Mr. DODARO. Yes. It is a very serious problem. I think it undermines not only accountability, but the ability to operate efficiently 

and effectively. There is reportedly about a third of the Federal 

Government’s assets that are at the Department of Defense. 

Mr. CUMMINGS. So if we were to accomplish anything that would 

be a part of our legacy of being in Congress, if we got that done, 

that would be major? 

Mr. DODARO. Exactly. I am trying to do my part to get it done 

before my tenure ends. I think it is one of the most important 

things that we could collectively do. 

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

Chairman ISSA. For the record, Gene, you have what, over eight 

years left? 

Mr. DODARO. I have twelve. Twelve and change. 

Chairman ISSA. It is not that optimistic. 

Mr. DODARO. I know. I know. But I am being realistic, given the 

track record. I said before, I didn’t say at the very end. 

[Laughter.] 

Chairman ISSA. Well before, we would like to hear. 

But for the record, the ranking member did repeatedly say that 

the Department of Defense is the largest discretionary. But actually, isn’t it true, it is the third largest spender compared to Health 

and Human Services and Social Security? If you compare Medicare 

and Medicaid, obviously that is larger. 

And the question I want to make sure gets on the record, didn’t 

Health and Human Services and Social Security, to a certain extent, get qualified or unqualified audits, even though they had 

some major gaps? 

Mr. DODARO. They received an unqualified audit on their financial statements. There is a separate financial statement for social 

insurance. 

Chairman ISSA. And they flunked big time? 

Mr. DODARO. That we did not give an opinion on. 

Chairman ISSA. Great. 

Mr. DODARO. The uncertainty of achieving the cost estimates 

that are expected in the Affordable Care Act, the trustees pointed 

out the uncertainties, CMS actuary pointed it out, the auditors for 

HHS pointed it out. So it wasn’t just us. And there are a lot of uncertainties there. 

40 

Chairman ISSA. Thank you. And I thank the ranking member. It 

is one of those areas in which we know we have to work on DOD, 

we also know we have to work on the entitlement oversight. 

Mr. Mica? 

Mr. MICA. Thank you. Welcome back, Mr. Comptroller. 

Your report indicates that only a little over a third of the Federal 

managers have actually conducted performance evaluation of their 

programs. I think 37 percent, is that correct? 

Mr. DODARO. That is correct. And that was in any one of their 

programs over a five-year period. 

Mr. MICA. Well, from my perspective, having been here a while, 

you see these agencies, government in general, spinning out of control, not getting a decent evaluation of their performance or even 

their agency being auditable. We really can’t perform an audit of 

the Federal Government or most of its agencies, isn’t that also correct? 

Mr. DODARO. Most of the agencies can now get an unqualified 

opinion. But the big ones, DOD and DHS, cannot. 

Mr. MICA. The worst, you say, is DOD, one of the worst. I think 

the chairman referred to others that have spun out of control. The 

problem you have, though, is you don’t get these agencies to respond. I have passed specific provisions, I know some at least three 

times since 2002, to get certain things done, and perform. And the 

agencies ignore law. 

Now, we do have you, we have inspector generals, and OMB. It 

appears to me that we have to tie performance into some penalty 

or some reward. I am wondering if we should give OMB or someone, Congress obviously can’t do it or doesn’t do it. We are hit and 

miss. We get our appropriations done, this committee actually is 

the one who is evaluating some of that performance, because we 

are conducting continual oversight. But you have those that authorize programs, and then fund them. 

So I am wondering if OMB might be the agency, or if you had 

any suggestions as to who you could get to wield a hammer and 

I guess withholding funds. They don’t seem to, we call them in and 

they ignore you, you just don’t get the attention. 

It is surprising, too, with the military, usually the military works 

on commands, and they are usually one of the most responsive. But 

again, we are not getting their attention. Any ideas on having 

OMB being able to withhold funds or some penalty? 

Mr. DODARO. I think OMB would be a good place to start, along 

with the Congress, particularly the appropriation committees. 

What I think is fundamentally broken is the incentive. Right 

now, if you want to stop a Federal program or you want to curtail 

it, the onus is on those that come up with evidence to do it. There 

is no evidence-based approach to this. In other words, a program 

should have to demonstrate their having a positive effect in order 

to get continued funding. 

Mr. MICA. Yes, that is sort of a self-evaluation, too. It is not an 

evaluation in comparison to how a task or responsibility could be 

accomplished by some other means, either the private sector or by 

some more efficient method. 

41 

It is my guess that we have probably done overpayments in the 

billions, multi-billion dollar area because of this. Would that be a 

correct assumption? 

Mr. DODARO. Yes, well, we point out the improper payments as 

the material weaknesses across the Federal Government. There are 

four agencies with ten programs that still aren’t performing. 

Mr. MICA. We are looking at a multi-billion dollar—— 

Mr. DODARO. Well, the latest estimate was $107.7 billion in improper payments for fiscal year 2012. That is not complete, not everybody has reported. So it is a huge problem. 

Mr. MICA. It is an astounding number. And again, we have no 

means of bringing these agencies under control. Again, we haul 

them in, we question them, we put caveats and report language 

into appropriations language. You modify authorization and still 

things don’t get done. 

So I think we have to look at some hammer and maybe giving 

OMB some ability to withhold funds. That does get people’s attention. They know they can mess around with Congress, because half 

the time we are doing CRs, and you get sort of a general, the last 

five or six years, you just get a general appropriation. They don’t 

pay much attention to us. But someone has to gain control of bureaucracy that has spun out of control. 

Mr. DODARO. One other suggestion I have, the Government Performance Results and Modernization Act of 2010 requires OMB 

now to list programs that aren’t effective. 

Mr. MICA. Listing is nice, but I think we need to give them some 

teeth to bite. 

Mr. DODARO. Well, I agree, but I think it is a platform for this 

committee to then hold hearings and have them determine why 

other programs, where we have some evidence of not being effective, aren’t on the list. But I agree with your fundamental issue. 

I am just saying there is another avenue. 

Mr. MICA. Thank you. 

Mr. LANKFORD. [Presiding] Thank you. Mr. Lynch? 

Mr. LYNCH. Thank you, Mr. Chairman. 

And to Mr. Dodaro, good to see you again. I certainly appreciate 

the work you are doing. We have had a chance to work together 

in the past, and I think you are doing the right thing at GAO. I 

appreciate the work of your staff as well. 

Unfortunately, in this committee sometimes, and in Congress 

generally, the degree of oversight that we conduct as a Congress 

is dependent on blameworthiness. In other words, we lurch from 

scandal to scandal and it is the same when the Republicans are in 

the majority versus the Democrats, we would both hear the same 

thing. We seize upon issues to conduct oversight based on our ability to embarrass the other side, or if there is a President of the 

other party in office, then the party that has control of this committee generally goes after issues that can put that Administration 

in a bad light. 

And so that leads me to a great concern on this issue. Because 

this has been so widely fumbled over Administrations for a long, 

long time, our ability to get this data correct and then make it 

transparent so that we can exercise meaningful government oversight is greatly, greatly inhibited. So I am worried, because there 

42 

is no blameworthiness here that we up here won’t focus on this at 

all, that we will have this hearing and we will go look for some 

other issues that will get us headlines where this work is really 

meaningful and it will, if we get it right, it will greatly help us on 

a lot of issues across the board. 

I am greatly disappointed, still, over our inability to get DOD to 

get their act together. It is a huge amount of our resources going 

to the Defense Department. And it boggles the mind that the NSA 

can tell me how many times Aunt Margaret calls Aunt Matilda, yet 

I can’t get a verifiable audit from the Defense Department on how 

much money they are spending. It just blows my mind. 

I actually think that sometimes the complexity and the pushback 

that we get from DOD is purposeful. They don’t want us to be able 

to track what they are spending. I know now in this age of sequestration that they are sort of changing their attitude a little bit and 

coming up with some new ideas. But I would just ask you to stay 

on that piece, because that is a black hole right now. We cannot 

figure out what they are spending. 

It is as important to them that we get that information as it is 

to the American people and to the taxpayer. Because if we assume 

that they are still getting barrels of money, we are going to cut. We 

are going to keep cutting and cutting and cutting, and we won’t 

know when we get to the bone with the Defense Department if we 

continue to operate in this way. We have a sense that they are 

spending a lot of money and we will just keep cutting. You see that 

on the votes of the House, more and more members are willing to 

cut the Defense Department, because there is this unverifiable 

sense that they have huge resources there. If we continue to cut 

away, I think at some point we do get to the bone. 

But what I want to ask you is about government oversight. We 

have a core responsibility here in Congress to make sure that we 

conduct meaningful oversight of executive operations in the bills 

that we pass on a regular basis. And during the sequestration, we 

are getting a lot of pushback, members on this committee trying to 

do oversight, whether it is drug interdiction coming out of Colombia, whether it is what is going on in Afghanistan, what is going 

on in Syria, Lebanon. Our ability to conduct oversight is being denied because of sequestration. I just want you to talk a little bit 

about the importance of Congress fulfilling their constitutional responsibility to conduct meaningful oversight. 

Mr. DODARO. I think rigorous oversight by the Congress is of 

paramount importance. If you look at the history of our high risk 

list, which we do for this committee and the Senate, most of the 

areas that have come off the high risk list have come off in large 

part because of continued Congressional oversight. And the preparations for the last Census, there were 12 hearings that were 

held. I can give you many other examples. 

But unless there’s top attention by top officials in the executive 

branch and rigorous Congressional oversight, these difficult problems will not get solved. We have ample evidence of that. I am convinced of it. But it can’t be just the one hearing once a year where 

they can just say, okay, we will go up there and sort of answer the 

questions one time. There has to be a sustained series of hearings 

with interim milestone of progress that would be assessed. 

43 

Because as you said, part of the problem with the Defense Department, they have always had long-term goals. We will get there 

in five years, ten years or whatever. Now the Congress has set 

some interim goals. And I think a series of hearings could be held 

on why they are not meeting the interim goals if they don’t meet 

them. And I think that lays the groundwork for more meaningful 

Congressional oversight. 

But unless that happens, I am not that optimistic. 

Mr. LYNCH. Thank you, Gene. Thank you, Mr. Chairman. I yield 

back. 

Mr. LANKFORD. Thank you. Mr. McHenry? 

Mr. MCHENRY. Actually, I want to follow up on what Mr. Lynch 

asked. It is a solid line of questioning. 

Now, there is a different emphasis today, we are talking more 

broadly on our side of the aisle on government spending and the 

other side of the aisle is about DOD. It is just more of an emphasis. 

But we all share the same concern. I think Mr. Lynch, when you 

talk about the wider bipartisan agreement now, but we have to 

look at Defense spending as well. We have to make sure every 

dime we spend there is appropriate and actually meeting the objective. 

Now, that for a long time has been driven by your side of the 

aisle being adverse to Defense spending and our side of the aisle 

embracing it. Now, the realities are setting in; we actually need to 

make sure that every penny, regardless of where it is in government, is very, very well spent and not just simply honoring our 

commitment to Defense. I certainly appreciate and concur with you 

on that. 

We also are on the Financial Services Committee. What we see 

there is with rule implementation, you don’t have harmonization 

between the CFTC and SEC, for instance. And I would like to 

thank GAO for the report they produced as a mandate within the 

JOBS Act on the utilization of Reg A, which is the smaller dollar 

offering, so that businesses can raise up to $5 million. 

This was well-utilized up until maybe a decade or two ago, where 

companies would raise up to $5 million, utilizing this option. And 

then what we found was, in 2011, you had one offering. And the 

SEC didn’t look at this and say, hey, maybe this is the problem. 

We need to make sure that businesses can get the capital they 

need. 

So the question I have for you is, do you see, and based on your 

experience, based on the work you put together, that Congressional 

oversight has led agencies to actually meet their goals? 

Mr. DODARO. Oh, definitely. Yes. There are many examples of 

doing that. And so I think that is critical, in order to do that, either 

through hearings, requirements and authorization bills and appropriations bills, et cetera. Congressional oversight can bring about 

many constructive changes and help agencies to achieve those goals 

by eliminating, in some cases, barriers, by creating legislative vehicles and by strategically making good investments where the agencies need to make those investments. Absolutely. 

Mr. MCHENRY. How can we enhance collaboration between agencies? 

44 

Mr. DODARO. That is an issue. Now, the Results Act of 2010 requires more consultation across the agencies. What one of our findings was in this recent report was that when the cost-cutting goals 

are now set, and there are 14 interim ones that are set by the Administration, all the agencies that should have been involved in 

those cross-cutting goals weren’t involved. So we identified some 

additional opportunities for collaboration. 

I think the Congressional challenge is where those cross-cutting 

goals cross multiple jurisdictions, I would recommend, and have 

recommended that there be more joint hearings between selected 

committees in the Congress, both within each chamber and perhaps even across chambers. Because otherwise, there won’t be a totality and a good picture to look at over a period of time. 

Mr. MCHENRY. Well, we hear you on that. And on the Oversight 

and Government Reform Committee, we have done, I think, a pretty good job of actually teaming up with other committees, and even 

at the subcommittee level, making sure we have joint hearings. 

That is more so where it is done. 

Mr. DODARO. Right. We have also published the best practices 

guide on how to promote more collaboration among the agencies. It 

is particularly important when you have these inter-agency groups 

that there is clear responsibilities, there is clear structure, they set 

goals, they set milestones. A lot of times, we find that inter-agency 

groups are created, but they really don’t set rigorous milestones. 

Now, sometimes Congress has done that legislatively for them, 

either require these groups to be formed or to set particular goals 

for them. So that is another avenue. But I would be happy to provide this committee our best practices report on collaboration and 

provide any other support we can to help you in that regard. 

Mr. MCHENRY. We appreciate the work the General Accountability Office, the GAO does. We certainly appreciate the good folks 

you have working for you and behind you today, and behind them, 

that are in that dungeon-like bunker that is the GAO headquarters. 

Mr. DODARO. The sturdy building. 

[Laughter.] 

Mr. MCHENRY. Quite sturdy. Intended to be the National Archives, if I remember correctly, an Archives facility. So we need to 

get you a little more natural light over there. But we certainly appreciate the light you shine on important agencies. 

With that, thank you, Mr. Chairman. 

Mr. LANKFORD. Ms. Duckworth? 

Ms. DUCKWORTH. Thank you, Mr. Chairman. And Mr. Dodaro, I 

just want to say that having been over in that building, it is filled 

with a lot of warmth from your workers. That makes up for the 

lack of light. 

[Laughter.] 

Mr. DODARO. We will continue with the theme, absolutely. 

Ms. DUCKWORTH. Yes, exactly. 

Mr. Dodaro, in your written testimony, you noted that Federal 

entities reported estimates of improper payment amounts that totaled $107.7 billion for fiscal year 2012. Does that include the 

DOD’s estimates as well, in that number? 

45 

Mr. DODARO. Some of the DOD estimates aren’t included in 

there. There were problems with their estimating process, I believe. 

So OMB did not include them and some other agencies in there. 

There are also some big programs that aren’t in there yet, Congresswoman Duckworth. The Temporary Assistance for Needy 

Families, the TANF program, the direct loan education program is 

not in there yet. So that estimate is not complete. 

Ms. DUCKWORTH. Okay. That is what I was trying to get to, because DOD is responsible for more than half of the Government’s 

discretionary spending, and yet in your testimony you highlight the 

improper payment estimates, the shortcomings of DOD’s financial 

management. 

If DOD can’t even properly estimate its own improper payments, 

doesn’t that heighten the government’s overall exposure to waste, 

fraud and abuse? 

Mr. DODARO. Definitely. 

Ms. DUCKWORTH. And some of those specific weaknesses that 

GAO has identified include DOD’s failure to do the following 

things. They have not yet developed an appropriate sampling methodology for estimating improper payments, they have yet to 

produce a statistical estimate for its largest program, the DFAST 

program, which is of course personnel pay, commercial pay. And 

also they have failed to maintain key documentation supporting 

improper payment estimates. Is that correct? 

Mr. DODARO. Yes. 

Ms. DUCKWORTH. How concerned are you with DOD’s failures in 

these areas? 

Mr. DODARO. I am very concerned. And I have been for years. 

That is why we have put them on our high risk list in 1995, to try 

to shine a light on this problem, both for this Congress and to underscore to the Executive Branch how concerned we are about the 

situation over there. I think not only not only do you not have good 

accountability, but they are hampered in their ability to effectively 

make good timely decisions over there, because of the lack of good, 

reliable information. 

Ms. DUCKWORTH. So what do you think is keeping them from developing some of these processes that are in place at other agencies, such as the statistical estimating and some of the tools that 

are being used? Why is DOD unable to do this? 

Mr. DODARO. As you know, they are a very decentralized, large 

agency. And there needs to be central direction and management 

and leadership there to really bring this problem home. Because a 

lot of the data crosses across multiple parts of the Department in 

order to be able to pull the information together. For example, 

DFAST makes the payments, but you have the personnel records 

in another part of the Department. They don’t match. They can’t 

be reconciled appropriately. 

So there hasn’t been in the past, they are trying to do it now, 

but really top level management attention and authority that can 

enforce the change across the entire Department. 

Ms. DUCKWORTH. So until some sort of centralized management 

or process is established at DOD, knowing that that is not there, 

how is DOD doing with regard to cutting waste and fraud by reducVerDate Aug 31 2005 08:52 Aug 08, 2013 Jkt 000000 PO 00000 Frm 00049 Fmt 6633 Sfmt 6633 C:\DOCS\82273.TXT APRIL
46 

ing the amount of improper payments, even if it is very decentralized in how they are going after it? 

Mr. DODARO. Let me bring up, Asif Khan is focused on DOD financial management. I have given him the unenviable job of trying 

to make sure there are improvements over there. 

Mr. KHAN. Thank you, Congresswoman Duckworth. That problem is going to continue to happen. It really has to be fixed at the 

local level, where the transaction originates. It is going to be some 

time before they begin to address that problem. 

Ms. DUCKWORTH. Is the improper payments also tied to, this 

committee had testimony in previous hearings on just not keeping 

track of how we are paying contractors, what we are being charged 

by contractors is not accurate. Is that all part of this, especially 

overseas, Afghanistan? 

Mr. KHAN. Yes, it is. 

Ms. DUCKWORTH. It is, okay. 

Mr. DODARO. Yes, but on the waste, fraud, potential mismanagement issues, DOD occupies about one-third of the 30 areas on our 

high risk list. Because it is not only financial management, we 

have inventory management, contract management on there, weapons systems acquisition. And all those areas are susceptible to 

problems. That is why we have them on our high risk list. 

Ms. DUCKWORTH. Thank you, gentlemen. Thank you, Mr. Chairman. 

Mr. LANKFORD. Thank you. I would like to recognize myself. 

Mr. Dodaro, thank you as well, and your whole team, for the 

work that you do. I am trying to find out what we do know at this 

point and what we can know and what we don’t have a capability 

to find out. So just let me run through a couple of things. 

Can we at this point identify a list of all government programs 

that we have a list of, we know the agencies, the actual programs 

that exist at those agencies, does such a list exist that we can actually track and go through and compare? 

Mr. DODARO. Not yet in any complete reliable way. I will ask Mr. 

Mihm to come up. The Modernization Act of 2010 required OMB 

to come up with such a list. They have produced now a list for each 

major department and agency, just recently, within the last month 

or two. Many other agencies have yet to report their list. We are 

looking at the list to make sure. Each agency was left to decide the 

definition of a program. So I don’t know if there is consistency yet 

across what is there or not. 

But it is in process now. It is very much needed, but I don’t believe it is complete yet. 

Mr. MIHM. That is exactly right. There is, the list is out there, 

at least the first part of the list is out there. There is not comparability across agencies. One of the things that we are evaluating 

is under a mandate that we have under the Modernization Act to 

periodically report is we are looking at that list and will be reporting to this committee and others on it. 

Mr. LANKFORD. Will that list include a number of employees, and 

the administrative costs of the program, or just an actual list of the 

program itself? 

Mr. MIHM. At this point, sir, we are a bit away from being able 

to get to the programmatic cost data on that. We are just working, 

47 

or OMB is just working on, let’s just identify what government 

does in a consistent way. 

Mr. DODARO. One of the limitations we have had when doing 

that overlap and duplication work is the lack of cost information, 

budgetary information for many of these programs. Once you get 

the list, that is really the next thing that needs to be put in place. 

Mr. LANKFORD. Okay, step one, to know every building we have 

in Washington, D.C., and who is actually in there. 

Mr. DODARO. Right. 

Mr. LANKFORD. Step two, is a list of all the different departments 

that are within it. Step three, getting a chance to get a list of all 

those programs. And then we have to move to how much is the administrative cost for that program, how many employees are dedicated to that program. 

Do we have any ability at this point to then take to that program, what are the metrics that you are using to find out if this 

is effective? It may have a great title for the program, but does it 

actually do anything? And is it accomplishing anything? 

You had mentioned several points about metrics and standards 

and evaluating. How far away are we at this point, or is there any 

requirement that is out there that we actually get metrics for these 

different programs? 

Mr. DODARO. There are requirements in the Government Performance and Results Act. But our work basically shows that is 

very uneven across the Federal Government. There may be 

metrics, but some of them are not outcome based, where you know 

the results of the program. You might know program activity. For 

example, how many people have been trained. But you won’t know 

exactly how many people actually got a job or the results of that. 

So I think that is a work in progress. But we point out in our 

reports much more needs to be done in measuring performance, 

both outcome, and then evaluating performance with program information that looks at trends and metrics over time, why you are 

falling short, how can it be improved. 

So there is a ways to go until you have uniform, good, not only 

metrics, but good results across Federal Government. 

Mr. LANKFORD. What is needed for that from us? Is that an OMB 

issue that they need to work out? Is there a statutory requirement 

that needs to be put in place to help provide a push to say, we have 

to have some way to be able to evaluate effectiveness or programs 

and to even know how many beneficiaries? You mentioned we don’t 

know how many people are trained for a job, but we don’t know 

how many people actually got a job. 

I am not even sure, when I look through some of the programs, 

I can’t even find out how many people were even trained for a job. 

It is just, this is the program that exists, no definition, no staff, no 

metrics, no number of beneficiaries, anything. 

Mr. DODARO. And the real question, even if they did get a job, 

did that training help them get the job, or maybe many other factors had an influence on their ability. So unless you have that information, you don’t know whether you are getting a good return 

on your investment. But Congress can do a lot more both through 

the consultation process under GPRA where they are required to 

be. I have recommended to the Congressional committees that you 

48 

outreach to the agencies and say, hey, you are supposed to be consulting with us. Let’s talk about these things. These are the measures we would like to see put in place and improvements being 

made. 

Then there is the oversight process and legislative process. Chris, 

anything else? 

Mr. MIHM. No, I think on the consultation, it is a particularly important opportunity for this committee and other committees. 

These consultations should be starting this summer on the goals, 

on the strategic plans that are to come out with the President’s 

next budget, as well as the agency priority goals. Those are the 

four to six top priorities that each agency is to establish. They have 

to consult with the Congress on those. And it is a very important 

opportunity to try to get a common understanding about what are 

we trying to achieve and how are we going to measure that performance. 

Another big opportunity, and this is really one of the great insights of the Modernization Act, is it requires quarterly meetings 

to be held in the agencies on each of these agency priority goals. 

And then to discuss where are we, what do we need to do to improve and then rigorous follow-up to take place after that. It is 

modeled after what happened in New York City in the early 1990s 

called CompStat, and it has been used in CityStat and StateStat, 

the so-called Stat model. That data is to be published or is being 

published on performance.gov. That provides another great oversight opportunity. Because those are the priorities that the agency 

has established and so you can really follow up with them and say, 

where are you in terms of achieving those goals. 

Mr. LANKFORD. Thank you. 

Mr. Davis just walked in. Mr. Davis, I think you are up to bat 

next. Are you ready for questions, or do you want to defer? You just 

walked back in, so let me do this. Mr. Meadows. 

Mr. MEADOWS. Thank you, Mr. Chairman. And thank you for 

being back with us, I thank each one of you for your hard work. 

I know that it is the support team that makes a big difference, as 

you will acknowledge. 

I am troubled that we have hearing after hearing after hearing 

and really nothing happens. When you talk about over $100 billion 

in really unaccounted for spending, it is one-tenth of our deficit. 

When we put it in perspective, that is one-tenth, we are sitting 

here trying to scramble, as members of Congress, to find $86 billion. And you have found more than that just in funds. 

I set up new offices, and when I did that, I found, I went out and 

negotiated with governments to make sure that we didn’t have to 

pay for leases. So I am sitting there scrimping for $250 or $500 or 

$1,000, so it is very frustrating when I see it, and I know you 

empathize. 

One of the things that came up that gave me great concern 

though is we started sending rental payments to one of those vendors that never was authorized by us, we didn’t even give an 

amount. So they just started making up an arbitrary payment. We 

wouldn’t have known about it unless the government agency called 

us and said, I thought we were giving you this space for free. And 

49 

we are paying for it. So this unaccountability is across, it is systemic. 

So I want to get to your earlier point. You talked about motivation and performance. Really, if we don’t control the purse strings, 

we don’t have any control. And if we don’t have a motivation where 

if you do a bad job you lose your job, or if you do a bad job you 

get your budget cut, how do we fix that? 

This is not, I would agree with my colleague opposite, Mr. Lynch, 

this is not based on this Administration or the prior. It is a systemic problem within government. So how do we fix that? And is 

it true? And I will ask this last one and I will let you comment on 

both of those. 

My understanding is that, until about 10 or 15 years ago, we controlled probably 95 percent of the spending. Now congressionally 

we are only controlling about 35 percent. Is that a true statement? 

Mr. DODARO. Yes, that is true. That is because most of the 

spending right now is through mandatory programs, whether it is 

Medicare, Medicaid or Social Security. The only way Congress can 

control that spending is by changing the requirements of who is eligible and what types of payments are made. If you add interest on 

the debt, of those three things, mandatory spending is taking up 

about 66 percent or so. 

Mr. MEADOWS. Have we exacerbated the problem, though, by allowing agencies, when they get away with earmarks, we allow 

them to reprogram and we authorize the spending so they can 

move it around and have little penalties there as well? Have we exacerbated the problem with that? 

Mr. DODARO. Well, I don’t think necessarily that would have increased the problem. Because they are supposed to report what 

they are changing in most cases, and the Congress has an ability 

to inquire on that issue. 

Mr. MEADOWS. We have the ability to inquire but not really stop. 

That is what I am finding, is when I call these agencies, they will 

talk to me, they have their congressional liaison and they will talk 

to you. But really, they are not afraid. Would you agree that most 

agencies are not afraid of Congress anymore? 

Mr. DODARO. I don’t know about that. It depends upon if somebody is just leaving the witness table and you ask them that question. 

[Laughter.] 

Mr. DODARO. But I do think there needs to be more teeth in 

place. To go to your very first question, what I have seen be effective is when we point out a problem, many times Congress will 

fence the money, that means saying, okay, we are going to appropriate this money but you can’t spend it until we get a report from 

the GAO or some other thing that convinces us that you have a 

good plan in place, that you fixed earlier problems. So Congress 

has effectively used that. It could do it much more. And I think it 

would be more appropriate. 

So Congress has the power of the purse strings. It has to be willing to use it effectively to leverage change. 

Mr. MEADOWS. Can your staff report back to us on what we can 

do to highlight it so we can put more teeth into it? Because I think 

50 

it is time that the American people may want teeth. We look forward to your help there. 

Mr. DODARO. We would be happy to do that. 

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

Mr. LANKFORD. Thank you. Mr. Connolly 

Mr. CONNOLLY. Thank you, Mr. Chairman. Welcome back, General. 

Mr. DODARO. Thank you, Congressman. 

Mr. CONNOLLY. I want to talk to you about two things. I know 

my colleague Ms. Duckworth asked some questions about improper 

payments. But in the previous subcommittee, in the last four years, 

we had a series of hearings on improper payments. What is the estimate, the global number every year we think fall into that general rubric? 

Mr. DODARO. The latest was $107.7 billion. But that estimate, in 

our opinion, is not complete. There are four agencies and ten programs that are not yet reporting, including the large Temporary 

Assistance for Needy Families. Then there were another six agencies where their estimates were not good enough for OMB to report. 

Mr. CONNOLLY. So it is north of the official figure? 

Mr. DODARO. I believe so, yes. 

Mr. CONNOLLY. If we were to say it was rounded out to $125 billion a year, would that be a fairly safe rounded-out number, do you 

think? 

Mr. DODARO. Given how these numbers vacillate, Congressman, 

I hesitate to give a guess on that. 

Mr. CONNOLLY. Well, if we just took that number for a minute, 

we could take $107 billion, too, but times ten, that number of improper payments over a ten-year period exceeds sequestration. Is 

that correct? 

Mr. DODARO. Oh, sure. Yes. 

Mr. CONNOLLY. And how well do you think the government is 

doing in trying to address that program? In theory, if you could get 

it to zero, which ought to be the goal, we will never quite attain 

that goal, but if you can give yourself a stretch goal, incredible 

things can sometimes happen, how well would you assess, General, 

that the Federal Government is doing in putting in place mechanisms to bring their respective numbers down? 

Mr. DODARO. I would say there is a fair amount of activity, not 

much results yet. 

Mr. CONNOLLY. One example, of that total, the lion’s share is 

Medicare fraud, is that correct? 

Mr. DODARO. Yes. Medicare, Medicaid, yes. 

Mr. CONNOLLY. About $50 billion a year? 

Mr. DODARO. Forty billion dollars, $50 billion, yes. 

Mr. CONNOLLY. Do you believe that there is evidence that the 

U.S. Attorneys’ offices around the Country, of which I believe there 

are 99, are sufficiently seized with this mission to bring that number down through prosecutions, investigations and prosecutions? 

Mr. DODARO. I know that the HHS Inspector General’s office 

works with them. They really focus on that area. I don’t have a 

basis for answering that question, beyond knowing and seeing 

51 

there are prosecutions in some cases. I really don’t have empirical 

evidence to answer that question. 

Mr. CONNOLLY. Okay, well, I will give you a data point. One U.S. 

Attorney’s office, New England, just one, is accountable for identifying and helping to recover $3 billion of Medicare fraud. One. 

There are 98 others. Now, not all of them may be that big. But one 

of the things I would urge you to look at is, as part of this, are U.S. 

Attorneys’ offices sufficiently seized with this mission? Because if 

every one of them replicated the zeal and the commitment of talent 

that this one did, we could bring that $50 billion number down considerably. 

Mr. Chairman, we were just talking about improper payments 

and some of the work this committee has done the last four years 

on a bipartisan basis to identify the problem and to try to get Federal agencies seized with this mission. I was pointing out, Mr. 

Chairman, that if you round it out at $125 billion a year, and that 

could be a low figure, actually, but we will take that one, times ten, 

it exceeds sequestration. 

So without raising anyone’s taxes, without slashing any investments, here is low-hanging fruit, in a sense. And it just seems to 

me for want of a champion, for want of some focus, we are not 

making the kind of progress we need to be making. 

Mr. DODARO. And I think, on your point, we will look into the 

U.S. Attorney’s priorities on that. But that is one end of the problem, is to keep trying to get it back once it has gone out the door. 

The other side is preventing it. And I think for example, we have 

a recommendation that they establish surety bonds up front with 

new providers. So if you find payments later, the government has 

some money that they can offset up front, that hasn’t been fully implemented yet as well. 

So there are a whole range of things. 

Mr. CONNOLLY. In addition to management, and my time is 

about to run out, but the Chairman and I co-authored a bill that 

is now part of the Defense Authorization Act and hopefully will become law. It is designed to provide some rigorous tools for Federal 

agencies to upgrade their management of IT. Acquisition, maintenance, personnel management. The Chairman identified that, for 

example, in the top 26 Federal agencies there are over 250 people 

with the title of CIO, which means this, right, no one is in charge, 

no one is accountable. Our bill is designed to try to at least have 

one main person called CIO who is infused with responsibility, authority and accountability. 

The other thing behind this bill, though, is IT, if we are going 

to have to live with sequestration or something like it for 10 years, 

if you don’t simply want an absolute contraction, a zero sum game, 

IT has promise, if properly managed, to help us on so many fronts, 

one of which is this, too. So I hope we can also look at how is IT 

being deployed so that we are not making the errors that are part 

of this hole. 

Mr. DODARO. We are looking at that. We are looking at that, and 

you are absolutely right. I am very supportive of the provisions in 

that bill. 

Mr. CONNOLLY. I just end with this, this is a subject this committee has done some real trail-blazing work on, I think, through 

52 

Congress. It is not a sexy topic, but it has real promise. I would 

hope, General Dodaro, that we can work together and try to create 

some metrics for Federal agencies. Because without metrics, it is 

aspirational. We need to move from the aspirational to the productive. 

With that, Mr. Chairman, I yield back. 

Chairman ISSA. [Presiding] I thank the gentleman. 

I would say that our legislation really is as close to the swimsuit 

edition as you can get in legislation. So I am not sure I go with 

the gentleman that there is no appeal to it. I think it is pretty attractive. 

Mr. CONNOLLY. I stand corrected. 

[Laughter.] 

Chairman ISSA. Mr. Bentivolio. 

Mr. BENTIVOLIO. Thank you, Mr. Chairman. Thank you, Comptroller General. Thank you for being here today. 

After listening to your testimony today, I can’t help but remember a story a constituent told me, it is called government accounting, how you tell the story. Perhaps you have heard it, but just 

bear with me, about the three gentlemen walking down the street. 

It starts to rain, they each have $10. So they pool their money together and get a hotel room for the night. And the hotel manager 

later discovers that he overcharged them $5. 

So he calls over the bellhop and wants the $5 returned to the 

three gentlemen who pooled their money together to get the room. 

On his way up to the room, he pockets $2 and he hands each of 

those three gentlemen back $1. They each originally contributed 

$10, minus $1 is how much? 

Mr. DODARO. Nine. 

Mr. BENTIVOLIO. Nine, three times nine? 

Mr. DODARO. Twenty-seven. 

Mr. BENTIVOLIO. Plus the two in the bellhop’s pocket? 

Mr. DODARO. Right. 

Mr. BENTIVOLIO. Where is the other dollar? 

[Laughter.] 

Mr. BENTIVOLIO. That seems to be the question. I find it startling 

how much taxpayer money we have seemingly lost track of in the 

Federal Government. Many government programs are on auto-pilot 

when it comes to their budget. Every year it is assumed that they 

need more money with zero-based budgeting, which would force 

agencies to justify every penny of taxpayer money they get to spend 

every year to help agencies account for the money that they receive. 

Mr. DODARO. Pardon me, I am not sure I understood the question. I am still trying to figure out where the $2 went. 

[Laughter.] 

Mr. BENTIVOLIO. One dollar. 

Mr. DODARO. One dollar, right. 

Chairman ISSA. Well, we would be thrilled if there was only $1 

that was unaccounted for. 

[Laughter.] 

Mr. BENTIVOLIO. Government accounting could add up to billions. 

Mr. DODARO. Yes, definitely 

53 

Mr. BENTIVOLIO. When I explain that, it seems to me that is how 

government agencies account for their money, that is how they tell 

the story. We all know 25 plus 2 plus 3 is 30. So we can account 

for the money. But it seems that the government doesn’t understand that. And they seem to lose a lot of money. It seems to me 

that if we got rid of the waste and abuse, we could probably afford 

a lot more or pay down our national debt. 

But my simple question is, would zero-based budgeting, which 

would enforce agencies to justify every penny it takes of your 

money they get to spend every year, help agencies account for the 

money that they receive? 

Mr. DODARO. I think that that effort has been tried a bit in the 

past. I think it has some potential value if it is implemented with 

a lot of less administrative sort of burden. But the idea though, of 

justifying the programs by showing good results, I would support 

that ahead of time. In other words, you have to justify the program’s achieving its objectives with some empirical data that has 

been independently validated. I think that is the way to go. 

Mr. BENTIVOLIO. Zero-based budgeting? 

Mr. DODARO. It would justify what you are going to spend the 

money for if you have good information. I mean, a part of this is, 

you can send people to go through all the requirements, they will 

generate volumes of information, but it may not be accurate, it may 

not be good information and it may not be convincing. So it embarks on a big process where, at the end of the day, Congress is 

still left, even though it may be generated from a zero basis, with 

a lot of information that really doesn’t help them make a decision 

on how to fund the money. 

So to me, it would be better to focus on having them demonstrate 

results of the programs and justify the expenditures for the results 

that they are receiving. Right now, that doesn’t happen. If you 

want to try to curtail a program or limit it, you have to prove it 

is not working and have data to do that. That is exactly the opposite of the way it should be, in my opinion. I think that would be 

a more effective way and a more efficient way for Congress to go 

about making its decisions. 

Mr. BENTIVOLIO. Thank you very much. 

Chairman ISSA. Would the gentleman yield? 

Mr. BENTIVOLIO. Perhaps I could restate part of his question, 

which is not as much on this hearing, but I think it is germane to 

the gentleman from Michigan’s question. If Congress in its appropriation were to have all appropriations not subject to CR unless 

specifically shown, in other words, when we authorize something 

and we authorize it for one year, and as you know, when we go into 

CRs, which happen often, essentially we keep money trapped in 

things which should have expired. 

If we changed our bias toward, you must specifically have essentially an X next to something that says, this continues unless 

amended automatically, you could end up with, perhaps in discretionary spending, and even some that would be considered less 

than discretionary, you could end up with perhaps as little as 80 

percent of the budget subject to CR, where you have an automatic 

cut to all these programs. 

54 

So instead of a CR, representing a continued resolution, substantially at the same rate unless you agree, you would have a cut 

automatically in all those programs with no replacements unless in 

fact the budget process used those funds with new appropriations. 

Wouldn’t that move the bias toward what we would call automatic 

sequestration that is predetermined? Something that before sequestration we perhaps never thought of? 

Mr. DODARO. I would have to think about that a little bit. I will 

give you a definitive answer. Offhand I would say that it holds 

promise to do that. 

The other thing is that there ought to be mandatory, in my opinion, mandatory sunset provisions for every Federal program with 

a positive reauthorization act approach. What you are suggesting 

kind of goes in that direction. And for that reason I think it holds 

some promise. 

Chairman ISSA. Thank you. You have looked at this in the past. 

Perhaps if you could dust off some of that and put those two together so that this committee could look to our brethren on appropriations with a mind toward current appropriations anticipating, 

if you will, sunset where appropriate under appropriations and 

then to the other authorization committees, the sunset inherent in 

authorization that could put this into play. 

Mr. DODARO. Yes. 

Chairman ISSA. Thank you. With that, we go to the gentleman 

from Illinois, Mr. Davis. 

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

Mr. Dodaro, how are you? 

Mr. DODARO. I am fine. Nice to see you. 

Mr. DAVIS. It is good to see you. 

GAO reported in its audit of the government’s consolidated financial statements that it gave a disclaimer of opinion on the statement of social insurance for 2012, 2011 and 2010 because of significant uncertainties primarily related to the achievement of projected 

reductions in Medicare costs. Some of those uncertainties relate to 

whether projected statements from the Affordable Care Act would 

be fully achieved, is that correct? 

Mr. DODARO. Yes, that is. 

Mr. DAVIS. But there are other uncertainties related to Medicare 

savings that contributed to the disclaimer of opinion, such as estimated reductions in payment rates for physicians, is that correct? 

Mr. DODARO. That is correct, and that is, as you know, probably 

for the last ten years if maybe not longer, Congress has always 

waived these provision cuts that should be in place. Last year I 

think they were estimated to be about a 31 percent reduction. 

Mr. DAVIS. So I get to my point, I want to put this in perspective. 

GAO is not saying that savings won’t be achieved under the Affordable Care Act. You are saying that the amount of Medicare savings 

in the future is not a certainty, it is not absolutely known? 

Mr. DODARO. That is correct. And I might point out, Congressman, it wasn’t just GAO. The Social Security trustees, which includes the Secretary of the Treasury and Secretary of HHS, said 

there were uncertainties and reported that with the estimates as 

well as CMS’ actuary and the auditors there as well. So there is 

a general consensus. But you are right, we are saying it is uncerVerDate Aug 31 2005 08:52 Aug 08, 2013 Jkt 000000 PO 00000 Frm 00058 Fmt 6633 Sfmt 6633 C:\DOCS\82273.TXT APRIL
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tain. Because it is uncertain there are alternative estimates that 

were made also, which show a swing of about $10 trillion over this 

period of time on that $27 trillion original estimate. 

So it is potentially significant. 

Mr. DAVIS. And even so, there are those who, in fact, try using 

that point to suggest that the Affordable Care Act is not going to 

save money, when in fact, if I am correct, it already has achieved 

significant savings. For example, in February, the Department of 

Justice and HHS announced that they had achieved $4.2 billion in 

Medicare fraud recoveries. This is the highest three year returns 

on investments in the history of health care fraud and abuse programs. 

I guess it is basically due to new tools to crack down on fraud 

and new ways of looking at it and ferretting it out. Is that correct? 

Mr. DODARO. I would have to get back to you on that issue and 

supply something for the record. I will do that. 

Mr. DAVIS. Bottom line, I mean, we are certain, in a real sense, 

that the Affordable Care Act has provided for savings and we can 

be fairly certain as we project that we are going to see additional 

savings as time goes on. Is that pretty close to how one can view 

what the data has shown? 

Mr. DODARO. Our focus was on the future projections for the program, and what the assumptions were and the basis for those assumptions. That is what has led us to the uncertainty issue, and 

others that have looked at those areas. We have not looked at the 

counterpoint that you are raising right now. So I don’t have an analytical answer for you on that issue. It is something that we can 

take a look at. 

Mr. DAVIS. We would be pleased if you would do that. Thank you 

very much. And I yield back. 

Chairman ISSA. Would the gentleman yield for a question? My 

staff tells me that recovery is based on legislation from 2006 that 

increased the audit. Are you speaking of some other aspect in the 

Affordable Care Act that would have led to that recovery increase? 

Mr. DAVIS. Well, the legislation was done in 2006. So we were 

already privy to having it. And the Affordable Care Act, of course, 

makes use of it. So we still see the savings. 

Chairman ISSA. I don’t understand how the Affordable Care Act 

makes use of the Medicare, the Affordable Care Act hasn’t taken 

effect, and the audits that are leading to greater recovery I think 

are coming out of that effort by Congress. They are both good efforts when it comes to trying to control costs. I just want to make 

sure the record is clear, and I think Mr. Dodaro can make it clear 

for us, where he thinks that savings or recovery has come from, 

what efforts and what statute. 

Mr. DAVIS. And if I might, Mr. Chairman? 

Chairman ISSA. Of course. 

Mr. DAVIS. Just as we cannot be sure of how much savings there 

would be, we don’t have any reason to suggest that there will be 

no savings. So I think what the Comptroller is saying, we haven’t 

had enough experience yet to be able to make that determination. 

That is what he will look into. 

Chairman ISSA. I look forward to discovering that with you. 

Mr. DAVIS. Thank you. 

56 

Chairman ISSA. I thank the gentleman. 

We now go to the gentleman from Georgia, Mr. Woodall. 

Mr. WOODALL. Thank you, Mr. Chairman. 

I want to follow up on a question that Mr. Lynch was asking earlier, talking about the importance of Congressional oversight, how 

folks were able to make a difference. 

One of my great frustrations is that we seem to sometimes be 

Republicans against Democrats or House against Senate, as opposed to Article I versus Article II. Tell me about the effectiveness 

of oversight in the years that you have had a chance to watch it. 

Has it been Article I doing oversight over Article II, or has it been, 

as Mr. Lynch suggested, the Republicans doing good oversight over 

Democrats, and Democrats doing good oversight over Republicans 

but not necessarily houses of the same party doing good oversight 

over their Executive Branch president? 

Mr. DODARO. Over the years I have seen a variety of oversight 

techniques that fall into all the different categories that you talk 

about. The most effective is when Congress is united in its oversight over an Executive Branch function or activity, and even when 

there is support from GAO or even OMB, in some cases, on the 

need to make improvements, when there is a consensus, where 

facts have been developed, there is a clear record that there is a 

problem that is sort of an unimpeachable kind of a problem statement. People may disagree on how to solve the problem. But at 

least you have the facts. 

I think those types of oversight vehicles are the most effective. 

Mr. WOODALL. Does it take two houses in Congress doing oversight to achieve those goals, or can you do it in a unicameral way? 

Mr. DODARO. You can do it in a unicameral way. Unless the solution is rooted in legislation that needs to be put in place, then obviously you need both houses involved. But a lot can be accomplished 

without legislation. 

Mr. WOODALL. Well, as you go through that high-risk list and 

you look at things that have been accomplished, you do see the effective list of things that could be done strictly within an Administration and those things that require Congressional activity. My 

recollection is we don’t do nearly as well on those things that require Congressional action to get them done. 

Let me talk about Medicare for just a moment. I put that doc fix 

in the category of things I tell my constituents back home, if I tell 

you I am going to solve this in years eight, nine and ten of the tenyear budget window, you should just ignore me altogether. The 

question is, what am I willing to do this year to make things happen. 

I tell my friends in the physician community that they should 

stop lobbying for the doc fix, they should let those cuts go into effect and they should let my mom and dad begin to lobby to have 

the doc fix fixed. Because at the end of the day, when you reduce 

the payments the physicians are receiving, it is reflected in the 

quality of care that my mom and dad on Medicare receive. 

Thinking about effective oversight that changes things, do you 

have any examples in the time that you have been leading where 

the American people have led in getting a change implemented? I 

always think about catastrophic care, and Chairman Dan RostenVerDate Aug 31 2005 08:52 Aug 08, 2013 Jkt 000000 PO 00000 Frm 00060 Fmt 6633 Sfmt 6633 C:\DOCS\82273.TXT APRIL
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kowski, back in the day, having his car rocked by angry seniors. 

And guess what, that got wonderful results here on Capitol Hill. 

Have you seen the American public being the partner of GAO in 

good accountability? 

Mr. DODARO. Yes, definitely. I think the example you gave, the 

other one was when the premiums were raised on Part B. During 

that period of time, there was a huge backlash. Another example, 

just at the GAO, we have a hotline where people can call in from 

the public and suggest areas where they think there is fraud, waste 

and abuse. The ones that we find that are credible are the kinds 

of tips we follow up on and save money in a couple of cases. 

So the public can be better informed, and I think if they are better informed they can be very helpful in providing that type of 

oversight that you are speaking about. 

Mr. WOODALL. And if I were to call CMS today and say, my mom and dad received a $100 charge for a doctor they never saw, could 

it possibly be a legitimate charge, I am sure they would tell me 

that they are working on billion dollar fraud cases and they don’t 

have time to look into my $100 fraud case. Is there a threshold as 

the public calls in with those tips for all that you have to do with 

the limited staff that you have to do it with, what rises to the 

level? 

Mr. DODARO. We will evaluate it. We wouldn’t want to do something where we spend more money than what we potentially could 

save on those areas. But I would say that, to CMS, we spend the 

money $100 at a time, we need to take a look at everything. 

Mr. WOODALL. When we are talking about trying to have effective government and efficient government, I just want you to know 

how much fun it is for me to watch your team behind you as these 

questions come out and you answer them. It is not just one head 

as a subject matter expertise that is nodding behind you, it is four 

or five heads, all of the know exactly what is going on and say, yes, 

this is what that is. 

Mr. DODARO. Thanks for that feedback. I find that encouraging. 

I don’t usually find out until after the hearing how well they did. 

[Laughter.] 

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

Chairman ISSA. I thank the gentleman. 

I believe the gentlelady from California, Ms. Speier, is next. I am 

sorry, Ms. Kelly. 

Ms. KELLY. Thank you, Mr. Chair. 

Thank you for being here. One of the challenges in evaluating 

whether agencies are duplicating efforts is the fact that until recently there was no inventory of agency programs. OMB is now required to publish a list of all agency programs. They just released 

this first list in May. The list of agency programs can be found on 

the website, performance.gov. 

Do you believe that requiring agencies to provide information 

about what programs they have will help Congress and the public 

hold agencies more accountable? 

Mr. DODARO. Yes, definitely. And we would be enhanced better 

if we get the complete list and it is accurate. 

Ms. KELLY. Okay. One of the significant improvements made by 

the GPRA Modernization Act was the establishment of performVerDate Aug 31 2005 08:52 Aug 08, 2013 Jkt 000000 PO 00000 Frm 00061 Fmt 6633 Sfmt 6633 C:\DOCS\82273.TXT APRIL
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ance.gov. It is a government-wide website that will allow the public 

to access information about government performance. 

Do you believe this has improved the transparency of information 

about agency performance? 

Mr. DODARO. I think it is a good start. But as we point out in 

our report, there are a lot of opportunities to have that website become much more effective and helping promote transparency and 

accountability and by becoming more searchable, user-friendly, et 

cetera. So it is a beginning. 

And I think a lot of the efforts that have been legislated by the 

Congress over the years, usaspending.gov, recovery.gov, the performance.gov, is important and helpful. I would encourage the Congress, as we have been discussing a little bit earlier, to think about 

ways that that could be even improved further, and that the Data 

Act would require that. 

Ms. KELLY. Also, GAO issued a report last month titled Managing for Results: Leading Practices Should Guide the Continued 

Development of performance.gov. One of the points that this report 

makes is that moving forward, OMB should increase its outreach 

to stakeholders. GAO uses Maryland’s Governor O’Malley’s performance website, StateSat, as an example: ‘‘Following the initial 

creation of the State’s performance reporting website, officials in 

Maryland analyzed the website’s performance metrics to get a 

sense for how people were using the site, as well as the information 

they were searching for. They also employed usability testing to 

collect insight into the navigation and content of the website. From 

these insights, they identified the need to make information on related State programs and resources more easily accessible through 

the website, which is now reflected in its design.’’ 

Do you feel that OMB evaluated the lessons learned from State 

and local websites, such as Maryland’s StateStat or Boston’s About 

Results, or is there something OMB should be doing to improve 

performance data? 

Mr. DODARO. I will ask Mr. Mihm to answer that. 

Mr. MIHM. OMB was certainly aware of these other websites. As 

to whether or not they did a rigorous evaluation, the answer to 

that is no. And one of the things that we recommend is, as you 

pointed out, that they look at those websites, they look at 

howto.gov, which is the Federal Government’s best practice guide 

for government websites, and make sure that they are consistent 

with those standards there. 

The key thing they had with performance.gov, as you mentioned, 

it has an awful lot of information in there, a lot of very valuable 

information in there. But it is really at this time set up for inside 

baseball, that is, you have to be a Fed looking for other Federal information. It is not very forward-facing to citizens or to the Congress. That is the next step that they really need to take. 

Ms. KELLY. I am very happy to hear that. Thank you very much. 

Ms. CUMMINGS. Would the gentlelady yield? 

Ms. KELLY. Yes, I will yield. 

Mr. CUMMINGS. I am very familiar with the Maryland system 

that you just talked about. Because Governor O’Malley was my 

mayor, and now of course my Governor. One of the things that the 

system did bring was accountability. We were able to track the perVerDate Aug 31 2005 08:52 Aug 08, 2013 Jkt 000000 PO 00000 Frm 00062 Fmt 6633 Sfmt 6633 C:\DOCS\82273.TXT APRIL
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formance of government, how effective and efficient government 

was being. But you see value in that, though, right? 

Mr. MIHM. Oh, yes, absolutely, sir. 

Mr. CUMMINGS. Because before that, you didn’t know what trash 

wasn’t being collected, what things were not being addressed. Now 

you could actually say, okay, on zone three of the police department 

we have X amount of things going on, this was the response. And 

basically they would flash it up. We could come in as members of 

Congress or anybody, sit there and see exactly how government 

was functioning. 

I don’t know how much with regard to cost that it went. But in 

regard to effectiveness and the use of the taxpayers’ dollars, I 

thought it was a very good thing on the part of the Governor. 

Mr. MIHM. Yes, sir. In fact, a few moments ago, we were talking 

about how under the Modernization Act, it took the model that has 

been used in Baltimore with CityStat, StateStat, and that is now 

a Federal requirement. That type of information has to be available 

on performance.gov as well. 

We evaluated the Federal efforts on that, and actually looked at 

it from two different perspectives. First is that the question each 

time as you have moved up the stat model, from CompStat to 

CityStat to StateStat is, does it scale. Governor O’Malley had a 

great line when he became Governor of Maryland, he said it was 

a bigger ship but smaller rudder. He figured out how it changed 

the government at that level. 

So we were looking at that at the same level, at the Federal 

level, at the stat meeting scale, do they work at the Federal level 

and do they work for cross-cutting programs. We found it does 

scale, that is, Federal managers and leaders of agencies, and this 

is a leadership strategy, are using them. What we did not find but 

are looking forward to finding as we do additional work is, are they 

actually using them to coordinate cross-cutting programs. 

As you know, the extent in Maryland, the beauty of that is the 

Governor also set up his priority goals for the State and those are 

actually what brought together a variety of State programs. Those 

are reported on the website. You have BayStat, which brings together various jurisdictions and levels of government to talk about 

the health of the Chesapeake Bay. 

So this is a very powerful device as a leadership strategy, if it 

is actually used to drive performance. 

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

Chairman ISSA. I thank the gentleman. 

We now go to the gentleman from Tennessee, Mr. Duncan. 

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

You talked about savings in Medicare. In 1990, after 25 years, 

Medicare cost 12 times more than the original projections when it 

first passed. Now the costs on Medicare have quadrupled since 

1990. So Medicaid has a similar history. All these Federal medical 

programs, the Congress has always received very lowball estimates 

on the front end. Then the costs have just exploded. Already I have 

read articles saying that the so-called Affordable Care Act, which 

I refer to as the Unaffordable Care Act, the cost projections are two 

and three times when we originally passed. 

60 

I notice, I am sorry I had to be in another committee, and I 

wasn’t here for most of your testimony, but in your testimony, Mr. 

Dodaro, you say the Federal Government was unable to demonstrate the reliability of significant portions of its consolidated financial statements. And then you say another place that our work 

has found that the information provided to Congress is not always 

useful for Congressional decision-making, because the information 

was ‘‘not clear or directly relevant or sufficiently detailed.’’ 

Mr. DODARO. Right. 

Mr. DUNCAN. Then I looked at the back page of your report, and 

I see almost every agency, the opinion expressed by the agency 

auditor, almost all of them say unqualified. I am not an accountant, so I am not really clear. What exactly does that mean? 

Mr. DODARO. For 21 of the 24 departments and agencies, they 

got an unqualified, clean opinion. So they are fine. Where you have 

problems is DOD and DHS and another agency, they did not give 

any clean opinions. But DOD accounts were over a third of the 

Federal Government’s assets. 

Mr. DUNCAN. I saw that figure, 34 percent. 

Mr. DODARO. Right. And over 20 percent of spending on the part 

of their programs. So it is a huge obstacle to getting an opinion on 

the consolidated financial statements. 

There is a lot, also, of activity where agencies have to do business with one another or have transactions. Treasury can’t net 

those out effectively and balance the statements. In fact, they have 

to add in a $20 billion net sort of plug figure in order to make the 

statements balance. 

And then the government-wide statements aren’t effectively reconciled to the audited financial statements of the agencies that you 

are holding there in your hand. So there is a discrepancy, and an 

inefficiency and ineffectiveness in how the consolidated statements 

of the Federal Government are compiled. So that is the reason for 

the differences in the statements in that listing of agency audits. 

Mr. DUNCAN. And there is a deadline, the Department of Defense 

has been given a deadline of 2017, is that correct? 

Mr. DODARO. That is correct, for a full auditability, 2014 for an 

audit of their statement of budgetary resources, which would account for how they account for their budget. 

Mr. DUNCAN. All right. Let me ask you something else. We always hear, I read so many different articles about these unfunded 

future liabilities. And I see all these figures that are way up there 

in the megatrillions. Do you feel like we have a good handle on 

that? Where are we headed with these unfunded future liabilities 

for all the different things we promised the American people? 

Mr. DODARO. Basically, in addition to doing the audit or the consolidated financial statements, we do long-range simulations of the 

Federal Government’s budget. And our conclusion is while the 

Budget Control Act and the American Taxpayer Relief Act provided 

some help in bringing down the deficit, that long term, over the 

next sort of 70-year period, maybe even shorter than that, the Federal Government is on a long-term unsustainable fiscal path that 

right now, debt held by the public is at 73 percent of gross domestic 

product. 

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Historically, the 40-year average has been about 39 percent. The 

demographic wave, and the main reason is for the unsustainable 

path, or the changing demographics, between now and 2029, every 

day, it will be on average about 10,000 Americans turning 65. They 

will be hitting the Medicare program. 

So we are going to go into this demographic wave. Heath care 

costs, while coming down a bit, are still rising faster than gross domestic product. And the combination of those factors, I mean, the 

trustee estimates predict Medicare trust fund will exhaust in 2026, 

Social Security trust fund will be exhausted in 2030, the disability 

component of the Social Security trust fund will be exhausted in 

their predictions in 2016. We are showing, unless something happens on the short term, the annual deficits coming down from 

where it was in the past several years, which is a good thing, but 

we still have a deficit which is adding to the cumulative debt. 

So we are going into, some of our projections show between 2028 

and 2034, under any scenario, we potentially, unless changes are 

made, will have debt held by the public higher than 100 percent 

of gross domestic product, which means we would be owing more 

than we are producing in the entire economy. We have only hit 

that historic high, it was during World War II, which was 109 percent. So I am very concerned about the future financial path that 

the Federal Government is on. 

Now, we report that every year, these statements, and then we 

do updates every two years. We have actually got now an accounting standard put into the consolidated financial statements that requires a fiscal sustainability projection, a model, which is included 

in this report. So the Administration agrees that we are on an 

unsustainable path, and so does CBO. 

Mr. DUNCAN. My time is up, but I heard in a meeting just this 

morning that Turkey, for instance, has a debt to GDP ratio of 35 

percent. And now we have this $17 trillion debt. And I think about 

$15 trillion or $16 trillion economy. It is just mind-boggling. And 

we keep spending money like there is no problem, or like there is 

no tomorrow. 

Thank you. I really appreciate the efforts that you are making 

in that regard, and the way that you are trying to be a Paul Revere 

about this situation. Thank you very much. 

Chairman ISSA. I thank the gentleman. 

We now go to the gentlelady from California, Ms. Speier. 

Ms. SPEIER. Thank you once again, Mr. Dodaro, for your outstanding leadership. I am sure sequester is impacting you as well. 

And if there is one agency that pays for itself over and over again, 

I would suggest it is your agency. 

What is the impact of sequestration on your agency? 

Mr. DODARO. We have been reduced in staff size about 14 percent since 2010. Now, of course that was earlier than sequestration 

but sequestration compounded that. So we are at our lowest staffing level since 1935. 

Ms. SPEIER. The lowest staffing level since 1935? 

Mr. DODARO. Yes. 

Ms. SPEIER. And how has our budget grown since 1935? 

Mr. DODARO. Oh, quite a bit. And government is a lot bigger 

than it was since then. 

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Fortunately we have been able to handle it by downsizing. So I 

haven’t had to lay anybody off or furlough people. But we just don’t 

have enough staff to get to all the requests in a timely manner 

than we have. So I am hopeful this year we will do well. Last year 

we returned $105 for every dollar spent in GAO, over $55 billion 

in documented financial benefits as a result of our work, let alone 

all the work we did to inform the Congress for oversight purposes. 

Then we had over 1,400 other non-financial benefits changes and 

laws, et cetera, that have helped improve public safety and improve 

management. 

Ms. SPEIER. Okay. In your report, you reference the lack of accountability in the Army’s payroll system. In fact, you say the 

Army and Defense Financing and Accounting Service could not 

readily identify the full population of payroll accounts associated 

with the Army’s $46 billion active duty military payroll because of 

these deficiencies. 

Does that mean that the Army doesn’t know how many people 

it is paying for? 

Mr. DODARO. I will ask Asif Khan, who has been focusing on this. 

Mr. KHAN. That is correct. At times the Army does not know exactly how many people they are paying, because of the lack of systems and the lack of processes and controls. 

Ms. SPEIER. Does that mean that the Army is not able to reliably 

match a soldier’s personnel file to their payroll file to make sure 

that they are being paid the correct salary? 

Mr. KHAN. That is correct. That is a condition there. 

Ms. SPEIER. So maybe we should alert everyone who is serving 

in the Army that they should check their payroll stubs very carefully, because they could be being paid the wrong salary. 

Mr. KHAN. That is correct. There could be overpayments and underpayments, based on our experience and the work that we have 

done. 

Ms. SPEIER. This is pretty outrageous, isn’t it? 

Mr. DODARO. This is not what you expect. 

Ms. SPEIER. All right. You have also identified that certain intergovernmental accounts were not in agreement to the tune of hundreds of billions of dollars, despite the fact that OMB and Treasury 

required CFOs of 35 significant Federal entities to reconcile, on a 

quarterly basis, their inter-governmental activity and balances 

with their trading partners. 

Are there any consequences for the failure to perform these yearend reconciliations? 

Mr. DODARO. No meaningful ones, no. 

Ms. SPEIER. Okay, so if a CFO of a major corporation failed to 

reconcile their books, presumably they would be fired and face action by the SEC. But because they are doing business with the government, they don’t have to reconcile their books, and there is no 

consequence. Is that reality? 

Mr. DODARO. That is reality. That is exactly where it is. That is 

why I think there needs to be more rigorous Congressional oversight. In fact, and Gary, correct me if I am wrong, in about 14 

cases the CFO said they don’t even know why, they are not even 

given an answer. 

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Ms. SPEIER. Can you provide the committee with those companies and those CFOs? 

Mr. DODARO. Yes, we can. 

Ms. SPEIER. And I really think that this is pretty outrageous. 

And if we are doing business with companies that can’t reconcile 

their books and refuse to do so, then why are we doing business 

with them? There should be consequences to not complying with 

the requirement to reconcile the balances with their trading partners. What would you recommend as a penalty? Loss of a contract? 

A thousand dollars a day? What would be appropriate? 

Mr. DODARO. I think there has to be some link to the agency’s 

appropriation process in order to do that. It becomes a tricky issue. 

But my first recommendation is that we start with Congressional 

oversight, make them explain it, and give them a deadline in which 

they have to rectify the problem. Part of the issue right now is 

there is not enough pressure on them to cause them to do this. 

Treasury tries to control them and to work with them and to support them. 

But there really isn’t enough, in my opinion, Congressional pressure. I am also trying to make sure that it becomes a higher level 

attention within the Administration as well. But then there has to 

be some penalties in places you are talking about. That part I can 

provide something for the record on, what we found to be effective. 

Ms. SPEIER. Would you also provide it to my office? 

Mr. DODARO. Yes. 

Ms. SPEIER. Thank you. 

Chairman ISSA. I thank the gentlelady. We now go to the gentleman from South Carolina, Mr. Gowdy. 

Mr. GOWDY. Thank you, Mr. Chairman. Because of your work on 

this issue, and your leadership, I am going to yield my time to you 

for continued questioning. 

Chairman ISSA. You have a great future with this committee. 

[Laughter.] 

Chairman ISSA. Mr. Dodaro, I have just a couple of wrap-up 

questions on this time. One of them is, following up on Ms. Speier’s 

question, now that there is no longer a Circuit City, I will use them 

as an example. When I was in business, I did tens of millions of 

dollars with Circuit City. Their receiving system was such that 

they would receive eight boxes one day and two boxes the next day. 

They would record the eight boxes with two short, and then the 

next day when they received the two, they would put them in inventory and never count them against the two they reported short. 

So over a period of years, I ended up with millions of dollars of 

money they didn’t pay me, and we were constantly showing proofs 

of delivery and so on. Now, Circuit City was easy to do business 

with compared to the Federal Government. So one of the questions 

I have is, within this report, these plugging in of numbers, isn’t 

some it inherent with these contractors delivering and the frustration of how the government receives and accounts for the goods? In 

other words, doesn’t it take two to end up with this problem? 

Mr. DODARO. Definitely, yes. 

Chairman ISSA. I wanted to make that clear, because I think the 

gentlelady was right, that we do have to be less tolerant. But I 

think we have to be less tolerant of both sides. 

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Mr. DODARO. Yes. I will give you a classic example. The DOD 

systems, their legacy financial management systems, don’t even 

identify who their trading partner is. So that is a big part of the 

problem, is DOD. So that is a classic case of where you can’t necessarily automatically fault the other party, because the counterparty is potentially causing most of the problem. 

Chairman ISSA. I appreciate that. We will try to work on both 

sides. 

In closing, on page 25 of your report, where it is Appendix I, it 

says, Chief Financial Officers Act, and it shows the audit results 

by agency. So for example, Commerce got an unqualified agency 

audit by KPMG. And just to give you one more, Ernst & Young did 

not give an unqualified audit on Health and Human Services. And 

PriceWaterhouseCoopers, I want to get all of them in here somewhere, I don’t see them. 

The fact is, next to most of these unqualified, and not unqualified, with the exception of Justice, Labor and the National Aeronautics and Space Administration, National Science Foundation 

and the Nuclear Regulatory Commission and the Office of Personnel Management. Those were all the exceptions. And the Department of Energy. 

With the exception of those I just named, all these others have 

a check mark that I want to make sure we say what it means. It 

says, ‘‘Agency auditor reported material weakness or non-compliance.’’ Now, I oversaw both public and private companies. So I am 

very aware of what my audit is, and I know that there is always 

something that can be improved. 

But when it says material weaknesses and non-compliances, that 

really is not truly an unqualified audit. That is an unqualified except for this qualification, isn’t that true? These are not clean audit 

results. 

Mr. DODARO. These are a separate reporting that is required 

under the Federal Financial Management Improvement Act, where 

the agencies have to demonstrate that they can record things that 

is a standard general ledger transaction and transaction levels, and 

that their systems will comply with accounting standards. And 

what this basically means is that the agencies compile their yearend financial statements, many using manual procedures and documentation. But their systems are not up to standards in producing 

timely, reliable information throughout the year. 

Chairman ISSA. Let me put this into terms the private sector 

might understand, and you correct me if I am wrong. For example, 

at Commerce or Defense, any number of these agencies that have 

these unqualified but material weaknesses, one, material weakness 

may mean that fraud can go undetected. You might have balance 

sheet that is accurate, but you may have been ripped off, that proper accounting for whether people actually put in time or don’t put 

in time, they get paid, and you know how much they got paid, but 

they may not have actually done the work. 

All of those are examples, or some of those are examples of material weaknesses in that yes, you have given us a financial statement that shows where you are, how much you have spent and 

how much you have, but you through haven’t actually told us 

whether the money is flying out the back door through waste, purVerDate Aug 31 2005 08:52 Aug 08, 2013 Jkt 000000 PO 00000 Frm 00068 Fmt 6633 Sfmt 6633 C:\DOCS\82273.TXT APRIL
65 

chases that are paid for on products not received, those are all material weaknesses that can be and are likely included in many of 

these reports, isn’t that true? 

Mr. ENGEL. That is correct. Essentially what the unqualified 

opinion on financial statement tells you is that they have a process 

in place to produce a set of financial statements at year-end that 

will appropriately account for the activity in accordance with generally accepted accounting principles. It does not speak for the condition of their underlying internal controls. 

Chairman ISSA. So I think for the public, at the close of this, I 

want to say, as chairman, that I look forward to us having all the 

agencies, including the Department of Defense, have unqualified financials. But it actually bears little, it is only a starting point, for 

accounting for every penny for the American people so that we 

know it is actually being exchanged in return for the value that 

was agreed to, isn’t that correct? 

Mr. DODARO. Yes, that is exactly correct. And actually, the original legislation, the Chief Financial Officers Act, goes to that very 

point about having timely, reliable information, good controls, and 

the audited financial statements are only a step, a tool to achieve 

that longer term, more complete goal. 

Chairman ISSA. I thank you for your testimony today. It has 

been extremely valuable. I won’t say that it is as optimistic and uplifting as we would like. But as always, you give us the truth, even 

if it isn’t what we would love to hear. 

And we stand adjourned. 

[Whereupon, at 11:36 a.m., the committee was adjourned.] 

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