I 113th CONGRESS 1st Session H. R. 559 IN THE HOUSE OF REPRESENTATIVES February 6, 2013 Ms. Lee of California (for herself, Ms. Schakowsky , Mr. Ellison , Mr. Grijalva , Mr. Conyers , Mr. Lewis , Mr. Honda , Ms. Clarke , Mr. Burgess , Mr. Rush , Mr. Schrader , and Mr. Blumenauer ) introduced the following bill; which was referred to the Committee on Oversight and Government Reform , and in addition to the Committee on Armed Services , for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned A BILL To reduce by 5 percent the discretionary budget authority of any Federal agency for a fiscal year if the financial statement of the agency for the previous fiscal year does not receive a qualified or unqualified audit opinion by an external independent auditor, and for other purposes.

1. Short title This Act may be cited as the Audit the Pentagon Act of 2013 . 2. Purposes The purposes of this Act are as follows: (1) To strengthen American national security by ensuring that— (A) military planning, operations, weapons development, and a long-term national security strategy are connected to sound financial controls; and (B) defense dollars are spent efficiently. (2) To instill a culture of accountability at the Department of Defense that supports the vast majority of dedicated members of the Armed Forces and civilians who want to ensure proper accounting and prevent waste, fraud, and abuse. 3. Findings Congress finds the following: (1) The 2012 Financial Report of the United States Government found that 21 of 24 major Federal agencies received clean audit opinions. Two more, the Department of Homeland Security and the Department of State, received qualified audit opinions but are making progress. Only the Department of Defense had a disclaimer because it lacked any auditable reporting or accounting available for independent review. In the Financial Report, the Treasury Department summarized: Over the past 20 years, an increasing number of Federal agencies have initiated and sustained disciplined and consistent financial reporting operations, implemented effective internal controls around financial reporting, and have successfully integrated transaction processing and accounting records. These efforts have resulted in improved results on financial statement audits. However, weaknesses in basic financial management practices and other limitations continue to prevent one major agency, and the Government as a whole, from achieving an audit opinion. . (2) The financial management of the Department of Defense has been on the High-Risk list of the Government Accountability Office (GAO). The GAO found that the Department is not consistently able to control costs; ensure basic accountability; anticipate future costs and claims on the budget; measure performance; maintain funds control; and prevent and detect fraud, waste, and abuse . (3) At a September 2010 hearing of the Senate, the Government Accountability Office stated that past expenditures by the Department of Defense of $5,800,000,000 to improve financial information, and billions of dollars more of anticipated expenditures on new information technology systems for that purpose, may not suffice to achieve full audit readiness of the financial statement of the Department. At that hearing, the Government Accountability Office could not predict when the Department would achieve full audit readiness of such statements. (4) Section 9 of article 1 of the Constitution of the United States requires all agencies of the Federal Government, including the Department of Defense, to publish a regular statement and account of the receipts and expenditures of all public money . (5) Section 303(d) of the Chief Financial Officers Act of 1990 ( Public Law 101–576 ) required that financial statements be prepared and independently audited for the Department of the Army by March 31, 1992, and for the Department of the Air Force by March 31, 1993. Neither the Department of the Army nor the Department of the Air Force has complied. (6) Section 3515 of title 31, United States Code, requires the agencies of the Federal Government, including the Department of Defense, to present auditable financial statements beginning not later than March 1, 1997. The Department has not complied with this law. (7) The Federal Financial Management Improvement Act of 1996 ( 31 U.S.C. 3512 note) requires financial systems acquired by the Federal Government, including the Department of Defense, to be able to provide information to leaders to manage and control the cost of government. The Department has not complied with this law. (8) The National Defense Authorization Act for Fiscal Year 2002 ( Public Law 107–107 ) requires the Secretary of Defense to report to Congress annually on the reliability of the financial statements of the Department of Defense, to minimize resources spent on producing unreliable financial statements, and to use resources saved to improve financial management policies, procedures, and internal controls. (9) In 2005, the Department of Defense created a Financial Improvement and Audit Readiness (FIAR) Plan, overseen by a directorate within the office of the Under Secretary of Defense (Comptroller), to improve Department business processes with the goal of producing timely, reliable, and accurate financial information that could generate an audit-ready annual financial statement. In December 2005, that directorate, known as the FIAR Directorate, issued the first of a series of semiannual reports on the status of the Financial Improvement and Audit Readiness Plan. (10) The National Defense Authorization Act for Fiscal Year 2010 ( Public Law 111–84 ) requires regular status reports on the Financial Improvement and Audit Readiness Plan described in paragraph (9), and codified as a statutory requirement the goal of the Plan in ensuring that Department of Defense financial statements are validated as ready for audit not later than September 30, 2017. 4. Spending reductions for agencies without clean audits (a) Applicability (1) In general Subject to paragraph (2), this section applies to each Federal agency identified by the Director of the Office of Management and Budget as required to have an audited financial statement under section 3515 of title 31, United States Code. (2) Applicability to military departments and defense agencies For purposes of paragraph (1), in the case of the Department of Defense, each military department and each Defense Agency shall be treated as a separate Federal agency. (b) Definitions In this section, the terms financial statement and external independent auditor have the same meanings as those terms have under section 3521(e) of title 31, United States Code. (c) Adjustments for Financial Accountability (1) On March 2 of fiscal year 2014 and each subsequent fiscal year, the discretionary budget authority available for each Federal agency for such fiscal year is adjusted as provided in paragraph (2). (2) If a Federal agency has not submitted a financial statement for the previous fiscal year, or if such financial statement has not received either an unqualified or a qualified audit opinion by an independent external auditor, the discretionary budget authority available for the Federal agency is reduced by 5 percent, with the reduction applied proportionately to each account (other than an account listed in subsection (d) or an account for which a waiver is made under subsection (e)). (3) An amount equal to the total amount of any reduction under paragraph (2) shall be retained in the general fund of the Treasury for the purposes of deficit reduction. (d) Accounts excluded The following accounts are excluded from any reductions referred to in subsection (c)(2): (1) Military personnel, reserve personnel, and National Guard personnel accounts of the Department of Defense. (2) The Defense Health Program account of the Department of Defense. (e) Waiver The President may waive subsection (c)(2) with respect to an account if the President certifies that applying the subsection to that account would harm national security or members of the Armed Forces who are in combat. (f) Report Not later than 60 days after an adjustment under subsection (c), the Director of the Office of Management and Budget shall submit to Congress a report describing the amount and account of each adjustment. 5. Report on Department of Defense reporting requirements Not later than 180 days after the date of the enactment of this Act, the Under Secretary of Defense (Comptroller) shall submit to Congress a report setting forth a list of each report of the Department required by law to be submitted to Congress which, in the opinion of the Under Secretary, interferes with the capacity of the Department to achieve an audit of the financial statements of the Department with an unqualified opinion. 6. Sense of Congress It is the sense of Congress that— (1) as the overall defense budget is cut, congressional defense committees and the Department of Defense should not endanger the Nation’s troops by reducing wounded warrior accounts or vital protection (such as body armor) for members of the Armed Forces in harm’s way; (2) the valuation of legacy assets by the Department of Defense should be simplified without compromising essential controls or generally accepted government auditing standards; and (3) nothing in this Act should be construed to require or permit the declassification of accounting details about classified defense programs, and, as required by law, the Department of Defense should ensure financial accountability in such programs using proven practices, including using auditors with security clearances.