[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
VULNERABILITIES TO WASTE, FRAUD, AND ABUSE: GENERAL ACCOUNTING OFFICE
VIEWS ON NATIONAL DEFENSE AND INTERNATIONAL RELATIONS PROGRAMS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON NATIONAL SECURITY,
VETERANS AFFAIRS AND INTERNATIONAL
RELATIONS
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
MARCH 7, 2001
__________
Serial No. 107-22
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
_______
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COMMITTEE ON GOVERNMENT REFORM
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida EDOLPHUS TOWNS, New York
JOHN M. McHUGH, New York PAUL E. KANJORSKI, Pennsylvania
STEPHEN HORN, California PATSY T. MINK, Hawaii
JOHN L. MICA, Florida CAROLYN B. MALONEY, New York
THOMAS M. DAVIS, Virginia ELEANOR HOLMES NORTON, Washington,
MARK E. SOUDER, Indiana DC
JOE SCARBOROUGH, Florida ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio DENNIS J. KUCINICH, Ohio
BOB BARR, Georgia ROD R. BLAGOJEVICH, Illinois
DAN MILLER, Florida DANNY K. DAVIS, Illinois
DOUG OSE, California JOHN F. TIERNEY, Massachusetts
RON LEWIS, Kentucky JIM TURNER, Texas
JO ANN DAVIS, Virginia THOMAS H. ALLEN, Maine
TODD RUSSELL PLATTS, Pennsylvania JANICE D. SCHAKOWSKY, Illinois
DAVE WELDON, Florida WM. LACY CLAY, Missouri
CHRIS CANNON, Utah ------ ------
ADAM H. PUTNAM, Florida ------ ------
C.L. ``BUTCH'' OTTER, Idaho ------
EDWARD L. SCHROCK, Virginia BERNARD SANDERS, Vermont
------ ------ (Independent)
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
James C. Wilson, Chief Counsel
Robert A. Briggs, Chief Clerk
Phil Schiliro, Minority Staff Director
Subcommittee on National Security, Veterans Affairs and International
Relations
CHRISTOPHER SHAYS, Connecticut, Chairman
ADAM H. PUTNAM, Florida DENNIS J. KUCINICH, Ohio
BENJAMIN A. GILMAN, New York BERNARD SANDERS, Vermont
ILEANA ROS-LEHTINEN, Florida THOMAS H. ALLEN, Maine
JOHN M. McHUGH, New York TOM LANTOS, California
STEVEN C. LaTOURETTE, Ohio JOHN F. TIERNEY, Massachusetts
RON LEWIS, Kentucky JANICE D. SCHAKOWSKY, Illinois
TODD RUSSELL PLATTS, Pennsylvania WM. LACY CLAY, Missouri
DAVE WELDON, Florida ------ ------
C.L. ``BUTCH'' OTTER, Idaho ------ ------
EDWARD L. SCHROCK, Virginia
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
Lawrence J. Halloran, Staff Director and Counsel
Tomas Costa, Professional Staff Member
Jason Chung, Clerk
David Rapallo, Minority Counsel
C O N T E N T S
----------
Page
Hearing held on March 7, 2001.................................... 1
Statement of:
Walker, David M., Comptroller General of the United States,
accompanied by Stephen P. Backhus, Director, Health Care;
Jess T. Ford, Director, International Affairs and Trade;
Henry L. Hinton, Jr., Managing Director, Defense
Capabilities and Management; Gary L. Jones, Director,
Natural Resources and Environment; Allen Li, Director,
Acquisition and Sourcing Management; Katherine V. Schinasi,
Director, Acquisition and Sourcing Management; Jeffrey C.
Steinhoff, Managing Director, Financial Management and
Assurance; David R. Warren, Director, Defense Capabilities
and Management; and Joel C. Willemsen, Managing Director,
Information Technology..................................... 3
Letters, statements, etc., submitted for the record by:
Walker, David M., Comptroller General of the United States,
prepared statement of...................................... 9
VULNERABILITIES TO WASTE, FRAUD, AND ABUSE: GENERAL ACCOUNTING OFFICE
VIEWS ON NATIONAL DEFENSE AND INTERNATIONAL RELATIONS PROGRAMS
----------
WEDNESDAY, MARCH 7, 2001
House of Representatives,
Subcommittee on National Security, Veterans Affairs
and International Relations,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:05 a.m., in
room 2154, Rayburn House Office Building, Hon. Christopher
Shays (chairman of the subcommittee) presiding.
Present: Representatives Shays, Kucinich, Otter, Putnam,
and Clay.
Staff present: Lawrence J. Halloran, staff director and
counsel; J. Vincent Chase, chief investigator; R. Nicholas
Palarino, senior policy advisor; Robert Newman and Thomas
Costa, professional staff members; Jason M. Chung, clerk; David
Rapallo, minority counsel; and Earley Green, minority assistant
clerk.
Mr. Shays. This hearing of the Subcommittee on National
Security, Veterans Affairs and International Relations is now
in session.
The hearing is entitled, ``Vulnerabilities to Waste, Fraud,
and Abuse: GAO's Views on National Defense and International
Relations Program.''
This morning the subcommittee welcomes an important
witness, David M. Walker, the Comptroller General of the United
States. As head of the General Accounting Office [GAO], he is
an invaluable partner in our oversight of Federal departments
and programs.
Recent updates to the GAO performance and accountability
and high-risk series of reports provide Congress and the new
administration a detailed road map for reform. Those reports
sound a warning that long-simmering management weaknesses,
cultural inertia, and fiscal excess pose an immediate threat to
our ability to meet national goals. It is a warning we ignore
at our peril, as today's mere challenges and risks inexorably
drive tomorrow's crisis.
At the Department of Defense [DOD], unjustifiably
optimistic planning assumptions feed an over-subscribed weapons
system acquisition menu, stretching development cycles and
inflating costs. Leakage from cold war business systems and
inventory controls drains resources needed to defend our global
interests in a shrinking world.
Operation and maintenance costs for aging equipment and
unneeded infrastructure sap our ability to recruit, train,
house, and arm a modern mobile force.
At the Department of Defense, human capital management
deficiencies seen in varying degrees Government-wide yield a
U.S. presence abroad increasingly ill-suited to new diplomatic
missions. Those posted overseas remain vulnerable to cyclic
feast or famine funding of Embassy security measures.
We will hear similar findings of financial system
weaknesses and a lack of result-oriented management at the
Department of Veterans Affairs. This extensive body of work by
the GAO demands our attention. These are not abstract or
academic conclusions, but a thorough and thoughtful analysis of
the systemic challenges and risks confronting those charged
with stewardship of national programs and public resources.
As we undertake our oversight mission to improve the
effectiveness and efficiency of national defense, international
relations, and veterans' programs, the fundamental issues
discussed today will guide our work.
Again, we welcome Mr. Walker and we look forward to his
testimony.
We are joined by Mr. Putnam, the vice chairman of the
committee, and Mr. Otter, as well.
Would either of you like to be recognized, or should we
begin?
Mr. Putnam. Not at this time.
Mr. Shays. OK.
Mr. Walker, if you would stand, what we'll do is we'll
administer the oath to you and anyone else who might possibly
be asked to respond, so if everyone would just stand and raise
your right hands, please.
[Witnesses sworn.]
Mr. Shays. For the record, they all have responded in the
affirmative.
To our transcriber, if we have one of you step forward,
we'll have them give you their card.
Mr. Clay, welcome to our hearing. I'm happy to recognize
you, or we can begin with the testimony.
Mr. Clay. Let's just begin.
Mr. Shays. OK. Thank you.
You're on. And let me just say, Mr. Walker, you are our
only witness, and so the 5-minute rule won't apply. What we'll
do is we'll just keep ticking the 5-minutes to give you a sense
of where we are at, but you go until you have made your points.
STATEMENTS OF DAVID M. WALKER, COMPTROLLER GENERAL OF THE
UNITED STATES, ACCOMPANIED BY STEPHEN P. BACKHUS, DIRECTOR,
HEALTH CARE; JESS T. FORD, DIRECTOR, INTERNATIONAL AFFAIRS AND
TRADE; HENRY L. HINTON, JR., MANAGING DIRECTOR, DEFENSE
CAPABILITIES AND MANAGEMENT; GARY L. JONES, DIRECTOR, NATURAL
RESOURCES AND ENVIRONMENT; ALLEN LI, DIRECTOR, ACQUISITION AND
SOURCING MANAGEMENT; KATHERINE V. SCHINASI, DIRECTOR,
ACQUISITION AND SOURCING MANAGEMENT; JEFFREY C. STEINHOFF,
MANAGING DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE; DAVID R.
WARREN, DIRECTOR, DEFENSE CAPABILITIES AND MANAGEMENT; AND JOEL
C. WILLEMSEN, MANAGING DIRECTOR, INFORMATION TECHNOLOGY
Mr. Walker. Thank you. It will take about 10 minutes or so,
Mr. Chairman. I think I can cover some very important
information in that period of time. I appreciate that.
Mr. Shays. Great. Well, we'll roll it.
Mr. Walker. Sounds great. Thank you.
Thank you, Mr. Chairman and members of the committee. I'm
pleased to appear before you today in order to discuss a number
of major management challenges and program risks dealing with
the Department of Defense, Department of Veterans Affairs, and
Department of State. Obviously, we will be happy to answer any
questions related to these or any other departments that are
within your jurisdiction.
As you mentioned, Mr. Chairman, my remarks, to a great
extent, are based upon the most recent GAO performance,
accountability and high-risk series update, which was issued in
January of this year. I would like to commend you at the outset
for holding these hearings. Quite candidly, Mr. Chairman, I
don't think there is enough oversight going on, and I think
that these reports, the performance, accountability and high-
risk series that we have provided and which we update every 2
years, provide an outstanding framework for such oversight
hearings, and I'm pleased to have a chance to cover these
departments with you here today.
Mr. Chairman, we are facing three key transitions at the
present point in time. We have a new administration, a new
107th Congress, and we are at the dawn of a new millennium. The
world has changed dramatically in the last decade, and it will
change even more in the decades to come.
We face increased globalization, rapid technological
advances, shifting demographics, changing security threats, a
variety of quality of life considerations. All of these are
prompting a fundamental need to reassess our approach to
Government. They are requiring us to fundamentally reassess
what Government does and how Government does business in the
21st century.
This is especially important from a budgetary standpoint,
as well, and I would like to set the framework for this
performance and accountability issue by providing a brief
budgetary framework, which I think is important for you to see.
While everybody knows that the short-term budget surpluses
have improved, meaning for the next 10 years, the simple fact
of the matter is that the long-term budget situation has gotten
worse, primarily due to escalating health care costs and the
effects of the demographic tidal wave associated with the aging
of the baby boom generation.
I would like to commend to you, if I could, this first bar
graph that I have used before the Finance Committee, the Budget
Committees, and Ways and Means from time to time. What this
will show you is the line graph represents Federal revenues as
a percentage of the economy--year 2000, which obviously was
last year; 2030 and 2050--based upon CBO projections and based
upon the Social Security and Medicare trustees' best estimate
projections of the cost of those programs.
As you can see, we have a surplus right now, but if we save
every dime of the Social Security surplus or every penny, and
if Congress decides to spend the on-budget surplus, meaning
either through tax cuts or spending increases or a combination
thereof, this is the picture that we will face in the year 2030
and 2050--a cut of discretionary spending by roughly one-half
by the year 2030, and a decapitation of discretionary spending,
as well as member expenditures.
The point is simple, and that is we need to be prudent
about what happens with the surplus today. Second, we need to
reform entitlement programs. And, third, we need to make sure
that every Government department, agency, and program is
operating as economically, as efficiently, and effectively as
possible, because we are going to face increasing budget
pressures in the future due to known demographic trends.
In fact, one of the things that has happened to DOD, for
example, since 1962, the significant decline in the budget
allocation to DOD has almost dollar-for-dollar been re-
allocated to health care, social security and interest on the
debt since 1962, and health care costs are only going one way,
and that's up.
And so, with that, I think it is important to recognize
that there are long-range budget challenges that we face, which
means we have to focus on what Government does and how
Government does business in the 21st century. My testimony will
focus on how Government does business, because the answer to
what Government does is fundamentally a decision for elected
officials.
What I would like to do, Mr. Chairman, is to get right into
the issues for these specific departments and agencies, and I
will put up a board to be able to help in that regard.
As you know, in our overall reports on Government
performance and accountability, we've said that there are
basically five things that need to be done to maximize
Government's performance and accountability. First, to give
high priority to implementing the existing management reforms
that were enacted in the 1990's; second, to fundamentally
reassess and re-engineer the Federal Government's approach to
people or human capital strategy; to attack areas subject to
higher vulnerability for fraud, waste, abuse, and
mismanagement, which is our high-risk list--there are 22
different programs or functions on that; to address other
challenges, the other balance of the 93 in our performance and
accountability series; and to engage in a number of other
actions designed to better position us for the future.
If I can, let me talk about these three departments and
agencies and provide an overview that may prompt some
questions.
First, DOD. I'm a Teddy Roosevelt fan, TR, and, as you
know, Teddy Roosevelt used to have a saying, ``Speak softly and
carry a big stick.'' Arguably, the State Department is the
department that speaks softly; the Defense Department is the
department that carries the big stick. And, obviously, VA is
the department that takes care of those who have defended us in
the past, and I think it is important to keep that in
perspective.
Let's start with DOD. I don't think there is any question
that the Department of Defense and the military forces that it
is responsible for are the best in the world. We are an ``A''
on effectiveness as it relates to fighting and winning armed
conflicts when those forces have to be brought to bear.
At the same point in time, the Department of Defense is a
``D-plus'' as it relates to economy and efficiency. In fact,
the Department of Defense has 6 of the 22 Federal high-risk
areas its confines. It also is experiencing challenges with
regard to human capital, which is a Government-wide challenge;
computer security area, which is also a Government-wide
challenge; it has other information technology challenges;
serious financial management challenges; faces a number of
excess infrastructure challenges; the acquisitions process is
fundamentally broken; the contracts process has got problems;
and logistics, as well.
And let me touch on a few, just to give you an example.
In the human capital area DOD is having increasing
difficulty in attracting an adequate number of recruits. It is
having problems with pilots. It is having problems with its
acquisitions work force. It is having problems with regard to
information technology and a variety of other areas. It was
down-sized significantly in the 1990's, but it was done so in a
way where there was not effective work force planning, and, as
a result, over 50 percent of DOD's work force is over 50, and a
significant percentage of its work force is going to be
eligible to retire in the civilian work force within the next 4
years. There are major succession planning challenges, as well
as major challenges with regard to attracting and retaining
skilled personnel, both in the uniformed as well as the
civilian area.
With regard to information technology, computer security is
a major challenge for the Government, as a whole, but
particularly DOD. In fact, if we can hold up one chart that
relates to information technology, as well as financial
management, this is a diagram of just the major systems that
DOD has only dealing with contractor and vendor pay.
If you wonder why they have a problem accounting for
things, it is because they have so many free-standing,
independent legacy systems that nonnot communicate with each
other. As a result, it is no wonder that they have extreme
difficulty in being able to account for the over $300 billion
worth of resources that they are provided each year. This also
provides challenges in conjunction with contract management. It
also illustrates challenges associated with logistics and
inventory management.
For example, in the logistics area, they may have the item
but they may not know where it is, or how many they have. Now,
what's the result of that? They may order it when they don't
need it. They may not be able to access it when they need it
for operational purposes.
We are talking about significant sums of money here.
With regard to financial management, it is a basic tenet of
accountability. The Department of Defense is provided over $300
billion a year. That is taxpayer money. There needs to be
accountability over the use of that money, and there is a
fundamental problem at DOD with regard to that, and I hope and
pray that by the end of my 15-year term, which is about 12\1/2\
years from now, that the Government will obtain a clean opinion
not only on DOD's financial statements but also on the Federal
Government's consolidated financial statements. I can assure
you that it won't happen on a consolidated basis until DOD is
in a position to get a clean opinion on its financial
statements, because it is so large, so material, and the
problems are so fundamental.
Infrastructure--DOD has an estimated 23 percent excess
infrastructure. That's money that could be used for readiness.
That's money that could be used for quality of life support for
out troops.
Now, we all understand that there are difficulties
associated with base closures, but there is significant excess
infrastructure there. Inter-agency coordination, the need to
coordinate more with State with regard to drug interdiction,
anti-terrorism; also with VA with regard to health care,
dealing with the health care needs of the veterans and retired
dependents population.
In the acquisitions area, DOD's practices are fundamentally
inconsistent with commercial best practices. The result?
Billions wasted, significant delays and compromised performance
standards. DOD already has wants that far exceed projected
resource availability. We need to be following commercial best
practices for acquisitions unless there is a clear and
compelling reason from the national security standpoint not to.
Unfortunately, DOD all too frequently is motivated by, ``Get
the money, spend the money, hit the milestone that was set
years ago, irrespective of the results of the testing,
irrespective of whether or not one might question whether there
should be a delay in order to further assess.''
This, as I said, results in billions wasted and a lot of
other adverse consequences.
From the contracting standpoint, DOD faces challenges with
regard to not having enough people with the necessary skills
and knowledge to effectively manage outside contractor
activity. There are inadequate incentives for contractors to
pay, to reimburse when there are overpayments, and there is
inadequate accountability when they fail to do so.
Logistics, I have already addressed this area.
Health care--one example on health care would be the issue
of--recently Congress decided to expand DOD's responsibility
for providing health care to some of its retirees. One of the
issues that we need to look at in Government is, while that
coverage might need to be provided, who is in the best position
to provide it? Should it be DOD or should it be VA? The fact of
the matter is, the type of care provided by most DOD physicians
is acute care--broken bones, the types of injuries that you
might expect from the uniformed force and a younger force. At
the same point in time, retirees, to the extent that they have
to take care of retirees, the type of care provided to retirees
is fundamentally different, and, quite frankly, in many regards
you might argue that the VA might be in a better position to
provide that type of care.
I might note that VA has a bunch of excess capacity at the
same point in time, and therefore that might help to soak up
some of that excess capacity.
I'll touch on a few issues just with State and VA and then
summarize, Mr. Chairman.
At State you see a number of challenges they've faced.
Probably most fundamental is in the human capital area--a real
problem from the standpoint of attracting and retaining an
adequate number of Foreign Service officers. Believe it or not,
they still have, by and large, an ``up or out'' policy--that if
you don't end up getting promoted to a certain level within a
certain timeframe, you're out. Now, I question whether or not
that makes sense in today's world. Most professional services
firms threw out that policy 10 to 20 years ago, and I think it
is time for the State Department to re-look at that policy, as
well.
With regard to infrastructure, State faces challenges with
regard to infrastructure. We're in every major country on
Earth, and--really, every country on Earth. At the same point
in time, we are facing challenges with regard to Embassy
security. Maybe the time has come where we need to think about
do we need to have physical presence everywhere? Should we be
considering a regional structure, hub-and-spoke concept with
regard to our infrastructure around the world as a way to
enhance security, improve economy, especially in a time of
significant technological capabilities?
With regard to VA, clearly VA faces major human capital
challenges dealing with nurses and a variety of other health
care positions. They also face excess infrastructure. Take
Chicago, for example. VA has four hospitals in Chicago. Now,
the difficulty is that the veterans' population is actually
going down, so we have this excess capacity. There is an
opportunity, if the Congress so desires, to be able to take
resources that could be achieved from the reduced cost and the
additional asset recovery from that excess capacity and to
redeploy those resources for quality of care to our Nation's
veterans. That's an area that needs to be focused on, as well.
Again, what are they there for? Quality of care. And I
think we need to re-look at our asset allocation in that
regard.
The disability programs with regard to VA continue to be a
fundamental challenge in how long it takes to be able to
process these claims, and I think the time may well have come,
as well, to kind of reassess the definition of disability in a
knowledge-based economy.
A number of Members of the Senate and a number of Members
of the House are disabled veterans, and yet they are continuing
to make major contributions to our country, and I think the
definition of disability is something that probably needs to be
looked at not only just for VA, but, frankly, for the
disability insurance program under OASDI, as well.
If I can, Mr. Chairman, let me just summarize and then go
to Q and A.
While our short-term budget situation looks better, our
long-term budget situation is worse. This is the time that we
need to be asking what should Government do and how should
Government do business in the 21st century. There are
tremendous opportunities to improve economy, efficiency, and
effectiveness in these three critically important departments.
The fact of the matter is that every dollar that is wasted is a
dollar that is not available for legitimate needs for the
missions of these departments and agencies.
In some cases, we're talking about nothing less than a
fundamental cultural transformation in how these agencies do
business, focused much more on results rather than activities,
and in order to accomplish that we're going to have to have
committed and sustained leadership from the executive branch,
targeted resource allocations to address some of these
fundamental problems, and much more active and ongoing
oversight from the Congress than historically has been the
case.
And that's why, again, Mr. Chairman, I must commend you for
having this hearing, and I hope that many of your colleagues
will end up emulating you and following up with regard to a
number of other areas.
Mr. Chairman, I could speak for some time on this issue,
but what I'd rather do is just to go to your Q and A's so I can
make sure that I am focusing on the issues that are of most
interest to you and the other members of the committee.
Mr. Shays. Thank you.
Mr. Walker. Thank you, Mr. Chairman.
Mr. Shays. Thank you, Mr. Walker.
[The prepared statement of Mr. Walker follows:]
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Mr. Shays. We have been joined by Mr. Kucinich, who is the
ranking member of the committee. I'm going to call on him in a
second. But first I'll provide Mr. Putnam the opportunity to
ask some questions.
Mr. Putnam, let me just do the UCs. We have this
housekeeping thing we need to get taken care of.
I ask unanimous consent that all members of the
subcommittee be permitted to place an opening statement in the
record and that the record remain open for 3 days for that
purpose.
Without objection, so ordered.
I ask further unanimous consent that all witnesses be
permitted to include their written statements in the record.
Without objection, so ordered.
Mr. Putnam, you have the floor.
Mr. Putnam. Thank you, Mr. Chairman.
And thank you, Mr. Walker. I heard your presentation in the
Budget Committee and now again this morning, and I'm always
intrigued by your insight into the operations of Government.
When we talk about the Department of Defense, certainly you
are aware that the President has called for a top-to-bottom
review of operations looking for inefficiencies and looking for
better ways of conducting the Nation's business.
Is it your impression that the direction that the President
has given will reveal the inadequacies that we can address to
make the Department of Defense a high-performing agency, high-
performing department, or will something more comprehensive be
necessary?
Mr. Walker. I think it is in the early stages, Mr. Putnam.
My view is two-fold. No. 1, the President has announced the
intention to fundamentally reassess national security strategy,
then to look at national military strategy, then to be able to
take a look at how that will impact, what type of platforms do
we need, what type of force structure, what type of deployment,
etc. That's clearly important because that's the fundamental
part of the strategic plan. What's the mission? How are you
going to accomplish your mission?
But, in addition to that, the President has also noted his
interest, as has Secretary Rumsfeld, in trying to deal with
some of the systemic problems that have been years in the
making at the Department of Defense dealing with the overall
business process, in general, and financial management, in
particular.
The jury is out as to how they are going to go about
approaching that. Clearly, there has to be a lot more attention
from the top on a sustained basis than there has been in the
past, and, quite frankly, there has to be a lot more active and
ongoing congressional oversight in order to make things happen.
We are talking about problems that have been years in the
making and are going to take years to correct, and we may need
to be looking for different mechanisms for reporting to the
Congress and to the executive branch, where they lay out a game
plan, where they have key milestones, and where there is
periodic reporting back and accountability for hitting those
key milestones, or for reporting why they are not hitting the
milestones and what they are going to do in order to try to get
back on track. That has not been the case historically, and I
think ultimately it may have to be the case in order to get the
problem solved.
Mr. Putnam. As your GAO report has indicated, Congress has
allocated and Department of Defense has redirected substantial
expenditures for improving recruitment, improving retention.
What is your opinion on the success of those measures and how
we can improve our military forces' recruitment and retention
rates?
Mr. Walker. Well, first, the services did better this past
year than the year before, and yet they're still facing serious
challenges. A lot of the reasons they did better is because
they allocated a lot more resources into recruitment.
Unfortunately, they have not really effectively come up with
measures in order to ascertain what is working and what is not
working, and that's something that they need to do. It's not
just a matter of putting more money on it, but it is trying to
be able to measure which type of activities are generating
positive outcomes, if you will, and so they need to do more in
trying to track their actions and their resource investments
with the type of results that they get from them. They have not
done a very good job on that to date, and that's something they
need to work on.
Mr. Putnam. Thank you.
Thank you, Mr. Chairman.
Mr. Shays. Thank you.
What we're going to do is do 5 minutes first round and then
we'll do 10 minutes the second and 10 the third and whatever.
Mr. Kucinich. If you'd like to have a little extra time to
read any part of your statement, we're happy to do that, or we
can put it in the record.
Mr. Kucinich. Thank you, Mr. Chairman. I'll submit the
statement for the record, but I have some questions that will
derive from the statement.
Thank you very much, Mr. Walker, for being here.
There are 26 areas that you designated as high-risk 2 years
ago, 6--more than any other agency--belong to Department of
Defense. Now, within those six areas you highlighted billions
and billions of dollars that were unaccounted for or wasted
because of duplication or fraud or simply thrown away. You
mentioned, for example, the Department of Defense could not
match $22 billion worth of expenditures to the items they
purchased. You also mentioned that the Navy had no financial
information on $7.8 billion of inventory aboard ships, and that
it wrote off as loss over $3 billion worth of in-transit
inventory.
Now, these same six DOD areas were deemed high-risk in your
report of 4 years ago, as well as many agencies on your list
who have come and gone. You know, you've had many agencies come
and go, but DOD appears to be a fixture, and it appears that
we're not limited only to the high-risk reports in finding
evidence of DOD waste.
In May 2000, a different GAO report found that the DOD has
nearly $37 billion of equipment it doesn't need.
In March 2000, the DOD Inspector General reported that, of
$6.9 trillion in Pentagon accounting entries, $2.3 trillion
were not supported by enough evidence to determine their
validity.
Indeed, no major part of the Defense Department has ever
been able to pass an independent audit.
It seems to me that, you know, as you come before Congress
regularly to update us on the status of the Department of
Defense in one category after another, that it might be time to
ask some more fundamental questions, and that is: how does the
lack of consistent financial management and accountability for
the trillions of dollars which the American people spend on
defense, how does that equate with the entire concept of
national defense? I mean, how do the American people know that
the entire Department of Defense isn't failing in its effort?
You know, we see some materiel. We see planes that
occasionally fall out of the sky. But what do we--what about
the concept of national defense, in light of this report and
reports of the last few years?
Mr. Walker. Well, first, Mr. Kucinich, I think it is
important to know that some people view some of these issues
as, ``Well, you know, they've got some management problems
and''----
Mr. Kucinich. How do you view them?
Mr. Walker. I think they are serious and I think they are
very important. They are important from several standpoints.
No. 1, I think there is a basic responsibility for any
department, no matter what the department is, to provide
adequate accountability over taxpayer resources, especially
when you are talking about the amounts of money involved here.
No. 2, we are going to be, after the demographic tidal wave
hits, under increasing budget pressures, and therefore we are
going to need to make sure that we are getting the most out of
every dollar that is invested.
No. 3, I think that you've got a situation where, for
example, if you don't have an adequate inventory control
system, then you are buying things you don't need, you can't
access things when you do need to use them for operational
purposes, and so these problems have real consequences.
Candidly, I think, Mr. Kucinich, is that, while people have
placed more attention on this in the last several years--and,
in fairness, I have to say that. There has been more attention
placed on trying to deal with some of these issues, especially
in the financial management area, and there has been some
progress made.
I think we really need to significantly increase the amount
of attention and the amount of accountability associated with
dealing with these systemic and longstanding problems in order
to get the job done.
Mr. Kucinich. Well, let me ask you this: are we dealing
with a bureaucracy that is just too big? Should--is this an
argument, if we're going back over the years, Mr. Chairman, is
this an argument for restructuring the departments and breaking
them down into smaller departments that might be more easily
manageable?
I mean, when you look at this contracting vendor pay system
that you put up there, it is incomprehensible. And is this an
argument for restructuring our whole approach to defense so
that we can have a manageable system here?
It seems that we have--there's a sense in which the system,
itself, is inherently unmanageable. Would you comment on that?
Mr. Walker. First, I think that what really needs to be
done first is to get to complete the national security
strategy, the national military strategy, which is the
quadrennial review, which will be the framework for what DOD is
supposed to do. And then the question is how best to accomplish
it.
My personal opinion is, before you get into those issues
about how many services you need and whether you want to spend
all----
Mr. Kucinich. I didn't ask how many services are needed;
I'm asking----
Mr. Walker. Right.
Mr. Kucinich [continuing]. Whether or not you think, based
on the years that GAO has been studying this, that there isn't
an argument, a prima facie case here for creating a whole new
structure and to cut through this obvious inability of the
Department of Defense to function, given its size. Is it too
big?
Mr. Walker. I think that something that could be done short
of that is, for example, you might end up forming some type of
a task force to address a number of these fundamental problems,
the task force could be comprised of high-level people within
the Department and outside the Department who could end up
focusing on specific things that have to be addressed, have
milestones that have to be hit, that have periodic reporting
within the executive branch and the legislative branch and hold
them accountable for it. That has not happened.
I think if we are really going to get to the root cause of
these problems we're going to have to do something along those
lines in order to increase the visibility and the
accountability over making progress in this area.
In some cases there will need to be some targeted
investments as it relates to systems to modernize these systems
and to come up with integrated information systems rather than
continuing to try to spend--throw a lot of money at legacy
systems that we're never going to be able to effectively get to
where we need to be.
Mr. Shays. Mr. Walker, I am going to ask some questions.
Mr. Walker. Sure.
Mr. Shays. And we're trying to not stop for the vote. It's
just a journal vote.
When I look at this chart, you know, I'm inclined to say it
is not very clear to me, but, one, it would be helpful for you
to get some of the points there and tell me what they do, just
to bring some sense to it for me. And then I'd love to know
what best business practices would be at GE. Would GE's look
more complex or would it look less complex?
Mr. Walker. Well, it would be less complex because
basically what you have here--and I would say somebody can get
more detail, but let me give you an overview first.
Mr. Shays. While you're doing that, would you give her card
so she--the transcriber.
Mr. Walker. Jeff Steinhoff.
Mr. Shays. OK.
Mr. Walker. As you know, Mr. Chairman, DOD has 500 bases in
over 137 countries, a number of services, and historically what
has happened is each has done its own thing. Each has created
its own systems, and therefore you have a number of
independent, free-standing information systems that are not
integrated, that don't talk to each other, which is one of the
reasons that you have a lot of these reconciliation problems.
Jeff, I would ask you to provide some more perspective.
Mr. Steinhoff. Yes. Basically, the systems are nonstandard,
and each service has its own coding structure.
I testified, Mr. Chairman, before you last year on this,
and we had the one example where I believe there were 66
characters to enter one transaction, and those characters and
the way they would be set up would differ by service. There's a
lot of rivalry between the services and a cultural issue that
each entity develops its own systems.
So you end up with what are here 22 major systems that
can't communicate between each other. They weren't designed to
work together. You have 80 percent of the basic financial
information coming from non-financial systems. Many of those 22
are non-financial systems. And that information was never
really derived to provide the degree of control you want.
So you've got a lack of standardization, you've got a very
complex environment, you have these 22 major systems, and you
have a host of other systems that are feeding into those 22
systems.
In fiscal year 1999, the Defense Financial Accounting
Service processed $157 billion of payment transactions, and $51
billion of those, or $1 in $3, was an adjustment to a previous
transaction. You would find no business in the world that would
be entering one-third of their transactions as adjustments. So
they have a great deal of trouble getting it right and getting
the information from system to system, and it is a very
difficult process. They have to work through processes you
would not see in the private sector.
Mr. Shays. If something wasn't auditable--if you had an
auditable system but you needed to improve it because it was
too much paperwork or so on, but you had an auditable system,
something you could verify, you would try to keep the old and
then move forward with the new.
What makes sense in terms of keeping the old here? In other
words, I'm told that we can't verify practically any
transaction.
And I'll come back to you.
Mr. Walker. Let me make a general comment and then have
Jeff relate the detail on DOD.
We have that in certain departments and agencies right now.
We have departments and agencies right now that get clean
opinions on their financial statement. But the way that they
get clean opinions on their financial statement is they
undertake heroic measures whereby they are doing a bunch of
manual activity and coming up with a bunch of different
adjustments months after the end of the year in order to put
the auditors in a position to say that, all right, the numbers
as of 6 months ago are accurate and the numbers for the year
that ended 6 months ago are accurate; however, they can't tell
you the numbers for today. That is part of the problem.
A lot of people look at the clean opinion as the end game.
It is an important milestone. But you need to deal, as you are
pointing out, Mr. Chairman, with the underlying problem. You
need to deal with the systems. You need to integrate the
systems. You need to make sure that you've got the proper
controls in place. You need to focus on your processes, your
controls, before you end up designing a new system because you
want to have an efficient and effective process that is being
automated before you end up going out and abandoning what you
already have. So you have to run them parallel.
Mr. Shays. Yes. I may be getting a little off subject, but
I'm going to come around. What I'm trying to understand--and
you touched on it somewhat, but what I'm trying to understand
is basically we were told at one time--and I'm embarrassed to
use this number because I think it is wrong, but we were told
there were 7 trillion transactions--trillion, not bill,
trillion--and you're nodding your head. And that, to me, is
incomprehensible.
What that says to me, though, is that almost all the
transactions basically are not able to be digested in a way
that you can verify it.
So what my question really was, if the system is so bad,
why even bother to maintain any records or keep any system? Why
not just start totally fresh? And that's--that may seem like a
naive question, but that's my question.
Mr. Walker. Can I come back on that and then have Jeff
answer? It is better to have something than nothing. On the
other hand, you shouldn't be investing a whole lot of money
trying to improve all of these legacy independent systems.
Mr. Shays. OK.
Mr. Walker. You need to do what you can with what you have,
but you need to go to something totally different. You need an
integrated system that tears down a lot of these walls and
barriers, that builds in a number of effective controls, and
that you only have to enter the data once.
One of the reasons we have so many different transactions
is because we have multiple parties entering the same data into
different systems, which leads to a lot of the reconciliation
problems because some do it better than others.
Jeff.
Mr. Steinhoff. Basically, what you have is you have a
world-class systems challenge that goes far beyond the
financial system and really gets to all the management systems
in Defense.
What has happened over the years is billions and billions
of dollars have been spent on enhancing systems. There have
been a number of legendary systems failures where they have
invested large sums of money only to have to stop the systems
development, so there has been a recognition for a long time of
problems. It has never been done in a disciplined fashion. Each
service and components within services sort of do their own
thing. They have their own idea of what's needed and how to
operate. You don't have an overall systems architecture for the
department on which to really place a platform for these
systems, so, as Mr. Walker pointed out, they are not integrated
or tied together.
Right now, for example, there are huge initiatives ongoing
to overhaul the logistics systems, which are a very important
part of the vendor pay and contracting process and the
accountability side. There are different systems initiatives,
depending on what service you are in. And the services might
have multiple initiatives ongoing. At the same time, there's a
lot of financial management initiatives. These type of
initiatives have never been managed in an orderly manner, and
you've got to have leadership at the top where top management
is vested in this.
Defense had some success in the year 2000 crisis when they
addressed that challenge by vesting it at the top of the
organization.
Mr. Shays. I'm going to want shorter answers.
Mr. Steinhoff. OK.
Mr. Shays. And I'd love to make sure they key onto my
question.
Mr. Steinhoff. OK.
Mr. Shays. And then you have a lot you want to tell me, in
addition.
Is this system causing the problem or the result of the
problem?
Mr. Walker. It is part of the cause of the problem. The
fact that you have a number of independent systems that have
been created that are not integrated, that is one of the
primary causes of the problem.
Mr. Shays. OK. But now answer this question. I don't know--
give me what CAPS is, or STARS, or something. Tell me the
logical transaction that I would understand it, and then tell
me what's illogical.
Mr. Steinhoff.
Mr. Steinhoff. I'd have to provide that to you. I can't
really address the specifics of a transaction.
Mr. Shays. Do you have one of the charts?
Mr. Steinhoff. Yes.
Mr. Shays. You have one of the charts there.
Mr. Steinhoff. Yes.
Mr. Shays. Here you go. You know what? Since I don't know
any of them, you could just make it up and I'd--[laughter.]
Mr. Steinhoff. We don't do that nowadays, sir.
Mr. Shays. That's true. I was testing.
Mr. Steinhoff. There are plenty that do do it.
Mr. Shays. I was testing you.
Mr. Steinhoff. The STANFIN system is the standard financial
system.
Mr. Shays. Which one? Which one? Tell me----
Mr. Steinhoff. STANFIN.
Mr. Shays. Tell me where I'm looking. If 12 is----
Mr. Steinhoff. The bottom corner.
Mr. Shays. No. This looks like a clock, so it's 4.
Mr. Steinhoff. Southeast corner.
Mr. Shays. No. You guys can talk southeast. I'm----
Mr. Steinhoff. It's 5.
Mr. Shays. I'm 4. OK.
Mr. Steinhoff. And what you have is you have----
Mr. Shays. Now, what is that?
Mr. Steinhoff. It's called ``STANFINS.''
Mr. Shays. And what is it?
Mr. Steinhoff. That's the Standard Financial System.
Mr. Shays. OK.
Mr. Steinhoff. And you have information coming to that
system, and also to this DJAS system, which also deals with
standard financial data.
Mr. Shays. And I see nothing going out. And, unfortunately,
I'm going to have to temporarily adjourn. When Mr. Kucinich
gets in, he's going to start taking the gavel and just proceed.
Mr. Walker. OK.
Mr. Shays. So we're at a recess.
[Recess.]
Mr. Kucinich [assumes Chair]. Chairman Shays has asked me
to reconvene, and so he will be back from the vote, but in the
meantime I think we can continue with the questions.
And what I'd like to know, Mr. Walker, there were some
statements that you made in your comments, and I would like to
go back over them. You said that, while the Department has
improved its strategic planning process, its strategic plan is
not tied to desired mission outcomes. And you further state
that DOD ``employs overly optimistic planning assumptions in
its budget formulation,'' and that, as a result, ``DOD all too
frequently has too many programs for the available dollars.''
Finally, you point out that this optimistic planning, ``Makes
Defense priorities unclear because tough decisions and
tradeoffs between needs and wants are avoided.''
Now, just by itself this assessment is devastating, but,
taken in the context of what we talked about earlier as far as
the Pentagon's accounting problems, this is kind of a
nightmare. If the Pentagon is not considering mission outcomes
and thinking realistically in planning programs and spending,
on what basis could it possibly be making decisions?
Mr. Walker. What is happening, Mr. Kucinich, is that all
too frequently the decisions that are being made are being made
by independent, free-standing units--for example, the Army
versus the Navy versus the Air Force, each independently coming
up with what they think they need in order to be able to
achieve what they believe is their role, function, and mission
in the broader context.
What needs to happen, to a much greater extent than has
happened historically, is we need to start at the top. What is
the national security strategy? What is the national military
strategy? What does that mean from the standpoint of platforms,
forces? Those requirements--there's interaction, obviously, but
those come down and have to get coordinated within an overall
budget context.
If you look at the sum of all the----
Mr. Kucinich. Has that ever been done.
Mr. Walker. Not effectively. The answer is no, not
effectively.
Mr. Kucinich. Has it been done rhetorically?
Mr. Walker. In theory it----
Mr. Kucinich. Done in theory?
Mr. Walker. In theory it has been done, in practice it
hasn't been done.
Mr. Kucinich. But we don't fund in theory, we fund in fact.
Mr. Walker. And then what happens, Mr. Kucinich, is you
take the individual wants of the services--take weapons
systems. You add up all the wants and the cost of the wants,
and they clearly exceed what the funding is available and
projected to be available. There has to be a process to
identify that up front in the aggregate to be able to make
those tradeoffs earlier on than historically has been the case,
because the failure to do that means that you have a huge
expectation gap. You've got the services trying to come up here
and get money for a bunch of things that they don't have the
funding for and they may not ever get it. And, therefore, that
means that you end up--you spend a lot of money on something
that may not ever become operational or you have to buy a lot
less quantities than otherwise you think you needed to achieve
your mission. It is fundamentally broken.
Mr. Kucinich. Well, I think every member of the committee
would support my statement when I say we all appreciate the job
which the men and women who have committed themselves to
service in the armed forces do. I mean, it is a great honor to
serve one's country in any capacity, and we appreciate the work
of the men and women. That's why it is confounding to see
circumstances where we may be wasting billions of dollars on
materiel and we have men and women who serve our country
fighting for decent housing and not having--some of them on
food stamps. I mean, it is tough to see that contradiction,
especially in a report such as yours.
I wonder how many people work for the GAO on tracking
what's going on at the Department of Defense?
Mr. Walker. We have about 3,100 people that work for the
GAO, and we have more than one team that focuses on the
Department of Defense. We have a Defense Capabilities and
Management team, which is several hundred people. We have an
Acquisition Sourcing and Management Strategies team where we
have several hundred people, so it depends. I mean, we have a
number of projects going on at any one point in time.
Mr. Kucinich. Who interprets that web of contract and
vendor pay systems? How many people? How many people did it
take to come up with that analysis?
Mr. Walker. I don't know how many people, but I can tell
you this--I don't know if it is interpretable. That's the whole
point. I think the whole point is what we have here is a
situation where a single transaction, which I think this
illustrates, has to be entered multiple times because, rather
than having an integrated information system, which is what
most modern corporations would have now, where you enter the
data once, it goes to a number of other subsystems, it has to
be entered independently, which by definition means a lot more
activity, a lot more opportunity for error.
Mr. Kucinich. So does this--would you go over again what
this actually represents? Does this represent----
Mr. Walker. This represents the major information systems
that the Department of Defense has dealing solely with
contractor and vendor pay--in other words, for paying
contractors and paying vendors.
Mr. Kucinich. Right.
Mr. Walker. That's how many different systems they have.
The arrows illustrate where all the data has to be entered into
these different systems in order for them to do what their
intended job is.
Mr. Kucinich. Do you ever wonder how you can have so many
systems here and have so much lack of accountability
simultaneously? Does that ever--is there some kind----
Mr. Walker. I'm not, you know----
Mr. Kucinich. Is there some kind of principle, mystical
principle of management and accounting at work here that we
mere mortals cannot perceive?
Mr. Walker. Candidly, I think what has to happen, Mr.
Kucinich, is, as Mr. Steinhoff mentioned a few minutes ago, we
need to recognize that these challenges, the six high-risk
areas--financial management, information technology,
acquisitions management, etc.--the six that we've laid out are
important, they deal with billions of dollars. Those are
dollars that could be used for readiness. Those are dollars
that could be used for quality of life. And we need to elevate
these issues to the highest levels of the Department of Defense
to look at it from a strategic standpoint at the very top. We
need to have reporting and accountability mechanisms within the
executive branch, as well as to the legislative branch, to
demonstrate that there is a plan with key milestones that
progress is being made, and if it is not, then what is the
problem and what are you going to do to address it. That has
not historically occurred. And if we are going to solve the
problem, we are going to have to do something along those
lines.
Mr. Kucinich. How often do you issue reports?
Mr. Walker. Well, we issue reports every day. We issue our
performance accountability and high-risk series, which is the
basis for this hearing, every 2 years. We will issue an update
every 2 years.
Mr. Kucinich. Would it be--do you think it would be more
helpful to Congress if you provided even more-frequent updates
on this, because 2 years can slip by before we ask these
questions again. You know, obviously, 4 years have slipped by
before we got to this moment, and we find ourselves in the same
place.
In a way, despite all these efforts that are being made, it
kind of sounds like a variation of the old placard,``The
hurrier I go the behinder I get.'' And I'm just wondering how,
Mr. Chairman, would the GAO recommend the Department of Defense
undertake a path toward trying to straighten out this intricate
web of accounting and financial management practices.
Mr. Walker. Well, I know that Secretary Rumsfeld has stated
publicly that it is his intention to make financial management
one of his top priorities. The question is how is he going to
go about accomplishing that. I think that one of the things
that needs to happen is that it is going to have to be elevated
to at least the deputy secretary level. There is going to have
to be some type of task force mechanism, or whatever, that
forces all these different silos to come together for the
greater good, that has an overall strategic plan with key
milestones on how they are going to address this. There has to
be accountability within the executive branch, not just within
DOD, but to the Office of the President, OMB, etc. And there
has to be accountability to Congress, and I think it has got to
be more frequently than every 2 years.
Mr. Shays [resumes Chair]. Let me do this. Thank you for
taking over.
Mr. Clay, you have the floor and you have a good 10
minutes, plus, if you'd like it.
Mr. Clay. Thank you, Mr. Chairman.
Mr. Walker, you mentioned in your testimony that it's
either GAO or DOD thinks you have about 27 percent excess
infrastructure. You are advocating that there be another round
of realignment and base closures, correct?
Mr. Walker. We have said in the past, Mr. Clay, that we
think there is excess capacity; that if you could address that
excess capacity you could free up the resources for readiness,
for the troops, and for other priority purposes.
Mr. Clay. Let me ask you about the previous round of base
closures. You--is the property being sold, or what's happening
to the excess property that went through the closure process?
Mr. Walker. I'm going to ask Mr. Hinton, who is head of
Defense Capabilities and Management team, to come up, because
he was here when the last round occurred and I was not.
Mr. Hinton. It is still evolving, Mr. Clay. Some of this is
staying within the public sector, some of it is going to the
private sector, but not as much as DOD had estimated would be
sold has been sold. You know, going through base closures has
been a bit of a problematic economic issue for some of the
communities. But what we've seen through our work is that there
has been recovery over a period of time in those communities
that have been affected, and progress has been made. We have
been periodically looking at those areas where the bases were
closed and what has been happening since then, so there has
been--well, there was a lot of anxiety at the time the closure
decisions are made. Over time we have seen the economies
rebound.
Mr. Clay. Well, let me bring your attention to a site in my
district. It's the old ADCOM site in St. Louis.
Mr. Hinton. Yes.
Mr. Clay. You know, between GAO and DOD, the buck just
keeps getting passed on who is responsible for the site. Now,
it needs to be cleaned up. I think GAO or DOD has neglected the
facility, which is in the heart of an economically depressed
community, the local community, and I would like to see it
cleaned up. It is a 60-year-old ammunitionsite that, at its
height, provided ammunition for World War II. And so the local
community is trying to redevelop that site. We would like some
assistance from GAO to help us clean up the site, to help
repair it for future development.
Can you all take a look at this issue and then report back
to me on what is possible?
Mr. Hinton. Yes, sir. We would be happy to come up and meet
with you and your staff and see what it is we can do. As you
know, one of the criteria that is considered when they go
through base closure decisions is the impact on the
communities, and one of those is the environmental impact----
Mr. Clay. Sure.
Mr. Hinton [continuing]. And that's exactly what you are
referring to, and I think we could come up and see what we
could do to help you out.
Mr. Clay. I mean, is that GAO's policy is that they do take
a look at economically depressed areas and try to determine
whether it is possible to assist those local communities in
getting the land prepped and for future development?
Mr. Walker. Mr. Clay, our job, as you know, is to work for
the Congress to get the facts on various of these issues and to
present it to the Congress such that you can consider that in
conjunction with your Constitutional responsibilities, and such
that the Department of Defense and other agencies can consider
it with regard to setting their priorities and what their
actions are.
I think one point you mentioned is, if you do end up having
a base closure, whether and to what extent you can end up
utilizing that property for development and for other purposes
to a great extent has to do with what is the environmental
condition of that property.
To the extent the property has been used, you know,
previously to store ammunition and things of that nature, there
are obviously costs that have to be incurred in order to clean
that up, in order to be able to rectify that situation, and
there are potential liabilities that a developer would be
concerned about, making sure that it is being taken care of or
that they don't unduly expose themselves to liability if the
Government is not willing to assume that responsibility.
So we have done work on that where we've gotten the facts,
where we've laid out the facts, but obviously we are not
directly involved in the cleanup or making the related
decisions.
Mr. Clay. Well, I would like to hear from your staff on
this issue and would like to meet with you. It is of serious
concern to us in the St. Louis community and we'd like to sit
down with you.
Let me also ask you about your outside contractors. Have
you been able to get any refunds on contractors? You talked
about over-charging of contractors. Were you able to----
Mr. Walker. Last year, as I recall, there was about $900
million in funds that were refunded by contractors to the
Department of Defense due to over-payments. That is down from
historically what it has been, but it is still too high.
Part of the problem here, Mr. Clay, is not just the issue
of the systems and the controls that we've talked about before,
but, believe it or not, right now we have some perverse
incentives. We have a situation where the Government ends up
having to pay penalties if it doesn't promptly pay. On the
other hand, if the contractor has been overpaid, they do not
have an affirmative responsibility to tell the Government that
they have overpaid. In addition to that, if they don't end up
telling the Government and if they don't refund the money
within a reasonable period of time, they are not charged any
interest.
Therefore, we have an unlevel playing field, which is
something that I think we need to take a look at, and we would
be happy to converse with you or any other Members that are
interested in that if you so desire.
Mr. Shays. Would the gentleman yield just a second?
Mr. Clay. I'm finished, Mr. Chairman.
Mr. Shays. OK. Just with this latter point, if you could
give us some guidance as to whether Mr. Horn's committee or
another--Mr. Horn would be dealing with that. I mean, this is--
we saw this in the medical area. It just blew my mind. And we
weren't able to, on major bidding on medical, we weren't able
to charge the competitive rate. We were only allowed to change
the rate if it was--the term, not just excessive, ``grossly
excessive.'' If we were paying an excessive rate, we did not
have the legal rate to change it, only if it was grossly
excessive.
And when you tell me what you just told me now, I kind of
would have thought by now we would have been dealing with it.
This is in Defense. You're saying if a contractor is paid,
they don't have to notify they were overpaid. They don't have
to return the money. And only if they are found out do they
have to return the money without interest.
Mr. Walker. Correct.
Mr. Shays. Is that your statement?
Mr. Walker. That's my understanding. That's correct.
Mr. Steinhoff. That's right.
Mr. Shays. Now, if Mr. Horn doesn't take this up, we need
to take it up. Staff could just make the particular note on
that.
Mr. Walker. That would be great, Mr. Chairman. I will
follow it and find out if he is planning to. If not, I will get
back to you. Either way, I'll get back to you.
Mr. Shays. Great. Thank you.
Now, when--I guess, Mr. Clay, the one beautiful thing about
GAO--and there are many--is that it reports to all of Congress
but particularly to this committee, not to this subcommittee
but to the Government Reform Committee. That's the primary
committee it reports to. And they can be of tremendous service.
Since this has a particular concern to your District,
please let our staff know in a meeting and we can followup, as
well, and add a little impetus, as well.
Mr. Clay. I'd appreciate that.
Mr. Shays. We'll be happy to help you out, as well.
Mr. Clay. Being a freshman Member.
Mr. Shays. You are no more a freshman Member. And the mere
fact he would say that proves to me he's not a freshmen. The
freshmen don't want to admit it. The ones who really know what
they're doing play off on it.
Mr. Clay. Thank you.
Mr. Shays. Thank you. I'm sorry. I'm going to get you back,
Mr. Steinhoff. Just I want to--I have a feeling this is Mr.
Horn's area, that he's going to focus a lot of time and
attention. But I just want you to--you gave me--at 4:30 you
gave me the StanFins, and that seemed to be reporting
documents, too. It didn't seem that it provided information
anywhere else, unless I'm wrong here.
Mr. Steinhoff. Let me try the MOCAS one.
Mr. Shays. Which one? Tell me which one?
Mr. Shays. This is the upper left-hand corner.
Mr. Shays. Oh, no, you can----
Mr. Steinhoff. It's 11:00
Mr. Walker. It's 11:55.
Mr. Shays. It's 11. OK.
Mr. Steinhoff. Or 11.
Mr. Shays. OK.
Mr. Steinhoff. And I will say that----
Mr. Shays. And what does that stand for?
Mr. Steinhoff. It is the----
Mr. Shays. I'm not testing you.
Mr. Steinhoff [continuing]. Mechanization of Contract
Accounting System.
Mr. Shays. OK.
Mr. Steinhoff. This is the major system that is used for
contractor payments. The system was developed back in the
1950's and 1960's. They've had many initiatives to overhaul the
system, and this system reports out data to nine other systems
and brings in data from five systems, not always in standard
formats. And this is the system that causes or is part of the
cause of overpayments, the kind of overpayments you just
mentioned. This is a system that deals with the need to re-
enter transactions many times.
Mr. Shays. OK. And tell me what doesn't have to be here.
Just give me an example of something that doesn't need to be
here.
Mr. Steinhoff. It probably all needs to be here with the
current system they have.
Mr. Shays. OK.
Mr. Walker. What needs to happen, Mr. Chairman, I believe,
is that, rather than having all of these independent and free-
standing systems that independently require data entry--in
other words, in order for these systems to operate in the
example that Mr. Steinhoff gave, if you want that data in a
particular system you have to enter it separately in each
system for that system to accomplish its stated purpose.
What has to happen is that you may need that information,
but you should only enter it once. We need to look at the
enterprise architecture for the Department of Defense on what
it takes, not only from the standpoint of financial management,
but also mission performance, and we need to design a system
that provides all this information where you can reduce,
ideally to one, the number of data entries in order to be able
to get this information.
Mr. Shays. I'm just going to have counsel ask a question or
two.
Mr. Walker. Sure.
Mr. Halloran. In that regard, at 1, the standard
procurement system, GAO is doing some work for the subcommittee
on that subject, and my understanding is that it is meant to be
standard, it is meant to bring some standardization and replace
some of these major systems. How many and to what extent? And
can you give us a flash briefing on where that stands?
Mr. Walker. Joel Willemsen, who is head of our information
technology area, will address that.
Mr. Shays. Identify your name again, please.
Mr. Willemsen. Yes.
Mr. Shays. Thank you.
Mr. Willemsen. Mr. Chairman, we are doing work for your
subcommittee on the standard procurement system, a DOD effort
that began about 7 years ago to replace approximately 76 unique
procurement systems throughout the Department.
What we are finding----
Mr. Shays. Some of these, right?
Mr. Willemsen. In part some of those, in part additional
systems at various components throughout the Department of
Defense.
The goal is laudable. Let's try to standardize. Let's try
to have common data elements so that we can avoid the situation
that Mr. Walker talked about--entering data repeatedly and then
not being able to aggregate them in an accurate form.
What we are initially finding as part of the ongoing work
for you is that, even with the standard procurement system,
there appears to be multiple versions of the system throughout
the components within the Department of Defense, raising
additional concerns again about standardization, the ability to
aggregate accurately, concerns about cost.
This was initially intended to be a commercial, off-the-
shelf system with some customization, but, to the extent that
individual components now want to address their own parochial
needs, that will further enhance customization of various
versions.
Mr. Walker. What has to happen in part is that there is a
natural human tendency that everybody thinks that they are
special and that they have special needs, both individuals and
organizations. But what has to happen, as I mentioned before,
is that we need to elevate a lot of these issues to the highest
levels of the Department of Defense such that there can be some
discipline to assure that there is commonality and that we are
focusing on what there is a universal need for and resisting
attempts by these individual silos to basically take something
that was intended to be standard and make it customized to
where, in effect, we have not accomplished the intended
objective.
Mr. Shays. Mr. Walker, you have opportunity to appear
before a lot of committees, and I want to take advantage of
your being here.
I am--I don't use the word ``frustrated'' often, but I--it
is a bit frustrating because there is so much we could be
asking you. And I don't mean to just focus on this to the
extent of excluding other things, but I do want to at least get
a certain threshold of information so I feel like I can go on.
Is it conceivable that--this just deals with contract and
vendor pay. It doesn't deal with paying benefit of employees
and things. Is it conceivable that this chart is made--we think
it is complex looking at it and DOD has provided it and we can
laugh at it, but if they really were--is this accurate, or
would it be even more complex if they, you know, gave us some
of the nuances here? I mean, are there--you mentioned there are
other units. I don't know how to refer to them. Other units,
other agencies, other departments, other subsystems?
Mr. Willemssen. Other components within the department.
Mr. Shays. Other components?
Mr. Willemssen. Yes. I mean----
Mr. Shays. And so the answer to the question is there--are
other components in here, it is more complex than this?
Mr. Willemssen. These represent the major systems.
Mr. Shays. OK.
Mr. Willemssen. So there are many other systems that are--
--
Mr. Walker. Subsystems.
Mr. Willemssen. Subsystems.
Mr. Shays. OK. Fair enough. So it really is more complex
than even this.
Mr. Willemssen. Right.
Mr. Shays. When I was on the Budget Committee for 10 years,
and yet on this committee, I didn't learn until I was in the
Budget Committee about the $7.6 trillion of unsubstantiated
transactions or unaccounted transactions. I can't get a handle
on $7 trillion. If you had said $7 million I would say that it
was outrageous, or $7 billion I'd say that's crazy, but $7
trillion is almost beyond my comprehension.
I don't know how you could even have that many
transactions. Are you basically--in figuring that out, are we
basically multiplying every transaction they could have and
saying none of them are accountable? How do we get to that
number, $7.6?
Mr. Walker. That's dollars, isn't it, Mr. Chairman, the
$7.6.
Mr. Shays. Right. I'm sorry.
Mr. Walker. The dollars.
Mr. Shays. But it is 7.6 in dollars, excuse me, in a $300
billion budget.
Mr. Walker. I believe what it is--and I would ask others to
jump in--is that it is illustrative of the fact that you can
take a single transaction and, because of how their systems are
designed, have to enter it multiple times----
Mr. Shays. Right.
Mr. Walker [continuing]. In multiple systems, which gives
you that multiplier effect. And then that's how you can have
such a huge number.
Mr. Shays. OK. That seems clearer. It also seems self-
evident, even to someone like myself, that if you have so many
transactions you open the way up for lots of error and you
increase your cost significantly and your information would be
less accurate.
Mr. Walker. You increase cost, you reduce accuracy, you
undercut accountability, and a number of other things.
Mr. Shays. Is it possible some of that is by design?
Mr. Walker. It is possible that some of it is by culture.
Mr. Shays. OK. Same thing.
Mr. Walker. People want to be able to control their span of
control, they want to own their information. That's very
possible. And if there's not direction from the top that forces
things to be looked at from an enterprise perspective, from a
Department-wide perspective, then people are going to end up
doing what they think they need or what they want.
Mr. Shays. So the real issue, then, if we are trying to be
change agents, is not to bring in the best systems but to
figure out how to change the culture, and that introduces--I
mean, there must be people who--I mean, I know there are who
have expertise in trying to change culture. But is it--so I
guess what I'd be interested to know is how are we going to
change this. And have you been asked to recommend how we change
this? You've commented on it, but have you been asked to----
Mr. Walker. There has been increasing interest on behalf of
a number of Members in saying how are we going to break out of
this current situation, and there have been a number of Members
that have asked us to take a look at do we have any specific
recommendations.
I alluded to, for example, the possibility of needing to
establish some type of high-level group within the Department
that would be--not only comprised of people within the
Department, but other stakeholders outside the Department--for
example, OMB--to be able to develop operational plans with key
milestones for addressing some of these systemic problems that
would end up reporting within the executive branch on their
progress, and it would also report to the Congress.
We'd be happy to work with you on that, Mr. Chairman, but I
think we are going to have to have a different approach and
we're going to have to have more transparency and we're going
to have to have more accountability, both in the executive
branch as well as the legislative branch, if we are going to
solve this problem.
Mr. Shays. Now, I would have thought that the 1993 Results
Act would have led to some solution.
Mr. Walker. Well, part of the question is how do they
develop this strategic plan. Is it bottom-up or is it top-down?
In addition, what mechanisms do you have in place to reconcile
the differences of opinion between the various different units
within the Department of Defense?
Clearly, the Results Act can be a tool to help in this kind
of situation.
Mr. Shays. Do we have----
Mr. Walker. But you've got to hold people accountable and
you've got to have it in the Results Act, in fact, I don't know
that DOD's updated plan even has a resolution of all these
high-risk areas within its plan, which would be a fundamental
problem if it doesn't.
Do you recall?
Mr. Steinhoff. I don't believe that the plan does cover all
of the areas. They do have many plans. They have a 900-page
financial management plan. They've got lots of plans that don't
tie together.
Mr. Walker. If I can, Mr. Chairman, I think you've hit on
an excellent point. One of the things that we have recommended
is that, as part of the strategic plan, anything that we deem
to be high risk should be part of that strategic planning
process as part of GPRA. They ought to have specific ways that
they are going to address each area and get that off the high-
risk list.
Mr. Shays. When we had our hearing last week on the
degradation of national security as it related to our doing
security checks, there was all the requests coming in and then
there was the issue of whether the office could handle all the
security background checks, both the new and old. But one thing
that wasn't happening was that they are not getting
consistently requests from the different branches because the
branches have to pay money every time they have these requests.
But then what we learned is there is no one, so we had the
office that was working on this issue, but the people who
weren't in the room were 16 or 17 different units that utilize
these services--more than 16--in DOD, and what was clear was
that there was no central urging on the part of the Secretary's
office, itself.
So are we saying here that we're not sure the Secretary is
buying into this--I mean, his office past, now, present, in
dealing with this issue?
Mr. Walker. It is too early to say what Secretary Rumsfeld
is going to do here. I do know that he is on record as having
said that the financial management issue will be one of his top
priorities. That's a positive sign. But it is not just a matter
of if it is a high priority as how are you going to end up
effectuating these changes, given past history, given the
cultural challenges, and the other things that we've described.
Mr. Shays. Well, he knows the culture. He has been there a
while.
Mr. Walker. That's correct.
Mr. Shays. And it hasn't changed much. But he is going to
have to and his office is going to have to actively, I gather,
convince all these different components and all the branches
and the sub-branches, sub-units within the branches, to give up
the desire to just design it perfectly for themselves.
So one of the things I am getting from this hearing is a
reinforcement of what I learned last week--that some of these
major crisis areas are going to take the Secretary's office to
buy in big time.
I want to recognize Mr. Kucinich, but beforehand I just
want to finish up.
It strikes me that if we had $7.6 trillion that we can't
really follow consistently, that--is this $7.6 down to $4?
Mr. Steinhoff. In order to prepare their fiscal year 1999
financial statement, the DOD made 17,000 entries or adjustments
valued at $7.6 trillion resulting in a financial report that
couldn't be audited. Of that amount, $2.3 trillion were found
by the Inspector General to be unsupported.
The numbers for this year are not good, a bit better. It
was $4.5 trillion this year, approximately 2,000 entries for
1.1 trillion could not be verified; they were not supported.
Mr. Shays. So we went from $7.6 of total dollars, non-
supportable $2.3----
Mr. Steinhoff. Right.
Mr. Shays [continuing]. This past year?
Mr. Steinhoff. It is $4.5 trillion, 21,000 entries or
adjustments to prepare financial reports, and $1.1 trillion was
found by the Inspector General to be unsupported.
Mr. Shays. OK. Mr. Walker, if you were running a company
where you had this kind of inability to have supported
document, would you be removed from your job or would you be
sent to jail? What would happen? In that range, what would
happen?
Mr. Walker. At a minimum I think my job would be at risk,
and if I was a public company I would say my stock price would
probably tank.
Mr. Shays. And you'd have a lot of lawsuits.
Mr. Walker. Shareholder suits, in all likelihood.
Mr. Shays. Yes. Well, OK, I have enough here to know what I
think our committee needs to do. We, one, need to work with Mr.
Horn, but also to just see where this is in the Office of the
Secretary in terms of their concern.
But what's going to start to happen is I support, for
instance, national service, and three out of the seven audits--
out of the seven different areas, three were auditable, two
were close to being auditable, and two weren't. Some people
voted against national service because they said until it could
be totally auditable it wasn't going to get their support. But
they obviously wouldn't use the same criteria with Defense, and
that's what I think Defense has been able to get away with. We
need national defense so we're just going to do it anyway. In
other words, we're going to keep putting money in. We're not
going to--this is going to be not as high profile.
Mr. Walker. There has got to be a consequence. There has
got to be accountability. And that is not only within the
executive branch, but that is also from the legislative branch.
Mr. Shays. Mr. Kucinich.
Mr. Kucinich. Thank you very much, Mr. Chairman.
I want to direct attention to issues relating to compressed
schedules that were implemented by the Ballistic Missile
Defense Organization, and I think that I remember in some of
your material that you comment that the compressed schedule
implemented by BMDO has made the program vulnerable to delays,
and I just wonder what effect has this schedule had on costs.
Is there anyone there that knows?
Mr. Walker. I will be happy, Mr. Kucinich, to provide it
for the record.
Mr. Kucinich. OK, if you could, because General Kadish was
in front of the committee at one point and he stated that cost
estimates for the program have gone up over $10 billion to $40
billion from an estimate of $28.7 billion 1 year earlier, and
the BMDO has more recently quoted an even higher figure when
contacted by my office.
Mr. Walker. Mr. Kucinich, if I could make an important
point that relates directly to your question, we have found in
our best practices work with regard to acquisitions that there
are certain fundamental systemic problems within the Department
of Defense about how they go about designing, testing, and
procuring major weapons systems, and it is not just weapons
systems, it is other platforms, as well, that aren't weapons
systems, like trailers, for example.
Many times what will end up happening is that they will not
prove the technologies and they will not adequately test the
technologies before they go into production stage, and what
that causes----
Mr. Kucinich. Is that what happened with the V-22?
Mr. Walker. In all likelihood, yes.
Mr. Kucinich. Is that what happened with the V-22?
Mr. Walker. Yes, Mr.----
Mr. Kucinich. And is that--would the going ahead and
beginning production of the Comanche helicopter before adequate
operational testing began, would that be another example?
Mr. Walker. It is a systemic problem whereby people will
set milestones, get the money, spend the money, hit the
milestones, in many cases will end up compromising the testing
or compromising or waiving performance standards, and the
result of that is escalating cost, delays and reduced capacity.
Mr. Kucinich. You know, Mr. Chairman, it just occurs to me,
is GAO ever involved in kind of, like, counseling of these
Departments at the beginning, at the inception of this process?
Because if we--you know, here we are doing a grisly post-mortem
of a system that is so convoluted as to defy human
comprehension, but is there a point at which an entry-level--
you give some guidance to any of these Departments?
Mr. Walker. Yes, there is, and let me tell you what we are
doing, Mr. Kucinich. I have been joined by Katherine Schinasi,
who is the lead on our best practices work in this area. But
let me just say for the record we believe in constructive
engagement. We believe in trying to work with these departments
and agencies to help solve the problems. I mean, what we are
here to do is----
Mr. Kucinich. Do you believe they are listening to you?
Mr. Walker. Well, sometimes they do. Some do a better job
than others. And one of the key areas that we've done work on
here is that we have looked at commercial best practices for
world-class enterprises in the private sector and how they go
about designing new systems and new platforms. Obviously, they
are not designing the same thing the Department of Defense is,
but, on the other hand, there are certain commercial best
practices.
We have provided those to the Department of Defense. We
have done work to demonstrate how the Department of Defense's
approach to this issue is fundamentally at odds with what
prevailing commercial best practices are, and we've
demonstrated that results in the additional cost, compromised
performance standards, etc. We are trying to get them to adopt
commercial best practices unless there is a clear and
compelling national security reason to take shortcuts because
we face a threat that we have to take higher risk to address.
We then may have to do some things quicker than otherwise we
might like in order to meet a threat.
Katherine, I would like you to maybe expound on that a
little bit.
Mr. Kucinich. OK. I----
Mr. Walker. Mr. Kucinich, did you want to come back on that
or----
Mr. Kucinich. Go ahead, please.
Ms. Schinasi. Yes. As Mr. Walker said, you asked about how
well they are doing. I think we see at the policy level and at
some of the higher levels, what it is that we have been talking
about.
Mr. Kucinich. You know, Mr. Chairman, I'm just wondering if
there is a--sort of like a--before we enter into the
contracting process, is there, like, a checklist that GAO
provides for guidance for the Department of Defense? You do
have such a thing?
Ms. Schinasi. That is some of the work that we have been
doing, and you raise the point that is very important, and that
is before you start a program, you need to make sure that
everything is in order, because once you start that program,
you lay down point estimates of costs that are 20 years out,
that you have no way of knowing whether you can make or not.
Mr. Kucinich. Mr. Chairman, I think what would be helpful,
and our committee--of the many services I expect this committee
to do for the American taxpayer, it might be helpful to take,
let's say, one system, you know, whether it would be the F-22
or FAD or V-22 or Comanche or whatever, and follow it through
from its thought to the discussion phase to talking about the
possible going forward with it all the way down, from one--from
the initial idea all the way through to procurement and
operation.
It would be interesting to do that just to kind of get an
idea of how this system works with one single acquisition, just
one item. It might be instructive. You may have already done
that.
Mr. Walker. If I can, Mr. Chairman, let me take 2 minutes
max and I'll give an illustration on a system that is let's
just say not as controversial as some of the other ones that we
might talk about, and also this is a historical example so it
is not before the Congress at the present point in time.
This is a trailer. It has been referred to as a ``war
wagon'' by some of your colleagues. We used this as an example
before the Armed Services Committee a year ago as to what the
systemic problem is.
What happened here is that the Army several years ago,
noted that it had some extra money left over at the end of the
year. The Army had its want list, and one of the things that it
wanted was a new trailer to be able to use with the Humvee, so
it decided that it would end up contracting for a trailer. And,
since the Army is unique, they did not go out and look at what
was commercially available on the marketplace. They decided
that they needed to design a special trailer, so they issued a
contract but they did not do adequate testing, which is a
common problem in many of these systems, before they went into
a production phase with the contractor.
The result is that roughly 12,000 of these were produced at
a cost of roughly $11,000 each--that's real money. When they
were produced they hooked them onto the Humvee and one of two
things happened. Either, A, they didn't stay hooked, which is a
hazard, or, B, they did but they did damage to the Humvee, and
so, as a result, all but about 300 were in a warehouse for an
extended period of time.
Now, in fairness to the Army, they have decided not to
procure any more of these any time soon and they have taken
steps to try to be able to deal with this problem such that
they will not damage the Humvee or will not come unhooked
during operation.
This trailor is clearly not something where there would be
a clear and compelling national security reason to hurry up on,
and yet, nonetheless, they hurried up on it. That is part of
the culture.
Now, the question is who is accountable for this. What
consequence, if anything, occurred as a result of this? I would
be willing to bet there was no accountability for this.
Now, this is not a lot of money for DOD in relative terms.
Well, in my terms it is. It is, however, over $100 million.
They are going to be able to use this because they are making
some modifications. But think about applying this same concept
to systems where we're talking over $100 billion over a life
cycle.
This is a systemic problem. We have come up with proposed
solutions. The Department of Defense has told us they agree
with us conceptually but in practice they are not being
followed.
Mr. Kucinich. Mr. Chairman, I appreciate your indulgence,
and I just want to, as I conclude here, just go back to some
really more fundamental questions.
Are the people of this country getting the defense they are
paying for?
Mr. Walker. We have the world's best military forces. We
could get more for the dollars that the taxpayers are investing
for readiness, the quality of life of our troops, and a variety
of other factors if we dealt with some of these systemic
problems.
We could also recognize that we could close the delta
between wants, needs, and what we are ultimately going to be
able to afford to pay for if we deal with some of these
systemic problems.
Mr. Kucinich. Well, but, you know, with all due respect,
while I give credit to the men and women who serve in the armed
forces and I appreciate your similar respect for them, you
don't mean to say that the Department of Defense is doing
better than other agencies with respect to their financial
management and accounting?
Mr. Walker. On financial management, your colleague,
Congressman Horn, gave them an F last year. They'll----
Mr. Kucinich. What do you give them?
Mr. Walker. They're failing on financial management.
Mr. Kucinich. Are they worse than any other agencies that
you know of?
Mr. Walker. Probably so.
Mr. Kucinich. You know, the--just to say that we are the
best, you know, doesn't really address the issue, though. I
mean, you are addressing the issue definitively when you say
that $1 out of every $3 that is spent is hard to account for.
That's pretty serious. And, as good as our defense is--and I
think the American people would respect that we are a very
powerful Nation--when you have so much fraud, waste, and
mismanagement, you know, you have to raise the questions.
And I'd conclude with this, Mr. Chairman, and that is that,
you know, we are into financial management and accounting here,
but I think also another interesting field of endeavor that we
could look to for support of an analysis is philosophy
because--and perhaps quantum physics.
In quantum physics, when you look at holography, if you
look at it you catch a wave, just one wave that reflects on the
whole design, the whole pattern. And you've given us a number
of waves, so to speak, on this interference pattern we call
this Department of Defense. Pretty grim.
You know, Napoleon and I think Clauswitz both argued about
a type of warfare and analyzing warfare that say that if there
is a weakness in a line anywhere that is where you can create
chaos along the entire line.
It appears that you have disclosed a type of weakness in
our national defense which cannot but help to resound
throughout the entire defense structure from one end to the
other, which goes to the reasons why planes fall out of the
sky. These things don't just happen.
And so when we look at the design, Mr. Chairman, and these
design questions, we really, I think, have to stay focused on
what has been created here and ask the more fundamental
question about should the structure be different, not should we
defend our country or not. There is no one who is going to
argue that question. But we have a system here that appears to
be highly vulnerable, and if it is vulnerable, Mr. Chairman, if
it is vulnerable at the accounting level, then it has to be
vulnerable at the operational level. There is no way to
separate the two. They are, in fact, aspects of the same
process. And I defy anyone to refute that, either in principle,
philosophy, or in fact.
Mr. Shays. Mr. Walker, I am going to come back to this for
the last time.
Mr. Kucinich. Thank you.
Mr. Shays. Thank you.
Mr. Shays. The $7.6 trillion--and I just want to understand
what that $7.6 trillion represents and I'll get off it, but I
just am having a hard time understanding why the $7.6 went to
$4.5. I think I understand it, but, Mr. Steinhoff, first of
all, what does the $7.6 figure represent? It's multi-year
expenditures, so it is not a $300 billion budget that we're
talking about?
Mr. Steinhoff. It was the attempt that DOD had--let's take
this as being fiscal year 1999----
Mr. Shays. OK.
Mr. Steinhoff [continuing]. And they were trying to prepare
a set of consolidated financial statements. DOD did not have
what is called a ``general ledger accounting system'' that
brings in all the accounts.
Mr. Shays. So it is for a particular fiscal year?
Mr. Steinhoff. Yes, this is for fiscal year 1999.
Mr. Shays. OK. And----
Mr. Steinhoff. Mr. Walker mentioned the heroic effort
before. This was their attempt at a heroic effort.
Mr. Shays. So they had to redo the books to a tune of $7.6
trillion to get the unsupported transactions down to $2.3
trillion? Is that what you're saying?
Mr. Steinhoff. No. In order to prepare their financial
reports--I'll give you a simple example. They would go out and
they would call around. They call this a ``data call.'' They
would call various commands and say, ``How much property do you
have'' and a command might report in, ``Oh, I've got $100
million worth of property,'' so they would record that
transaction.
Then they would go around to a bunch of commands and get
these numbers, record all those transactions. Those are all
individual entries.
Then they would roll it up to the next level and they'd
say, ``OK, from all these levels how much did we get?'' Well,
here's another $400 million worth of transactions. They would
keep rolling up the number until they had what they called a
``consolidated number.'' So that's why you have $7.6 trillion
that really defies logic. They have a $300 billion budget.
They've got about $1 trillion of assets. How could they have
$7.6 trillion? But it's just rolling up the same numbers over
and over again and entering them in different systems.
Mr. Shays. Why did the number come down to $4.5? And what's
the ultimate number? Do we want it down to zero? I mean, in
other words, I'm missing what the number really represents.
Mr. Walker, do you understand what my dilemma is?
Mr. Walker. I think I understand. Let me take a shot.
They had to end up executing a number of transactions. Many
times they had to execute the same transactions multiple times
to be able to account for it in the different systems that they
had, and when they did that, in the end of all the transactions
that they made, there were a subset of those transactions that
they did not have adequate documentation to be able to support
them.
In other words, somebody in the field said, ``I've got
this. You need to put us down for this,'' but they didn't have
supporting documentation for it, and so they are going based
upon assertions rather than based upon fact and hard evidential
matter.
Mr. Shays. There's no secret number that if you have a $3
billion budget you should have so many dollars worth of
transaction? There's no number?
Mr. Walker. No.
Mr. Shays. OK.
Mr. Walker. But it is a lot lower than theirs, I can assure
you.
Mr. Shays. Well, it's got to be. But you had 1,700
adjustments when you had $7.6 trillion to get unsupported
transactions at $2.3, and now you have $4.5 trillion and you
had 2,100 adjustments. You even had more adjustments to then
get to the number of $1.7 unsupported.
Mr. Steinhoff. It is probably--you probably--it is hard to
compare it and say 1 year is better than the other in absolute
terms. It appears that 2000 is better than 1999.
Mr. Shays. Right.
Mr. Steinhoff. However, no one really knows and they
haven't analyzed if there is, in fact, an improvement. They
don't know whether they really had all the transactions. The
Inspector General basically stated they could not determine
that the numbers were fairly stated, so in neither year could
DOD really prepare an auditable financial report. It is just
that there is a difference between the 2-years in the amount
and dollar value of adjusted transactions they processed.
Mr. Shays. Let me just ask you, is the key number the $4.5
in this last year or the $1.7?
Mr. Steinhoff. I think both numbers are key. I think there
is no reason that they should have $4.5 trillion of these type
of adjustments, and the $1.1 trillion that's unsupported is the
more serious number, but they shouldn't have either number.
They shouldn't have a system that operates in that manner. The
books should be kept during the year and you should have very
few adjustments at year end.
Mr. Walker. The $1.1 trillion is a much more serious
number.
Mr. Shays. The $1.7?
Mr. Steinhoff. The $1.1.
Mr. Walker. Which year are you talking about, Mr. Chairman?
Mr. Shays. For fiscal year 1999.
Mr. Steinhoff. It is $4.5 trillion and $1.1 trillion for
fiscal year 2000. The fiscal year 1999 numbers were $7.6
trillion and $2.3 trillion.
Mr. Walker. For 2000. Right. And that's for 2000. The $1.1
trillion is obviously much more serious because you've got the
transaction but you don't have the documentation to support it,
so you don't really know if it is right or it is not right.
You've entered transactions, you don't know if it is right or
not.
I guess the bottom line is this is not the way to do
business and we shouldn't be spending a whole lot of time and
resources trying to make these systems work. We need to move
forward, dealing on a much higher level, come up with an
enterprise architecture that deals with it more comprehensively
rather than trying to fix this.
Mr. Shays. I have a little better sense of this. I just--it
just blows my mind that the unsupported documentation is
basically--transactions are almost three times what the budget
is. In an annual budget of $300 billion, you have nearly----
Mr. Walker. But, of course, transactions aren't just for
expenditures, they are also for assets. As you know, we have a
balance sheet----
Mr. Shays. OK.
Mr. Walker. You've also got the activity for the year,
which are your revenues and costs.
Mr. Shays. Right.
Mr. Walker. So there could be balance sheet transaction,
too.
Mr. Shays. Just talk to me a little about inventory. Have
we made progress with keeping track of inventory? Which
direction are we headed?
Mr. Walker. This is Dave Warren.
Mr. Warren. Yes, we have made some progress to reduce the
level of inventory; however, there are significant problems
that still exist.
Mr. Shays. Would you expand on that?
Mr. Warren. We still continue to buy too much inventory,
perhaps $1.6 billion last year.
Mr. Shays. Now, each branch, each unit, they all have
different ways of keeping track of it? Do we have some
standardization in terms of our inventory?
Mr. Warren. Basically done on--as the chart would show, a
separate manner for each one.
Mr. Shays. OK. And is there one person in DOD that is
responsible to get a handle on this? Is anybody empowered, or
is it--are we going back to the different branches and sub-
units within the branches to try to get a handle on it?
Mr. Warren. Goes back to the individual services. OSD
provides overall guidance, policy guidance; however, it is the
individual services that implement.
Mr. Shays. So, Mr. Walker, this again is one of your crisis
issues, right?
Mr. Walker. It is one of the high-risk areas. That's
correct.
Mr. Shays. All right, high-risk areas. Tell me, this
obviously isn't news to you, but what is coming through is a
theme that says, ``We're not seeing a lot of progress.'' This
is of concern to you, but it is not showing up, evidently, in a
central way in DOD. It is still being handled in a very
fragmented way.
If that is the case, we are still going to end up with
charts like we had before. I mean, isn't that true?
Mr. Walker. That's true, and that's why I think what has to
happen is it needs to be elevated to the highest levels of DOD.
We need to have a task team or some structure that is focused
on resolving these six high-risk areas. It needs to be an
integral part of their strategic planning. It needs to involve
other people in the executive branch, including OMB and other
players that have a stake here. And it needs to provide
periodic reporting back to the Congress to make sure that
satisfactory progress is being made.
Providing policy direction, quite frankly, just doesn't get
the job done. I mean, we're talking about the need for
sustained attention at the highest levels. It is very tough
work. You can't rely on the individual services to do it. The
job is just not going to get done if you do that. They have a
role to play, but you've got to drive it from the top.
Mr. Shays. With DOD it is usually the policy of the
Secretary to come to the full committees and not the
subcommittees, and I'm just struck by the fact that in what we
are starting to look at it is really going to take action from
the Secretary, and it may mean, one, that we get the full
committee to do exactly what we are doing right now and get the
Secretary to come and sit next to you and hear it up front, or
maybe a proactive meeting where we go with you and others to
see the Secretary, you know, with Members of Congress,
themselves, and maybe Inspector Generals in some cases to say,
``We need some central focus on these key issues.''
And it might be helpful for you to not necessarily write a
report--I mean, I almost think the report you should be writing
is not that it is not happening, but why isn't it happening. I
mean, that would be the more interesting report. How come these
things continue to fester? And it may be that when you ask your
people to look into that issue that you will then have a plan
of action that can, you know, bring change.
Mr. Walker. Well, I have corresponded with Secretary
Rumsfeld, and he has agreed to meet to talk about a number of
the challenges that we see at the Department, and I think that
is an encouraging sign. He obviously has to get his team in
place. The Department of Defense, as well as many other
departments, don't have their second and third-level key
players in.
From a practical standpoint, the Secretary has to care
about this. The Secretary has to support any related effort. In
reality, it is probably going to be driven by the Deputy
Secretary. But it has got to be at that level. You have other
players who will contribute, but if you get it below that level
you're just not going to get the job done.
Mr. Shays. The Deputy Secretary is basically the Under-
Secretaries in the other departments, the person who really
runs the operations, is focused on the operational side of DOD?
Mr. Walker. Well, the Deputy Secretary of Defense, which
typically assists in policy, but deals with operations issues,
as well.
Mr. Shays. OK. We talked a little about financial
management. In terms of the inventory, what I'm hearing from
you, Mr. Warren, is that it is pretty much the same and people
are trying to get a handle on it in a very fragmented way?
Mr. Warren. Yes. For example, there is an overall effort at
the Department level to come up with a logistics architecture.
That is an OSD initiative. Within the individual services,
there are 400 initiatives underway. The overall architecture,
however, is not linked to those 400 initiatives, and that's an
example very similar to what we shared in the financial
management area.
Mr. Shays. So it is destined to fail?
Mr. Warren. Pardon?
Mr. Shays. It is destined to fail?
Mr. Warren. I would say the likelihood is very great. Yes,
sir.
Mr. Shays. So we've done inventory and the financial
management. If you don't mind, I'd like to just get in another
area.
The whole issue of bases, you said--was the 23 percent
over-utilization excess bases, excess--what was the 23 percent?
Mr. Walker. DOD has stated that they believe that they have
23 percent excess base capacity--in other words, more base
capacity than they need.
Mr. Shays. What is the significance of that?
Mr. Walker. Well, the significance of that, it means that
they are spending money every year to maintain bases and
capacity that they don't need. For every dollar that they spend
on this, it means a dollar that is not available for readiness,
for quality of life for the troops, or to close the delta on
the major weapons systems to the extent that they need those
weapons systems.
In addition to having to pay to maintain these facilities,
it also means that there is asset recovery that potentially we
could be achieving through the disposition of these properties
that don't have significant environmental problems such that we
could save the cost that could be redeployed and we could
recover the asset values that could then be redeployed for
whatever purpose that Congress felt was appropriate.
Mr. Shays. Is it possible, besides not closing bases
because of political questions, that we are not closing them
because of environmental problems, as well?
Mr. Walker. There are environmental issues associated with
some of these properties. There is no question about it, as was
mentioned by Mr. Clay. I mean, I don't know all the facts in
that particular circumstance and I will provide it to Mr. Clay,
but there are bases that have been closed that, if they have
significant environmental problems, if you are going to develop
that property or if a developer is going to step forward and
want to be able to assume any risk. They are going to have to
be reasonably assured that, A, the environmental situation has
been taken care and that, second, that their liability is going
to be limited, you know, in some way in case there is something
that is pre-existing their ownership that has not been
effectively resolved. And so yes, this is an issue that has to
be looked at.
There have been success stories, though. I mean, for
example, Cameron Station down in Alexandria has been
successfully redeveloped. In addition, in Charleston they've
done a lot in Charleston, and in other areas. So it is facts
and circumstances.
Mr. Shays. We have weapons systems that turned out to be
more expensive, No. 1. And, No. 2, we have such a large number
of weapons systems that if we added up the entire cost it would
clearly break the budget, so what we do is we stretch it out
beyond the 5-years so it doesn't show up in a 5-year budget.
Have you been asked and/or have you done a report that adds
up all these weapons systems to figure out what they would
cost, and what they would cost if we logically did it in a way
that didn't add to the cost? In other words, we stretch it out
it makes it more expensive, but if we logically funded this
program, logically funded all of these, this is what it would
add up to be.
Mr. Walker. I believe that we have--Katherine, please.
Katherine Schinasi.
Ms. Schinasi. We've not looked at the total picture of
cost, but we have taken parts--for example, looking at the
tactical Air Force. You know, if you bought out the systems
that you originally planned, what would that cost you?
But what we find often when we look at these programs is
that the total program cost stays the same but the quantities
that you are able to get for that total program cost are
significantly diminished because of the unit cost increases.
Mr. Shays. And so--OK. And how do I say your last name?
Ms. Schinasi. Shanasi [phonetic].
Mr. Shays. That's why I called you Katherine, not because
you are a female.
Ms. Schinasi. Katherine is fine.
Mr. Shays. No, it isn't.
Mr. Walker. I did the same thing, Mr. Chairman, at first.
Mr. Shays. I know you did. Schinasi.
Ms. Schinasi. Yes.
Mr. Shays. OK. It's a nice name.
Ms. Schinasi, you are saying, though, so the overall cost
doesn't go up, but what we purchase goes down, but that
obviously has impact because if we wanted so many planes we
have to find another plane somewhere else.
Ms. Schinasi. Right.
Mr. Shays. So----
Ms. Schinasi. On the original--the way we look at it is
that we cut a deal originally and we say, ``For this much money
we are going to get this much product.'' The parameters of that
deal change as you go through a system. With almost every
program that we look at, that original deal about ``we're going
to get this much for this much'' falls apart.
Mr. Walker. Part of it is because the reason that we
articulated before, is that what happens is you design a system
that is very advanced with unproven technologies in order to
sell it. The contractor then will bid based upon that, but then
what ends up happening is there is not enough testing done, or,
if testing is done, the performance requirements many times
aren't met and so they are waived, and before you know you're
not getting nearly as much as you thought you were going to
get, they can't do nearly what you thought they were going to
do, but, in addition to that, they are costing you a lot more
per unit than you thought you were going to have to pay, which
is another problem because we have an aging fleet.
I mean, if you look at the average age of, for example,
TACAIR--tactical aircraft--it is a real challenge.
Mr. Shays. That's a good lead-in.
Mr. Halloran. Yes. Could we stay with that for a second,
because you did say you had costed out the entire tactical air
plan so far. Could you be more detailed than that in terms of
what those projections are? And, in the same vein, the
acquisition reform has been--there are many offices and many
plans for acquisition reform.
Ms. Schinasi. Right.
Mr. Halloran. Many attempts at it. What have--and I know
that GAO has some recent work on the aging fleet that says that
the current TAC airplanes might not even solve the aging
problem. What kind of breakthrough acquisition reform proposals
are you considering or recommending?
Ms. Schinasi. I'll take the reform piece and then I'll turn
to the other piece of it.
When we look at the reforms, what we've seen is that,
although a lot of initiatives have been proposed, there's
really not much that goes to the issue that we talked about
earlier, which is the culture and the environment. What you
need to do is change the incentives that exist for people to
behave the way they behave. It is a very rational system when
looked at in one way because people act rationally, when
programs are begun, programs are a revenue generator for the
Department, and so you want to start that program to be able to
attract the funds to your service.
And so you make decisions based on very little knowledge,
if any, and you are overly optimistic and you under-estimate
cost.
Mr. Halloran. So would you call it a fundamental problem
unaddressed in acquisition reform--that is, the launching of a
program prematurely? I mean, I think of the commercial----
Ms. Schinasi. Yes.
Mr. Halloran [continuing]. Work you've done, that no
company would launch a toaster before they knew it was going to
make toast.
Ms. Schinasi. That's right. And we talk about the need to
understand what your requirements are and to be able to make
tradeoffs between those requirements and the technologies that
either you have in hand or you know you will have in hand, and
it is not until that point that you really are able to set the
baselines that allow you to get what it is that you say you
need.
Mr. Walker. I think there is another problem and it has to
do with the culture that the chairman talked about before and
the fact that things tend to go more bottom-up rather than top-
down in some of these critical decisions.
In some cases there is what I would call an, ``I have a
dream,'' philosophy on behalf of some of the services. I mean,
we are a country that has tremendous capabilities and
resources. With enough time and enough money, we can do just
about anything, but the question is what we need to do again is
say, ``All right, what is national security strategy? What is
national military strategy?'' How does that translate with
regard to the number of platforms we need, the type of
platforms that we need, the number of forces, the role of the
forces, the deployment of the forces?
We need to do more of that top-down to say, for example, if
you take TACAIR, we clearly can't afford all three of these
TACAIR systems. All right? So the first question you have to
say is, ``Well, which ones do we need based upon national
security strategy, national military strategy,'' because what
will happen if we don't do that is you'll get a little bit of
all three but not enough of any. You may get some that you
don't need but not enough of what you really do need. That's
how the system works.
Mr. Shays. That sounded very poetic. I need to do an op-ed
piece, and I am going to liberally quote you.
Mr. Walker. Feel free, Mr. Chairman.
Mr. Shays. OK. Plagiarize, rather.
So the bottom line here, though, is the Secretary must know
this because this is what we are looking at right now. I mean,
he--I mean, we all know it, frankly, so, I mean, our moment of
truth is occurring right now. And if we are going to have a tax
cut and we are going to have those other things, there is
tremendous incentive to just get a handle on it.
Mr. Li. Mr. Chairman.
Mr. Shays. Yes?
Mr. Li. On the issue of the tactical fighters, and
specifically as it relates to the original question that you
raised in terms of how big is the breadbox, I can at least tell
you a part of that breadbox. Looking at tactical aircraft, the
message that we gave a few weeks ago was that we are planning
to spend over $300 billion, and after spending $300 billion our
fleet will be older than it is today. That is the basic
message. So----
Mr. Shays. And why will it be older than it is today?
Mr. Li. Because we will be able to buy fewer airplanes. The
existing fleet that we have today is aging. We are going to
have to keep some of those for mission purposes. And, as a
result--as you know, as I have testified before you last year
with regard to the F-22--that's a very expensive airplane and
we are not going to be able to buy as many to replace on a one-
for-one basis. So we will have fewer of those airplanes.
Mr. Shays. Right.
Mr. Li. And so the issue now is let's understand that our
fleet will be aging, despite our investment of over $300
billion.
Mr. Walker. But part of the issue there is coming back to
national security strategy and national military strategy. How
many air wings do we need? What type of platforms do we need
for these various wings based upon likely threats that we may
have to face during the lifespan of these systems?
For example, the joint strike fighter is intended to be
purchased in large numbers. If you purchased large numbers with
interoperability, which is what joint strike fighter is
intended to be, then you theoretically can end up meeting the
needs of multiple services and you might be able to make more
of a dent in the average age of the fleet because of the
numbers and the average cost, if you will, associated with the
platform.
You are obviously not going to make progress on the average
age of the fleet and the numbers with the F-22 platform, but
that doesn't mean you don't need it. That's a decision that has
to be made based upon reassessing strategy, the likely threats
and utilization needs for that platform.
Mr. Shays. One of the--before we get off defense, is there
another area? We talked about management bases, inventory, and
weapons systems. Is there another area in DOD before we go to
State and VA? Is there anyone behind you that has something to
share that we might need to----
Mr. Walker. Well, I think all of the departments and
agencies have problems in the people area, in the human capital
area. When you get right down to it, there are three key things
that you have to get right if you are going to maximize
performance and assure accountability--people, process, and
technology. DOD has a challenge in all three, and the people
challenge is, in fact, our greatest challenge as it relates to
performance and accountability within the Government.
This is the systemic approach that has to be taken and the
leadership commitment that is necessary to deal with these
problems.
Mr. Shays. I'm struck by one point that you seem to be
making that I think it must be the challenge for DOD, and that
is you talk about weapons systems that are basically designed
in process and you are not sure in the end if they are going to
be able to do what they are required to do. But in the process
of doing that we are trying to speed up the--we are doing that,
in part, to speed up the process, which was another reason why
we do it. You gave a few others--political reasons, and so on.
And that is so we don't end up with a weapons system that is
basically obsolete by the time we are into production.
I gather, though, that any weapons system we have would
be--will be obsolete, in one sense--not obsolete compared to
what our--I guess that's a bad use of the word, because it
won't be obsolete versus our potential adversaries, because
they won't even have it, but we could make--with the knowledge,
technology we have at that point, we could make a better plane
than the one we are producing, even though it is a new plane.
Mr. Walker. Right. We could have done better, potentially.
Part of the----
Mr. Shays. I mean, yes, what I'm just basically saying is,
if it takes 10 years to do it, by the time we produce that
plane after 10 years the technology and materials and
everything would have enabled us to have built a better plane,
but then that would be 10 years later. I mean, what we know
technology-wise would make that plane obsolete, but in terms of
our adversaries that won't happen.
Mr. Walker. Right. I mean, obviously, with the rapidly
evolving technologies, then you are always going to face the
challenge that by the time you have designed, produce, deploy
any particular platform, you are going to have technologies
available that, you know, potentially could make that platform
better.
I mean, we face that to a much greater extent today than we
have in the past because of how rapidly the new generations of
technology are coming out. That might argue to say there needs
to be a certain investment on an ongoing basis with regard to
R&D that could be considered, you know, not necessarily
attached to a particular platform, to be able to take the
advantage of that R&D, consider it for existing platforms as
well as new platforms, given the rapid changes in technology.
Mr. Shays. Let me try to--I'm going to try to, in 10
minutes, cover other territory and let you go.
Mr. Walker. Sure.
Mr. Shays. But what I would like to suggest is that we know
some hard things DOD has to do. There are big issues. But you
also gave one or two suggestions that aren't as hard.
I mean, for instance, a contractor who is given more money
than they should be given, I would think that at least they
would pay the interest, and if they knew it there should even
be a penalty. There should be a penalty associated with
accepting money they know they shouldn't accept.
Now, that may be a harder one to pass, but our committee
has been very successful with the same staff I have now when we
oversaw HCFA and health care, and we were the major motivators
for making health care fraud a Federal offense--State and
Federal, it was a Federal offense. And we just didn't make it
from State to State. It has made a wonderful difference.
There are a lot of things our committee can do to push
change, and if you've got some easy things we'll write them up
in report and push the committees of cognizance. And I think
you know we have a track record in doing that.
My only point is, if you come up with some simple things--
``Why don't they?'' ``It has happened for years. We've never
made--'' I'd love to know the things that we should have done
years ago and that would be relatively simple. I have a feeling
your people have a list of them. So that's one request.
The other request is I would like to help you push DOD
central, the Secretary's office, the central command people to
take a more-active role in some of these things that we've
talked about.
Let me just quickly--with State Department, you made
reference to the fact that it is up and out--excuse me, if you
don't move up, you're out. Just elaborate on that a bit more.
Mr. Walker. There historically has been a culture within
many organizations in the private sector and some in the public
sector, State being one, where you are expected to progress to
certain levels within certain lengths of time, and if you don't
end up doing that then the assumption has always been there is
an adequate supply below who can do that, so we're going to
force you out.
However, I think the assumption that there is an adequate
supply below, has been revisited in hte private sector, and it
is time that it is revisited in the public sector. We have a
very strong economy. We have slowing of work force growth. The
amount of money that we invest in these Foreign Service
officers is significant. I mean, the taxpayers have a
significant investment.
Mr. Shays. So we see people retiring in their mid-50's
because they didn't move up?
Mr. Walker. Well, even before that. I mean, they might end
up leaving the Foreign Service even before normal retirement
age because they haven't been able to make it to a certain
level within a certain period of time, and yet they could be
performing very well at the level that they are at now, so part
of that is a cultural transformation in changing how we go
about dealing with people issues.
Mr. Shays. Do you have any sense from State that this is a
concern to them and they've focused on this, or is this a
concern to you but not them?
Mr. Walker. I think it is becoming a concern to them. As
you know, there was a recent report that was done, a national
security report--I guess it was the Hart-Rudman Report--that
talked about a number of the people challenges that are being
experienced not just by the State Department but also by DOD. I
am heartened to say that in the last year there has probably
been more focus on these people issues in the last year than in
the last 10 years, and so I think we are starting to get some
attention.
Mr. Shays. Can we deal with State with regional Embassies
that people have to go to get visas and so on? What would you
suggest? Just an office that would be in a country if someone
needed to get a visa?
Mr. Walker. Well, I think we need to fundamentally step
back and say, ``What are we trying to accomplish? What do we
need to do? And how can we best go about doing that in this
modern age of technology?''
A lot of things like visa processing, there are plenty of
things that can be done remotely using technology to decrease
the need for infrastructure and people in particular locations.
Jess Ford has joined me, who can touch base----
Mr. Shays. Do you want to speak to that? So we don't need
an Embassy or we don't need a consulate's office to allow for
someone to potentially get a visa? Don't they have to come in
and be interviewed and that kind of stuff?
Mr. Ford. Yes, they do--well, except for the countries
where we have visa waivers. There's about 20-some-odd countries
where we have waivers where that is not required. But what
we're really talking about is the possibility of consolidating
a lot of administrative functions, that you don't have to
necessarily have a budget officer or a financial officer at
every single post, particularly the smaller posts.
Mr. Shays. So you could have an ambassador potentially
representing or focused on three countries, that you have one
structure. You might have a field office, but it is one
Embassy?
Mr. Ford. Right.
Mr. Shays. Other countries must do that.
Mr. Ford. They do.
Mr. Shays. And the United States doesn't?
Mr. Walker. No, but obviously we are the only super-power
on Earth and----
Mr. Shays. I understand.
Mr. Walker. But these are things that we are looking at to
try to make sure that people are at least considering. There
are obviously pros and cons. But one of the cultural challenges
that we face in Government is there is a tendency for people to
say, ``Well, we want to do it the way we have been doing it,''
and there is a tendency not to look outside the box to say,
``Well, what are we trying to accomplish?'' And, given all
these changes in technology and given changes that are
affecting us in a variety of ways, is there a better way to do
it? Is there a more economical, efficient, effective way to do
it? And that's what we are trying to spur is to get people to
do that, not only at DOD but at State, VA, and other places.
Mr. Shays. What else about State that you'd want me to just
have the committee focus our concern on?
Mr. Walker. Well, we've talked about Embassy security and
we've got information that is noted in there.
Mr. Shays. Information technology--we've gone to Embassies
where they still have their computers in boxes after 6 months
because they haven't had anyone to put them in and they can't
connect--one Embassy in Europe can't connect to another Embassy
in Europe. It just flows to the State.
Mr. Walker. They have major issues with regard----
Mr. Shays. And they still use Wang, right?
Mr. Ford. Wang systems have pretty much been replaced now.
Mr. Shays. In the last year?
Mr. Ford. In the last couple of years.
Mr. Shays. OK.
Mr. Walker. The fact is they have major technology
challenges and it is not just with regard to the hardware,
itself, but it is also, as you say, the people to be able to
upgrade and install and deal with those issues.
They've had some challenges also with regard to security.
We've all known and seen related stories in the paper over the
last 6 months or so.
Mr. Shays. Yes. We are really getting into the security
side and I feel pretty comfortable that we begin to know at
least the problem there.
What other area?
Mr. Walker. I think those are the big ones, Mr. Chairman.
Mr. Shays. How about with VA before we go?
Mr. Walker. Let me add one thing on State. State is an
example of an agency who received a clean opinion on their
financial statements for fiscal year 2000, which was just
announced, so they have an unqualified opinion, but they have a
number of material control weaknesses, they have a number of
compliance issues, and they are also having to undertake a
number of heroic measures in order to be able to get that clean
opinion, and so they have a number of underlying problems they
have to deal with, as well, because basically----
Mr. Shays. Heroic measures don't mean manipulating the
books, do they?
Mr. Walker. Pardon me?
Mr. Shays. Heroic measures don't mean manipulating the
books?
Mr. Walker. No. It just means doing a lot of things after
year end manually.
Mr. Shays. OK.
Mr. Walker. You know that, frankly, if you had your systems
design and your controls in place at the outset, you wouldn't
have to do. It is a much smaller scale than the Department of
Defense, but similar challenges.
Mr. Shays. I wanted to note that Mr. Gilman has a question,
the former chairman of the International Relations Committee,
and we'll pass that on to you.
Just quickly, what is the--what would I need to have our
committee focus on in the VA?
Mr. Walker. I think the issues on VA, they've got human
capital challenges, no question. They've got excess
infrastructure issues where there are amounts there that could
be redeployed for quality of care for our veterans. They have
some major challenges associated with the disability programs,
not only the processing of the claims associated with
disability but, as I mentioned before, it may be time, for the
country as a whole to step back and re-look at the entire issue
of disabilities. What is disability in a knowledge-based
economy? How can we help some of these veterans be able to
contribute to our society as they have in the past and probably
want to do now? But if they can't, then obviously we want them
to get their benefits. There is no question about that.
Mr. Shays. I'd appreciate it if your staff--by the way,
your staff is terrific, and we really appreciate what you do
and what your staff does. I mean, we get quick responses. We
get honest responses.
Mr. Walker. Just the facts, Mr. Chairman.
Mr. Shays. No bull. You can stop there. There's no bull.
And you all have helped us, I think, do a much better job, and
so we appreciate it a lot.
If any of you want to stay around and just mention to the
staff some other points we didn't touch on, I do think it is
better probably for us to break up so you don't have to wait
and finish up that way, so we'll adjourn. I thank you. I'm
going to rush off.
Mr. Walker. Thank you, Mr. Chairman.
[Whereupon, at 12:20 p.m., the subcommittee was adjourned,
to reconvene at the call of the Chair.]