Transcripts For CSPAN2 Senate Hearing On Department Of Defense Audit 20240713

Good morning. This hearing on the subcommittee on readiness and management support will come to order. Today the subcommittee needs to receive the testimony from deputy secretary of defense David Norquist concerning the department of defense as 2018 and 2019 audit. Last year when he was serving as the dod comptroller secretary norquist completed the first dod audit ever. Soon thereafter secretary norquist was nominated and then confirmed as eckert deputy secretary of defense with Overwhelming Senate support from both sides of the aisle. He is a wealth of knowledge on these issues and i thank him for being here today. To a a lot of people aside fromy good friend senator perdue who im hopeful well be here a little bit later, dod audit might not come across as the most interesting topic in the world. However Ranking Member kaine and i take our oversight responsibilities seriously and are happy to have this important and timely hearing. Another responsibility we take seriously is one of providing the funding needed to rebuild our military with a specific focus on restoring readiness. Conducting an audit of this magnitude is a massive undertaking as im sure we will hear. In fact when secretary norquist arrived it never happened. The pentagon never completed an audit. Let me repeat that. In its history the department of defense has never completed an audit. Thee fy19 dod audit is one of te largest audits of any organization in history. Over the course of the years year this audit has required more than 1400 auditors and hundreds of dod site inspections. The senators and the inspections evaluate it thousands of sample documented items to account for thedi roughly 2. 8 trillion in d assets. Conduct in other that the size is no easy task but its a critical function the dod must do and the results reveal issues that we all must learn from. They are still much, much more work to be done but i commend the secretary for undertaking this difficult but important task. As of last friday the department of defense completed its second agencywide audit and while it did not receive an overall clean opinion much knowledge was gained fromm actually doing the audit. Im sure we will hear more but over 24 individual audits done across the different agencies seven to come back clean. Why do we take the time to do an audit . And part its to encourage the more responsible use of resources within the department from the readiness perspective the ability to promote real change within the department. While i cannot find cyber vulnerabilities in Dod Technology systems where locating unaccounted for equipment improving the recordkeeping of personnel. It is not a glamorous undertaking. Does produce process improvements and technological upgrades that are long overdue. These improvements are critical to dods response ability end quote its important again full value from every taxpayer dollars spent on defense thereby earning the trustpo of congress unquote. That is from the 2019 National Defense strategy. In other words dod wants congress to continue to fund the military in order to counter Great Power Competition like that from russia and china as laid out in the 2019 and. We in the congress and the American People need to have need to be confident that these dollars are spentme wisely. The chairman faced the nds returning to strategic competition and does represent a prime example off bipartisanship for the support of that strategy and our troops in the senate. Andy s. Explicitly takes the audit as the priority for driving discipline for the department in achieving our overall National Defense goals they hope this budget discipline starts with thet audit and spred throughout the department through all the financial processes within dod including our procurement acquisition and contracting processes that this subcommittee has oversight ofd. Today look toward to hearing about the progress, some of the successes, some of the failures and i know my Ranking Member senator kaine iss also interestd so i will turn the dais over to him for his opening remarks. Seen it thank you mr. Chairman and secretary norquist its good to have you here. When i saw the number streaming into the capital i thought finally it will get the attention it deserves. Their other things going on on the hill onen the hill but i wat to welcome and thank you for your long record of Public Service but also for making sure the auditability of dod is a top priority. Thels fact that all federal agencies were mandated to do audits beginning in 1990ri in te dod has been the last to get in line is wellknown. So much so the nda and in 2016 the Committee Said we have had time, youve got to make this happen. I was gratified to be a part of the committee where we finally gave the ultimatum and ratified this under your leadership the dod moving to get this done. The department announced it officially failed the 2019 audit thats not surprising. There was a great deal of skepticism on this committee. Hey everythings fine. Start something as complex ass this if you are not finding areas to improve and need to be corrected the lead policy makers to questions of the effort. The full committee recently listed her name but she used the phrase efficiency the idea that the outage should drive us to not spend on things we shouldnt to reduce spending on things we shouldnt does away of directing those resources a more department of defense. I hope we can talk about a number of issues today. What benefits have we seen from the audit in its findings. It was always my hope is a mayor and governor looking at audits to learn some things that might improve the effectiveness. I dont think its just the exercise that should lead to saving a dollar here or a dollar there. Should also lead to greater efficiency and effectiveness as well so i hope we can talk about that. How is the process helping the pentagon with counties practices that need to be improved and what resources are being applied attic and what Additional Resources need to be applied as effective as possible moving forward and in your opinion secretary norquist where will how long will it be realistically where the dod will be in a position where the artist will be clean on this. I look forward to working with the committee with your leadership with the department to make good on this promise made so long ago to the taxpayers in every aspect of the federal government would learn from the audit for continuous improvement. C thank you senator kaine and secretary thanks again for being here. We look towards your Opening Statement and if you want a longer writtenr statement that will be available. Soon i chairman sewell been Ranking Member can distinguish members of the committee thank you for the opportunity to testify before you today on the department of defense Financial Statement not appear their three major questions about the audit would like to briefly address. First why even have an audit . Second what is thest result of this years audit and third how does the audit and other reforms benefit american taxpayers . The short answer is in extraordinarily large andef complex organization. We employ 3 million servicemembers while it a typicl airline manages between 131600 aircraft or the military services approximately 16,000 aircraft. We manage 290 and 92 billion inventory more than six times the size of the walmart the Worlds Largest retail company. We effectively assess complex operations. A Financial Statement not at his comprehensive and includes verifying accounts locations ano conditions of our military equipmentau property material ad supplies. It has vulnerabilities in her Security System and invalidates the accuracies of action such as promotions and separations. In short it provides independent feedback to dod leadership up with the following results. Can you than with last year they reported no evidence of fraud no significant issues to military and civilian members and could account to the existence and completeness of Major Military equipment. In addition one organization received a clean opinion the defense, sterry agents onell seven of the 24 will have an unmodified opinion this year. Of the 2000. In 77 findings in fy2018 the department was successful in closing more than 50050 or 23 of their findings. It demonstrates progress but we have a lot more to do. How does the audit benefit the american taxpayer . Original on primary purpose of the outage is transparency but we have seen how the audit saves money by improving Inventory Management identifying vulnerabilities in cybersecurity and providing better data for decisionmaking. Let me give two examples to the navy at in jacksonville conductedde an assessment identified 81 million worth of active material not tracked in the Inventory System that was now available for Immediate Use increasing maintenance time and building 174 requisitions. Unneeded equipment freeing up 200,000 square feet equivalent of 4. 6 acres. We are reducing the benefits of better data and f the use of daa analytics. For example the department uses the advanta told to automate the quarterly review process of its obligations. This workload to promote it efficiency timber bided analysts the time and insight they need to identify. And 60 million highrisk funds moving them from the low priorities function to better use before they cancel or expire. The audit is a foundational element with a broader landscape of business reform and the National Defense strategy. We are moving forward on multiple fronts to improving your enterprise buying power and consolidating i. T. Realigning and reforming health care consistent with congressional direction reforming how we do back in investigations to make more effective and less expensive than eliminating duplicates in an efficient Business Systems as well as identifying inefficiencies in the a what we like to call the fourth estate. Id remiss if i didntt mention the harmful impacts of them going into the resolution and i recognize that im preaching to the choir but the Department White house expect the urgent need for congress to pass the fy2020 authorization and appropriation bill. This ear stopgap measures are wasteful to the taxpayer. The delay storm damage repairs and again to military is made of readiness and modernization. Ultimately a cr is good for the enemy not for the men or women of the u. S. Military. The administration came to agreement as quickly as possible consistent with the budget deal reached this summer. In closing id like to thank President Trump for his leadership in the dod work force for facing this complex and importantre issued and id Like Congress and this committee and particularly Committee Staff for your commitment to this massive undertaking and making annual financial audits a regular way of doing business. The department of defense is one of the most complex enterprises in the world in partnership with this congress we must continually improve our Business Practices in order to reduce costs and maintain our competitive edge. Each of us asked their tax. To be as responsible and spending their money as they were in earning it. It thank you mr. Secretary. Let me begin with the basic questions and im not sure you have the answers since youve onlym been in the comptroller position for a couple of years but from your s perspective why would the pentagon never audit you . You would think as you mentioned how important it is to the country, how large it is how complex it is. Thats the federal agency you do want. Why was this the first time that somebody undertook this daunting task and again i commend you for doing it. Say that thank you mr. Chairman. Thek pentagon has mobilized. We have the gao and eiji and others would they do program on its this particular subject. The difference of the Financial Statementhe is an endtoend the audit on the dramatic scale. What you just said twice. What we just did twice. That thats never happened before. Why . A couple of reasons. Its an extremely hardwh task. They did one in world war ii for example. Say that the challenge with the audit is there was an emphasis on trying to get ready for and this is where i run a fundamentally different view. They said its too expensive. Lets get ourselves ready enough that wee can pass the audit and bring the auditors then. My experience with Homeland Security where they were under audit is that was a major mistake. Homeland security didnt have a choice. I found the auditors in their feedback to be the central piece of getting us to that clean opinion so my view is the money we pay the auditors with all the other money we are spending are going to things and we are getting feedback on whether they were successful. Evenng though the Defense Department is spending money they had no audit a slang to tell you ifhe they were better from one year to the next. We areh carefully measuring thoe items precisely for that purpose and thatss the biggest difference but i believe the auditors are the key steps in getting us to the opinion not something you bring to them. Let me go into a little bit more. The audit do cost a lot of money think the fy19 audit costs close to a billion dollars. If we are doing this annually which is your goal, correct . Yes. Sample this pay for itself or his already paying for itself . Before we started the audit the department was spending 770 million to fix problems. With the oddities at 195 or for 200 million in external audits. We know from from the experience of engineers when they went from no opinion to lean opinion their audit costs dropped in half. That will come down as we move towards tests and controls. Thats a level of funding necessary for transparency. 200 milliones is one 30th of 1 of our budget to be held accountable. We have to spend money and dod to support that. Those numbers will come down as well. The big number of a half a billion dollars is inrt mediatin and the question there is can you have fixed . In the absence of an audit its very the things i learned in my prior job is fixing problem isnt a reliable indicator. I was depending on the editors confirming that people have fixed in onene of the best thins that hoosiers show us is the editor greets with all 10. Ive got some training i need to do and some people i need to talk to. Thats not going to get them success. You cant wait until the end of the process. You need the auditor doing that on a continual basis. We have seen the benefits and savings and return on investment that i know not expected to see this early long before he got to the point where expected the east to comein down. I can go on more about it. With me ask another basic question. For those of us who are not auditors would exactly does this entail . You are going through through installations near people fanning out over all of our military bases going to supply depots. What exactly are they doing . They are not counting every rifle and every tank or are they . They cant because the sure labor that would be involved as a problem. They will go up to the highest level of the organization and look into their databases and say show me everything you think you own and havent use. They start there and then they pull samples from that and follow it all the way down to the installation. If they went to for planar they went to anniston. I need to see not just a tank i need to see this tank with the serial number that supposed to be here. And is it in working condition . Do you have proof of ownership . Is a were supposed to be . They walked or took those and they look around the base and they find a series of items and they go the other direction. Show us that you at the Department Level have them in your system. It goes one direction and then it comes the other what they are looking for is examples of a breakdown for the summary is not equal to the parts. Then i do the same thing with you paid somebody a certain amount. You have the records to back that up quick you have the paperwork to support that and can you produce it in a timely manner . That the process you go through. Its the standards that will be helpful. Thank you mr. Speaker terry. Im glad youre here to testify and hopefully we are all going to learn from this and most importantly the pentagon is as well. Senator kaine. Mr. Secretary and good to start with the question not based on the audit but your role as assistant sec or terry, officials in the pentagon that was supported proud to support your nomination. They are been a number of articles that have come out with headlines as examples. Business insider quote dermis prepare to move the tune colonel Alexander Vindman and his family to a safe location if necessary. Reuters army assessing impeachments witnessed vindman you a sick official duties articles were based on reporting done by the wall street journal. Lieutenant colonel vindman is a virginia resident like you are. Lieutenant colonel vindman is a patriotic american like you are pretty much going to ask you what you think its appropriate to attack his loyalty, his patriotism is judgment or his characterpr because i know how u think about it and nine not owing to ask you what you think its okay to use the White House Social Media counter other white house assets to amplify such an attack. In your role as deputy secretary of defense we make sure that members of the military are not punished for face reprisals for corporate in with congress. We take very seriously our responsibility to the response congress. We take individuals on personal security very personally and we expect people to be responsive and truthful for that and i would urge you at this particular time to be varied protecting members of our military if their corporate in with congress. It inc. Your words delivered here should hopefully give some assurance in some confidence to some who are very worried. They know they are worried because their families are calling my office. They are my constituents in the unnerving about nervous abot what might happen. Let me ask you this about the audit. A lot of the dod programs that have the auditor classified when we do the ndaa we are often grappling with issues in this room and theres a separate clash classified annex. We have this spend in more classified setting taking out our own responsibilities. Talk a little bit about how the audit approaches classified programs and how youth can do rl audit in a meaningful one while respecting the classified information. Send the challenge we had at the beginning had to do with classified information in the budget its where. Did or its otherwise protected. We talked with gao who wants to summarize the Department Federal government wide audit in the concern was if you do that here if we ever do actions and classified documents you wont be able to do it in the classified audit. Accounting Standards Group for the federal government, we need you all to get his security clearance because we have to be able to have conversations with you that are classifiedve. You have to give is becoming standards on how to treat us of that information. They did. We went through security clearances and they int fact issued classified guidance that allows us when nasa wanted a clean opinion they said hey we have a questionum about satellie so we will have those types of things that are classified. Their clearances will be able to say heres how you should handle it in a classified answer that allows us to present the data in an unclassified report. Our auditors have security clearance. Nothing is excluded from the other. If its a sensitive item the ig will test itt, so theres nothig is classified that the excluded from the audit. In a public hearing like this i think you would like to get success stories. Its less about the findings are the agencies of the past but do you have examples of things youve learned in the out of process and youve been able to direct towards the sufficiency of four legality construct that you talked about recently at her hearing. Let the walker couple of examplesat in the people have others i can go on extensively. Let me take you the issue of inventory and i will use the navys example. The editors pulled samples and tested them. What the navy started discovering his warehouses and Storage Facilities that had never been loaded into their Inventory System so you open it up and you find spare parts. The spare parts are not where someone who is trying to order them can get to them. I will give credit to vice admiral dixon smith as he was particularly aggressive. We travel to some of the bases and we just say open up, open that up. Even if the bases they have visited they found 167 million worth of usable supplies. When they put them into the system it addressed unmet demands on backorder and other items that now can be put back into the system. If someone doesnt know its there the person who ordered it rotates it and the new one doesntrt know and more importantly the department doesnt know it. The neighboring basis and see it in you or ill preach one of those is an immediate and direct savings to the taxpayer. My time has expired but others may want to give input. Senator thompson. Ca thank you mr. Chairman. Mr. Secretary thank you for being here. The letter of november 15 regarding sociopath does it passed out of test 100 . Tell me briefly if you would how important are those audits . I assumed they were going on elsewhere. Some of this is the core of what the audit other does what would they pull samples from above and they come to the base they are f what they are looking for. 60 of the places they show that there was one in this accuracy but everything they looked at and they sent you a letter as you have some of them in your state. Thats incredibly valuable and one of the things i encourage right after the otters is the importance of local leadership and when they show up and the commander of the base needs them they can quit i see the likely have a a good result because the leadership has control and oversight of thehe process. This is going to get solved at the local level in fixing the systems that lie between whats adequate at the local level and what we report departmentwide level. Peoplele in can give kudos to those who deserve it and that will help drive this process. As the process goes forward those leaders will get the word andel participate in that will help everybody. Spinning itself and Senior Officers and civilil servants. The ses has a modest part of their performance evaluation. I want to move to an area personage or kaine touch on. Are you familiar with the antideficiency act . I am. Im struggling with a couple of things. On the one hand i hear your testimony and you and i have talked to my office. I applaud your efforts so much and youve emphasized a responsibility to report toke congress. On the other hand im also seeing this administration continually sorting congresses oversight capability. They are not producing witnesses and they are not producing documents. Just because they dont particularly like the subject matter of the particular hearing that is particularly going on the house and recently i read a report this morning where all of the council stated as a legislative branch of government gao named deficiencies or violations that the Administration Executive Branch Agencies have no obligation to report back to congress. It seems to me theres a concerted effort with the administration to basically take those things that they dont want to report and just ignore the article i branch of the constitution. Im really concerned about that. Have you seen a wimpy counsels opinion and if so id like to hear your thoughts about that and whether or not that squares with what you said earlier about your ability and your honest efforts to report it. I havent seen that opinion i dont know whether its a matter of law. Now its a matter of practice whenever ive had to sign out one of those. White to everybody. Went to the white house and the president leader of the house and senate not believe the gao so in practice i know when we have a a deficiency violation te notification is brought. I may followup follow up with you because i think this is changing apart this that has been a practice for administrations including this administration but now we have come apparently with counsel to express a new version of that. I may followup to give you a chance to look at that to see how it might affect the department of defense and your obligations to report to congress. If i have time and im not sure, my timer is not going here. You mentioned the navy where you fund 81 million of material. I think it was the jackson hole Naval Air Station where you freed up some things and were able to do things. What are the lessons you can learn and take away from that particular episode where there were 280 million that was really kind of unaccounted for. The 1 billion immediately got used. Obviously its a little concerning two congress. Tell me a little bit about what youre trying to implement. At issue is the diet the inventory but our concern is over time people who buy inventory at the store without putting into the system they know its there but their successor may not. The department doesnt know if there and its inefficient. Its an efficient way to use taxpayer resources. The value of a audit is the problem and the auditors will come up every yearo and exposed them because that requires if you haves, it gets in our system properly recorded. Do you account for everything you have . This is viable for readiness and making sure we in make the best of taxpayers money. We think theres a connection between this and some of the challenges. A lot of thiss tends to be the supplies you mighten order a yer and so the more we can laminate the more we can have discipline to when you buy it logged into the system. The discipline and this is where you get to the dolly of the audit. They come every year. Smart not to mean out your office once. Theyri are coming next year and thereafter. Yet toen make this a habit. Sacre you satisfy the systems in place are adequate and its just safe issue of plugging them in as opposed to waiting upgrade the system . We need to read the system. I met with each of the auditors one of them said as you build your new system which are more compliant and effective you need to make better use of technology they had tablets where they could do it more directly. Scanning all w of those reduces the labor and that increases compliance. Well are looking for here is the automation solution. Highlights the value of that. Thank you mr. Secretary that i will follow up with written questions regarding the omb. Thank you mr. Chairman. Thank you mr. Chairman. Considering how long it took for the dod to undergo nodded thank you very much for expressing belief that the audits are very important. I do know that your editors conduct did 600 site visits and two of these visits were performed at a Marine Corps Base in wye and both came back 100 and thank you for noting how important is that local leadership buys and incorporates with the audit. I do want to give a shoutout to the folks at joint raise pearl harbor. Thank you for doing that. One of the areas that were pointedar out in the most recent audit were highrisk areas involving the f35 program. I wont go into my question but i assume you are going to be undergoing the things you need to do to bring those programs up to snuff. Theres a lot of concern about military policy. We touched another matter regarding the threats to Alexander Vindman and the assistant secretary of defense laura cooper who, dont know if she already testified that she certainly will be testifying and not to mention the constant efforts to out the whistleblower basically the whistleblower feeling threatened by everything thats going on. I know that you were doing everything you can to make sure mr. Vindman in this cooper remain safe. It sends a clear message to dod staff of their identity job and safety will be first. It this is something wech hae is a matter of track to some all sorts of things. We have ig reports and jerry reports. This is part of thehe culture of how we would people come forward we expect them to be honest and take care in doing so. The ig looks that there is an issue of reprisal and that they are held accountable for it. We also look at security. We think that there is a security issue we deal with it and deal with local authorities. These are the types of things that appear in different forms and we provide the same standard and approach. I think its an important signal weov send. In this environment is very important for the dod from the top to say the whistleblowers who come out of dod for anyone who participates in proceedings they will be safe. Think its important for that message to be quite obvious and put out there. I hope thats what you will do. The day before ms. Cooper was scheduled to testify before the house in a deposition you signed a letter to ms. Coopers lawyer for bidding her to end impeachment increase. Dod testify under subpoena after receiving your letter she stated quote this is a challenging environment and just trying to put all my applications. This is challenging in both respects. In light off House Resolution 60 in and the procedure for public and pitchman hearings you are free to. I forward herwas forwarded to her lawyer the information received from the white house that expressed your views about the impeachment process. I wanted her to have that available information. Even if you are just forwarding the letter that came not out of your department but where it emanated but for you to defend it does create a chilling effect. Are you intending to continue to forward these kinds of letters from the white house . I dont know of any other individuals being called. We would not let their lawyer be aware of this information thats why we shared it. You can understand why. I understand. If you dont send it or you do send it what you do so we try to set the right tone in the letter. In the letter did you say we are just forwarding it . I will take language but i think we tried to be clear about the nature of it. We tried to be very professiol and factual in the way we handle these. I have no idea what my time is that during his nomination hearing i asked secretary esper word that he would commit to commit to parole for a documented parole members of activeduty servicemembers and secretaries asper said he would quote look into it for sure. We are still waiting for a response on this issue but we did receive a response from acting secretary of defense for personnel and readiness mr. James stewart was the first to comment to the department of Homeland Security are committed to working closer with dhs on policy. You can understand why at the Service Duties would be concerned if the Homeland Security department is going ahead in deporting undocumented members even as they are serving our country. Id like to know what steps dod has taken to coordinate with this letter from James Stewart on this issue and whether dod can reinstate this program. Not undocumented family members. Let me take that for the record. I dont know the answer to your question. I hope you get the message that we certainly dont want to act that duty servicemembers families deported. Thats not a good thing and that program should be reinstated. Thank you mr. Chair. This is a really important hearing a thing for all of us. Thank you for appearing today in testifying on this. Senator sullivan and i were discussion and we are thrilled to have some result in front of us. You have done what your predecessors have been unable to do or did not do at the pentagon which is making the otted a priority. We have had comptrollers and chief played Financial Officers of both political parties. They have complained and dragged their feet on this issue. They found every excuse under the sun not to get it done. Wet have pentagon hearings goig on and on here on the hill for a decade so thanks for doing the hard job in getting this audit done and not delaying it further. Despite the disclaimer of f opinion from the last few years we are much further along in this progress toward a clean opinion and i just wanted to make that statement thank you very much for your leadership on this topicin. The National Defense strategy makes it clear that the United States has a very distinct challenge to maintain its supremacy in the global arena and this has implications on her Homeland Defense overseas operations and the vibrancy of a free and open society. Before wer dive into the strategic goals its good to take a step back and maybe do a little bit of housekeeping. What i would like you to explain mr. Secretaryt is in addition to fiscal responsibility how do you think the audit findings fit into the nds and benefit our operational or Mission Capabilities . Why do we need to do this . Absolutely. Enhancing legality working with allies and third l one is reform inefficiencies. The reason for that is too full. We can see the same deficit numbers everyone else can we understand the fiscal limits to operate. The second is we have a responsibility for guard list of what level of funding we see to make sure we are using it for the maximum benefit. That includes driving inefficiencies out of her business process as well as cutting low priority items and moving it to high party items. They are not at things. They are just not as essential as other so what the audit is helping us doo is not only identifying the inefficiencies were individual systems have been built who dont talk to each other. You get to the point where you only enter the data once and it flows throughr. The system there is a lot of labor savings in costa, the way you operate versus manual entries and transfers were they create data errors. The other part of the National Defense strategy has to go through this as you are trying to improve readiness. Can i get the spare parts and the people financing can i get this through maintenance faster . Valassis Data Analytics. One of the things the private sectors been able to do is to use the big o data cloud or whatever you want to call them. We have tens of billions of transactions. We get audited and it goes back fundac congress. Those funds are Still Available for payment and disbursement or the ability to organize those datasets to track them and find errors that allows us to adopt some the best in the private sector on inventory. Its another thing you can do when you dont trust your data. Those types of reforms we can adopt best practices and get to the quality of the data they have so wee can rely on it. Saying thank you. Along that quality versus quantity issued the dod has closed 22 of the notes of findings and recommendations trom fiscal year 18 audit. The number has actually increased. Should we interpret that as working or should we be worried that we are not making enough progress . That thing 200 marketers than last year. When the things wero took as Lessons Learned from my time at homeland was to set up these contracts are normally an auditor when they think they are going to pass they stop working. They say of the disclaimer, we aree done. You and the ig have been a tremendous help in this process. Even if you are going to feel keep auditing. The thing i tell everyone inside the building is the auditors find 1300 Additional Findings those are always therere. The more clearly the identify the sooner we can make sure we have corrected lands. We will keep closing them and get better more efficient. Those numbers will come down but its exactly what we are payingt them for andme what i hope he would get out of them. See if my time is expiring. Again thanks for your leadership on this issue. Its a bureaucratic beast and trying to sort through them and were letip down and we had congress do appreciate your efforts so thank you very much mr. Secretary and thank you mr. Chair. Thank you. I would add my appreciation to what youve heard from my colleagues about the work that you are doing. He talked about the list of examples and successes that youve uncovered as a result of the audit. At some point it would be helpful for us to get more of that list so we can share that with others, what has been successful about the audit. I want to go back to your early comment about the grove and preaching to the choir about the grove preaching to the choir about thech grove. There doesnt seem to be a universe shall appreciation of congress and the administration for the impact of the can to knowing resolution would be and do what point are you concerned that might trigger the budget cat so it would take us back into sequestration. Can you talk about the impact that you see and are not able to get appropriations through . That they take first the crn and sequestration but the cr is designed to be destructive. His design to get you not want to do it so the first thing it says is no new starts. The congress how Senate Republicans in democrats agreed unique more we get to one of dover and we say lets not start dying yet. Letsag wait to place that orde. We have researched technologies Artificial Intelligence and hypersonic missiles. The house and senate agrees lets give the chinese a three month head start but lets make it harder for people to keep up with the Tech Knowledge he by letting the strikeout. The last part is you got families and training that constantly get disrupted. We may believe theres a deal at the topline but they dont know what that means for installation so in good fiscal sense they hold the money and delayed trading and minimize what they are going to do and sometime in december or in previous years march we hand them all that money and say now do it in six months. They cant get back their october Training Exercise and they cant recover the time loss. Then we start having challenges. Ith inventory its a misuse of taxpayer money to manage it in this way. The sequestration is even worse for the sequestration is a catastrophic cut that undermines and again they dont know whether you are going there so they have to be cautious about how they spend money. You would have a problem making payroll under sequestration. Then you completely lose readiness. For anyone who hasg a ship made in their district they know the importance of the ships coming in on time and the maintenance happening on time. Cthe ship facility cant take twice as many ships the next year. Cothey dont come in on time youve lost it. This is something we need to avoid in this is something we need to minimize the link if at all possible. Thank you. I certainly agree 100 . I want to ask about another issue thats outside ofrt the audit the goes your current role and that is you are aware im sure there a number of virtually all military facilities have an issue with chemicals could secretary esper to his credit appointed a task force the day he got sworn in to address that military installations. My understanding is the navy is very close to a breakthrough in finding a replacement for the Firefighting Foam that would be equallyak effective. Can you give us any update on that and if not can you take y at for the record . Let me take the question how close theyco are. They are researching alternatives. We spent 22 million on that but we will continue that because we need a foam in highrisk areas and what we need to be environmentally safe. Well get you the answer how they stand. This iste a high priority and te secretary of the Task Force Working on it. We are getting to that solution and its ultimately the best place to end up. Thank you. Finally in june the department releaseded standards for defense contractors called the cybersecurity Maturity Model certification. I appreciate the need for this program to ensure there is cybersecurity in place for our contractors but can you talk about the extent to which the with thoseworking contractors because one of the things that we have heard from some of theth businesses that ty work with that they are very concerned about theof timeframe within which they have to comply with those standards and also the assistance. For the big folks its not an issue as for some of the smaller people who subcontractor work with defense they dont have the capacity and the assistance they need in order to comply. Can you talk about whats happening on that . T . For those are not familiar what are the issues we have is only abilities in our supply chain in the businesses we deal with so other countries tend to attack their network to try to extract important data. A set of standards much like a Financial Statement audit they would hire a firm to come in and check the controls and be able to verify the quality departed the intent is to recognize the larger firms will have an easier time. We need to work with Small Businesses in some cases we have requirements that a firm as a scif variable to hire a firm that they have access to so they can work with folks who can set up a network. If you have a small firm you dont try to build your own Network Review just subscribed when the certified and you know you can count on in that Firm Provides part of their i. T. Services. This is something i know cio and undersecretary worked closely with the Small Business community. We need them most of all to get up to standards and we dont want this to be a barrier to entry. We dont want to lose all of the innovationtr is coming out f this. Europe sulli right. Thank you mr. Chair. Thank you mr. Chair mr. Secretary along similar lines focusing on the purchase of unsecured commercial items. Back in august i sent a letter to you highlighting off the shelf computers and other types of electronic equipment, specifically those that have been made in communist china and those that present a cybersecurity risk. I appreciate the letter that you sent back and reply which discussed the ways in which the department is addressing those types of my abilities but you can give us a quick update on the progress that the department has made in that area. One of the challenges you have an buying particularly electronics as is its one thing to say this is a large chinese made products in a shouldnt be in the system and then you buy it there onceu and you start discovering components that were made. Company is a u. S. Company but their components are so this is where the department asked to do careful analysis. We look the Threat Intelligence and their supply chain and we test the products with adherence to security and we need to understand the supply chains. Where are the places we can afford to have them ring in those because it creates a vulnerabilitye and working with those firms. In some cases you take out the middleman and buy from a vendor but other cases you have to understand the vendors are using pieces and some of those pieces are risk tradeoff the process where putting in in cooperation between our ceo and secretary of wast asian. Are there areas of concern . Let me take that on the record. Thank you very much mr. Chair. Mr. Secretary what i said in my opening comments in i won to get europe pinion weather might need reasonable to expect as we work to the process of these annual audits and engaging corrected that todays win might it be reasonable for the committee to expect the department would have completely clean set of audits . We have 24 organizations. I would expect every year to see movement forward. People moving to modify. Within five years id expect you to see the majority of them with a clean opinion. The department itself wont give an opinion until last month also an home andhi it took them 10 years to get an opinion. Five of those are waiting on the coast guard. For several years it was coast guard property. Everything else was okay so you will start to see the number come down. I found it very helpful because in the hearings the coast guard used to get that as an opening question. That helped focus everybodys attention but youll see that overtime pay gilsey different opinions in the number problems going down and some havent single issue holding them up. I dont know what it takes to get to last them because its who is the slowest and takes the longest and that will be the final tend to drop. Mr. Chair id like to introduce to record in response to mrs. Hironos questions the secretary talked about the letter he sent with the signature to the attorney for laura cooper and there was a reference in that letter. The letter is a page and athlon and the operative paragraph is the penalty not one. This letter informs you of the administration white direction executive personnel and type per dissipate in the impeachmentnt inquiry under the circumstances neck. Pedabytes introduced this for the record now have additional followup. Without objection. Mr. Secretary at me ask few other questions. You mentioned certain base commanders are very open and willing to work. Did you run into some obstinance or resistance from other commanders and is there a correlation between that and not scoring so well or to make sure there was good cooperation . The auditors are the ones who gave thehe feedback and they sad the more they are engaged the more likely you are to see the result. The question of them focusing on the items in the process and what they need to be accountable for. Heres a big surprise for the audit. One of the concerns we hadit gog in for those of you advocating in those of us pushing it to come you audit me and whether my bills match my invoices. The issue over inventory things about drug benefit to readines. This turned around the views of the military that we deal with to understand this wasnt about paperwork. This is why readiness and being able to dot their mission. Never ended up getting the pushback that i was afraid i was going to see and it until you started it everyone assumed it would be then natural outcome of the attic. I think we seen that level of emphasis and some are stronger than others but i think well continue to see it grow. Smith let me ask related to that topic some of the media which im glad they covered it but not surprisingly the headlines were a little alarming. There was a reuters piece a couple of days ago come pentagon gets a failing grade in his second audit and a bloomberg piece yesterday i think headline air forces inventory listed wrong sites for 79 Nuclear Missiles. Misidentification of 79 Nuclear Missiles almost a fifth of the fleet. So thats pretty alarming. Can you talk to some these headlines and particularly the one with regard to 79 quote missing Nuclear Missiles. Were they really missing . Im concerned if that is the case. The proper title would have been 79 uninstalled missiles. They are the motors that are used when they are pulled out and put into maintenance in a supply system. Tracking whether they run the base and where the red adofo but i dont think uninstalled missile motors is the same drama as the title that you have. This comes up in the audit. Occasionally you of the story that reference is Department Even though its orders of magnitude bigger than our budget. These are misunderstandings and these other reports are written with a level of detail that makes sense but to others the stories come out in you try to translate it and you get it wrong. Part of my job is when these comes up explaining no, our missiles are in the ground. We know wherere they are. They dont tend to move that often with the icbm so 79 would have not been relocated. The answer is its still a problem. We have to get an accuracy of our missiles but its a regular sub probably issue and updating the database. On that headline obviously keeping track of the missile motors is important. We knew where these icbms were. They gave it 100 am separate apps them about the issues and they didnt even g bring this u. They talked about supplies in general. In a failing grade, thatsist accurate. C7 organizations did in the leader should get credits because many started the out as before anybody else in the department. That was the leadership of their decision because that was not a full signal from the Department Level for many of those so credit for those whoea got it. Let me aske another parochial question from my perspective. What were the findings. Were they positive or negative . Its a good example. They went to Fort Wainwright and they have a . List of 108 items they want to find everything aircraft andng they had 25 items they found and then they went back to the database and said can you show me these 25. They had a pass rate. There were six things examples including the serial number didnt match. We cant be certain this is the same item. You have an item but it doesnt match the serial number. Where was in recorded in the system. Six is small w but this is a sample so the question becomes what if you extrapolate that the 95. 5 pass rate. Thats a good example of the business they did around the country and the type of thing for that feed back is helpful. Why do i have these six areas and they can determine is that in other areas as well and it they came back with a different sample would i be 100 . They have six to nine months to work on it before the editors sample them again. First of all i want to thank you for your perseverance for you and the Ranking Member kaine have been warriors on this for years. I want to thank you secretary for giving us our first audit. I know its a laborious process. I have a couple of quick questions. When you look at the number and the cost of this first exercise is pretty substantial. Its the Third Largest expense autumn honor expense sheet second only to medicare but its only a little bit larger than some of our larger corporations. It doesnt cost them a billion dollars to do this so my question is over time do you see a possibility number one that we can get the answers here quicker now that weve have a start. We can get to a clean report and what is the quantity . A no we talkedit about some of e subjected to this. Their obvious but how do we quantify that . It seemed to the image in a private conversation you pay for this in many regards quantitatively. Can you tell the committee . You talk about the cost. The amount we pay a Public Accounting firms 190 million are compared our side not dramatically different. The corps of engineers audits moved from the heavy sampling and those costs will come down. We expect to see the amount we pay the editors go down. We have a similar tune of 50 million that we spend on federal p employees or the contractors to support the audit. Some of that will come down and some of that is the cost of doing business correctly. When you look at what is spent to process they have very good data on how much they spend fixing errors. Their costs will go down by at least 400 million when they start getting clean data which will fully cover the cost of the audit and the cost of our site. Is a byproduct of another process. It is and when you think about it someone has to do the holes thingsthe slide through through without touching your all set. The second half of that is the money we spent on fixing problems and we are doing this to comply with their standards in with the law. We are spending that money in the past. We didnt have the audit to tell if it was right soggy because his example. You are building a new accounting system. In the past he would feel the in a didnt do it you wanted to the editors will show up every year and test that system. Youre not going to be done with your it and petition before the editors give you ath list of problems in the Program Manager is saying you have to make the system work. What i was surprised by when you look at the money that the navy has saved 167 million when you look at 316 million the departmenth was able to use Data Analytics to recover thats the cost of what we are spending on the audit and then some. In terms of paying auditors we are already recovering that. Now we are just living up benefit of all of their findings make sure the rest of the money we spend is better in her processes get better we bring discipline to the system. I expect this will be a saving some years out. We are seeing that none of that now and we are seeing the benefit to the taxerpayer. I know you talk about continuing resolutions in this job in we now know secretary ricin has talked to is quantitatively about that and the secretaries of done that acrosstheboard. Those costs upwards of 100 billion over the years in terms of the cr practice we have been under for the last 45 years. Only four times the last 45 years have we funded the government on time and that needs no need for continuing resolution. The last decade all but one year the First Quarter has been under continuing resolution. This current debate will happen tomorrow that we have a photo next continuing resolution it will be 180 continuing resolutions picking you at explain how the audit interacts with their growing awareness of how this insidious thing called the continuing resolution devastates the ability. Because it ties the hands of the military at the line item level with tremendous intrinsic cost their if that from a black of doing our job in congress . How would the audit help us identify and expose those wasteful efforts like 4 billion we are spending today that the dod has said we dont want to spend any more but we are obliged to enter the continuing resolution law. If you think of the contract where buying supplies. Normally you might placeon the order at the beginning of the year. Someones going to make in order to covers the first six weeks after loaded in the system and they do another contract for another four sixweek. We keep breaking this contract into multiple parts increasing the amount of manual labor increasing the chance for data error and making it harder for the vendor to deliver the quantity at the right cost. Give artificially generated the amount of additional work and we have seen the consequences with these inventory issues that you are and where we fell back money for three to six months and then we push it forward and expect people to be able to execute it with a three to six months left. At the end of the year i ordered the inventory and its rushed because i didnt get in the normal sequence site put on the shelf to load in the Inventory System later. The other part is the people doing the odds are the ones mot affected by the crc acquisition. All these folks spending their time over here we have watched getting the data in the process right. Its very disruptive in the audit highlights that and the families and appointments, those are serious problems. Thank you. Thank you mr. Chairman mr. Secretary thank you for being with us today. I have to tell you going back to my freshman year in the house in 2003 we started working on the Management Initiative the dod audit process is trying to simplify this and get everybody into a system where data would be interoperable. He would be able to put a lot of this on the line at that point and now we want it all in the cloud. What has frustrated me and i think what continues to frustrate some of our men and women in uniform is you take two steps forward and you take a couple of steps back and youd end up not making as much progress as you wouldle like to see made. With our inconsistency at Fort Campbell Wilmington Air naval station arnold era National Guard and tell unit, as i talk with these men and women one of the things that continues to come up is having a standardized process having best practices and being able to look not just at what is immediately in front of you but looking out. Further out. As senator perdue just talked about the necessity for having Budget Authority and not running on the cr is a big part of that. We realize that but also what comes back to being an issue with dod is the fact that they just cant seem to get ahead of this process and get those best practices in place. What i would like to hear from you is if you have a system in place to really incentivize identification of cost savings guide dod employees. If that would help and also what about the best practices practices database . A thats something as you go through this and you pull this data and you go in and research this are yous building a best practices database that is going to be available systemwide and the third thing i would say is leveraging leaders from the third who can really come in based on their experience and help you streamline processes and Optimize Operations for the department. Because right now, and this is one of the problems i think that arguments have when they are deployed is the number of hoops they have to jump through to get authority for something they need in ave timely manner. As you look holistically at this and what you intend to glean from it if you will just answers those it would be helpful. One of the important things is how the all the atta puts a spotlight on some of those problems and one of the things we have set up at the department as we have three forms that includeat armynavy and air fore and one of them focuses on the i. T. Aspect of the added another in the logistics and the third is Financial Management and part of the answer is we are is going to find the same problem. When we have a solution that is usable for example of the armys experiment with a series of codes. Well get software who were when you depart rensin the counter meckes everyplace you had a login and turns it off instead for 60 and organizations to get the paperwork to go in and turn off your access. That works and everyone can adopt it. Summary thing we are looking at is making sure someone doesnt login with one user in one account still logging in as another and a control that prevents so many from doing both of those functions. All of those are best practices and we have a form that shares those. We have the thing in a private secretary the secretary of the navy brought in and has been adopting some the best practics on thehe Navy Aircraft in ordero fix the tebow issues the supply issues theyve beenn facing. When they have those they share them with the other services that reach of these ventures theres a lot of analogy to what we do even though we are in the private sector and white to color best practices in government i believe is called plagiarism in college. Reese they their needs and use it to drive efficiency. Thank you for accommodating. You have a job to do. This is the impact full. We are talking about 60 billion that we spend. Where do we go from here and what do you think we are going to identify and if you dont quantify it totally understand. One of the things we do is look at operational effectiveness and best practices. Im looking out the topline. Its her first deep dive look at the broad days in dod and when you look at the impacts of cr and other things given the nds what do youu think the potentil is going to be for some restless tnation . For example i will highlight this quickly. Wee spent 14 of the total mony on overhead. Thats up 2 in the vietnam era. Id like to know what that increases that should be part of the out of process as well. Its not consistent with the nds. Getting more efficacy about where the money is spent and how it will give us flexibility. My questions are is what is the next step this year and would you hope to improve after the first audit and secondarily what you think a rationalization potential could be in dod . If you could give us some idea what youre thinking. The next step is to take advantage of the data we have traded where as the foursome i get the budget would see they have 100 million may spend 50. They canan click on that and get every single transition and make set up. If you want to get over overhead and some other expenses you can goct through this transaction st out this overhead as Logistic Support or i hired a consultant. That level of transaction data is part of what i want to push for we should be able to have a meeting in the pentagon that looks like all the Business Units are there and you got a report from your cfo that theres no discussion about the report. The naf accurate discussion and now we are going to have a discussion about what it means but if youn dont trust the data you can getit there but if you have this transaction level wee can bring it up. The Planning Program budget execution. Doesnt have a door where you go insane heres what we did and heres how comes back way to do that changing that to accountability which is did you do programming for the next five years and how do i take that information back into the system. This is moving accounting that we sent the report to somebody and b again an audit report is e data that can come back to the leadership in the usual format and this is what are the Sector Companies are able too do becaue they trust their data. With all the people coming to celtic and testify you consistently been a straight shooter and i so much appreciated and thank you for all you are doing over there. Smit thank you secretary perdue and i wantap to thank my colleae ase well. The audit and budget issues for the pentagon senator ernst and oregon senator perdue soo thank you get them and mr. Secretary you did raised the issue of the hecr and heard bipartisan concen here today which i think is important and how you describe it. There is a way to deal with it which will allow us to get on the types of appropriations bill. Theres a simple answer and lets get on the bill and devote on the bill that came out of appropriations with a strong bipartisan support. We will continue to press that. I want to thank you again and members are requested to submit any additional questions for the record by friday at noon. Mr. Secretary appreciate and after you probably respond to any of these additional questions from any of the members of this committee. Without we are adjourned. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]