The committee will come to order. The Committee Welcomes david norquists as our witness today. The topic is the audit of the department of defense, which by law begins this fiscal year. Will just say it is not by accident that the committee will start our year on this topic. Been ang the audit has bipartisan priority for some time. The act of 1990 required all federal departments conduct an audit. The 2010 and eaa required that the the departments be ready for audit by 2017. This panel on defense Financial Management and reform put scrutiny on the departments efforts and issued a number of recommendations that enabled us to arrive at this point. Eaa ndaa results are to be delivered next year. I want to commend chairman conaway for his expertise and persistence on this issue as well as mr. Courtney who was also a member of the audit panel several years ago. They will both be glad to know that we have had additional members join the committee in recent years who can contribute their background and experience to this issue as it we move ahead to as we move ahead. We hear evidence every week that we are not providing our military with the funding they need to carry out the missions they have been assigned. Spend more. At the same time we have a responsibility to americans to see that each of their tax dollars being spent to protect them is being spent in a transparent way with appropriate accountability. We should never assume that an audit will solve all the problems of inefficiency but it seems to me that the requirement of spending money smarter is knowing the certainty knowing with certainty how it is being spent. It is likely the result of the first audit will not be pretty. Those results will help direct us all, commerce on the department, and where we need to apply our efforts to improve. This issue is important and this many will continue to pursue it. Breaking members are recognized. Ranking members are recognized. Time, ie interest of will simplify by saying this is enormously important. There are a lot of concerns at the pentagon. There are two big issues. One, we are in a time of very tight resources and great needs. We have to get everything we can out of every dollar we spend. There are many issues this committee has covered the make this clear. Secondly, if we cannot explain where we spend the money in the pentagon, we are failing in the first mission. I know it is a lot of money and there is big bureaucracy and a lot going on. We ought to be able to do an audit that tells us where we are spending the money. It is that simple. Mission. He pentagons i want to specifically think mr. Conway for his great leadership on this issue. Who knew having an accountant on the committee would be critical . We should have known that. We appreciate his leadership and and we would feel great if at the some point this year we could say the pentagon has been audited. Close and we can get there. I look forward to hearing your testimony and i think the chairman for his leadership on this issue. Thank you. Mr. Darkest, ill come norquest, welcome. Thank you. Members of the committee, thank you for the opportunity to provide an overview of the Department Progress and plans. I appreciate your long and unwavering support to the is to the effort. Thank you to congressman conway for his leadership over the year. He has helped the department maintain focus on audits. When the president made a promise to the people to rebuild the u. S. Armed forces, he made a commitment to start the audit. Inside the department of defense, a tone has been set from the top that embraces the audit as part of their vision to bring business reform to the department of defense. I know you have had many hearings where witnesses have told you they support the start of an audit eventually. This hearing is different. We have started the audit. We are only able to have todays hearing with the department of defense under his first audit because i should note that audits themselves are not moved to the department of defense. Dcaa employs 4000 auditors, for contractors to the government. This is the first time the department is undergoing a Financial Statement audit. It is comprehensive, occurs annually, and goes over Financial Management. A state audit goes over accounts, locations, and conditions to military equipment. It has a security vulnerability, and validates the accuracy of personal records, suggest separations. The department of defense anticipates that this spring and early summer, we will have 1200 financial auditors, assessing books and whether books and reflect our financial conditions and operations, in accordance with county standards. These are distinct from program audit. Ance or contract based on my experience with the department of Homeland Security, it will take time to implement the changes necessary to pass the audit. It took the department of Homeland Security about 10 years to get its first opinion. We dont have to wait to see the benefit of the audit. The Financial Statement audit helps drive enterprise wide improvement, and improve the quality of our data. Just like private Sector Companies and other federal agencies, the department of defense prepares Financial Statements every year for assets, liability, revenues, and expenses. Though not a corporation, dod owes accountability to the American People. The taxpayers are as important as it shareholders. There is a true and accurate position, a descriptor of. Inancial conditions transparency, accountability, and business process reform are some of the benefits of a Financial Statement audit. Transparency audit includes the underlying data that we make available to the public, including a picture of our liabilities is pending. This opinion will directly contribute to an audit opinion for the federal government, assets and liabilities. Accounting, the audit will highlight areas where we need to improve our accountability. During the initial audit, the army found 39 black hawk helicopters that had not been properly recorded. Were 478 buildings and structures and 12 installations that were not given a property system. Records, the property we can help demonstrate the accountability of our assets. In other cases, we will be able to obtain independent auditor feedback so we can better hold those vendors accountable for their solutions. T the combination of better data, business process reengineering, and the use of modern data analytics, directly supports the chief management officer position. Effort to bring businesses to this operations. These reforms will lead to savings that can be reinvested. The cost of performing the audit n and. E 367 millio discovers a fee to Accounting Firms and the infrastructure, including the salaries of the people supporting the audit. The 181 million in audit 1 oft cost is 1 30 of the doj was it budget. Its smaller than Many Companies pay to their auditors. In addition, we anticipate ,pending 551 million inequalities identified by the arbiters. The audit will likely be one of the largest ever undertaken, and comprises more than 24 standalone products and an overarching consolidated audit. At nine audits, conducted by ip firms with edw ip conforming to consult with thedwip dwip. Audits have begun to arrive. The department has established a tool and process to capture, prioritized, assign responsibility for, and have actions for audit findings. There will be steps to see whether the department has addressed the findings. Going forward, we will measure progress and go to achieving a positive opinion of using the number of findings resolved. I want to thank this committee for its continued focus on the audit. Your insight your oversight has been a catalyst, and we appreciate the partnership we enjoy with you and the Committee Staff on this important process. With your oversight, we will now continue to be a department that is not only under audits, but improving year after year. Approve continued support, and relate information to technology and funding, remains critical in moving to department or achieving achieving a positive opinion. I look forward to your questions. Thank you. I appreciate your differentiating what we are talking about here with a contract audit. Tohad a number of provisions reform the contract audit process in last years Defense Authorization bill. That will improve. Read where ated to retired general says basically, this audit is not worth doing. It requires going and checking the real property. Youve got to check and see whether all the weapons and equipment are accounted for, the various records and so forth. Expensive. Be his point is it is going to be expensive. His point is, its not worth the cost. You are doing it because the law requires you to, and i understand, but what would be your response to the argument that the cost is more than the benefit of doing a full financial audit of the department . T . [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. Visit ncicap. Org] in the amount we are paying the ita, 181 million is 1 30 of 1 of the budget. Its a large number, but on the scale of the enterprise, that type of money for accountability is money well spent. [captions Copyright National cable satellite corp. 2016] the 560 million we talked about is to fix problems we find. Going forward we will see if we can live with for fix a problem, but ignorance is not the right way forward. I support the committee to conduct the audit, do the findings. Some of them point out, the article says that it covers so much. The answer is yes; when the point. That we want that is the point. One of the things a lot requires do integration of our standards. The audits are part of those. We will be able to understand weaknesses and hold people accountable to closing Cyber Security owner abilities in our systems. You would want that done under any circumstance. When we find those in the department, we close them. There are other ways to do this. Yes, there are. You talked about contract audits. Is 1200ncial statement auditors. We have 4000 looked at contractors. On the skillful we spend looking at contractors, the team on the scale we spend on looking at contractors, the team we have, it is large. The department is not a corporation, and does not undergo a strict financial audit. The law requires a financial audit, and the taxpayers deserve the same level of confidence as the shareholders in the use of their money. Thank you. I have a question. One, i totally agree with your remarks. To say its not worth doing we have screwed it up so bad for so long that the cost of fixing it is just overwhelming, so let it keep screwing up. I get that the upfront cost is going to be enormous, but longterm, the benefits are described. You if we got to suck it up for a couple years, and lower costs, be back on track, it will significant. All of the work in acquisition i know the chairman and i and many others have done can be so much better informed if we have this information, all right . Is an tell, gosh, this area when we passed legislation, they are making the process better. If we have a full audit, that legislation has a better chance of a competent that task. Yeah, its pretty bad better chance of accomplishing that task. So yeah, its pretty bad, some of the things you stated, so i agreed with that statement. I comply to doing this, and stand ready to have the Committee Help you in any way we can. My only comment is to reinforce the point about the information. The primary thing and audit promises is better data accuracy and accountability, and when many of the other forms depend on the accuracy other reforms depend on the accuracy of that data, it complicates that effort. Mr. Jones. Chairman, thank you. I have been here for 22 years, and this is the best news. I am hoping for something good. The friendsde on my side and other sites, for bringing their efforts together. I will never forget, rumsfeld, former secretary donald rumsfeld, former secretary of are. Se, sitting where you here account for every dollar of the taxpayer, and how much they spent in the department of defense. He might admit that it never happened, because that is why you are here today, because we have never been able to do anything to take a problem, and even in a small way make it better. I got one question that it does deal with that directly, not with you, but because of your position and oversight. Of all the articles i have seen in about race in the 22 years i have been here, probably this is in the top four or five. Its from two years ago. U. S. Army accounts for trillions me. Ollars excuse the defense department, inspector general, in a report two years ago, said the army made a 2. 8 trillion involvement, adjustment to in oneing increase in quarter alone. In 2015, six . 5 trillion for the year, yet the army lacked receipts and invoices to support these numbers, or simply made them up. This would be something i would think it would be under your departments jurisdiction. If it happened within the system , this is one of those things. Hat i would like to ask you how in the world to you its a anden how do you fix howoblem when you keep do you fix a problem when you keep funding the problem. . What a story like this goes public and the taxpayer reads it, thats why they are frustrated. While we have that is why we have an 18 approval rating. I would hope this would be a situation you can, in a short time, give me some hope that , andwill be dealt with people dont just say, it just happened. You catcht know how up when you keep funding the problem. Important one. Areof the issues you talking about relates to general vouchers, which occurs when money is spent. When you see an article that says billions of dollars, and we only received 600 billion in a year there is a mismatch. We have systems that dont have pass data from one to the other. The army goes into one at the end of their Financial Statements, finds the number in their pocketbook, and writes this into the general election. Property, there could be hundreds of billions of dollars. Because they dont have support, the whole entry is considered unimportant. Ass is not the same thing being able to account for money. Hat congress has given you it has to be spent. Part of that relates to systems that were stoked by it. In the private sector, they dont talk to each other. You dont let them have a system like that. We are adjusting to that challenge. One of my concerns is, only by eliminating the ones that there is an entry to, can you find underlying issues . Its important. I wouldnt want the taxpayer to dispute that with Something Else , which would not be accurate. Its an accounting problem that needs to be solved, because it can help underlying issues. Thank you very much. I might not be here when you resolve the problem, but i will be reading the paper. I wish you and your staff the great best. Thank you. Thank you, mr. Chairman. Thank you, mr. Nordquist, for being here today. This is my first year in congress. I will tell you that often times, i am asked for my observation. I served in the government for 2040 years. The most shocking thing about being in congress is that there has never been a comprehensive audit like the dod. It is just outright ridiculous. There is no other way of putting it. It has been said that you cant measure it, cant evaluate, and i think this is one of the most significant issues facing the American People have an in our being able to act adequately fund our military having trust in our being able to adequately fund our military. We want peoples trust. Theres no question as to how daunting this task is going to be. The stakes are high. Billion in the department of defense was approved. We sell it to taxpayers to provide oversight and accountability over their tax dollars. Mr. Nordquist, in your written testimony, you mentioned that for years, the department had received opinions on dod ancial statements because mixed opinions on dod Financial Statements because it could not provide evidence. Those disclaimers were based on managements assertions, and not independent audit testing. Can you have an audit clarification and detail on this issue . Was even when you say it was based on management assertions and not independent audit testing . That my understanding audits are conducted for the fiscal year 2015. This has been conducted by an independent public accountant. If you could shed some light on that, i would greatly appreciate it. Id be happy to. There have been another things and the department of defense under audit for years, the commissaries, our pension plans, so forth. Many of them receive audit opinions. Its not the entire department, its not even the majority. Have an auditors opinion, management is not able to represent that everything is in forward in order, so they just say you failed. This is one of the reasons why i have been a strong advocate of the audit. Departmentat the of Homeland Security, they had had the off audit in the first year. The number of information you got was tremendous. This will provide a lot of useful information, and i think operating without it is eliminating to how much you can reform and fix without that independent check allocating that what was done was done correctly and effectively, and i think thats the biggest transition we are going to see from Previous Years. Thank you. Once we see the department of defense audit for fiscal year pride will doj track its progress how will the . Audit the mediation progress process be for execution and implementation of Lessons Learned . We have set up a data set where every time there is a , iting of recommendations is made up of several conditions, the auditors will enter that to the database. It will have their view for every entity of each of the findings. They will have codes. What is related to i. T. Systems, property. There will then be an organization with that in a far and the response of with that nfr, and the responsibility to correct it. Of departmenth opinion no. No one is able to feel accountable. Here, all these findings will be associated with an organization, office, or an individual, who will be responsible for an action plan. I will report to you each year which were closed and which were not. We should wait to say good job or who needs more help