Good morning. This hearing on the subcommittee on readiness and management support will come to order. Today this subcommittee meets to receive the testimony from deputy secretary of defense David Norquist concerning the department of defense 2018 and 2019 audits. 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 confirm as deputy secretary of defense, withh Overwhelming Senate support from both sides of the aisle. He is a welcome wealth of knowledge on these issues and i thank you for being here today. To a lot of people, aside from a good friend senator perdue, who im hopeful will be here a little bit later, the dod audit might not come across as the most interesting topics in the world. However, Ranking Member kaine and i taket her oversight responsibility serious and are happy to havee this important d timely hearing. Another responsively take circe is one in 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, until secretary norquist arrived, it had never happened. The pentagon had never completed an audit. Let me repeat that. In its history the department of defense had never completed an audit. Kind of remarkable. The fy 19 dod audit is one of the largest audits of any organization in history. Over the course of this year this audit hasud required more than 1400 auditors and hundreds of duty site inspections. Inspectionsrs and evaluating thousands of sample and documented items to accountt fors. The roughly 2. 8 trillionn dod assets. Conducting an audit of this size is nohe easy task but its a critical function that dod must do and the results reveal issues that we all must learn from. There w is still much, much more work to be done. But it 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 come much knowledge was gained from actually doing the audit. Im sure well hear more but over 24 individual audits across the different agencies, seven did come back clean. So why do we take the time to do an audit . In part it is to encourage a more responsible use of resources within the department and from readiness perspective, the ability to promote real change within the department. At while identifying cyber vulnerabilities in Dod Information Technology systemsms or locating unaccounted for equipment or improving the recordkeeping of personnel is not a glamorous undertaking, it does produce process improvements and technological upgrades that are long overdue. These improvements are critical. It is of the dods responsibility that, quote, its important to gain full value from every taxpayer dollars spent on defense, thereby earning the trust ofqu congress, unquote. That is from the 2019 National Defense strategy. In other words, if 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 nds, we in the congress and the American People need to have the confidence that these dollars are being spent wisely. As chairman in all regular states, the ndsa has been preparing our military for a return to strategic competition and does represent a prime example of bipartisanship for the support of that strategy and our troops in the senate. Nds explicitly states the audit as a priority towards driving a better budget discipline for the department and achieving our overall National Defense goals. I hope this budget discipline starts with the audit and spreads throughout the department to all the financial processes within dod, including our procurement acquisition and contracting processes that this subcommittee has oversight of. I look forward to hearing about the progress, some of the successes, some of the failures, and i know my Ranking Member senator kaine is also interested so i will turn the dais over to him for his opening remarks. Thank you, mr. Chairman, and secretary norquist, its good to have you. When i saw the oppressed string into the capitol this one of the pilot the pentagon audit is going to gethe the attention it deserved. Apparently theres other things going on on the hillf but i do want to welcome you and thank you for youra long record of Public Service but also for your making sure thatnd the auditability of the dod is a top priority. The fact all federal agencies were mandated to do audits beginning in 1990 and the dod has been the last to get in line is well known, so much so that the ndaa and and i believe 201s Committee Said okay, youve had enough time, you have to make this happen, and i was gratified to be part of the committee when we finally gave the ultimatum and im gratified under your leadership the dod is moving to get this done. Last week thehe department announced it had officially audit. The 2019 thats not surprising. Ido think actually you wouldve found a great deal of skepticism on this committee have 2019 report said hey, everything is fine. When you start something as complex as this, if youre not finding areas to improve, failings that need to be corrected, that you lead policymakers to question the veracity or the sufficiency of the effort. But what the report last week showed is there so much more to be done to give war fighters and taxpayers what they deserve, a fully audible pentagon. We had a witness testified before the full committee recentlyta on blanking on wht is his name but she used the phrase efficiency for lasala, the idea of the audit should drive us to not spent on things we shouldnt, reduce spending on things we shouldnt as a way of interacting those resources to more mythology, to a more Effective Department of defense. I hope we can talk about a number of issues today. What benefits are the military forces already saying, from the audit and its findings, benefits and efficiency but it was always my hope as a mayor and governor in looking at audits to also learn some things that might improve the effectiveness of operations. I dont think its just a number counting exercise and an exercise that should lead to saving a dollar here or a dollar there. We should also lead to greater efficiencies and effectiveness as well, so hope we can talk aboutsa benefits. How was the process of the audit over helping thehe pentagon clen up any data or Accounting Practices they need to be improved . What resources are being applied to the audit and other Additional Resources that need to be applied so can be as effective as possible moving forward . And in your opinion, secretary norquist, how long will it be realistically before the dod will be in position with the audits audits would be clean auditsin across all the numerous audits that are done . I look forward to working with the committee, under your leadership, with the department to make good on this promise made so long ago to the american taxpayer that every aspect of the american federal government will be subject to an audit and we wouldi learn from the audit and a process of contents improvements so we can get better at what we do. Thank you. Thank you, senator kaine. Mr. Secretary, thanks for being here. We look for to your Opening Statement and if you want to longer written statement that would be submitted for the record. Chairman sullivan, Ranking Member , Ranking Member kaine, the establishment of the committee, thank you for the opportunity to testify before youwr today on the department of defense Financial Statement audit. The three major questions about the audit i i would like to briefly address. First, why even have an audit. Second, what are the results of the audit . And third, how does it benefit american taxpayers . The short answer on why we ought is dod is an extraordinary large and complex organization. We employ nearly 3 million servicemembers of civilians while a typical commercial Airline Managers between 30016 at aircraft, the aircraft, the military services by approximately 16,000 aircraft. We managed 292 billion in inventory and more than six times the size of walmart, the Worlds Largest retail company. Financial statement audits are a proven commercial solution that uses independent auditors to effectively assess complex operations. A Financial Statement audit is comprehensive and it includes verifying account, location, and condition of our military equipment, property, material and supplies. It has vulnerabilities in our Security System of our Business Systems and validates the accuracy of records and actions such as promotions and separations. In short it provides the independent feedback about dod leadership and congress needs. This year more than 1400 auditors conducted over 1600 site visits with the following results. Consistent with last year the reported no evidence of fraud, the significant issues with the amounts they to civilian or military members and the dod cd account for the existence and completeness of Major Military equipment. Inin addition one more organization received a clean opinion, that the fence commissary agency. Now seven of the 24 what went unmodified or clean opinion this year, and of the 2377 findings in fy 2018 the department was successful in closing more than 550, or 23 , of the findings. The audit demonstrates progress but we have a lot more to do. How does the audit benefit the american taxpayer . The original primary purpose of the audit 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. So letet me give two two examp. The navy at Fleet Logistics Center jacksonville conducted a ten week assessment and identified 81 million worth of active material, not tracked in Inventory System. Was the available for Immediate Use decreased maintenance time and filling 174 requisitions. They also limited unneutered equipment freeing of approximate 200,000 square feet, the equivalent of 4. 6 acres. We always thinknk the benefits f better data and use of Data Analytics. Fe for example, the department uses the advantage to th advana tol to this to all illuminated and efficiency of providing the analyst the time and the insights been to identify 316 million and high risk funds moving them from a low priority function to better usefy of thoe before they cancel or expired. The audit is a foundational element of a broader landscape of business reform in the National Defense strategy. We are moving forward on multiple funds, proving our enterprise buying power, consolidating i. T. , realigning and reforming health care consistent with congressionalen direction, reforming how would you background investigations to make them more effective and less expensive, and eliminating duplicate and inefficient businessss systems as well as identifying efficiencies in what we like to call the fourth estate. I would bes remiss if i didnt mention the harmful impacts of the ongoing continuing resolution at a recognized recm preaching to the choir. The department and the white house have both expressed the urgent need for congress to pass the fy 20 20 authorization and appropriation bills. The cr stopgap measures are wasteful to the taxpayer. The delay storm damage repairs and damage the gains are not just make in readiness and modernization. Ultimately i cr is good for the enemy, not for the men and women of the United States military. The administration and i urge congress to come to agreement as quickly as possible consistent with the budget deal reached in the summer. In closing i like to thank President Trump for his leadership and the duty workforce for embracing this complex and important issue and i would also like to ask congress and this committee and in particular the Committee Staff for your commitment to this massive undertaking and the role you played in making an annual Financial Statement audit 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 pose goes into the america pac spent to be as responsible in spending their money as they were ine earning it. Thank you, mr. Chairman. Thank you, mr. Secretary. Let me begin just with a very basic question. Im not sure if the answer sine youve only been in your position in the comptroller position for a a couple of year, but from the perspective why was the pentagon never audited . You would thinkof given what you just mentioned how important it is to the country, how large it is, how complex it is, thats exactly the kind of federal agency that you do want to audit. Why was this the first time that somebody undertook this daunting task . And again i commend you for doing it. Thanks, mr. Chair me. Let me clarify. The pentagon is baltimore audits. We had gao, the ig, others. They do program audits, particular subject. The difference with the Financial Statement is the sheer breadth and depth of it. It is an end to end audits on dramatic skill. What you just did twice. What we just did twice. That is never happened before. Why . A couple reasons. One is it is an extremely hard task that would outlast anyone who started it. But the pentagon is used to our task. It is. It won world war ii, for example,. They did, they did. The challenge with the audit is there was an emphasis on trying to get ready for it, this is what i write a fundamentally different view from those who would come before me. They said its too expensive to pay the auditors. Lets get results right enough that we could pass the audit and then bring the auditors in. My experience at Homeland Security where they were under audit was that would be a major mistake. Homeland security, we didnt have a choice. When i showed up the auditors were already there. I found the auditors and their feedback to be be the centerpiece of getting us to the clean opinion. So my gut is the money we paid the auditors to make sure all the other money we are spending was going to valuable things, getting feedback on whether we are being successful. So even the Defense Department spending money on fixing problems, they had no audit basement baseline for which to tell you where they better from one year to the next. We have fixed that in this approach. Where carefully bashing those i items precisely for the purpose and a think thats the biggest difference is i believe the auditors are the key step in getting us to the clean opinion, thats something to bring to the end when you think youre ready. Let me dig into that a little bit more because the audited cost a lot of money. I think the fy 19 audit cost close to 1 billion. If for doing this annually, which is your goal, correct . Was eventually pay for itself in terms of, or is it already paying for itself . Lets take that into pieces. Before we started the audit, the Department Spending 770 million to fix problems. With the audit piece is about 195, 200 million we paid extra auditors. We know from experience of the corps of engineers that when it went from no opinion to a clean opinion their cost of the audit dropped in half. So over time that number will come down as we start to move from where they have to do detailed sampling to recall testing of controls. Thats a level of funding thats necessary for transparency. Think 200 millionon is 131 uppr budget, to our budget, to be held accountable, thats fine. We didnt have to spend certainly on to decide one 30th of what . The big number is in the remediation, and the question there is canan you show what you have fixed . In the absencece of the audit is very hard. One of the things other than my prior jobs is Self Reporting of fixing problems isnt a reliable indicator. I was dependent upon the auditorsri confirming people ha, in fact, fixed it. One of the best things the audited show us is one Organization Says that fixed ten problems and auditor agrees with goaltender i have great confidenceon. And other opposition claims they fixed it and auditor agrees with him on three. I have a problem. I have some training i need to do, people in need to talk to. Thats not going to get into success. Youth cant wait to get to the d of the process. You need to auditors to get on a continual basis so weve already seen benefits and savings and return investment i had expected to see this early long before got to thefi point where i expected the cost to come down. But i can go on more but i will let you let me ask another basic question. So for those of us who are not auditors, what exactly does this entail . You are going to installations pick your people found out over all our military bases, going to supply depp owes. What exactly are theyll doing . Are not counting every rifle and every tank, or are they. Us know, they cant because the shirley with a would be involved is just a problem. With the commercial practice brings the best practices which means they will go to the highestat level of the organization and look into the databases and sayce show me everything you think you own and have innovatory. They start there and they pull samples from that. And followed all the way down to the installation to they went to Fort Wainwright, they come in with a list thats it i need to