Norquist completed the first dod audit ever. Soon thereafter secretary northwest was nominated and confirmed as 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 think him for being here today. To a lot of people aside from my good friend, senator purdue, who im hopeful who will be here later the dod audit might not come across as most interesting topic in the world however, Ranking Member kane and i make our oversight responsibilities seriously and are happy to have this important and timely hearing. Other response bullies we take seriously has been one of providing the funding needed to rebuild our military with specific focus on restoring readiness. Conducting an audit of this magnitude is a massive undertaking, as i am 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. Fy 19 dod audit is one of the largest audits of any organization in history. Over the course of this year this audit has acquired more than 1400 auditors and hundreds of dod site inspections. These auditors and inspections evaluated thousands of sample and documented items to account for the roughly 2. 8 trillion in dod assets. Conducting an audit of this size is no easy task but is a critical function that dod must do and the results reveal issues that we all must learn from but there is still 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 from actually doing the audit. I am sure we will hear more but over 24 individual audits from across the different agencies with seven coming back clean. Why do we take the time to do an audit . In part it is to encourage the morris possible use of resources within the department and from a readiness perspective the ability to promote real change within the department and while identifying cyber vulnerabilities in Dod Information Technology systems or locating unaccounted for equipment or improving the recordkeeping of personnel it is not a glamorous undertaking but it does produce process and provement and technological upgrades that are long over due. These improvements are critical to the dods response ability that quote, it is important to gain a full value from every taxpayer dollars spent on defense and thereby earning the trust 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 ds. We, in the congress, and the American People need to have the confidence that these dollars are being spent wisely. As chairman and off regularly states the nds has been comparing our military for a return to strategic competition and does her present a prime example of bipartisanship for the support of that strategy and our troops in the senate. The nds expressly states the audit as a priority for driving a better budget discipline for the department and achieving our overall National Defense goals. I hope this budget discipline starts with the audits 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 pre i look forward to hearing about the progress and some of the successes and failures and i know my Ranking Member, senator caine, is interested so i will turn the dais over to him for his opening remarks. Thank you, mr. Chairman. It is good to have you here. When i thought the amount of press streaming into capital i felt finally the pentagon audit will get the attention it deserves. Apparently there are other things going on on the hill but i do want to welcome you and thank you for your long record of Public Service but making sure that the audit ability and the dod is a top priority. The fact that all mineral agencies were audited in 1990 and that the dod has been the last to get in line is well known but so much so the nda and i believe 2015 the Committee Said okay you had enough time and you got to make this happen and i was gratified to be a part of the committee when we finally gave the ultimatum. Gratified that under your the dod is moving it had officially failed the 2019 audit but actually he wouldve found a great deal of skepticism on this committee and the report said when you start something as complex as this if you are not finding areas to improve feelings that need to be corrected then you lead policymakers to question the veracity or the sufficiency of the effort but what the report last week showed is that theyre so much more to be done to give war fighters and taxpayers what they deserve, a fully audited pentagon. With a witness testified before the full committee and im flagging on the witnesses name but she is the name efficiency [inaudible] and eddie at the audit should drive us to not spend on things we shouldnt and reduce spending on things we shouldnt as a way of then directing those resources to more lethality to more effective apartment of defense. I hope we can talk about a number of issues today. What benefits are the military forces already seen from the audit and its findings and benefits and efficiency but it was always my hope that as a mayor and governor we been looking at audits and learned 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 dollar here or there but should also lead to greater efficiencies and effectiveness as well. I hope we can talk about benefits. How is the process of the audit helping the pentagon cleanup any data or practices that need to be improved and what resources are being applied to the audit and additional resources, if need to be applied as effective as possible moving forward. In your opinion, secretary norquist how long will it be realistically before the dod will be in a position where the audits will be clean audits across the numerous audits that are done. I look forward to working with the committee with under your leadership with the department to make good on this promise made of so unger go to the megan taxpayer that every aspect of the american federal government would be subject to an audit and that we would learn from the audit in a process of Continuous Improvement so we get better at what we do. Thank you. Thank you, senator kane. Thank you for being here. We look forward to your Opening Statement and if you want a longer written statement that will be submitted for the record. Chairman sullivan, Ranking Member kane, distinction number subcommittee i thank you for the opportunity to testify before you today on the department of defense statement audit. The three major questions about the audit that i would like to address peer at first, wiped we have an audit . Second, what are the results of this years audit . And third how does the audits and other reforms benefit american taxpayers . The short answer is that dod is extraordinarily large and complex organization. We employ nearly 3 million Service Members and civilians while a typical commercial airline manages between 300, 1600 aircraft the military services fly approximately 16000 aircraft and we managed to under 92 billion in inventory at more six times the size of walmart the lowest largest retail company. Audits are a proven commercial solution that uses independent auditors to effectively assess conflict operations. The Financial Statement audit is comprehensive and includes verifying the count, location and condition of our military equipment, property, material and supplies. It tests vulnerabilities and our Security System of our Business Systems and invalidates the accuracy of records in action such as promotions and separations. In short, it provides independent feedback that both dod leadership and congress needs. This year more than 1400 auditors conducted over 600 site visits with the following results. Consistent with last year they reported no evidence of fraud, no significant issues with the amount paid to civilian and military members and dod could account for the existence and completeness of Major Military equipment. In addition one more organization received a clean opinion, the defense commissary agency. Seven of the 24 will have an unmodified or clean opinion this year. Of the 200377 findings in fy 2018 the department was successful in closing more than 550 or 23 of the findings. The audit devastates progress but we have a lot more to do. How does the audit benefit the american taxpayer . The original and primary purpose in the audit is transparency but the dod weve seen how the audits saves money by improving Inventory Management and identifying vulnerabilities in cybersecurity and providing better data for decisionmaking. Let me give two examples. The navy and Fleet Logistics Center in jacksonville conducted a ten week assessment and identified 81 million worth of active material not tracked in inventory system. That was now available for immediate use, decrease maintenance time and filling 174 requisitions. They also illuminated unneeded equipment freeing up approximately 200,000 square feet and the equivalent of 4. 6 acres. We already are seen at the benefits of better data and the use of Data Analytics. For example, the apartment uses the advanta tool to recently automate the quarterly review process of its obligations. This workflow tool eliminated efficiencies and provided the analyst the time and insights they needed to identify 360 million in highrisk funds moving them from a low priority function to better use of those before they 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 fronts, improving our enterprise, dying and consolidating it and realigning and reforming healthcare consistent with direction and reforming how we do background and executions to make a more effective and less expensive and illuminating duplicate and inefficient Business Systems as well as the deathdefying efficiencies and what we like to call the force of state. I would be remiss if i did not mention the impacts of the ongoing continue resolution and i recognize im preaching to the choir paid the department in the white house expressed the urgent need for congress to pass the fy 2020 authorization and appropriations bills. The cr stopgap measures are wasteful to the taxpayer and the delay storm damage repairs the gains our military has made in readiness and modernization. Ultimately a cr was good for the enemy not for the men and women of the United States military. The Ad Administration and i urge congress to come to agreement as quickly as possible consistent with the budget deal we reached in the summer but in closing i like to thank President Trump for his leadership and the duty workforce from embracing this complex and important issue. Id also Like Congress and this committee and in particular the Committee Staff for your commitment to this massive undertaking and the role you played and making an annual Financial Statement audit a regular way of doing business. That apartment of defense is one of the most complex enterprises in the world and in partnership with congress we must continually improve our Business Practices in order to reduce cost and maintain our competitive edge. Each of us post to the american taxpayer to be as responsible and spending their money as they were in earning edge. They cue, mr. Chairman. Let me begin with a very basic question and im not sure you have the answer since youve only been in your position in the comptroller position for a couple of years but from your perspective why was the pentagon never audited to . You would think given what you just mentioned how important it is to the country and how large it is and how complex it is that is exactly the federal agency you do want to audits. Why was this the first time that somebody undertook this 20 desk and again i commend you for doing it . Thank you. Let me to clarify. The pentagon has multiple audit for gao, ig, and others but they do program audits, particular subjects but the difference with the Financial Statement is the sheer breadth and depth of it. Its an end to end audit on a dramatic scale. What you just did twice and that had never happened. That had never happened. White . A couple of reasons but its extremely hard task that would outlast anyone who started it. But the pentagon is used to hard tasks. They won world war ii. They did. They did. The challenge with the audit is there was an emphasis on trying to get ready for it and this is where i got a fundamentally different view from those who would come me and they said its too expensive to pay the auditors so lets get our selves ready enough that we could pass the audit and then bring the auditors in. My experience at homelands in crete where they were under audit was that would be a major mistake. Homeland security we do not have a choice but when i showed up the auditors were already there and i found the auditors and their feedback to be the central piece of getting us to that clean opinion paid my view is money we paid the auditors major all the other money we were spending was going towards valuable things and getting feedback on whether we were being successful so even though Defense Department was spending money on fixing problems they had no audit baseline by which to tell you where they better from one year to the next. We have fixed that in that approach and are carefully measuring those items precisely for that purpose and i think that is the biggest difference. I believe the auditors are the key step in getting us to the clean opinion not someone you bring in at the end when you think youre ready. Let me dig into that more because the audit did cost a lot of money. I think the fy 19 audit cost close to 1 billion. If we are doing this annually which is your goal, correct . Will this eventually pay for itself in terms of or is it already paid for itself . Lets take that in two pieces but before we started the audit the apartment was spending 70 million to fix problems. With the audit pieces 175, 200 million we paid the external auditors and we know from experience of the corps of engineers that when we go from no opinion to a clean opinion there cost of the audit dropped in half so over time that number will come down as we start to move from where we do detailed sampling to what we call tested controls. That is a level of funding thats necessary for transparency but 200 million is one 30th of 1 of our budget to be held accountable and that is fine. Then we spend a certain money on dod science to support that and those numbers will come down as well and the big number is half a billion dollars is in the remediation. The question there is can you show what you have fixed . In the absence of the audit its very hard for one of the things i learned in my prior jobs is Self Reporting or fixing problems isnt a very reliable indicator for it i was dependent upon our auditors confirming that people had, in fact, fixed it but one of blessings the auditors show it is one Organization Says they fixed ten problems and the auditor agrees with all attend. I have great confidence in that Organization Ability to go for it. In other organizations claim they fixed ten and the auditor agrees with them on a three fed i have a problem paid im training i need to do and people i need to talk to and that will not get them to his success. You cant wait to the end of the process the auditors doing that on a continual basis but we have already seen benefits and savings and turn on investment that i did not inspect to see this early bird long before we got to the point where we expected the cost to come down. We [inaudible] let me just ask another basic question. For those of us who are not auditors what exactly does this entail youre going to installations and people fanning out over bases and what exactly are they are doing and theyre not counting every rifle and you know, tank or are they . The sheer labor would be involved and but the commercial factor brings us breast practices which is they will go up to the highest level of the organization and look into their databases and say show me everything you thank you own so they start there and then they pull samples from that and follow it all away down to the installation but they went to Fort Wainwright and they come in with a list and say i need to see not just a tank but this tank with this serial number that is supposed to be here but when they show up is it in working condition because thats one of the things they test for is you test working condition to do you have proof of ownership or is it where its supposed to be and they walk through each of those and they find a series of items and go the other direction which is the 25 things we found on the base and show us that you at the varmint level have them in your system. It goes one direction and then the other end they are looking for examples of a breakdown where the summary is not equal to the parts but that is a sampling process across inventory and they do the same thing with hay you pay a certain amount to the records to back up that soldier was promoted and did they impact file for hazardous duty pay and do have the paperwork to support that and can yo