Good morning, this hearing on the subcommittee of ready miss and management support will come to order. Today, this subcommittee will receive testimony from deputy secretary of defense david new york was concerning the department of defense is 2018 and 2019 audits. Last, year when he was serving as the gop controller, secretary northwest, completed the first d. O. T. 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 thank him for being here today. To a lot of people aside my good feel my good friend, the d. O. D. On it might not come across the most interesting topic in the world. However, Ranking Member cain and i think our oversight responsibility very seriously and are happy to have this important time here. In the responsibility we take seriously has been 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 until secretary northwest arrived, it had never happened. The pentagon had never completed not it. But you repeat that. It is history, the department of defense had never completed an audit. Kind of remarkable. The faa 19 d. O. T. Audit is one of the largest audit of any organization in history. Over history, this audit has required more than 1400 auditors and hundreds of d. O. D. Site inspections. These auditors and inspections evaluate thousands of samples undocumented items to account for roughly the 2. 8 billion dollars in d. O. T. Assets. Conducting an audit of this size is no easy task, however it is a critical d. O. T. Function which it must do in the results reveal issues that we all must learn from. There is still much, much more work to be done but i commend the secretary for undertaking this difficult, important task. As of last, friday the department of defense completed its Second Agency wide audit, and while much was great for doing the odd. Im sure we will hear more but many audits done 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 more responsible 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 d. O. T. Information Technology Assistance or locating unaccounted for equipment or improving the Record Keeping of personnel, it is not a glamorous undertaking. It does produce process improvement and technological upgrades that are long overdue. These improvements are critical. The d. O. D. s responsibility that quote, it is important to gain full value for every taxpayer dollars spent on defense, there by earning the trust of congress, unquote. That is from the 2019 National Defense strategy. In other words, the d. O. T. Wants congress to continue to fund the military in order to counter competition like that from russia and china as laid out in the 2019 nds. We in the congress of the American People need to have the confidence that these dollars are being spent wisely. Mister chairman often regular states the ntsb preparing our military for a return to strategic competition and does represent a prime example of bipartisanship and the support of that strategy and our troops in the senate. And yes explicitly states the audit as a priority towards driving a butter budget discipline for the department and achieving our overall National Defense goals. I hope this budget is upon starts with the audit and spread throughout the department to all the financial processes within d. O. D. , including our procurement acquisition and contracting processes that this subcommittee has either for adhering or the progress, some of the successes, some of the failure is, and my Ranking Member senator kaine is also interested so i will turn the bias over to him. Thank, you mister chairman and secretary northwest, it is good to have you here. When i saw the amount of pressed remains a couple this morning i thought finally, the pentagon on it is going to get the attention that its deserved. Apparently this other things going on on the hill, but we want to welcome you and thank you for your on record public service, but also for youre making sure that the auto nobility of the d. O. T. Is a top priority. The fact that all federal agencies were mandated to do audits beginning in 1990 and the d. O. T. Has been the last to get in line is well, so much so that the nda and i believe 2015 has committed and said, okay, youve had enough, time you want to make this happen, and i was ratified to be part of the committee when we finally gave the ultimatum and ratified under your leadership the d. O. T. Is moving to get this done. Last week, the department announced officially failed the 2019 audit. That is not surprising. I think actually wouldve found a great deal of skepticism on this committee on the 2019 report saying, everything is fine, when you start something as complex as this, if you are not finding the areas to improve, failings that need to be corrected, that will be policymakers to question the veracity or the sufficiency of the effort, brought the report last week showed us that there is so much more to be done to give taxpayers what they deserve, a fully audible pentagon, what it is such a Football Committee recently and one thing on the witnesses name that she used, the efficiency for lethality, the idea that the auto should drive us do not spend on things we should, reduce spending on things we shouldnt as a way of then directing those resources to more lethality, to a more effective partner of defense, so i hope we can talk about a number of issues today. What benefits the military forces already seeing. The audit its, findings benefits inefficiency but it was always my hope as a mayor and governor and looking at odds to also learn some things that might improve the effectiveness of operations. I dont think it is just a number counting exercise, it can be an exercise that leads to save to a dollar here in a dollar, there it should also lead to greater efficiencies and activists as, well so i hope we can talk about that. How is the process of the audit already helping the pentagon cleanup any doubting or Accounting Practices that need to be improved. What reserve support of the, audit additional reserves the need to be applied so it can be as effective as possible moving forward, and in your opinion, secretary, northwest how long were they realistically the until so, i look forward to working with the committee with your leadership. To make good on this promise made so long ago the american taxpayer will be central to not in that we will learn from the audit in the process of Continuous Improvement to get better what we do, thank you. Thank you senator cain, mister, secretary thank you again for being here, we look for the Opening Statement if you want any longer written statement thank, you mister chairman. Ranking member, cain distinguished members of the, committee thank you for the opportunity to testify for you today on the department offense Financial Statement audit. As we miller questions about the audit i would like to address. First, why do we even have an audit. Second, what are the result of this years audit and third, how does the odd another reforms benefit american taxpayers . So, the short answer on what we have an audit is the d oh d is an extraordinarily large and complex organization. I employ nearly 300 service in civilians while a typical commercial airline as between up to 600 aircraft our military flight approximately 16,000 aircraft. We manage 290 billion inventory, more than six times the size of walmart, the Worlds Largest retail company. Financial statement audits are approving 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. A test vulnerabilities and our security system, of our business system, and it evaluates the accuracy of records such as promotions and separations. In short, it provides the independent feedback that both leadership in congress needs. This, year more than 1400 auditors conducted over 1600 site visits with the following results. Its a somewhat last, year they reported no evidence of fraud, no significant issues with the amounts paid to civilian a military, members and the d. O. T. Could account for the existence and completeness of Major Military equipment. In addition, one more organization received a, payment the defense commissary agency, so now, seven of the 24 will have an on modified opinion this year, and up the 2370 findings in fbi 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 . While, the original in primary purpose of the oddest 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, let me give to examples, the navy at fleetwood 600 jacksonville conducted a ten week assessment and identified 81 Million Dollars worth of active material not tracked in the Inventory System that was now available for immediate use, decreasing maintenance time and feeling 174 requisitions. They also eliminated are needed equipment, freeing up approximately 200 square feet 200,000 square, feet the equivalent of 4. 6 acres. We are already seeing the benefits of better data in the use of Data Analytics. For example, the department uses a tool to automate the quarterly review process of its obligations. This tool a limited inefficiencies, i provided to the analysts the time and the insights they needed to identify 360 million in high risk funds, moving them from the low priority function to better use of those before they are counselor expired. The audit is a foundational element in the National Defense tragedy. We are moving forward on multiple funds, improving their enterprise, consolidating i, thierry aligning and reforming health care consistent with congressional direction, reforming how we do back on investigations to make them more effective and less expensive and eliminating duplicate and inefficient business systems, as well as identifying efficiencies in what we like to call the court of the state. I would be remiss if we did not mention the harmful impact of the ongoing continuing resolution and i recognize i am preaching to the choir. The department the white house both express the urgent need for congress to pass the fbi 2020 authorization and appropriation bills. The sea ourself got measures are wasteful to the taxpayer. They delay storm damage repairs and the damage that are on gains that our military has made in our readiness and modernization. Ultimately it 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 an agreement as quickly as possible consistent with the budget deal reached in the summer. In closing, i would like to thank President Trump for his leadership and the d. O. T. Workforce for embracing this complex an important issue and i would also Like Congress and this committee, i dont particularly 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. The american taxpayer should be as responsible and spending the money as in earning it. Thank you, secretary, let me begin with a kind of basic question, and i am not sure you have the answer, since you have only been in your position, in the control position for a couple of years but, from your perspective why was the pentagon never audited . You would think, given what you just mention, how important it is to the country, how large it is, how complex it is, that is 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. Thank you, chairman, so let me just clarify, the pentagon has multiple audits, we have gao, the ig and others, they do program, audits particular subjects. The difference with the Financial Statement is this shear bread the depth of it. It is an end and audit on a dramatic scale. What you just did twice. What we did to twice. That had never. Happening never happen before. Why . Well, theres a couple of reasons. One is, it is an extremely hard task that would outlast anyone who started it. The pentagon used a hard task. It is. They want more work to, for example. 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 brought a fundamentally different view from those who had come before me. They, said is too expensive to pay the auditors, lets get ourselves ready enough that we could pass the audit, and then bring the auditors in. My experience at home and security, where they were under audit, was that that would be a major mistake. Homeland security, we did not have a choice. When i showed up, the auditors were already there. I found the auditors and the feedback to be the central piece of getting us to that clean opinion, so my view, is the money we paid the auditors, make sure that all the other money we are spending was going towards valuable things, we were getting feedback on whether were being successful so, even though the Defense Department was spending money on fixing problems, they had no audit baseline by which to tell you, where they better from when you are the next . We have fixed that this approach, we have carefully measured those items, precisely for that purpose, i think that is the biggest difference, i believe that the auditors are the key step in bringing this to the clinton opinion, not something you bring in the end when you think you are ready. Let me dig into the little bit more because the audit did cost a lot of money, i think the fbi 19 audit cost close to a billion dollars. Yes. So, if were doing this annually, which is youre goal, correct . Yes. Will this eventually pay for itself in terms of course it already paying for itself . So, lets take that into pieces. So, before we started the audit, the department was spending 770 Million Dollars to fix problems. The audit piece is about 195 two billion dollars that we paid to external auditors. We know from the experience of the core of engineers that when they went from no opinion to a clean opinion, the cost of their audit dropped and have so over, time that number will come down as we move from we have to do details sampling to what we call testing controls but that is a level of funding that is necessary for transparency. When you think 200 million is one 30th of 1 of our budget, to be held accountable, that is fine. We dont have to spend certain money line d. O. T. Signs that support, that those numbers will come down as well. The big, number about half a billion, dollars in remediation and the question there is, can you show what you optics, in the absence of the audit it is very hard. One of the things i learned in my prior jobs is, Self Reporting of fixing problems is not a very reliable indicator. I was dependent upon the artist confirming that people had in fact fix it im one of the best in the order showed us it is one or organizations theyve fix problems on the orders with all ten. They have great confidence in that organizations ability to go forward. Another opposition claims extending the auditor agrees with them on three, off a problem, i have been training i need to, do some people need to talk. To that is not going to get them to success, but you cant wait to get to the process to find that. You need the auditors doing that on a continual basis so, we have already seen benefits and savings and a return on investment i havent expected to see this early, long before we go to the point where expect the cost to come down, i could go on more but i will let you let me just ask another basic question. So, for those of us who are not auditors. What exactly does this entail . We are going to installations, you have people fanning out over all of our military bases, supply depots. What exactly are they doing . Theyre not counting every rifle and every tank. Or are . They know, they cant because the sheer labor that would be involved is the problem. What the commercial practiced brings us his best practices which means they will go up to the highest level of the organization and look into their data bases and say, show me everything you think you own so, they start there with a post ampleness from that, and on for going right, they come in with a listen they say i need to see not just a tank, i need to see this tank with a serial number that is supposed to be here i want to show up, is in working condition . Because that is one of the things they test for, if it isnt working condition. Do you have proof of ownership . Is it where it is supposed to be . They walk through each of those, and they find a series of items, and theyre going other directions, which is the 25 things you found, show us that you at the Department Level have it in your system so it is always one direction and it comes together on what they are looking for is examples of breakdown, where the summary is not equal to the parts, but that sampling process across inventory and then they do the same thing with he