Readiness to get the House Armed Services committee on the continued oversight of the transfer of excess military equipment to civilian Law Enforcement agencies to order. I would like to begin by recognizing the dedicated service of our readiness subcommittee clerk, ms. Jodie bignolia. This will be her last official event of our subcommittee and i want to thank her for her contributions to our actions in the past year. I want to wish her the best of luck as she moves forward in future endeavors. Thank you, jodie. [ applause ] one of the objectives of this subcommittee is to bring attention to matters that impact the overall readiness of the department of defense. This includes programs or activities when face management challenges, present budget implications or could be administrated more efficiently. Whatever the root cause is, it is our goal to provide necessary oversight in order to ensure our armed forces achieve the highest levels of readiness possible. Given the current threats facing our nation and the budgetary pressure placed on the department of defense, accountability is always paramount and every dollar counts. Vigorous oversight can help ensure mistakes dont happen, and when they inevitably do we learn lessons from missed steps for this reason. Im glad we convened this hearing today on the recent gao report highlighting deficiencies found with the management and operation of the Law Enforcement support office, leso, leso, within the Defense Logistics Agency. The leso is responsible for the 1033 program which has provided tremendously valuable resources to our federal, state and local Law Enforcement agencies since 1991. These necessary items have contributed to Law Enforcements ability to conduct counter narcotics, counterterrorism and Border Security missions throughout the United States and ensure items already paid for by the taxpayer continue to protect and serve the citizens of the United States. Earlier this month the gao report stated that the dlamanaged leso program inappropriately assigned more than 100 controlled items with an estimated value of 1. 2 million. This will build deficienciness the process for verification and approval of federal Law EnforcementAgency Applications, and in the transfer of controlled property. The department of defense, dla, and leso program must improve its monitoring management and administration of this critical and very important program. I read the gao recommendations very carefully and applaud dla for taking a very proactive approach to addressing the shortfalls and immediately acknowledging, amazingly enough immediately acknowledging the problems identified. I look forward to hearing what progress the dla has made in continuing to remedy these various deficiencies. Our oversight intends to ensure the taxpayer dollars are used responsibly, security is maintained for sensitive items and accountability of equipment is never taken for granted. Our panel will address the findings and recommendations of the gao report as well as the actions taken by dla to correct identified deficiencies. I turn to our very valued ranking colleague, Congress Woman from guam for her comments. Thank you very much for calling this important hearing on the recent gao report on the dod excess property known, also known as the 1033 program. Thank you to our four witnesses for being with us today for what i expect to be an insightful discussion. Let me begin by stating i understand the value of the 1033 program. It allows federal, state and local Law Enforcement agencies to fill equipment shortfalls at little to no additional cost to the taxpayer, leveraging excess dod property. Many of these items are not controlled, can be purchased at any Office Supply or Furniture Store and help alleviate budgetary stress, particularly on local agencies. However, this equipment can also be controlled property, items that are sensitive in nature and cannot be released to the general public such as firearms and militarygrade imagery technologies. That is what makes the gao report particularly concerning. Now, not only does it highlight the negligence with which dlatreated property procured with taxpayer dollars, but it demonstrates a dangerous vulnerability that could compromise the safety of the american people. So i am particularly appreciative that gao conducted this operation and delivered this report because it brings to light these vulnerabilities and allows us to conduct critical oversight on the handling of equipment to ensure reforms are in place to better secure the transfer program. I am deeply disturbed however by the prospect that a malicious individual or organization could procure dod property, especially controlled items. Understanding that this is likely a result of accommodation of issues, including inadequate protocols and safeguards, insufficient training and potential cultural errors, i expect to dig down on how this Program Needs to be reformed. So i do look forward to the discussion here this morning and hope that we can come away with clear objectives and steps forward to ensure this program has the proper safeguards and accountability in place. Mr. Chairman, i thank you again for holding this important meeting and i yield back. Thank you, Council Woman bordallo. We are pleased to recognize our witnesses today. I want to thank them for taking time to be with us. We have miszena merritt, of the Government Accountability office. Mr. Wayne mcelrath, director of forensic audits at the Government Accountability office. Mr. Mike scott, the Deputy Director of Logistics Operations of the Defense Logistics Agency, and mr. Mike cannon, the director of the Defense Logistics AgencyDisposition Services. We will begin with states from each organization. We will begin very appropriately with the Government Accountability office. Ms. Merritt. General, Ranking Member bordallo and members of the subcommittee, thank you for the opportunity to be here today. Our testimony arises from key findings from our july 2017 report on dod excess control property and addresses, one, how federal, state and local enforcement agencies report using and benefitting from the transferred property and, two, the extent to which Defense Logistics Agency or dla has taken actions to enhance processes including internal controls related to the transfers of such property. Dod has Sole Authority to transfer excess property to federal, state and local enforcement agencies. Dla Disposition Services administers the Law Enforcement support office or leso programs for dod. During calendar years 2013 through 2015 dod had supported transferring approximately 1. 1 billion of excess controlled property to Law Enforcement agencies. Controlled property typically involves sensitive equipment and items that cannot be released to the public such as detonation robots, small arms and mineresistant protected vehicles. Law enforcement officials that we surveyed and interviewed sited a number of ways in which they had benefitted from the program, with several reporting that the transfers of controlled property allowed them to save money. The report uses included enhancing counter drug and counterterrorism activities, search and rescue, Natural Disaster response and police training. Dla has taken actions to enhas processes for the program and responds to past recommendations made by gao as well as dod and dla offices of Inspector General. Dla has taken some steps to address previously identified weak nesses in its processes and procedures mostly at the state and local levels. In our july report we noted weak nesses at the federal participant level in three areas. One, verifying and approving applications. Two, transferring property. Three, assessment of risks. With the federal agency we gain access to the program and attained over 100 control items with an estimated value of 1. 2 million, including night vision goggles, simulated rifles and simulated pipe bombs which could be potentially lethal if modified with commercially available items. Images of these items are pictured on the graphic boards in the hearing room today. Specific weaknesses highlighted in the report include dlas internal control for verifying and approving federal Agency Applications and enrollment in the program were not adequate, specifically lesos reliance on electronic communication without verification does not allow us to properly vet applicants. Second, our testing identified deficiency in the transfer of controlled property such as dla personally not routinely requesting and verifying identification of individuals picking up property. Third, while dla has taken some steps to address identified deficiencies in the program, dla lacks a comprehensive framework for instituted Fraud Prevention and mitigation measures at all stages of the process. Dla officials acknowledge they have not conducted a fraud list assessment. Overall, we konl colluded in our report that dlas internal control did not provide reasonable assurance in preventing fraud. Therefore, we made four recommendations to dla. One, review and revise policy or procedures for verifying and approving applicants. Two, ensure Disposition Services officials, verify that persons picking up items have valid credentials. Three, issue guidance that requires dispossession Service Officials to verify the quantities and type of items being picked up before handled. Lastly, conduct a fraud Risk Assessment to design and implement a strategy with specific internal control activities to mitigate assess fraud. Dod concurred with all of our recommendations and highlighted access to direct each one. Chairman wilson, Ranking Member bordallo and members of the subcommittee, that concludes my prepared statement. My colleague and i will be happy and pleased to respond to any questions that you may have. Thank you very much, ms. Merritt. Indeed, your professionalism is very, very impressive. Mr. Mcilrath, would you like to make a presentation . Thank you very much. We now proceed to the Defense Logistics Agency, mr. Scott. Chairman wilson, Ranking Member bordallo, distinguished committee members, thank you for the opportunity to be here today to discuss the Defense Logistic agencies administration and execution of the 1033 program, also known as the Law Enforcement support Office Program or leso program. I am mike scott, Deputy Director, dla Logistics Operations. With me today is mr. Mike cannon, the director of dla Disposition Services. We appreciate the opportunity to discuss the july 2017 gao report on department of defense excess property and to advise you of the actions we have taken. A field activity of dla is responsible for the final dispossession of extra property received from military services. Dla Disposition Services also administered and executes the 1033 programs through their leso. About 7500 federal and state Law Enforcement agencies across 50 states and u. S. Territories actively participate in the program. 30 federal Agency Headquarters are currently enroll. These are the higher headquarters to the 345 federal Law Enforcement activities participating in the program. Dla has worked extensively over the last several years to improve the state and local side of the program, which is 96 of total participation. While the gaos recent review did validate enhancement and aid in the state and local program, it also highlighted vulnerabilities in the federal program. Dla takes the finding very seriously and is actively addressing and correcting the deficiencies. In september of 2015, dla began a focused improvement effort to strengthen or federal program. Weve implement robust controls in our federal program which already exist in our state program. Specifically, we have address our procedure revised our procedures for verifying and approving federal Agency Applications foreign rollment. First, dla now requires an executive level representative in the federal agency designate a point of contact in writing. This poc will serve as the agencys federal coordinator who will validate and endorse all enrollment applications and all equipment requests for their field activities. Second, dla now requires the poc to file a memorandum of understanding outlining and accepting their responsibilities for management of their program. We have sent all 30 current federal Agency Headquarters this mou, and 12 agencies have already signed and returned the mou. Third, dla will vils i thisit e Agency Headquarters and meet with the poc to confirm eligibility. As of today dla has visited 22 agency Head Quarters. Additionally, dla has strengthened the internal approval process foreign rolling federal agencies. First, we have designated a federal dla liaison to manage the application process. Second, will utilize the fbi Crime Information Center or ncic database to verify the legitimacy of all organizations. Finally, the leso Program Manager is now required to approve all federal applications as a second level internal review. With regard to the gao findings on process weakness for verification for customer identity and the type and quantity of property issued we have taken the following actions. First, we immediately conducted remedial training at the sites gao visited. Second, we mandated reinforcement training at all 103 of our disposition sites. Were 50 complete on this aggressive effort and are on track to finish two months ahead of schedule. Third, we alded this topic as an emphasis items to our existing Compliance Program which includes, among other things, no notice spot inspections and a dla headquarters management review. In response to the gao recommendations to conduct a fraud Risk Assessment as out lined in gaos frauld risk framework, dla headquarters, specifically our dla Inspector General office and my Logistics Office director will lead this effort with participation by dla Disposition Services. Dla has made significant enhancements to improve policies, procedures and internal controls in the 1033 program. Weal remain committed to Continuous Process Improvement to ensure we provide the best possible support to Law Enforcement agencies in their critical mission. Chairman wilson, Ranking Member bordallo and members of the committee, we thank you for the opportunity to discuss this important issue here today and are prepared to answer any questions you have. Mr. Canyon. Sir, mr. Scott spoke on behalf of the agency. Thank you. I want to it is really remarkable an agency acknowledges that an error occurred and then has taken positive response. So we appreciate your service. Im really grateful. Today we have really talented members of the subcommittee here, people who are really dedicated to the american people. So many are here that were going to very strictly follow the fiveminute rule. I would ask my talent drew warren to keep the fiveminute rule beginning with me. We will proceed right away. Ms. Merritt or mr. Mcillrath how did you determine the velner abilities that lead to the leso control measures by using a fictitious agency . How did you determine that . Again, we appreciate you being proactive. I will start the response. While we were actually conducting some of our field work in some of the states we were reviewing the names of the applicant, and as we were reviewing the names of those particular applicants we noticed one applicant that had a title that did not seem to be legitimate agency. While doing that, we questioned dla and they acknowledged that that was the entity in which they had been investigating and continued to investigate. That was one of the key triggers for this, as well as we had made a number of recommendations over the years to tightly control. So we want to ensure some of these recommendations were properly implemented. My colleagues probably will have a little bit to add to that response. Based on the information that we received from our defense capabilities team, we actually formulated a plan to develop a false and fictitious Law Enforcement entity and cr