republican side than we've seen in the past, we've also seen in those districts a tremendous interest by democratic candidates of running. that means they think their neighbors and friends and their districts are prepared to vote democratic so they're enthusiastic about running. i think the 17 points i think is correct. it's historically high. generic numbers, democrats ahead of republicans by 17 points. it's amazing but not necessarily surprising given the environment which has been created in the country. >> this was just some of house minority whip steny hoyer's remarks this week as our guest on news makers. you can watch the interview in its entire sunday at 10:00 a.m. and 6:00 p.m. eastern on c-span. the comptroller of the defense department testified on the management of the

department's annual budget of $600 billion. and why he thinks it's important to conduct and audit. this is an hour and 45 minutes. o order. we welcome >> the committee will come to order. the committee welcomes mr. david norquist, undersecretary of defense and comptroller as our witness today. the topic is the audit of the department of defense which by law begins this fiscal year. i would say it's not by accident the committee would start our year on this topic. requiring the department conduct an audit has been a bipartisan requirement of this committee for some time.

from 1990 it required all federal departments conduct a financial audit and partly with frustration of the lack of that in 2010 they required the audits be ready by 2017. they put close scrutiny on the department's efforts and issued a number of recommendations to allow us to arrive at this point. the 2014 required an audit be required of the department's fy 18 financial statements the results of list 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 also a member of the audit panel several years ago. they will both be glad to know

we have had additional members join this committee in recent years who can also contribute their background and experience to this issue as it moves ahead. this issue is important. members of this committee 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. we must spend more. at the same time, we have a responsibility the american people 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 problems of waste and -- audit will solve the problems of waste and inefficiency, but it seems to me spending money smarter is knowing with certainty how it is being spent.

it is likely that the result of the first audit will not be pretty. but those results will help direct us all, congress and the department, on where we need to apply our efforts to improve. this issue is important. this committee will continue to pursue it. the ranking member is recognized. >> thank you, mr. chairman. by and large i would simply repeat word-for-word the opening statement of the chairman. so in the interest of time, i won't do that. and will simplify it by saying this is enormously important. there are a lot of concerns at the pentagon, and there's really two big issue here's. one, as the chairman mentioned, we are in a time of tight resources and very great needs. and that means we have to get everything we can out of every dollar we spend. there are many, many issues that this committee has covered that make that clear. and second, if we can't explain where we spend the money in the pentagon, we are failing in that first mission.

i know it's a lot of money. i know it's big bureaucracy, there's a lot going on, but we ought to be able to do an audit that tells us where we're spending the money. it's the pentagon's mission. i want to thank mr. conaway for his great leadership in this issue. who knew having an accountant on the committee would be critical. actually, most people should have known that. but he's done a great job on this issue. everybody on this committee would just feel great if at some point this year we can say the pentagon has been audited. it has happened some 20 years after we started trying to make it. happen. i think we're close. i think we can get there. i look forward to hearing your testimony about how we're progressing in that. i thank the chairman for his leadership on this very important issue. >> i thank the gentleman. mr. norquist, welcome. without objection your full

written statement will be made part of the record. you are recognized to make any oral comments you wish to make. >> thank you, mr. chairman. chairman thornberry, ranking member smith and members of the committee, thank you for the opportunity to provide an overview of the department's financial statement progress and plans. i appreciate your committee's long and unwavering support for this effort. i also want to thank congressman conaway for his leadership over the years related to the audit. his direction of the committee's 2011 panel on financial management helped the department maintain its focus on audit. to rebuild the armed forces he also made a commitment to start the audit. inside the department of defense, secretary mattis and deputy secretary shanahan have set a tone 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 told

you they support the start of an audit eventually. this hearing is different. we have started the audit. but we are only able to have today's hearing with the department of defense under its first full financial statement audit because of this committee's continued support. i should note that audits themselves are not new to the department of defense. numerous audits covering program performance and contract costs are completed each year by the accountability office, defense contract audit agency, the department of defense office of the inspector general and the service audit u agencies. dcaa employs over 4,000 auditors to perform contract audits for contractors to the government. this is the first time that the department is undergoing a full financial statement audit. a financial statement audit is comprehensive. it occurs annually and covers more than financial management. for example, financial statement

audits include very fine count, location and condition of military equipment, real property and inventory. it tests the security vulnerabilities of our business systems and validates the accuracy of personal records and actions such as promotions and separations. the department of defense anticipates that this spring and early summer we'll have approximately 1,200 financial statement auditors assessing whether our books and records present a true and accurate picture of our financial condition and results of our operations in accordance with accounting standards. these financial statement audits compliment but are distinct from program performance or contract audits. based on my experience, it will take time to implement all the processes and system changes necessary to pass the audit. it took the department of homeland security a relatively new and smaller enterprise about ten years to get its first

clean opinion. but we don't have to wait for a clean opinion to see the benefits of the audit. the financial statement audit helps drive improvements to standardize business processes 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 to report assets, liabilities, revenues and expenses. though not a corporation, dod owes accountability to the american people. the taxpayers deserve level of confidence that the financial statements present a true and accurate position, a picture of the financial condition and operations. transparency, accountability and business process reform are some of the benefits of a financial statement audit. regarding transparency the audit improves the quality of our financial statements and the underlying data we make available to the public. including liability picture of our assets and spending.

and dod's progress will also directly contribute to an audit opinion on the entire federal governments. assets and liabilities. with regard to accounting, the audit will highlight areas we need to improve accountability. assets and resources. for example during initial audit the army found 39 black hawk helicopters that had not been properly recorded in this property system. the air force of 478 buildings and structures at 12 installations that were not in its real property system. by fixing the property records, we can help demonstrate the accountability of our assets. in other cases as the department invests in nu business systems we'll be able to obtain auditor feedback on that system's compliance so we can better hold those venders accountable for their solutions. third, the combination of better data, business process reengineering and the use of modern data analytics directly

supports congress' vision of the chief management officer position and the department's effort to bring business reforms to its operations. the cost of performing the audit will be about 276 million in fy 2018. the infrastructure including the cost of the people supporting the audit of $186 million. the $181 million in audit contract costs is 1/30th of 1% of the dod budget. and as a percentage of revenue is equal to or less than a fortune 500 company pays tr their auditors. in addition, we anticipate spending about $551 million in 2018 fixing problems identified by the auditors. the dod consolidated audit will

likely be one of the largest audits ever undertaken and comprises 24 stand-alone audits and an overarching consolidated aud ut. dod is sustaining clean opinions for nine stand alone audits. they are conducted by ipa firms with the ig performing the consolidated audit and all the contract audits have been awarded and auditors have begun to arrive. in order to track progress, the department has established a tool and a process to capture, prioritize, assign responsibility for and develop corrective actions for audit findings. each year they will assess and report on whether the department has addressed the findings. going forward, we measure progress and report on it towards achieving a positive opinion by using the number of findings resolved. in closing, i want to thank this committee for its continued focus on the importance of a dod

audit. your oversight through the years has been a catalyst and we appreciate the partnership we enjoy with you and the committee staff on this important process. with your leadership we will now and continue to be a department not only under audit but improving year after year. as we move forward, your continued supports for budget stability and related technology and funding to findings remains critical in moving towards achieving a positive opinion. i thank you and look forward to your questions. >> thank you, sir. i appreciate your differentiating what we're talking about here, a full financial audit with contract audits. i might just highlight that we had a number of provisions to reform the contract audit process in the last year's defense authorization bill and hopefully that will improve as well. i just want to ask you one question. i want interested to read where a retired general says basically

this audit is not worth doing. as you highlight, it requires going and checking the real property. you've got to check and see whether all the weapons and equipment are accounted for, the various records and so forth. it's going to be expensive. and as his point basically is it's not worth the cost. you're doing it because the law requires you to, 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. >> i would first respond. he noted the audit is costing over 800 to $900 million. the amount we're paying the ipa is $181 million is 1/30th 1% of the budget. but on the scale of the enterprise, that type of money for accountability is is money

well spent. the additional money we have talked about is to fix problems that we find. now this is always a choice going forward if we can live with the problem and fix it but i don't think operating in ignorance of the problem is the right way forward. i fully support the direction to conduct the audit, do the findings. some things i will point out the article said that it's expensive because it covers so much. the answer is, yes. that's the point. one of the things that the law requires is that we do information security of our business systems. this is the standards. the audits are done to those. we'll be able to understand the weaknesses and do more to hold people accountable for closing cybersecurity vulnerabilities in our systems. you would want that anyhow. you'd want that done under any circumstance. when we find those, you'll. the departments to be closing them. the other comments talked about, there are other ways to do this. yes, there are.

you talked about contract auditors. the financial statement is large. we have 4,000 who look at contractors. so on the scale of what we spend looking at contractors, the size of the team that we look at the government is appropriate and proportionate. the biggest concern is a statement they make that the department is not a corporation and does not need to undergo a financial audit strictly. first of all, the law requires a financial audit and more importantly, i think the taxpayers deserve at least the same level of confidence as a share holder in the use of their money. mr. smith. >> i don't have a question. i agree totally with the remarks you've just made. to say it's not worth doing that we have screwed it up so bad for so long that the cost of fixing it has just become overwhelming. let us keep screwing it up. and i get that the up front cost is going to be enormous, but long-term, the benefits are

are exactly as you describe. if we got to suck it up for a couple years and absorb some cost to get back on track, it's going to make significant improvements. all of the work on acquisition reform that i know the chairman and i and many others have done can be so much better informed if we have this information. we can say, gosh, here's an area that instead of -- so when we pass legislation aimed at making the acquisition process better, if we have this full audit, that legislation has a much better chance of actually accomplishing that task. so yeah, it's pretty bad. in some ways you'd like to close your eyes and say, let's not deal with it. it's too important for all the reasons you stated. i completely agree with that statement and i applaud your commitment to doing this and stand ready to have the committee help you in any way we can. i'll yield back my time.

but i have nothing further. >> my only comment is who we -- to reinforce your point about the better data to support information. the primary thing an audit promises is better data accuracy and accountability. when many of the reforms depend on the accuracy of that data, not having it complicates those efforts. >> mr. jones. >> chairman, thank you. i have been here 22 years. this is the best news of hoping for something good to come from this effort. i commend my friends on my side and the other side who weren't -- work with the chairman, ranking member that put this effort together. i never will forget donald rumsfeld, the former secretary of defense, sitting where you are telling this committee that he will account for every dollar of the taxpayer and how it's going to be spent at the department of defense. he might have meant well, but it

never happened obviously. because that's why you are here today because we've never been able to do anything to take a problem, and even in a small way make it better. i've got one question. it does deal not directly with you, but because of your position and your oversight. of all the articles i have seen about waste in the 22 years i've been here, probably this is in the top four or five. two years ago, accounts by trillions of dollars. the defense department inspector general in a june report two years ago said the army made an 8$8.2 trillion in wrongful adjustments to accounting interests in one quarter alone

in 2015 and 6.5 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 would be under your department's jurisdiction if it happened within the system. this is one of those things that i would like to ask you, how in the world do you fix a problem when you keep funding the problem? there's got be -- you fellow cpas and accountants can give me some assurance that when stories like this go public and when the taxpayer reads it, mr. norquist, that's why they are so frustrated on congress. i hope that you can in a short

period of time give me hope this would be dealt with, and somebody instead of saying that this happened and that happened, but we keep funding it. i just don't know how you catch up when you keep funding the problem. >> let me address that. that's a very important one. one of the issues you're talking about relates to general vouchers which occurs after the money is spent. when you see in the article that says trillions of dollars and you realize we only receive about $600 billion in a year, there's a mismatch in the story. and what this refers to is we have systems that do not automatically pass data from one to the other. the army goes in, at the end of their financial statements, finds the number of the property book and writes it into the general ledger. that's could the journal voucher entry, depending on the property, that could be hundreds of billions of dollars. the whole entry is considered unsupported.

from a management point of view, this is bad. it's not the same thing as not being able to account for the money congress is giving you to spend but it's a problem that needs to be fixed. this is like stovepipes and the private sector that don't talk to each other. we are addressing exactly that type of challenge. one of my concerns is only by eliminating the types of ones that are just an entry issue can you find underlying issues that are hidden among inaccurate data. it's important. i wouldn't want someone to confuse that with the loss of these dollars. that wouldn't be accurate. but it's an accounting problem that does need to be solved because it can help hide other underlying issues. >> thank you very much. i will tell you that i might not be here when you resolve the problem, but i'll still be reading the paper. i wish you and your staff the very best.

>> thank you, mr. chairman. thank you, mr. norquist for being here today. this is my first year in congress. i will tell you that oftentimes i'm asked for my observations. i served in local government over 24 years. the most shocking thing about being in congress is that there's never been a comprehensive audit of the dod. it's just outright ridiculous. there's no other way of putting it. it's been said that if you can't measure it, you can't evaluate it. and i think this is one of the most significant issues facing the american people. being able to adequately fund our military and our department of defense. i think if we don't get it together we're going to lose the american people's trust in what we're trying to do here.

there's no question as to how daunting this task is going to be. the stakes are high. last year congress approved almost $700 billion for the department of defense, and we owe to it the taxpayers to provide oversight and accountability over their tax dollars. in your written testimony, you mentioned that for years the department has received disclaimer of opinion on dod-wide financial statements. because it was not able to provide the evidence to support its financial information. and these disclaimers were based on management's assertions and not based on independent audit testing. can you provide some clarification and e detail on this issue. what do you mean when you say it was based on management assertions and not independent audit testing?

because it is my understanding audits such as the one conducted for fiscal year 2015 was conducted by independent public accountants. if you could shed some light on that i'd greatly appreciate it. >> sure, i'd be happy to. there are a number of parts of the department of defense that have been under audit for a number of years. commissaries and our pension plan and so forth. many receive clean audit opinions. it is not the majority of the department. when you don't have an opinion, management is not able to represent that everything is is in order. so they don't even begin the testing. they just say you failed. this is one of the reasons why i have been a strong advocate and supporter of the audit. when i was at the department of homeland security when i arrived there, they already had the audit the first year. with the amount of information you received from the audit in order to fix things was

tremendous. i understand your concern of an entity that doesn't have an audit. that will provide a lot of useful information. i think operating without it, there's a limit to how much you can reform and fix without that independent check validating what was done was done effectively and correctly. i think that's the biggest transition we're going to see from this year to previous years. >> thank you. once we see a department of defense audit for fiscal year 2018, how will dod track its process for correcting errors. specifically how will the audit remediation process be executed and what is the timeline for analysis, execution and lessons from implementation of the audit? >> we have set is up a data set where every time there's a finding by the audit, notice of finding and recommendations and it's made up of several conditions. the auditors will enter that into the database. we'll have their view for every entity of each of the findings.

they will have codes according to the type. was it an i.t. system? was it related to property? we'll have an individual associated with the ifr and to correct it. this is important because it gets us past the habit of saying does the document have a clean opinion, no. and no one feeling they individually are accountable here, all these findings will be associated with an office or individual who will be responsible for the corrective action plan. i will be able to come back and report to you each year which of those were closed and which of those were not, who we should write to and say, well done, good job, and who either needs more help or encouragement to get their piece of it done. we'll be able to track it finding by finding and hold accountable over time. this is one of the tools that the audit gives us as we move from the higher level. it's hard to solve. to very specific things. one of the things i like about

that is that that you may have a large number of findings. somebody says, why do i need to fix my piece? look how big the problem is. and this is yes. but you can fix those two. that's all that you need to do. as more people do that, the whole organization moves in the right direction. we'll have that information for you, sir. >> thank you, mr. chairman, i yield back. >> thank you. i'd like to join with my colleagues in saying how much we look forward to your efforts and wish you good luck. certainly long overdue. >> thank you. >> i want to take the opportunity to thank and applaud mr. conway for being so dogged with this and his hard work. with that, i yield my time to mr. conaway. >> thank you. please pass onto your team thank you for where you've gotten us to today, the thousands of people hours whatever got you to it.

however flawed we are at this point, we're far better off than when i first took up this task. i have seen that progress. got a long way to go. don't want to overpromise and underdeliver. the '18 audit is unlikely to be a clean opinion given the scope of what has to be done. but we are so much further along based on the leadership that you and your team are providing and the hard work of the folks who get up and go to work to face this daunting problem that so please tell them thank you. it's like trying to push that rock up everyday. we'll try to keep that process moving forward and not do anything that hampers from a legislative standpoint because we're frustrated it hasn't gotten done sooner. we have to recognize it is getting done. you talked about findings. that's got a certain definition to you. could you explain to the committee what a finding really is, what that means from an auditor's standpoint and why it's important those get fixed. >> what the auditor does is they

are holding the department accountable against certain well recognized standards. so the finding can consist of you are unable to produce the records to support this transaction. we looked at your property system and it indicated you should have 100 of these. when we walked the floor and looked at inventory, there were 95. there are basically things that are wrong in the way that either we are accounting for assets or recording. those are items that are priorities for us. >> those also include weaknesses and internal controls. you mentioned a circumstance where you had trillions of dollars of journal entries going back and forth. that's typically a failure of internal control. the auditors are looking at your internal control system. those findings would include weaknesses or failures within the internal control system. >> correct. >> while we won't get all the way to a clean opinion soon, you mentioned a couple of reasons -- why it was important we do this in value along the way.

can you expand on the 39 helicopters or the 400 buildings and why not knowing -- we obviously knew the pilots flying those 39 helicopters knew they were there. somewhere up the management chain they disappeared from the inventory and may not have been made known they were there. 400 buildings might seem like not a big deal because they weren't moving. at some point we have to address that nature. can you talk to us about value added along this path that we will get as a result of doing these audits? >> absolutely. in order to get a clean opinion, there's a number of steps you have to solve. even along the way, fixing the pieces along the way produce a tremendous benefit. if you think of the inventory in the warehouse of how many spare parts you have which meant folks anticipating using them were waiting to take advantage of it. or if you have the case of the buildings, the person on the base may know they are there,

but somebody at headquarters trying to figure out do we have enough square footage where we need to do things is operating with incomplete information. so as the leadership mentioned at the beginning, accurate data helps drive more accurate decision-making. there's a couple other benefits. one received a clean opinion on one of its funds and modified on the others was able to return $230 million to the services. it was able to spend its money on the operation and readiness because it had a more accurate understanding and management of finances. the navy had more to be more automated reducing how much work they had to do for them. that saved them $65 million. the other things are a benefit from the men and women of the armed forces.

the air force doing a walk through discovered their enlistment records are set up incorrectly for new recruits whether they were six or four year enlistments. they were updating hundreds of records as they arrived because it was done incorrectly at the beginning. they went through and freed up hundreds of hours of accuracy issues and freed up the hours and benefits accuracy. >> thank you. >> thank you, mr. chairman. i want to thank all the work done it over the past decades. and as a new person, like all us front row people, i'm kind of -- after having read the information on this, i'm kind of shocked.

as a new person here to look at decade after decade and trillions of dollars and trillions of dollars and no real rush to get to an audit, a meaningful audit is disturbing. but i do want to thank you for being here to discuss this critical issue for our war fighters and american taxpayers and thank you for your service. i wanted to echo my colleagues that proper oversight is long overdue at dod. waste, fraud, abuse, have no place in any agency, especially not when it comes to guaranteeing our national security and readiness. every dollar wasted or fraudulently spent is a dollar lost to our war fighters. they deserve better and i look forward to working with you and the rest of the committee to increase transparency and financial integrity. i also share concerns about what we can expect from this process. as you know the gao stated dod has not yet demonstrated that its leadership has ability to

achieve effective financial management reform. the dod lacks the cadre of financial managers with qualifications and level of expertise needed to lead reform throughout the department. additionally, having looked at what occurred in the financial industry over time, i have concerns about how we're going to go about guaranteeing that this marriage between the dod and the different auditors is one that's going to be transparent enough for us to understand that the taxpayers getting appropriate audits that we should be getting, because as you know, what occurred in the financial industry was that basically the auditors did what the people being audited wanted them to do, so that they can get the next contracts, the next time it was around. or keep that contract. i really want to know how we're going to watch that issue and mr. norquist, has dod developed

not only a process to guarantee we're getting what we say we're going to get, but brought on additional personnel with financial management experience and financial management experience. what barriers continue to impact the ability to retract, retain and develop qualified personnel and retain is a very important issue when it comes to these types of things. and how will we verify the audits in the long-term. >> so let me cover a couple points that you brought up. i'll start with the independence of the auditors. that's a central one we had to address at the very beginning. the auditors do not report to the army, air force, the navy, do not report to me. try report to the ig and makes decisions about what they do. so they have the same protected independence of the ig. but it's also a reason why we split the audit into lots of pieces. one is an auditor cannot audit an agency if they have

consulting work there. so finding an auditor that had no consulting work anywhere in the department of defense would be somewhat limited. but if you break it, you'll find firms that are. you'll find multiple ones you can have competition. so part of having the 24 or more separate audits is first, you get people who are independent. and second, we have sustained the competition. if there's an auditor not performing the ig has multiple other auditors with dod experience they can go look to. we thought through, the question is why don't you use one large audit? you created a monopoly. you would never find another auditor that would compete and then i'd be explaining why the audit costs went through the ceiling. i tried to pay attention to the concerns you raised and i think the ig is independent. >> just to that point, because my time is running short. i appreciate the ig and its independence shs but in long

run, it's been around for a long time. a lot of things have been going on for a long time, whether it's fraud or abuse or just lack of information. and it hasn't come to anybody's attention of how to correct that. so just the idea that the ig is going to be the independent evaluator of the process doesn't guarantee the taxpayer of america that this relationship is not going to be one that is controlled by those that know and can manipulate the system versus those that are responsible for making sure that we get what we are paying for. and it's verifiable. so i would like to talk to you a little bit more in depth about where that goes. i yield back. >> so thank you. david, defas is an integral part of several of the accounting systems.

you talk about it per se but also the conflict between the services they provided to the army, navy, marine corps on a stand alone basis if they were audited separately, that service provided would be really disruptive and inefficient. can you talk to the committee how they're looking at solving that issue with respect to defas? >> sure. we have a place where one is extending into the other. if you think of the army, navy and air force have financial management processes that extend into the defense finance and accounting service. so the way that we address that is we have the acronym that's an audit of that organization support to the others that external auditors can rely on. otherwise we would be paying tr the three or four auditors to show up. rather than each coming in, we'll do a similar thing over

ammunition storage where it's in several different places and they will come to ammunition storage and say you can all rely on this audit piece so you don't have duplication of work. >> you talked about the accountability you're going to create with these findings out there. can you talk to us about the accountability piece. you have two groups of folks that have been responsible for correcting or addressing the findings you have. you have civilian folks. talk to us about the carrots and sticks you have to hold people accountable in the system for getting those findings resolved to the satisfaction of the auditor. >> there's a limit to them. we work with this committee but this was one of the things brought up before i was

nominated to say how do you motivate people to stay focused on fixing thing when is you lack controls in the private sector. there's a couple things. one is being able to clearly identify who is accountable. it's one of the first steps. that's part of it. the database gives us so people know who it's on. the second is the audit report shows up in people's performance evaluations. there's no way around that comment being made about your contribution or success. that helps to drive it. both the civilian and the military, there are limits to how far we can go compared to a private sector. i think the transparency and accountability, knowing one of your bigger challenges knowing it's their responsibility. fixing that and being very clear whose responsibility it is helps to drive that performance improvement. there are limits to this i recognize. >> that database is a big

improvement from where we've been in the past. sometimes the tasks are so daunting you can get away with not addressing it. having it breaking it down into relatively speaking bite-size pieces we will see progress in the future. to mr. o'halloran's issue, the cpa firms that provide the audit are held to professional standards by their own industry and state boards of accountancies. it's not like you have groups out there not without oversight from professional standards they would have to ascribe to if they were working a professional audit or not. >> and they are audited and they will have to produce to an external form they did their audits to a professional standard. >> while we're not perfect, there are professionals and professional standards those folks are held to?

>> correct. >> a quick antidote. part of the issue over this time frame is making sure you have the right tone from the top. it's been transitioned to the new administration this time really well. i was encouraged by an experience in hawaii a while back touring the "uss texas" a submarine and we were in the galley with the guys and one of the petty officers said, how's the audit going for the department of defense? two things, you planted that guy down there on that ship or you have bright enlisted guys listening to conversations going on throughout the food chain of the department of defense if the issue of auditability has gotten to the petty officer of the bowels of the "uss texas" we

must be making progress. thank you to mr. norquist and others going in there, it's been a long-standing problem and we all know that. i wanted you to speak about the process, particularly the concerns around cultural resistance to change. if you could, one of the things we're aware of right now in any large bureaucracy, there are a lot of issues, retribution for people trying to do the right thing and other people don't want them to is a concern. sexual harassment at the pentagon is a big concern, as you've probably noticed in numerous reports. i wonder if you could speak to -- there are all these issues that go on in people's workplaces and cultural resistance to change is one that really has to be monitored closely.

how are you dealing with that and how do you expect to bring everybody to the table on these issues and get the kind of buy-in necessary without individuals running one another off. >> the culture resistance, no one wants to be audited. i don't know how many witnesses who have come excited to tell you, hey, i'm under audit today. also, in order to fix the findings we are taking systems and processes built to maximize support to one thing and requiring them to pay attention to the functions around them that they work with. that can be a challenge because somebody says this is how it disrupts it. there's a couple of factors that go into it. first is the tone from the top. that comes from the secretary and deputy secretary unambiguously clear and sent letters to the workforce that say this is where the property standards comes from, you are

responsible for this. it's very clear running up your chain to say, i don't want to do this won't run into success. the other is the congress, tell them to make them stop. the likelihood of somebody coming to congress and saying, please make them stop the audit and getting a warm and fuzzy hearing is pretty limited. those two things create the realization the organization needs to change and the second is the benefit of the change. in many cases we have labor-intensive processes where data is transferred from one to the other because it wasn't filled in at the beginning or only filled at the fields at the beginning needed. if you don't get that fixed you will spend less time doing that and more time on your core mission. yes, it's more work. certainly on the first time of an audit you don't have easy access and you have to find it is a challenge and over time it is easier.

we have to work on that offense policy by organization by organization. as you pointed out, this is as much changing people's views how to do things so they understand the importance. the third factor the audit is annual. if you did this once and came back in 10 years i don't know you haven't the same cultural changes. the realization they're coming back in 6 to 9 months, make the changes or watch them find the same things again. that third factor, it repeats. they're not going to change the questions, they're just expecting you to change your ability to provide an answer. >> do you anticipate a need for a feedback system so everyone engaged in this can be giving their input all along the way and some of that may be anonymous. >> yes. we need feedback. one of the things i tried to draw attention to, because the audit will repeat, what's important is that we be able to sustain this. if you're given a task where

this is way too labor-intensive, stop. let's figure out why answering that audit request as labor-intensive and fix the way we store the data or do the check to answer them efficiently every year. i would rather take the finding the first year than do a herculean expensive effort i have to repeat the next year. if we can't find the records efficiently, lets put the data where it's easily searched so next year it's a quick process. we want to make this efficient over time and that's another way reducing some resistance so it's not -- people have a way of saying, i don't understand why it's happening this way and the answer is maybe we can do it differently and still have to meet the standards of the audit. >> speaking of auditors and obviously, you're using a lot of different ways of responding to some of the concerns that have been existing for some time, is there anything in the training or preparation, as you move

forward, that needs to be changed, and that you're addressing, as it relates to the way people are approaching it? >> there's been a lot of effort on that. my predecessor, bob hale, set up a relative robust training program for the financial community introducing audits and audit readiness as a result from input of committees and others. extending that through the other organizations is probably one of our challenges. there's been some training but those areas equally as effective. >> thank you, mr. chairman. thank you, mr. norquist. this is very encouraging day. a day we've been waiting on a long time. i want to commend the chairman and the leadership for this. we are facing so many threats around the world and we need more dollars to modernize and

increase our readiness. at the same time, i hear back home concerns about waste. any time there is waste we need to make sure it is rooted out and we're investing our precious defense dollars where they need to go. this process you're leading is critical in this effort. you know one of the audit processes improved accountability of assets and resources. i'm wondering are classified assets part of the audit process? >> yes. classified programs are included. i'll also tell you all of the defense intelligence agencies have stand alone full scope audit and most of them have been under audit for three years. being a classified program does not exempt you from the scope of the audit. >> will there be a separate addendum we will look at to access that portion? how will there be accountability for the classified side? >> for the stand alone audits,

those are classified, of an intelligence agency. for the others, how that shows up i'd rather talk to you in a closed forum but are in the classified part of the audit. >> how about oco? >> in the scope of the audit. >> in your testimony, you said something that caught my attention. the costs i anticipated $367 million which we've already talked about the long term benefit of that investment in getting this handle on everything. but you go on to say you anticipate spending about $551 million this year. >> uh-huh. >> in fiscal year 2018, fixing problems. can you expound on what problems you anticipate and what the presumptions were to come up with that figure? where do you get 551 for fixing problems? >> sure. it comes from the funding they

had planned for this year and in the budget to address these requirements. the types of requirements we're talking about are systems already fielded for whom they're not storing the data properly or not transmitting it properly reducing manual passages between systems. some of those changes are in there. improvements in the way they inventory or store things. one of the steps involved, the accuracy of the property records, each one of those places where they're improving their process or changing the underlying system or clearing up old records, those are the things driving those types of costs. >> it sounds like the services already have a handle what they know are problems? >> correct. >> then they put a price tag to that. most of that sounds like computer software? >> not most of it, a piece of it. not most of it but the systems are certainly a piece of it. >> can you give more of a specific breakdown on that?

so you kaipt you're growing to have to -- you anticipate you will have to purchase systems that talk to each other. records management, are you putting man hours? are you putting additional personnel for written records, give more specific, please. >> sure, i have to give you some for the record but will talk to you what i can at this level. when you're going through the audit and you -- for many they've either done work in advance or in some cases auditors have done preliminary work to other pieces before we got to the full scope audit, so we have some indication of the types of challenges they faced and they developed corrective action plans for those. some include modifying one system to allow them to be audit compliant and allow them to turn off systems that are not. their financial system costs improve the accuracy of the data and in the long term may save us

money as we turn off the legacy systems. the second is improving processes that allow them to be more accountable fortheir property. they may be changing the way they store the information or assets to support the accountability, depending on some switching to bar coding and things that weren't to have clear accountability of the status of each asset to know where they are. some is documentation behind it, making sure it's centralized in a way they respond and is complete. if you need it broken down further i have to get the details behind it. that's the types at a high level the changes they are doing. >> i would say we need to watch this. and don't let them get more money for something that simply should be their job doing their job. >> correct. >> thank you. yield back. >> thank you. i also want to thank you, mr. norquist. i'm very excited about this. we had hoped for this for years. i wanted to ask you a couple of

questions about it. i think in 2007 maybe i was sitting on this committee, we had found out a lot of the weapons and guns that had been sent to iraq were not traceable anymore, i remember the person i can't recall his name said we don't have enough auditors. i said something on the lines shouldn't we have auditors spending this kind of money. this sounds familiar to you, i'm sure. how did you decide on the number of auditors? what will you do if you discover you need more? >> sure. the number of auditors our estimate based on the number of contractors proposed to do, they were given the scope of it, those contracts allow for them to make adjustments over time so if there is a requirement for more. one of the things we want to do is make the best use of their time and benefit to the taxpayer, unlike some audits, as soon as they run into a problem

they get to stop and say, i am done. we would say it would be useful if you dug into the root cause behind it so we're not just fixing the symptoms and they can drill down. the auditor piece of this is like the reconnaissance, the guys who go out front and find you the issues. that's a tremendous value to us. if we need additional ones we can get access to that. >> they won't be constrained financially, you won't run up against a wall to put more money in if they need to. >> it would have to be the way the contract is written but if the ig said they needed more resources i would help the ig. >> i think it's essential and i think it will be deeper and longer than you think. you're talking $870 million just for 2018? >> 2018. >> how is the cr going to be

impacting that? >> the cr creates pressure funding-wise. i won't stand in front of you and say if we don't get it we will stop the foektsed on audit are focussed on trying to split contracts to accommodate the funding levels. and so money of the people that we need to have focusing on this are the ones who are also affected by the nature of the cr. it creates pressure more on the remediation side than the audit. we're below either what this committee recommended or the president. and we have to make trade offs within that space. we'll still proceed with the audit. >> okay. in the other question i have you talk about contractors having growing pains. i think this article you said that we shouldn't be looking for billions of savings. it's been kind of one of those understandings that if we actually did monitor these contracts over time that the wasted fraud and etc. delays

does add up to billions. so how will they experience growing pains and why don't you think that ultimately over a period of time we actually could save really significant numbers? >> talking about saving numbers by auditing contractors had. >> if we do the work now. what will you be doing to make sure for example that contracts come in on time, we don't have cost delays. we have work to do for the over sight. i want to know how you think your role will play out. >> three parts. first is the piece which is the program manager over seeing it. that's not in the scope of the financial statement audit. we support them with better quality data. the second not inside this audit we have the defense contract audit agency that looks at billing. and they recovered in 2016 like $3.6 billion. by looking at billings coming in and questioning charges. that keeps up. the third is the financial

statement audit. which focuses on the department and indirectly on the contractor. our payments to them. that the place you'll see the bigs opportunity reform over time is by allowing us to operate like a business. and so you think about improvements in the accuracy and completeness of financial systems and the role of the chief management officer. being able to put information closer to the commercial counter part would have. allows them to make decisions. $600 billion intervise better decision making can make you make better use of dollars on a large scale. you'll see that advantage in driving reform within the organization. we're able to do more in estimating cost or reforming the way we do something internally. those are some of the three -- cost avoid dance. when you have better security against intrusion. you avoid cost. >> i'm hoping we'll have more

clarity. sp more data help us. >> right. >> thank you very much. i yield back. >> thank you mr. norquist. we are familiar with the audit function in the private sector. in preparing for this. i came across an ipa. which from my understanding is a really good type of beer. but i think you mean something different. these are major private sector accounting firms perform audit for large organizations across the world. >> correct. large recognized firms. >> is there a set of auditing standards, what standards are they using to perform audit? there's a federal board that sets the auditing standards and start with the commercial standard. and then they add some modifications. for example to defend the power of the purse of the u.s. congress we have budget tear rules that do not exist in the

private sector. a series of accounting standards to account for obligations. dispersement. commitment. things that matter to us in managing money. there are changes all the other federal agencies follow them. there's an accounting standards board. that does that. >> okay. continuing resolutions for a second. recently the secretary of the navy said publicly that since the budget control act was passed the navy itself the navy alone lost or wasted $4 billion as a result of continuing resolution and budget uncertainty. do you believe the audit will show inefficiency like this and business operations across the department due to continuing resolution? >> i think the audit will show you some of the yes the problems that will come out of business out of the disruption from the cr. and one of the ways that that shows up. normally you have a year to

spend money. one of the things we tend not to like the fourth quarter because of the way federal money looks if you don't spend it you lose it. the unusual thing we do in the federal government. they say wait, wait. sdp when you're down to a couple months here have it all. spend, spend, spend. that if you negotiated good price you maybe outside the window of when you negotiated an effective price. your plans for contracting and so forth get compressed. some of the disruptions had that are driven by the audit will help figure out how to manage it or what the consequences are. >> it would be helpful to us as the people that pass continuing resolutions to have that highlighted in your audit report. so that we know that continuing resolutions have tangible negative results. not just for the operation. but to the expenditure of money. for the entire pentagon and each of the services. i might add that during another

part of my life i was asked to take over the alabama system in which there were two criminal investigations going on. when the pull itser prize reporting on corruption. we used the internal and external audit function. to change the culture within the alabama system. do you believe there will be some i'm not saying wholesale change. some change in the culture of the pentagon as a result of the audit? >> absolutely. that's the point. >> can you elaborate how that would manifest itself. >> what you find is the folks who are doing their mission and one of the missions is make sure information is updated for others to use. when the time is tight that gets skipped. others who rely on the information have to redo it themselves or function with incomplete information knowing it will be audited and somebody

will point out the difference creates incentive to make sure you do the complete function. and get the items done. it should reduce the phone calls people get to answer the question. someone can rely on the system. that culture change is important in an organization that has such a spread of functions and has to rely on those types of data sets to be able to make decisions. >> i want to say we were talking. this maybe one of the most important things we accomplish during our term here in congress. i think you will see a lot of support for your activity. here on this committee and throughout the congress. i appreciate bha you're doing. >> thank you for your support. i appreciate it. >> thank you mr. chairman. i'm excited about the work you're doing. it a mammoth really big task. that you have ahead of you. and i'm trained as a cpa and attorney. i was a mayor of a small city and county executive.

i went through this on a small scale. when i first came to congress i would hear my colleagues asking about different weapon systems and different pieces of equipment. and i didn't know what we owned. i tried to get my staff to figure it out by working together with the dod and it was hard to get the limited information we got. 14,000 aircraft. in the u.s. military. for example. how many ships do we have. vehicles so on and so forth. do we have a inventory at the end of process that tells us what we own? >> this is the important way of how we implement the audit. it is possible to have that without making it easily accessible. my concern is you miss some of the benefit of the audit. one of the changes we want to drive is have the accurate count but to have it easily researchable. in data set where somebody can run the support. here's what you have.

here's why they're not there in maintenance or working. >> that's the -- okay. >> the idea is we'll have the count. but we want to be more like a business which is beyond the mere standards of audit to using that to drive business intelligence. so the leadership will have timely and accurate information not just about the dollars but about the facilities the equipment and the military supply the dollars. >> each piece of equipment will be rated. for example. as far as condition and. >> i'm not sure. impaired-over not impaired meaning is it usable. it has to be material enough. the larger end items would be thipgs we should be able to have timely and accurate reporting. >> what percentage of the audit will be devoted to inventory. opposed to procedure and process and financial statements. >> they'll do inventory. they will do property meaning buildings and other large items. they'll do pay and personnel.

so over time that maybe more labor intensetive than the other pieces. it's one of many items. >> is it half the task? a quarter of the task? >> i'm guessing a quarter of the labor hours will be spent looking at those items. >> will there be a physical visiting of the sites to identify the pieces by the auditor or will that be done by in house by the people who work for the dod? >> auditors. two ways. book to floor and floor to book. they look at the record and see if that's what you really have. and look at inventory and look at the records. they're checking both directions to make sure they align. >> this is a very exciting task that you'll accomplish. do you think by the audit of the inventory of equipment of property of buildings will be conducted by the end of the calendar year of 2018? or sometime off into the future after that. >> they will go through the

audit spring and summer. publish the reports starting november 15. this being a first year audit it may take extra time. and do this every year. whether they'll do a sample. they may pick certain pieces of equipment the first year. and pick a different set the nerks. the findings they have on one are often the same for the other. as soon as we see them they give the agency a clear idea. >> only a sample inventory of what we own? >> it's a statistically significant. to be able to have a level of confidence in it. so that they will be on site counting things checking numbers. >> will we be able to find out from you what you'll the sample size will be and what it will be of? >> we should be able to have the information on the sample size. it will tell us a sample size, yes. >> okay. all right thank you very much. i yield back. >> mr. kelly. >> thank you, mr. chairman.

thank you mr. norquist for being here. i echo i thank you for his effort in getting this to come. some massive under taking. long over due. it will be difficult. i hope that we will focus on the things that improve the processes going forward in some of those number of one is oco. a lot of room even when people are trying to do that for abuses that are intentional and unintentional. people just don't know. how far back are you going to the start of the audit? >> so when you look at dollars in fy 18. auditing money received in fiscal year 18. when you look at assets acquired it doesn't matter when the asset was acquired. they look for existence in completeness of the asset. >> very good. just from having served quite a long time i think some of the --

i understand the process. at the end of the year spend all the money or you lose it. that needs to be a rejs that you don't lose it. and spend the money wisely. there's some things that it's important to be able to carry the money forward as long as it's earmarked or allocated to a source. even though it's not spent yet. rather than rush it and spend it on things you don't need. you don't need to buy pens. those add up. i guess my final poipt is i'm sure you'll like at things like turn in equipment and those kind of things and the write offs and how you do that. and tool droppages. those things that you come back from a field exercise and the guard and you do all the tool droppages to make sure you get your equipment back. maybe that's not the right way. you will be looking at protszs like that to make sure people

are adhering to the right way and holding people accountable. is that correct? >> it will hold people accountable. we'll look at disposable equipment. the audit doesn't go down to small items. did you properly dispose of it? did you record it? is it and clearly see did you get paid for the disposal. >> my final question to the gao. in the case the dod lacks a sufficient number of financial managers. and what are you doing or what areas has the department done to take care of to acquire these. >> this is a challenge. when you have an organization that's most of it has never been under audit and don't federal employees don't themselves conduct financial statement audits the way commercial intervises do. you may have cpa. who don't have exposure to some of the other practices.

and so over time we have been able to grow that a couple ways. the first is the agency that went under audit firs like the core of engineers. they have a clean opinion. a number of people who have been through an audit multiple times know what it looks like, part of fixing things. they're helping the army. some we have grown by leading with example. some we have gone out and hired. and the third focus is training. we have a robust training program we have been emphasizing audit standards, audit readiness. internal control. in decade or two ago it had been budget. type of topics and not accounting related. that was the exclusive focus on the financial management community. >> mr. chairman i have no more questions. >> i want to interject on one point. i am also very concerned that we are going to be so late in the fiscal year with a final

appropriation. and the needs are so great, that there's going to be inevitable problems as a result. and i'm thinking about the audit. you'll find things and you may not have there may not be enough time to fix the things you find. by the time the money is -- so i think my staff is reached out to yours to work together to see about some greater flexibility. and spending money after the end of the fiscal year. i think about the maintenance problems. they're enormous. and we don't want to waste money. we also have to get our ships and planes fixed. >> absolutely. >> so i think that is an area there's a lot of concern in congress about accountability for the money and i understand that. i think this is an area where a number of us in congress working with you and the department can have a better -- especially this year because we are going to be

so late. i just want to mention that. because you were discussing it. >> thank you. mr. norquist, thank you very much for being here. taking the time. your testimony. also thank you for helping us do our job. and giving the people providing them with accountability. providing the accountability to the american taxpayer. i appreciate that. obviously you have a tremendous amount of experience in doing what your doing. 28 years. you actually audited the dhs. that's correct. in the six months that you have been in the position, what has been the biggest lesson you learned so far? and do you see foresee any other potential delay besides the worrying about budget stability and funding as you mention in

the last sentence. of your statement. is there any other delays that you foresee that will prevent you from doing your job? >> so i tell you the thing that's surprised me the most was how many people who have been working this issue were eager for it to start. i have to tell you for an account to be told to put together the controls and say we're not doing the audit this year and each year they are pete that. you get to wondering is it ever going to happen. this built up sense of it's happening. it's happening this year. and everything you have done up until now matters. the raebs reaction i get is reener yizing. excellent. we get to we haven't -- there's a will the of folks wondering if they have been working this vain. now everything you did to get ready to get the pieces in place will matter and pay off. that's the pleasant surprise. on moving forward. i think the bigs concern in the

long run is the systems. because they take the longest to fix. policies, procedures and cultural change. we can do. more quickly. some of the system interfaces may take more time. one of the things i encourage the committee as you go through each years budget review. when somebody asks for money to for a business system make sure you understand is it compliant. have they prioritized things related to the audit. or pushed those down on the to do list in place of something else. often they don't give -- they're not sexy or glamorous. but making sure the funding for those and the things that are done the systems fazed out. those take time. but i think they have tremendous long term improvements for the department. >> thank you and good luck. >> thank you, sir. >> thank you for the hearing and i apologize i'm probably going

to be covering ground you have covered. i was in another commit tie. where we had a mark up and i just got here. from the 30,000 foot level. i really like that the audit will result in more accountability. and more transparency. but the other thing that i think will be accomplished i think is real important i'd like to get your thoughts. reform. uncovering where maybe dwoent have the best practices in place. there might be waste or duply contaminatio duplication. can you assure the rest of our colleagues in congress and the american taxpayers that you think that this audit will uncover where we're not spending money in the best way possible. so we can either lower the budget and accomplish the same thing or invest in more lethal capability for the dod.

>> i think it's essential. in the contribution to reform. i'm kpibted about the possibility and how it's going reenforce reform. deputy secretary is the lead for bringing business policy to the organizations within the department working on this issue. i support them through the audit by helping to make sure they have the business data they need. to make those reform decisions. as you look across organizations and your comparing what do we pay in electrical rates across facilities? why? what are the highest ones dwr are they paying higher rates what's the difference? instead of saying everyone cut your number by 10% we focus on the places where the cost seem out of line with the rest of the enterprise. that type of financial data. the accuracy of that being able to pull it from multiple systems and have confidence. is what the audit gives you. it's an enabler to reform. i'm sure we'll find within the financial process by removing places where we have to

reworkday ta because the accuracy will allow it to go faster. savings. what it allows the department to do to function like a business. >> thank you. i know chairman and my colleague on the left here and many others have been pushing for greater affectiveness and efficiency. and how the dollars are spent. we have the trust of the american taxpayer. will the out come be not just that we find hopefully the fsht sis but done in way the american people know we're finding these and they entire congress knows we're finding these efficiencies? >> we'll make sure. the financial statement is public. what the auditor find and then announce is closed. what they fix. will be known. i will make a point of letting the committee know here's how they're reform change things and here's the way our businesses run differently. for some like the working

capitol fund they bill for the services. we can look at the rates they charge. are they able to reduce cost of operating because those are set up closer to a business type function and will be able to use that there as well. >> thank you for that. i appreciate it. the military of our country is held in the highest esteem by the american people. the only criticism that i'll sometimes hear is are we spending the dollars the most effective way and people are concerned about that. thank you so much for what you're doing. i yield back. >> thank you, mr. chairman. i want to specifically ask you about just some of the issues that the outside auditors had that were brought in. someone asked the question a little bit earlier. one ot reports that i red said they were having challenges being able to make final conclusions. can you talk about the issues that the outside auditors that were brought in had? >> so, is there a particular one

you have that you're thinking about? or walk through the challenges in general. >> in general. >> the first challenge in general is this is true government kp commercial. they're required to be independent. the people showing up didn't use to work for you. they have the understand the business processes. we put together guides that welcome them and say here's how we're structured he's what we do. the document looks like this. so they can recognize them. and they know what they're testing for the adequacy of. security clearances and to be able to do their work and get them through. a number are out doing site visits to get to understand what's going on at the different places. air force auditor this week. the navy auditor visited jacksonville and others in the fall to see the operations. there's an orientation. that they go through before they plan the audit. to make sure their audit is consistent.

and there's a security clearances we have been getting them through. to start in the timely manner. those are some of the key pieces. there will be a challenge on the volume. it's a large audit for them. they scaled up for the challenge. >> what about training and sustaining a work force to be able to work specifically on financial management and what have you within the dod. what are challenges around that? i would think being able to have a full-time staff work solely on this. this obviously a big issue. must be a challenge. >> it is. we have had to realign folks internally to provide the time and attention on this. to support them. these are some of the functions that over time when people took cuts they say i can reduce this. there's not an audit. some of those functions are being restored. we're doing internal trade off on that. operating underneath the reduction account ts that the

legislation put in place. those are realigning forces within it. i will tell you over time what i will likely come back with is shifting some soft work where we hired an outside firm as a consultant. to something run by a federal employee. by trading off contracting dollars for federal employee dollars chl we'll need the capabilities in house. in some cases we hire the expertise and may change the balance of that over time. as we raelsz this function will stay. and make sure federal ples able to do that on a sustained basis. there's a use for scaled experts on outside on particular topics. you want to change that depend si over time. >> i yield back. >> thank you. two other things real quick. the department is facing funding challenges etc. do you think you have the right position or strength of position

to be able to main ta and protect the funding to get this done. it's going to be setting priority and trading these dollars will be needed to get this done over time. versus spending them somewhere else within importance within the department. do you have the right support from the secretaries and others to make a argument that you need the funds to continue the audit and continue the fixes? >> i do. i have the full support of the secretary. and the deputy secretary. i will tell you the president budget level or the committee level i'm comfortable. if you start talking about a cr that runs through the we're in a different place. that creates challenges because of tough trade off across the department. i'll fight to protect this. we have readiness issues and others i have to pay attention to. >> the bca level would be a disaster? >> that would be a disaster. >> there will be more finding more important than others. so when it first comes out the scope of number of finding will probably be startling.

will the cpa firms grade those findings as to ones that are really critical or systemic or easily fixed. is there a grade there to help places we can better understand the sheer number? >> they will score it in weight it with terms like material deficiency and size compared to the financial statement. that's not necessarily its importance to the department in term of fixing. they may decide there's a cyber vulnerability with little dollar value. or may see a change where the savings are there and we want to do the fix first. we'll have their scores in terms of thousand they categorize it. we need prioritize within the department which of these reforms are most important to get done to support the chief management officer to save the taxpayer money and some of the

later ones if they are large dollar values like old military equipment. if that's not data people will use right away we may wait on the reforms to prioritize other things first. >> on the assignment of responsibility to fix it comes with a time frame that's rational and expected to be. >> i expect the time frame to come from the corrective action plan. we'll check is this a reasonable time frame. some of these will take some period of time. you can see the reduction in the conditions within it. that will show you they're making progress. >> thank you. thank you for your testimony and for the work you are doing. i think it's vitally important. for the department and the taxpayer to make sure we're spending dollars the way they should be spent. and getting the moats for them. the i have a long standing interest in. i remember serving on the intelligence committee. and we had somebody from dod

there. and i asked the question what about an auditing function. and it was then i became aware we don't do the auditing function. so long over due. i'm glad we're getting to this point. many of the questions i had have been addressed. i had one i want to dabble deeper. conducting an audit of this magnitude, i want to know how you plan to deal with the significant complexity it may present. dealing with for example old contracts. or contracts systems not designed with an audit in mind or auditing in particular the classified portion of the budget. this is a particular area of interest i would have. and where this by design this not much transparency into

projects. and programs. for security reasons. how do you deal with those issues and does guidance for new contracts provide for the eventy of an audit? >> sure a couple pieces. the first is in contracts. and some issues where in order to example property value military equipment we need the contractor to give us the invoices set up a certain way. so we can see the pieces included. older contracts don't have that. which ones you modify. which ones do you build on and are some places you do an alternate wait of evaluating the equipment. there's different methodology. accuracy and taxpayer point of view what's the best use of taxpayer money. how do we do that efficiently. some equipment you might decide i'm not spending a lot of energy on it. it won't be here anymore. so that's not as essential it's

not a high priority. with regard to systems i think you look at each system and ask the question can i fix it to do what with need it to do? software patch or upgrade. can i replace it by moving work to something else? or do i have to work around it and some sort of manual form until it's retired? each of the services each of the organizations is going through that. defense the name of an accounting system implemented across 20 defense wide organizations. so in that case is the answer is turn them all off. in the services thst a lot more consolidating. that are compliant and support an opinion. with regard to the classified. i may need to talk offline about how we handle it. classified programs are included. we have cleared auditors and others who can do this. as you mention from the

intelligence community they receive stand alone opinions. they actually have been under audit for thee years now. i have been meeting with them and updating lessons learned and issues and progressing. those are published on a classified form. and members of congress look at those. >> for the classified programs going forward, will those all be in house and not outside contractors? >> can i address all of those in a different format? i'll run into classification concern. they're included and we can talk about the mechanics of it in a different way. >> sure. i'd like to do that. very good. thank you very much for the work you're doing. >> thank you, mr. chairman. thank you for being here. it's my understanding that the army navy air force defense health program. defense logistics agency. u.s. special operations command

and transportation command still have not received a clean audit opinion from the dod. can you talk about how you approach auditing these divisions over the course of fy 18 and during the process? >> sure. as you point out there's some that have and a series that haven't. some of those have begun the audit. as was in 16. and the u.s. marine core under audit this year for the first time. some have a yore or two of experience. the army navy and air force what they're doing is splitting audits into two parts. they have a section of the army that's funded through a appropriation directly from congress. and another that is what's called working capitol fund. it bills for services. it looks like company. they have different accounting systems. the same auditor does both they split the opinion into two parts because the way they function is different. that will allow us to see the progress.

within each of the organizations. that's split occurs in the army, navy and air force. the others most get stand alones. if they're too small they're covered by the iq rather than a sustain alone opinion. they're rolled together to give an opinion on the department as a whole. >> thank you. i yield back. >> mr. norquist you reference this earlier. i want to ask again. in these efforts do you have the support of the secretary of defense and the deputy secretary. because what you have talked about is cultural change. it's prioritizing dollars. it involves a number of things that if they're not supported by the top leadership they're not going to happen. >> the tone from the top is excellent. >> well, the first conversation i had with the secretary after he was nominated to be secretary. he brought this up on his own.

so my experience with him is he believes this is very important. and i just think it's you've got to have that support. from him. to make this successful i think. >> i want to brag on the chairman for having the first hearing of the calendar 18. on this issue. and highlight that. i appreciate your keen continued support for getting this done. that tone from the top you said is much appreciated. >> i appreciate it. i think all members as i said at the beginning this has been a by partisan priority for years. and we're going to stand there right with you. mr. norquist. to make sure it actually occurs. >> thank you, mr. chairman. >> with that, the hearing is adjourned. [simultaneous talking]

>> you are just talking about the c.r. you're talking about right now. what my question was focussed on the end of the year. september 30th.

>> okay. >> and is there a responsible way to allow the more flexibility to spend fy 18 money on october second. >> well. that's, yes. as you know procurement dollars -- all the forms of dollars have different time periods. under which they can be spent. i'm very conscious of the maintenance problems and that have we have talked about for the last two years. and so we have got dire needs to fix our ships and planes. and equipment. and i want to make sure we do that and we do it smartly. >> are you concerned about the training aspect. >> absolutely. >> yes, ma'am you're exactly right. if you remember we -- the department reported to us after three months of a cr, there are is training that can never been

recovered. because those demands keep rolling and you can never catch up. so i am concerned. that's another obviously use of the operation maintenance funding is training as well as main nans of the equipment and so forth. that's part of the reason i highlighted it. you said itst not exactly the topic of this hearing. but it is the topic of making good use of taxpayer dollars. >> what about the cost associated with the audit process. $367 million just to do the audit and 551 million to make the fixes. did you anticipate these cost. was it surprising. and do you have issues finding the money paying for it? >> hi helped me understand it. what we're really talking about. if you have things that need to be fixed they need to be fixed. hiding your head in the sand is not a good answer. if you have for example business account k systems that don't

talk to each other. that's part of what has gotten us into this problem that we're in. so we have to fix those things. and particularly at the beginning it will be expensive. but i'm firmly of the view that it will pay off for the taxpayers and for the war fighters over time. and the other one point i forget who made it, somebody said if we're trying to do acquisition reform and ere things you have to have data. you have to know what you're doing in order to fix it. last years we really wanted to focus on what we contract for services. we found out was that there's a will the of information we don't have. about what we're contracting for services. what we had to do last year is put in a requirement for data and greater transparency. the audit helps all of that. >> thank you. >> just to clarify when you're talking about the end of the year. say a cr into february the spring. whatever. and you get on the bus and all

of a sudden there's a boost and dod has to spend this plus up in a short amount of time. >> as he said. they're operating under cr through the year. you have 6 months or whatever is left. to spend the rest of the money. and i'm concerned that the needs are so great i don't want that money to either not be spent or to be spent foolishly sfl is it possible that in a budget deal you could go below that 700? you're talking about you have done half the year on a cr? >> just like an answer to this question. the problems do not go away. because we hit september 30th. the main nans problems, the readiness the training problems. other problems are there and we need to fix them. that's the priority. the men and women are out there risking their lives for us deserve that. >> this is not you have been

talking about this for a while. are you making head way with your colleagues in that argument in terms of them understanding what that means? >> yes they are. what made head way with our colleagues is unfortunately the deaths of sailors. the death of marines. soldiers. etc. and none of us can ignore the accidents and unfortunately the casualties that have come from the accidents. the other thing that made head way with colleagues is the news of the day. the north korea missile launches and the things that happened in the world. they know. they have a better appreciation for the fact that we can't afford to wait and assume we'll fix thing ts later. the world demands it now. >> do you feel like dod is focusing enough on that message right now? >> dod is certainly focussed on

the problem. as we have talked before, some of the folks in dod are reluctant to talk too openly about our shortfall. because you're broadcasting that to your potential adversary. and i'll nadmit it's a fine balance. if we're going to convince colleagues not on the committee as well as the american people to fix these thijs we have to at least talk somewhat openly about the problems. >> either draft of the ballistic nuclear review. what's your feeling on how those are shaping up? >> i look forward to seeing them when they're released. soon. and i'm hopeful that maybe we'll have a hearing to go through those results. we'll be able to talk about it.

>> you haven't seen the draft yet? >> i don't want to talk about the what i have seen. it doesn't matter. have a good day. >> thank you.

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>> conducted these two treaties. and this treat of commerce was essential. it granted france most favored nation trading status. and the french were very excited about being able to sort of get into that economic trading war with great britain after the war was over. and this treaty would remain in effect for several years. after wards. >> american history tv. every weekend on c-span 3. congress returns to session on tuesday. with government funding set it expeer friday january 19. the house is back at noon eastern for morning hour speeches and 2:00 p.m. for legislative business. during the week the house will consider a measure to extend government funding and another related to abortion. the senate is also back on tuesday. senate law marks plan to work on reauthorizing nsa foreign

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