education has traditionally been a state issue. i don't see a reason for that to change. i imagine you may be driving up the question of common core, which is a big issue on the horizon at the moment. my view of common core is limited in that i don't yet have children of my own and i am therefore -- i haven't been subjected to firsthand experience of the sort that say the comedian louis c. i am always suspicious and i come from a family of teachers. my mother and sister are teachers. i am suspicious of centralized, handed down rules for education and for curricular purposes. they seem to carry the unpleasant smell of a lack of trust in those underground. they know better how to do their jobs than somebody sitting miles away.

if i had my way, it would be left to the states. his recent piece, dropped the dropout. thank you for your time. guest: thank you very much. host: that does it for today's "washington journal." [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2014] >> looking ahead at the day here in the nation's capital, the u.s. house is in a weeklong recess for members to meet with

constituents in their own districts. there will be a brief poor from forma session today. the house voted to permanently extend research and development tax credit. the senate is in today. at 11:00, lawmakers will hold a procedural vote to advance expired tax breaks. senaterning, the homeland security committee is hearing from top military officials and from the defense department inspector general. looking for ways to improve the deities financial management. -- the dod's financial management. president obama will award the medal of honor to kyl wait for his actions in afghanistan in 2007. -- kyle white. toco rubio will be speaking

members of the press about his proposals to strengthen retirement security. we will have his remarks live from the national press club here in washington on c-span2. a lot of time, you would say, -- you canis not attribute it to a white house source or something like that. you can do that with live cameras. you can't say i'm giving you this for background but it is not for publication. let me give you something on background. >> so point. >> the fatal mistake i made -- this is for our audience -- i did not put the restriction we had at the state department. it was not available for live

broadcasts. it was available for use as part of the stories that you would produce because the briefing is not a news event. it is part of the way in which people gather information, put their stories together, test other sources, get other information, put together a conference of report and deliver it to your consumers. on, what56 questions is universal health care? what about 97%? what if one person -- >> sounds vaguely familiar to me. >> 56 questions in one briefing. dave wrote a column saying, she is a nice person if you can get her to answer a question about what does universal health coverage mean. house life of a white press secretary. how the job has changed over time. sunday at 5:00 as part of the

american history tv on c-span3. top cable industry executives recently talked about the competition their companies are facing from digital providers such as netflix and amazon. and how they are expanding their mobile content. the panel included the heads of time warner cable, espn and turner broadcasting. it is part of the national cable e and telecommunications council. >> thank you for having the host and moderate this wonderful panel. i'm so excited to be talking with all of you. i have interviewed some of you and others i have been wanting to interview. i'm glad i got this chance to do that. let's get started. the most important personal question i have is for rob marcus. after the deal gets done, what will you do? >> always picking on me. i have been asked that question a lot.

have said the same thing to everybody. it is way too early for me to start planning for the next chapter. i have a lot of work ahead of me in terms of continuing to run time warner cable. i will focus on that and not allow me to be distracted with what's next. >> we are neighbors in new jersey. i promise, it was not me stalking you outside during this whole thing. why -- i don't pick on rob. i have talked to him many times about consolidation in the industry. time warner cable and comcast -- comcast will be offloading 4 million subs to charter. we prefer divest. not offloading. >> jerry, are you a buyer or a seller here? >> you don't waste any time. tell me what the prices and i will tell you.

>> are you looking? >> we are always looking for acquisitions that are strategic. it's a unique time in business. there is a lot of consolidation. a lot of geometric changes in technology that is causing some shifts. aterest rates are relatively all-time lows. it's a great time to buy. we kiss a lot of frogs before we fr find the right prints. >> outside of looking at consolidation -- aren't the big threats really coming from down the pipe with google and amazon and netflix? there are several threats to the business. we have a cost structure with our programming costs. our largest cost component is growing at double-digit rates.

that is not sustainable. there is emerging competition from a number of companies. can --s a smith significant geometric change in technology. those are the risks we are trying to navigate through. >> there is this very video centric view of the world that causes people to think of over-the-top providers exclusively as threats. a counterintuitive view of that. in that clearly over-the-top video is one of the things that highlights the value of the high-speed data connections that time warner cable and other cable providers offer our customers. so, the speeds, the robustness of our hd offering is made special by the fact that there is creative people delivering that content over the pipes.

on the video side, there is the potential for competition, which is not bad. it drives us to be better than we were, but there is more that makes our offering more value. >> i would echo that. clearly, social and video platforms are competing for eyeballs, advertising dollars, but we have a better product than they do, and when you hear yahoo! announced they want to commission comedy series, they want to get into our business. yes, they are competitive, but shame on us if we do not affect our turf and work together to sell the value because we have a better product with more value that is cheaper on a per hour basis with those companies and we are allowing them, in some ways, to accept the tone of the -- set the tone of the conversation. we should be setting the tone. we have the better project.

>> it is easy for you to say that. you have a great job. you program sports, second of all, live sports. you are sitting pretty these days. >> i appreciate that. i do find that many people would like to have my job, and almost all of those people are willing to tell me what i could be doing better as well. [laughter] there is no question we sit in a certain catbird seat. live sports is ascendant, and it is the most powerful form of programming on the planet. again, it is part of what we all do together. i make the same point. we need to be selling that. we have tried to use that to buttress the underlying power of this product to compete against those companies, and i think we need to continue to do that. >> even beyond line -- live sport, if you are in programmatic services, and nancy is in, and turner, the explosion of speed is dramatically

increasing distribution. for cost -- companies like us, it is fantastic. i think it will explode demand, and it will provide us opportunities to get products and services to more people in more ways, in ways that they want to consume them, which we think will cement the value proposition -- >> of content. >> yeah. we do have a great offering today. i think all of the companies here are in incumbent skill positions to exploit those opportunities, and i think it is great for consumers. i think they are the ones that will win in all of this. >> one senior media executive had said to me one time, and i am quoting him because i do not want to offend anyone on this panel, but he said "look, netflix is a perfect poster

child of the failure of the cable industry to innovate." what do you say to that? >> i am highly skeptical of that comment. i am not sure that i get it. the fact that someone cap with an interesting technique of aggregating and reselling other people's content over the cable infrastructure is in no way, in my opinion, a failure of the cable industry. >> you are seeing consumers use both. that is missing here. we would all like to be in a business where we do not have to report our numbers, two, so you are dealing with a netflix and amazon that is not sharing their viewership. anecdotally, there is a lot you are hearing a lot less about "house of cards" season two than season one. how do you work to renegotiate future seasons if nobody has metrics to base anything on?

>> when you have a sony, to you and say look at our platform, look at what we can do with your content, what do you say? >> everyone has heard the pitch. they probably saw it last year at the cable show. it is a beautiful-looking platform. i do wish that our cable partners would take a closer look at how do we make the consumer experience better and better. that is where the partnership between, i think, the programmers and the operators, needs to be solidified. let's get out of the way of the negotiations, and in front of, you know, putting the consumer first, and putting the experience first, or a lot of competitors and technology companies will pass us by. >> can i take a different view? i do not know who mentioned that about netflix as a failure of the cable industry. >> are you trying to get me to

name names? >> i am the gray hair on the panel, literally and figuratively, and what i remember is netflix would not even exist if it were not for the cable industry that developed the dialogue internet -- dial-up internet to the cable system with the fastest speed than most capacity. so, there are a lot of companies that are in existence simply because we as an industry spent a lot of time in capital building the internet is this. >> they are actually existing on the infrastructure that you built, and on the content that we produce. it is ok. competition is not a bad thing. we have to do is respond, and figure out ways to innovate. i agree with nancy. one of the things we're doing that is important is figure out how to make authenticated television work, and allow people to get their content on every device in an easy mechanism because we could compete there. we have superior content. we have to have superior delivery systems to distribute

the material. >> i have to amplify that one point -- if there is a call to action in this convention or gathering, i think it is this -- for programmers and should bidders to work together to continually improve the consumer experience -- consumers to work together to continually improve the consumer expense. authentic content is a barrier to usage, and if you polled the majority of the people sitting in the audience, and asked them what is the username and password given to them by the platform provider, the overwhelming majority of you all in the industry probably do not know -- i have three homes with three cable providers and i do not know anywhere -- any of them, so i do not have television everywhere because i cannot figure out how to use it. we have to make it easy, consistent, and the idea of dramatically improving the availability and robustness of video-on-demand is the single biggest opportunity that we,

together, can create, which would create value for the district understand the programmers. >> the consumers wanted. in one short year of our tv everywhere app being offered, they have been downloaded more than 11 million times, but the authentication is not great, and that means it is too difficult to do. >> for the 2010 world cup, one out of every three hours of viewing was on a device outside of additional television. that was 2010. we are getting ready to the world cup in june, and my guess is it will be north of that. >> what is the biggest challenge for you, john, when you see that? >> the biggest challenges i to committed by john martin here, we need an easier process of authentication. the people in silicon valley, they do this by simplification. once they have something, they can sniff it out and deliver you the content.

>> i could give you that have glass full perspective, for our part we are making great strides with our app, available on a platforms, and the most recently we announced on fantv. it is on android, samsung smart tvs. the video offering is available everywhere. usage has been impressive and growing quickly. i agree that the process of authentication used to be easier, but the early returns are quite good when you think about the fact that this way of viewing video did not even exist several years ago. the fact that last month we had one million unique users accessing our video product via something other than a set top box is significant. >> rob, when you hear the programmers say there is more than just authentication as an

issue, but let's say you take that one issue as a cable industry. the operators are working on that, and as john martin says, working together, but you have silicon valley and the tech companies figuring out in that time, in the space of a few months, they are able to figure out -- >> yes, but without content, the tech companies are just building platforms. they can build away -- >> most tech companies are creating content too, now. >> we like the dual model, a dual revenue stream, and do not want to go away. >> by the way, it is not either/or. i view the opportunity to collaborate with that tech companies as being part of the openness that time warner has demonstrated had the factor we are making video available on devices and unit -- user interfaces that we do not control is something that gives customers more choice. i think setting up this content

providers versus cable providers is a false split. >> it is all about providing a better customer experience. look, our customers are going to go to a netflix and to others, and we want to make it easy for our customers because we want to be the provider of choice because as rob indicated, the more and more content that you view online, the more you're going to want to come to the cable, high-speed service, because it is the best out there. >> so, john skipper, when a line to start gouging rob and jerry. >> doubting them? >> gouging. >> i do not doubt them nor gouge them. >> that got some applauses. >> at espn, the job is to create

value and work with distributors to sell their products in the market, and there's no question we greater the product with the most value, and it is the most expensive product in the market to create and to sell, and nobody doubted. every year they do a survey of what is the most valuable network, and it is always espn. we worked very hard with our partners, with you guys to create value. we were the first in the market with authentication. we were the first in the market with an hd channel. we were the first in the market with a 3-d channel. we are open for business to do things that create value, and i do not think there is any doubt that in this market that the single greatest buttress her of the -- buttress of the pay process -- espn. i hear this a lot. i am respectful of you asking the question, but we need to be working together because we are providing something of great value that people want. there is another canard in the market, the notion that only a few people are watching sports

and other people are paying for product they do not watch. 150 million people consume espn every week. 86% of people do consume espn in a corner. it is not the case, no matter how may times barry diller says it, that a few people are watching sports and a bunch of grandmothers are paying for it. it is not the case. >> my mother loves it. there's a grandmother in a house that was a lot of espn. >> i do not know many people that do not have someone in the household not watching espn. is a nice rhetorical device, but not effect. >> your predecessor has been vocal about the fact that programming costs are getting out of hand. >> there is no question where a model where your cost of goods sold is growing at a rate that exceeds that the market will bear at retail is problematic for the sustainability of our overall ecosystem. john has his own problem. when he goes to negotiate with teams and leagues and

conferences about the next round of licensing deals, he has costs that are also accelerating. so, there is a fundamental problem in the ecosystem. at the end of the day, we have to figure out a business model where our willingness to pay for these elements of content, whether it is john or a distributor, are more responsive to what customers are actually willing to pay. you have a disconnect now which is that for the most part john is not going directly to end-user customers, so he does not have the feedback loop to guide what he is willing to pay for product. we are stuck in the middle. that is a problematic element of the model. we have to figure out how we introduce a greater degree of flexibility that gives us more consumer feedback, that ultimately drives cost profit. >> our products are sold at the same rate, so we are making discrete choices about how to make investments to make our network-branded environment as

valuable as possible to each industry bidders as well as consumers. >> i do not want to be cavalier, but rob is right. there is pressure on prices. it is a $70 billion business, and we are making money, but since all of us have pressure to grow, we're not going to all grow and make more money, unless we can figure out a way, which is why i was advocating we have to sell the pay-tv sub because if you have a stagnant market, we will have pressure, and we will find we are discussing who is getting a larger or smaller share. there was not this discussion when there was a growing pie, going from 70 million households with pay-tv, 280 million, two 90 million. we have to find a way to grow the pie. >> we are always following the trap of focusing on this are cost problem, which is a real one, but it is a list -- important to all of us to tout the value that we deliver to the

customer every day. it depends on the calculation, but it is not unreasonable to assume that roughly -- that we essentially charge customers $.20 an hour of video viewing. that is a staggeringly good value by any measure, and sometimes -- >> you said $.20 an hour. >> $.20 a viewing hour, which i think is well worth the price of admission, and very often in the context of these conversations, what we do have to grapple with a programming cost issue, we loose track of the fact that we are still delivering tremendous value. >> are consumers at a breaking point? >> there are some segments of the population where affordability is a real issue. >> yes. >> we have to figure out ways to design products that accommodate the more budget-conscious customers. we have light video, light hd products that are designed to not necessarily deliver all of the capabilities of the full

products, but that meet certain customers budgetary needs, and it is essential that we be able to do that. >> i am concerned that we're going to reach a tipping point where we are going to start pricing some households, particularly those with distressed household incomes out of the market. we need to have the flexibility, working with program partners, to be able to offer less expensive tiers. >> à la cart pricing? >> not necessarily à la cart, because i do not know how you do that. and what they say here are 300 channels, go through each one and tell me if you want it or not? but more affordable types of packages what people have more choice rather than putting everything in an expanded basic until. unless we do that, one of three things is going to happen. cable operators are going to have to continue to raise prices, which is not consumer-friendly. the government is going to get involved, like they are in canada. they are starting to take steps to doing mandated à la carte.

or, operators are going to have to make tough decisions about what programmers i am going to carry, and which ones am i not going to carry. >> some consumers are given à la carte already through netflix, hulu, amazon -- it might not be à la carte in the way we thought it could arrive, but the customers have choice, and they are still overwhelmingly choosing cable. >> because they want to watch espn. [laughter] or the history channel, or cnn, or tbs, but i hear a lot of talk about it -- what would create the action with the entire industry starts to pull -- trend that way?

>> as some operators decide they will not carry certain programmers because it is too expensive, or we continue to see prices rise and some people start disconnecting from cable altogether. that will put a lot of pressure on all of us if we hit that point. >> speaking about programs and content, i want to ask programmers, clearly, you are looking for the big hit shows. you're looking for the next big "duck dynasty," right, or the next big show on cnn. how do you find that? is it getting harder to find that? >> absolutely. the demand for content has never been greater, and the competition for creative talent has never been greater. it is probably the most commonly asked question in the turner group, and certainly in the a&e group. there is not a single machine. it is a taste-driven, instinctual art of the business. i think it is about having impeccable relationships with ip

creators, show runners, directors, writers, and we spent a lot of time in our company focused on that, and we get it wrong a lot, but we get it right more. those are the odds that we are playing. i worry a lot about where the next generation of creators is going to come from. >> why? >> i look around and i see a lot of smaller production companies selling for astronomical prices, and people cashing out, and the next crop of creators is opting to go to youtube, opting to go to vice, different avenues. how do we attract them to our platforms and our storytelling, and our systems? i worry a lot about that. >> as do we. i think we have an advantage

position in that ecosystem, though, because it really is about brands and scale. i think in order to stay relevant, we are going to need to try to find those taste-makers, or those individual voices that are not being exploited on television today, and for us at turner, we spend almost $4 billion a year on programming costs, so, it feels like we are in a good position to be able to not be able to be outspent by competitive forces, but we have to be able to have those outstanding relationships with the creative community, which you need to consummate cultivate and turnover. i think it is an amazing development in television that the number one show on television is on cable. >> the number one, and the number two, maybe. >> we are talking about -- >> "walking dead." >> "walking dead," ok. >> a number of years ago, people would have said that is structurally impossible. if you can find that good of the voice, you can see that cable is as strong a vehicle as any to

which the consumer. i would look to see over the next five years any remaining distinction between broadcast and cable annihilated, blown up, it is irrelevant. we have some of the most profitable television networks in the world. we want to be in the market with the very best projects and we want the best people working for us, so -- it is getting harder. there is an arms race for programming, and there is more outlets for people to express individuality. >> all right, well, i wish we had more time, but we have to wrap up. thank you so much to a great group of panelists, and a great discussion. >> thank you. [applause] years, c-span brings public affairs events from washington rectally to you. putting you in the room at congressional hearings, white house events, briefings and

conferences. and offering complete, gavel to gavel coverage of the u.s. house. all as a public service of private industry. we're c-span. created by the cable tv industry 35 years ago and brought to as a public service by your local cable or satellite provider. we're live on capitol hill this morning as the senate homeland security committee is meeting to hear from government officials about how to improve the dod's financial management. they should get underway in just a moment. [no audio]

>> good morning. examine theing will efforts underway at the department of defense to improve financial management and to obtain a clean, unqualified audit of the books at the department of defense. i want to begin today's hearing by asking why financial management at the department of

defense is important in the first place. especially at the department of defense. accurate and complete a financial accounts give agency leadership and congress the information that we need for effective management and planning. clean statements also give us agencieson to hold hi accountable and ask questions. is it possible to get better results for less money? we waste money at every agency to some extent. we especially waited -- wasted in the department of defense. you know that is true. so do our taxpayers. effectively identify areas to reduce spending it we don't know how much and where you're spending that money in the first place. federal agencies have been required to produce financial

--tements since the made mid-1990's. at the department of defense, two decades later, we spent $2 billion every day. despite years of effort and one deadline after another, the department of defense is so flawed that auditors still can't even attempt to complete a full audit. she department of defense' finances have been on our list since 1995. in part, this is due to pervasive management efficiencies that would never be tolerated in private sector business. they are actively being addressed in other federal agencies. month, the government accountability office released a report showing the departments and equated inventory systems often containing incomplete information that led to millions of dollars in wasteful ammunition purchases.

the department continues to buy spare parts that it does not need. last year, the department gave this committee figures showing that at one point in 2013 commented at $754 million worth of items that were on order, but not yet delivered. the department still paid for and accepted the unneeded items. this is an unacceptable situation. these are just the problems we know about. some of the problems we know about. the poor state of the apartments to more waste and fraud. these tough economic times, when we are going to be asked to make for ours about pay active personnel, compensation for active-duty personnel and as wesation for veterans,

face those kinds of decisions, you can't tolerate this continuing level of mismanagement and waste. room11, we met in the same and held a hearing. the departmentw was going to meet its statutory deadlines to achieve financial auditability by 2017. after that hearing, leon panetta made an important announcement at greatly elevated the priority of financial management. he established an additional line for partial financial audit by the end of fiscal 2014. in order to quicken the pace of improvements. to his credit, his successor as to buy these goals. this means in seven months, the entire department should have its statement of budgetary resources and key financial components ready for audit.

we are here today to get an update on this quickly approaching deadline. fortunately, the department can look through some recent successes to help find the right path to reach his goal. the ring core has made some important progress. -- the marine corps. that is good news. the department of homeland security was the only other department unable to audit its finances. last year, homeland security was able to achieve a clean audit. the department created barely 10 were able to achieve a clean audit last year. , theey can do that department of defense needs to keep its -- we need to keep your feet to the fire. this idea of a goal for 2014

slip does not hunt here. -- that dog does not hunt here. the key question is whether the entire department is learning enough and fast enough from these examples. we have some obligation, to. we allowed the government to be -- we are part of the problem and the solution. contacted and i have senator johnson. we don't want to be the problem. we want to be part of the solution. key question again is whether the entire department is learning enough and fast enough for them these examples. we have been joined by several witnesses in helping the department improve its financial management processes and controls. their work will allow the department to produce reliable

financial statements that produce quickly information for decision-makers. we want to think our witnesses for joining us and we look forward to her testament. -- to your testament. >> thank you for holding this hearing. i welcome all of our panelists and say we applaud your effort. as my dad used to say, effort sometimes is not enough. you have to apply a different approach and a different technique. to read an start assessment i will put up for you comparing 2001 to where we are today. 2001,sessment in inability to consistently provide reliable financial data for effective decision-making. still there. no change. lack of an overreach and approach to financial management.

disparate systems accounting for hampered by a lack of integration and standardization. still exists. the plan provides the approach -- it is unclear right now to me how well it is being implement it, especially as audit goals are de-scoped and deadlines are missed. systems environment remains more or less unchanged. convoluted business processes which failed to streamline ,xcessive process steps sometimes driven by accounting, operational organizational structures come a further complicated by agent systems. -- aging systems. results have been mixed. air force combat support system was canceled after nearly 10 years of work and $1 million. we recommended in 2011 that it be canceled. it took 2.5 years to get it canceled. then we paid the contractor and did not hold him accountable for

what they were developing. difficulty in obtaining financially based outcome oriented management metrics. this problem continues trade gao has reported that metrics are not adequately defined. chiefity to produce financial officer act compliant annual financials statements. unchanged. on value activities. since useful information is hard to extract, useful corrective action is typical to implement. with a lack of widespread understanding of how financial information can help us. has not changed. the statusas towards quo, driven by citizens -- driven by distance and political employees. no change. of an infusion of personnel with technical and financial skill sets necessary to achieve integrated financial

management systems. dod is investing in training program, but it is still not fully implemented. cfo nominees lacked the requisite qualifications. i am most surprised when i hear some of my associates ask why auditability matters. i suspect this question is a result that many of my colleagues lack real-world experience. they have not run a business that has to make the most of its resources. businessness -- to a or a management organization, reliable financial data is what powers the strategic planning and budgeting and operational decisions. it often means the difference between success and failure. congress, auditability is a paramount importance. we can't do our job without it.

the fact that our largest federal department with nearly a $700 billion budget still can't comply with the law after several decades is a failure that rests squarely on us. by accepting the continued excuses and delays, we have failed to do our job. the appropriations and accountability clause of the constitution, article one section nine clause seven says the following. no money shall be drawn from the treasury but in consequence of appropriations made by the law and a regular statement and account of the receipts and expenditures of all public money shall be published from time to time. we have not done that in 30 years in the pentagon. the intent of this clause is simple. congress cannot possibly know that the executive branch is a bank the first part of the appropriation clause, spending, without confidence in the

second. accountability. the decades long failure by the pentagon to comply with existing financial losses against the spirit of our constitution. our founding fathers made that those dollars are held accountable to the taxpayers. the people funding the bill. the financial management problems within the pentagon are intimately related to its problems of waste, mismanagement, it's budget was lawmakers cannot consistently or reliably identify what our defense problems cost. when the pentagon itself does not know and cannot tell congress how it is spending its money, good programs face cuts. -- it is the

situation we find ourselves in today. cutting meat instead of that. unreliable financial information makes it impossible to link the consequences of past decisions and holding people accountable for those decisions to the defense budget or measure whether or not the activities of the defense department are actually meeting military requirements. the problem is clear. you can't management what you can measure. if the pentagon does not know how it spends its money, congress does not know how they're spending the money. with the nation's debt nearing $18 trillion and counting and tighter budgets across the federal government, dod needs to resources.ge its the first charge of the congress is to defend the country. has told us there on the right track. making progress.

i have heard that song before. some of our nation best willdogs, the gao and dod testify that the core financial management weaknesses, the long-standing deficiencies still exist and remain a significant risk to dod meeting its statutory, constitutional requirements. if you take away only one point today, it should be this. poor financial management is the root cause of much of dod's current problems. , asability to control costs evidenced by weapon systems and i.t. system overruns. anticipated future costs, measure performance or prevent waste, fraud and abuse. congress passed helps dod to fill its obligations under the law and to the american taxpayers by holding dod accountable for its failure to comply with the law.

ourve only one request of first panel. that you will stay and listen to the gao. . know they seem to be a thorn but there is some reality in what they say. reality with the good effort that everybody at , we wille is making get closer. i would summarize -- we will do it to the questioning. mba -- changed what the mdaa called for, by going to the counts instead of the resources. you are allowed to do that. if you really want financial data to be able to make good financial decisions and to control costs, you're not going

to get it that way until 2022. with that, i yield back. >> let me follow up on something he just said. for the you to stay second panel. i would ask that you do that as well. if you can't, please make sure you have somebody who will be here to take notes. a year or so ago, we had the deputy to secretary -- deputy secretary of homeland security would meet to talk with him face-to-face to figure out how the department of home and security-- homeland could work it month in and month out. they finally did.

generalple think of the accountability office as a thorn in the side of agencies. they play constructive roles. they want you off the list. they want to focus on other things. one of the things they would like to get off the list is the major weapon systems cost overruns which exceed $4 billion -- $400 billion. pleasant,going to be but i want to say, we do appreciate your service. i know you will be stepping down later this year. we appreciate your service and wish you only well as you go forward. bob hill is the undersecretary of the department of defense. he was appointed in january of 2009. ,nder the secretary of defense

the advisor on budgetary and fiscal matters, including the development and neck secretion of the annual budget of $600 billion. as chief financial officer, he oversees the department's financial policies, systems and business modernization efforts. our next witness is mr. robert , the assistant secretary of the department of the army. he seems response ability for his position -- assumed responsibility for his position a few months ago. he is the chief of staff on matters relating to financial management and overseas development, foreign relations and programs for improving the efficiency and effectiveness of the department resources. our next witness is the -- arele susan raeburn you retired navy? what was your rank in the navy? captain. the assistant secretary of the

department of the navy. for financial management and the controller. she assumed her position in august of last year. she was responsible for managing and directing the annual budget coree navy and ring -- marine corps. our final witness is the -- he wasjamie appointed to his current position in june of 2009. he is the principal adviser to the secretary and chief of staff of the air force on i'll -- on all financial matters. we thank you all for being here today and thank you for your

preparation and testimony and willingness to respond to our questions. i have a favor to ask of all of you. statements.gh your it was full of acronyms. i don't like acronyms. ada shows up her belief. americans with disability act. i don't want you to use acronyms. use words. it will help me and us and ultimately help you. we have about starting at 11:10. do you want to take turns going back and forth so we can make progress? please proceed. i'm here to report on a financial management at the department of defense. efen i became dod's chi

financial officer, i established a number of goals and report on the schools in my prepared statement. i will focus on one of those goals. the key one for today, improving financial management. aeting this goal has been challenge. more of a challenge the next elected. -- than i expected. i believe we have made more progress in the last few years than we have made in any other time passage. our audit strategy focuses on the elements of our business and influences our decision-making. known as existence and completeness. we have set interim goals for our audit efforts and we have clearly mandated goals for overall audit readiness. our goals are reported on twice a year in our progress report. we will deliver the ninth

installment later this week to the congress. all of those were provided on time. we are focusing first on our budget statement of property information, we also have a plan to achieve audit readiness for all of dod financial statements. i believe we are on track to achieve audit readiness for all of our financial statements by 2017. meeting audit goals requires major changes in the department that is as big and where change is difficult. we need financial systems and significant changes in our business practices. they are hard to have women in a big organization and we face a special changes -- challenges that you alluded to. five government shutdown planning drills. sequestration and the furlough. replanningted time budgets because of the seemingly constant changes in revenues. this turmoil has usurped time that could happen spent on audit

and other activities. despite the turmoil, we have made substantial progress. but should that has been documented by public accounting firms. that is a big difference compared to prior periods. congress is skeptical. you want an independent verification of our progress. so do we. let me highlight a few audit results for you. the marine corps last year received a clean audit opinion on the current year of its budget statement. we expect a similar result in 2013. this result was verified by two independent auditors. the entire department of defense has been evaluated and deemed ready for an audit of our funds distribution process. --t is a critical about clinical accomplishment.

all verifiedwere by independent accounting firms. we received a clean audit opinion from an independent auditor on the controls within our civilian personnel system. the navy has achieved a positive opinion on civilian pay and travel expenses, air force on pounds of treasury and the army has completed an examination. in the planelong financial systems and they are stabilizing in terms of cost and schedule. independent auditors have been verified in a specific area. by audit gritty, we mean that we have made significant progress -- sufficient progress in the processes and data so that we can withstand an independent audit. audit readiness provides most of the benefits of the audit process. the audit itself attests to our

success. it is too early to know the audit ready status for every budget statement by september 30. we are still in the process of remediation. that most of dod's budget statements will be ready for audit by september 30, including statements and all of the military services. i believe that is an enormous accomplishment. we are finally getting to the real issue of the military services. we have not done that before and we need to do it. once our statements are audit ready, we will pursue the formal audit in a cost-effective manner. one lesson we learned from the ring core is that we simply cannot acquire the documentation needed to verify prior-year transactions quickly enough. some of those go back 10 years. they're on long-term storage. we will focus the formal audit on the current year budget activity. which contains the most

important information. we will build quickly towards the full sbr because we will get when you're done and it will give us time to correct. i hope we will quickly build toward the full sbr. i don't think this process will delay the time to get an audit opinion on the full sbr. time does not permit me to a -- permit me to cover other important goals. i will end with the bottom line. despite formidable app -- formidable obstacles, we have made progress that has been verified. we still clearly have much work to do and accept that point.poi. in most cases, we will substantially meet the first broad goal for audit readiness by september 2014 and we will then begin the formal audit in a cost-effective manner. meeting this goal is important step for the department. that is something secretary hegel believes in. he clearly is interested in this topic. he made a video for the entire

department of defense on audit readiness. readiness to demonstrate the dod manages the public money with the same competence and accountability that we bring our military operations. that concludes my brief opening remarks. thanks. underlying the importance of making progress in this front to the employees of the apartment. the video i am looking forward to is the one he does later this it bynd says -- we nailed the end of this fiscal year. tom really looking forward 2070. that is the one i am looking forward to. mr. speer? chairman carper, thank you for the opportunity to appear before you today to discuss the

army's approach to limiting financial improvement. my assessment in implementation of the enterprise resource planning systems. in addition, i want to convey to you the secretary of the army, the chief of staff, and the undersecretary of the army and i remain committed to improving the financial management in meeting the requirement to be auditable. challenges,serious the army soldiers and civilians remain dedicated to improving our this ross esses. the financial management improvement plan documents the approach to achieving our audit readiness. milestones include reliance and exams, audits from independent public accounting firms, to inform and provide objective

feedback on areas requiring additional focus. the army is making progress. an independent accounting firm recently examined and delivered a report on the general fund statement of budgetary resources for guessing on 2013 'sansactions within the army environment. although not a clean opinion, the independent public accounting firm was able to complete the examination, provide us in confirm confirmation of improvements, and identify areas we need corrective action. army has beenhe implementing a plan to remediate .hose fan -- those findings in addition during focus -- fiscal year by 14, the army received a clean opinion from a public accounting firm on the examination of real property. armyssets of 23 from

installations that accounted over 50% of the book value of the army's real property assets. this audit supports the second priority,ess verifying completeness of our assets. the army continues to achieve success in implement the new systems. the general fund enterprise system is used by over 200 locations worldwide. it enables the progress while simultaneously modernizing and improving our business processes. the global combat support system and the logistics modernization program are retail supplies and systems will complement our systems. we recognize audit readiness requires -- throughout the organization, so we hold executives accountable.

since 201312 -- 2012, a financial metrics have been a component of all annual performance assessments. the chief of staff monitors progress, both of internal assessments as well as external audits and holds formal reviews. engagement has facilitated progress and is critical to overall success. the current fiscal environment involving defense requirements at home and abroad provide unique challenges for our organizations to achieve audit readiness. this and permit is also affording us an opportunity to optimize our technology, organizations, and training. to improve the overall business processes. these concept in the coming year, and gain benefits and improve performance from accurate and timely audible data. we continue to demonstrate

improvement across the whole business process area. our annual exams have continued to expand in scope and size and evolving in our audit readiness program. while providing a valuable insight for reading -- remediation and correction toward the goal of achieving audit readiness. i sincerely looks forward to continuing our work with members of this cup committee, the gal, improvedod consorts to our processes. thank you, and i look forward to your questions. >> a quick correction. this is not a subcommittee. this is a committee. we care about these issues as well. he is going away at the end of the, but we will stay on this issue as long as it takes. thank you. wor in question

i believe we have increased the likelihood we will meet the 20 17th audit deadline. while there is a great deal of

work to be done, i observe positive changes in the approach over theudit agenda a last few years. a. chairman, you have been strong proponent of the military service's sharing lessons with one another. i am pleased with what we are doing. including learning from the work of from outside auditors i the gao and our inspector general. a couple of years ago the gao briefed this committee on the efficiency's it found during reviewing another service's pay records. you held the hearing on the topic, and we sell that report and had the opportunity to request that the air force audit agency conduct a similar look at our own payee records. we found it overwhelming majority of airmen are properly

paid him a timely paid, correctly, and we found our processes were generally good. we found in one specific area our process for reviewing and retaining documentation about the housing allowances paid to our airmen was not sufficient. we were not retaining enough records to support an audit once the auditors came in. we were validating the pay was correct, but not documenting that validation in a way that would withstand the audit. my office put in place a set of besiegers for document retention and allegation and we are currently in the midst of an air force-wide 100% recertification every's airman's housing allowance entitlement. one example we adopted from the navy. they used their agency to ofduct with field testing critical financial processes.

we took that on a couple years ago, and last year we tested over 10,000 transactions air force wide, assessing each one for compliance with a long list of requirements. we have seen compliance increased from roughly 40% to roughly 90% over those two years of testing. these are just a couple of the many collaboration examples i could have cited, and that has been a consistent message from you, mr. chairman, and this committee, so we appreciate the attention to that and the continued engagement. to move to the broader question, in order to make an assertion of audit readiness on the schedule of budgetary activities at the end of this year, air force leadership will need to review our progress and the remaining challenges we are working to fix. let me provide you with a few specifics about where we are. over the last several years, the air force has asserted audit readiness on a variety of processes. yet he knows, including civilian pay, oteri equipment, spare

engines, and other components of our materials. in some cases we received clean bills of help from independent auditors. in other cases, we have received a list of eggs that we need to fix. now we have plans to resolve those. your air force is strongly committed to this effort. it is the law. we believe it enhances our readiness. we believe it is an important sign of good financial stewardship. has made thiss one of her top priorities for the air force, and she wrote recently to keep leaders on this and giving some specific directions about things they need to do to help eric our chief of staff has also been a strong supporter and is engaged in many of our leaders who have integrated audit readiness in a way that was not the case years ago.

the support of senior leaders is all the more important when asking air men to do difficult things, like the revalidation of housing allowance that i mentioned or like our count of 1.9 million and divisional items in our general equipment inventory, which we have been doing. leadership supports has allowed us to increase financial services eightfold, and partner with an accounting firm. there is still challenges remaining, despite all this progress. t. systems remain our biggest challenges. we have made big strides in fielding the accounting ourgement system to replace 1968 system. we received a positive assessment from the operational ont and evaluation center this, as currently deployed, and we have deployed it to six more basis it's october 1.

bases october 1. we are on track to complete air force wide before the full audits begin. i want to single out the folks at over air force ace, who were one of our early adopters, and their comptroller is doing a great job leading there. they are pathfinders for us. while the systems issue continue to be our single greatest risk area -- >> i will extend your time, since you mentioned over air force base. much appreciated. [laughter] i will take a moment. we go through a process where we entirely all the air force bases across the world, and they go andugh a chief evaluation, there is a base that is on the fighter aircraft side. the top prize.r

i think for three out of the last five years and over has been a finalist. we have been proud of them. thank you for mentioning them. >> absolutely. they are supporting the mobility mission and supporting the dignified return of those we have lost is central to what the air force does everyday. the systems issues i've mentioned ours the single greatest risk factors. resurgence on travel, restrictions on coming with the civilian furloughs had all had significant impacts. we are working to recover from those. we also lost about seven months due to a protest on contracts that took our put accounting firm support off-line. as with so many areas, the single most important thing that the congress could do to help and support our troops in this vital area would be to provide the level of budgetary clarity

and complete budgetary work on time. assessments, i believe it is likely that air force leadership will be able to assert audit readiness for our schedule of budgetary activity at the end of this fiscal year. that is a decision later to be made, but that is my current assessment. an audit of the scheduled budgetary activity beginning in 2015 will be challenging for the air force, but i think it will help us accelerate to a clean audit opinion, and getting auditors' eyes will pay dividends and will continue to do so. my final point is that for financial improvement in audit readiness, the journey is every bit as important as the outcome. it is through the process of building towards the clean audit that we are identifying weaknesses in apartment financial management and we can focus on and correct, and it is the correcting of those that

enables us to carry out our mission as financial managers in dod, which is to produce the maximum amount of combat capability. that is the job. his journey is well worth the effort. >> well said. thank you for each of your testimony the story. the vote is underway. have they already voted, john? i will ask some questions and tag senator tester will team and make sure we keep going. tells us weapons systems and cost overruns, over $400 billion. every now and then we do some smart eggs. i want to acknowledge that. 5a aircraft,00 c five and we made a tough decision what to do that them.

we also decided to go ahead and begin retiring not all, but some of the older aircraft and take the c5b's and modernize them. as others know, we now have modernized all but most of the c 5b's. we have a squadron at dover. a year and a half ago, one of them said world records for the ability to carry cargo nonstop. we can routinely fly over the top of the world. and are used less gas much more reliable. their capability is approaching 80%, which is where it ought to be. we are pleased with that. the first question i want to goals. meeting audit

as i mentioned in my opening statement, secretary hagel has been vocal in his support as was secretary pineda for improved financial management at the department of defense. leadership is a key. if we do not have leadership we will not get it done. this is incredibly important. the strong commitment to improving financial management. some people think this is green eye shades and not especially interesting. a lot gets lost in the acronyms. what it means is the ability to be ready, for us to be ready, to take on a fight, whether it is whatever part of the world it is in. we have travel systems that work that we are able to provide for the health care ineeds. that we have the spare parts that we need. you have the ability to have

health care records, going from active duty into this v.a. all that is mrs. cherry for us to be ready for the fight. war fighters are counting on us. deserveican taxpayers our best efforts on this. again, mr. hale, i have already pointed out this is your last appearance before this committee. a mixed blessing, isn't it? we are glad nonetheless to see. we wish you well. understand if you do retire there is a fellow at the administration, michael mccord. has he been nominated? >> yes, he has been nominated and is through committee. statement you said you'd expect most of the budget statements will be ready for and 14. september 30, that would imply some parts of

dod will not be audit ready. also your testimony' fully for a auditable budget statement to -- the goal is to have a fully auditable statement by the end of fiscal 2014. not many months away. will dod be able to meet the deadline, or will some of the requirements, the deadline, be met? need greatwe will majority of those, but i will audit statements if they are not ready. there may be a few that aren't. it's play in the defense agencies. we started late with them and they are particularly complex. i hope you make good of all of them, but i want to be candid

with you that maybe we will not, and if you will move immediately to fix with those as quickly as we can. i want to get to the top of the hill badly, and that is audit readiness for all of the statement of budgetary resources . i also do not want to waste money by putting in a statement know is ready.not we will move as quickly as we can to fix those. >> most can be 51%. >> it will be more than that. i have expected you have heard my colleagues say we have a good chance that all four of the military services will declare audit readiness. that will be 80% of our budget if that happens. funds are trust auditable and under audit. agencies,r of our they are ready, but if you may not be, but it will be substantially more than 51%. >> the difference between a

statement of budgetary resources segment audit and budgetary confusing audit is to my colleagues, and even our staff, as far as they are. my understanding is that the schedule of budgetary assessment is just a portion of the full statement of budgetary assessment. i understand the department will need several years of conducting this date length of budgetary -- thus statement of budgetary -- the schedule budgetary assays and in order to meet the requirements -- assessment in order to be the schedule of budgetary -- the statement of budgetary -- >> let's use image. its current year versus -- >> that was clear, wasn't it? [laughter] no wonder this is hard to do. it is hard to even say. >> it is hard to say. we want the full statement,

which is all the current year transactions and prior years. some goes back as much as 10 years. that was our goal, and when we got into the marine audit, we realize we cannot produce the documentation quickly enough. you need to leave mr. chairman? we realize we could not produce the documentation quickly enough, so it is in long-term storage, and we are wasting our time and audit money looking for data that we cannot get. we said, look, let's go after the current year, the most important one. it will build up over a couple data where wey of do have the documentation, and will lead us to a statement of budgetary resources. i want to get to the top of the hill, but in a manner that is reasonable and efficient, and if we have to bury the past, we will, and that is what we've done. there's no change in the goal. we want to do the full statement of budgetary resources, including the current year and the prior information. >> sometime later this year you

will be gone. maybe mr. mccourt will be in your shoes. we are going to stay on this, and dr. coburn is going to be here until later this year. we are going to make sure every day he is here and i am here, this committee is around, that we will stay on top of this. 90%, that is better than 50% or 60%. >> better than zero percent. we want to100%, and get as close to 100% as we can. we want to be helpful and not a problem in getting to that goal. senator tester? >> thank you, mr. chairman. i want to thank the ranking member and the witnesses for being here today. on the banking committee we talk about banks that are too big to fail. thisnot know how we got to point, but maybe the dod has gotten too big to audit.

i certainly hope not, because i do not think anybody disagrees that a full audit of the pentagon's books is critical for moving forward. it would not only help identify ways to increase operational efficiencies. it would increase transparency. would it bring in more appropriate level of oversight to the department of defense. in a budget environment in which we continue to see requests for program illuminations, base closures, reduce personnel among benefits, the dod's failure to meet audit readiness is frustrating. i appreciate the fact that mr. hale talked about being at 80%, 90%, potentially. but the terminus we need to get to 100%, when we hear about wasteful contracts in afghanistan or the failure to develop an electronic health record in tandem with the v.a. we can and must do better. i look forward to working with all of you to get it done. as i said, when opened, i do not know how we got here, but we have got to get this fixed,

because it is unfair to the country and unfair to the taxpayers. mr. hale, in her testimony, you highlighted that one of your goals is to execute resources -- ineffective manner. there is a provision in last year cost of preparation build that is related to i environmental studies. you remember? i appreciate the conversations. as you remember i felt strongly about the language in the bill that prohibited dod from taking actions. there were some that not all that seemed intent on moving forward regardless what progress had to say on the matter. this was incredibly troubling to me. there is no doubt in my mind the dod would have completely disregarded this particular provision if we would not have put pressure on the dod. i want to ask you a few basic

questions. would you agree that this regarding the voice of congress is dangerous and counterproductive? >> yes, also in legal -- i llegal. >> when there are questions, how are they resolved? >> it is clear from what you say in the law. when it is not we consult lawyers and sometimes they consulted administration lawyers, and that happened in this case. lawyers can disagree or there can be vagueness. at that point there has to be an adjudication of the highest level, and it occurred here. it does not always come out the way you want. that is the process. i should tell you we took it seriously. >> i appreciate that, and i think you did. you talked to your lawyers, the administration's lawyers. you ever engage in congress? >> i think so. it would be better to have our general counsel here, that there are discussions with congressional lawyers when

appropriate. in the end, we will be guided by the administration's law years, but we talk. important, and i will tell you it was more than just a little disconcerting when we have a conversation with the icbm caucus senators. basically, one of people in that meeting a sickly said we do not care. we will do what we want to do. >> i would not agree with that. >> were you in the meeting? >> no. i mean, i would not agree with the statement. >> now i want to talk about the inability of dod and v.a. to coordinate medical records. the chairman talked about this a little bit. it allows for a seen this transition for service members. it is the right entity. andas been talked about january 2000 seven. to what extent are you able to answer what the specific challenges are here, because it seems pretty basic stuff to me. andgets together with v.a.

moves forward with the communication that talks to one another. what is the problem? >> i am not the expert here, although definitely aware of the issue, and i think dod and the v.a. are committed to do that. we're different views about what systems to use, but if we choose a different system it will have to be able to talk. i would like for you to consult with others rather than me on the details of that. >> anybody else specifically? >> our acting p.r. -- >> this brings me to another issue. if it happens with ea anv.a. and dod, when it comes to major acquisitions that the military is going to make, to what extent does your office engage with other agencies? dhs, there is some parallel work that is being

done. they may have already something put out that works from a technological standpoint. do you consult with other agencies? >> yes. we have cooperated with other agencies, satellite programs, many ofr example, and our weapons are somewhat unique. department, when there are other agencies involved, i believe we do that. do you have something specific in mind? >> no, i can give you specifics, but generally speaking i think it is critically important when you guys are looking at a new system to look and see if somebody has already built at and you could utilize it. it saves a bunch of money. it eliminates the problem. i know that there are turf issues. we see it in the senate between committees. it is silly. i think it is silly between agencies. if you can utilize, it makes you more cost-effective and more effective overall. that is all.

susan, i appreciate you all being here, but you represent the one service on the panel that has achieved audit readiness. congratulations. >> thank you. >> i appreciate your examples about how this translate into benefits for the military, veterans, and those who do work for deity. you have an estimate of the savings you have achieved from numbering audit? >> i do not, but i will be happy to provide a tree. utilizeu could use -- the information that you have gained with your audit process, i think that it makes it all that more important to get a dod-wide audit done. i want to close by saying something similar the chairman said before he left. there's no reason the dod cannot have an on it. it is because you are to become a than we need to address that. you need to be honest. i do not think that is a reason. i think it has been something

that there has not been a focus on. i get the impression that mr. hale has put a focus on it, and i appreciate that. the proof is going to be in the pudding, because the charts that the ranking member put up are spot on, and if we are here next year or the year after and we still have the same kind of charts up, there is going to be some ramifications to that, because more and more people in the senate are aware of this and they want it fixed. thank you all. >> thank you, senator tester. comments.e just a few readiness to me is a misnomer. what you want is an audit to see whether or not you have the financial controls in place with which to make management decisions. you do not do an audit to do an audit. you do an audit so that it enhances and hones your ability

to make financial judgments based on the data to know that your data is accurate. i put up this little chart. it is the audit deadlines. i understand senator carpenter asked you out -- senator carper asked about sba. sba is meaningless to me as an accountant because it gives you one little scope of gimtime. the pentagon has multitude of programs that are run in years. all it says is for this one short period of time we have some financial controls. if you pass it. if you pass it. not on the statement of resources, but on the statement of activity. so the whole idea of an audit is to have an audit to know what are so theyes

can change things. let me give you an example of someone who has done it right in the air force. forgeneral is responsible $16 billion at supply depots. three years ago she instituted a continuous process improvement. most people in the pentagon did not even have any idea what that is. but it is how every other modern business combines their audit information with their management so that they achieve savings. the general and her team have saved year to date in laster about $680 million. and they did it because they actually know what they are doing because they got good numbers. the question i asked for she made her presentation, could you pass an audit? of course. we cannot pass a continuing process improvement if we did

not pass and on. i want to take us away from audit in this, which is the buzzword we're hearing in this hearing him to having an organization that has the initial controls with which to make the property decisions, because ash the proper decisions, because that is the basis. the check to see if you have the information systems, the financial aid. i have one other and note, a little commanding general at an air force base, cut $100 million out of his budget in one year. a small air force base. he did it through good management. good management. he did not have a general saying you cut $100 million. he cut it on his own. the flashback came is you did not spend all your money, which is another problem. use it or lose it. mr. hale, really what has happened is based on the -- we

descoped on the basis of the output cause that if it is too hard or too expensive you can go to one-year audit readiness, right? is that not correct? >> yes, but only as a way to get to the top of the hill, because we knew we could not get there any other way. we still want the full statement and we will get the full statement. that is the whole point. what did not want to waste auditsrs' lenny doing knowing that we did not have 10 year old data quickly enough to satisfy the needs, so we will do build it more slowly -- youf you meet the deadline, will have only five years of data? >> we can do better than that. when you get back to the distant data, it is a small percentage.

if we can get the first few years correct, the percentage will be small enough we may have to engage in some special efforts, but i believe we will not have to wait 10 years. it is certainly not our plan. >> so it is two years data good? >> i would hope two or three will do it. >> right now do we not have last year's data? >> yes. it is when we go back, and some of our accounts are open for obligation for five years, and the law allows it for five years to spend the money. some of it goes back as much as 10 years. you get back 5, 7, 8 years, we do not have it readily available, but it could be in some long-term storage, and we need it quickly during an audit. an auditor cannot wait for weeks. we found with the marines we were not getting there. i want to get the top of the hill and i want to do it in a way that is as quick as

possible, but also mindful i do not want to spend audit money and might not get anything for it. comes onestion long-term construction accounts, for example. whoever is managing that does not need that long-term data to manage that effectively right ?ow question mar >> yes. >> the point is we do not have the data and we have not developed the systems, you cannot manage effectively right now because you information that is missing? >> i think our management is impaired. we do have information on obligations. i know that is correct. we do 150 million accounting transactions a year. if one person is wrong, we would have massive this payments -- m ispayments. we need the audit was to verify it and especially for the outlay wea, so i agree with you, need this information as quickly

as we can get it. i do not want to waste money in the process of getting it, and i know you did do not want me to do that, too. effortsay dod does have information about where we obligate public funds. if that is true, you know where the money is going. >> yes, we know for the obligations are going, and my rationale is what i just gave you. if we did not come he would have massive inefficiency. 150 thousand wrong transactions every year. we were paying the wrong people. we would be overrunning -- >> my question is this -- if you know where the money is going, then you should have a statement of budgetary resources? >> that is a good question, and i cannot document it in a manner that satisfies auditors. i know it is there because otherwise i would have the problems i just described to you, but i cannot document it in a way that will satisfy an audit, and we need to do that. the outlays are more of an

issue. . >> you know that, but cannot document it, but the question is how do you know that? if somebody comes in, you cannot prove it to an auditor, but you can testify that you know it, but you cannot give us the backup information to say that is true. how can we rely on that -- >> senator, if there were any significant percentages that were wrong, as i said, we would have massive missed payments, and we would hear about them quickly if we were not paying our vendors, for not paying our people, and we have some, but they are tiny as a percentage. i know that information is right. that does not take away in my mind the need to do the audit at all. we need to verify it to an independent audit, and we need to correct other than the obligations. we need to improve our business practices. act youeficiency mentioned is the key to congress' constitutional power.

foundd i.g. reported it hundreds of near miss ada violations. i will try to not use the pseudonym. inadequate funds control and that several of these near misses turned out to be actual anti-deficiency act violations, in your testimony you know that one way to reduce the anti-deficiency act violations is to process potential violations quickly. the gao has reported several examples where investigations of potential anti-deficiency act violations two months or even -- took months or even years to lead. we you provide us the amount of the investigations that have been initiated, and reported for the last two years. >> yes. when i took over this job we had 25 investigations that were late. now we are down to one, and i

felt, and i have worked with my colleagues and attested to that, we needed to speed up the process sometimes when we get done, people are retired and we need to be accountable by doing this more quickly. >> the other thing i would like for you to answer, and you do not have to answer the stay, the average time to complete one of those at home if you are involved? \ you also said that there is a small portion of your budget? >> yes. >> my question is it ok to have those even though the number is small? only right call. i do not know if i will get there, but it is the right goal. >> are you aware that of the 120 actual violations, anti-deficiency act violations, reported by federal agencies, 82 were reported at the department of defense? >> i do not recognize that number.

what i actually did is a percentage of our budget -- >> but your budget is the biggest budget in the federal government. >> zero is the only right goal. >> i guess we will come back for another round. thank you. >> i think your next. >> thank you, mr. chairman. i want to continue to explore because iudit ready, do not think it should be a goal. it should be a requirement. in the business i would go and say are you ready for the audit, because the audit was going to happen. i think the purpose and goals here are being misused. and that is part of the problem. the goal of the audit is not just proved you are everything right. the audit should be used as a tool to be conducted to tell you where you have deficiencies. i think the reason we do not have an audit for the defense department is we have been pursuing what should be a requirement when we should be pursuing just having the audit and using the information.

you will not get a clean audit, but the goal would be to utilize information from the audit to drive your management. tell me where i am wrong. . tell me why we are pursuing the wrong goal, and why don't we audits?art conducting o >> a couple years ago we were not ready. we ended up paying them to do nothing. totally doesll, i agree with that assessment. moneyot see how spending on an audit to determine how bad you really are is a waste of money. >> what i would ask that gao and two oruld agree that three years ago we should've begun an auto, but now we are at the point where your are right. we will learn so much more like getting into audit because we will have the private sector audit firm that really knows this stop telling us what is

right and what is wrong. >> have we ever conducted an audit on every -- on any part of department?permi >> we have audited a large number of parts. we have a full audit of the current year of the marine corps, and i hope and i think that we will have -- excuse me -- >> excuse me. say that again. say that again about the murdering core. >> the marine corps had an audit completed last december of the current year of its statement of budgetary resources and got a clean opinion in december of last year. we expect they will get another one in the 2012 statement on the 2013 one. did that answer your question? >> i'm confused. i was thinking that the progress had been made on the 2012, and not on the current year. >> no, i met current year

meaning that 2012 data, just that you, not the prior year that, where we could not find the documentation quickly enough. 2012. >> that will not be counted against her time. >> i want to go to the statement that senator tester talked about, the department of defense being two big to be audited. exceeds $450enue billion per year. they have to go through an audit and they do it successfully because of the sarbanes-oxley risking prosecution and fines if they do not have a successful audit. what is the difference between the defense department and wall --tell me the difference between public and private sector, why this has been such a vertical task -- such a difficult task? >> we are not too big, and we

are not too big to do it. size makes it harder, but we are not to be. if you asked me why we are not done now, i would like to have the first 15 year of the reform act which records statements in 1994. itmade progress then, but was never a coherent plan in the department and we do not have systematic senior leader at attention. in the last five years we have solved both those problems. we have resources and decide which was not the case in the first 15 years. we clearly have senior leader attention. it starts with secretary hegel, but it goes down through their own leadership -- x let me back up. the point i'm trying to take is back in 1990 four you would have just started conducting audits. just start auditing, start seeing the deficiencies.

why delay at 3, 4, 5 years? >> we intend to, for the audit budget statement. >> anybody else wanted chimed in in terms of why don't we just start auditing, and does that not make sense for some reason? >> to me it is not make sense if you know you're not ready. an independent firm would come in and after they are doing testing right away, they would disclaim. it would depend on where you are in your current environment, and the benefits you can get out during the audit. the cost of that was deemed to be and rightfully so that you would not get anywhere to where your you are improving or getting the financial information you are expecting the benefits of. that is what you get out of it. in public companies, they have that the pressures or if they do not do it they will go to jail or will have massive fines implemented against them.

what kind of pressure do we need to institute against the department of defense to get it done? >> i believe we have a rino, and you have heard it here already. to get audited, you would hear a gao talk about the six challenges you have to be. the leadership involvement now. you had to have a reality of therstanding the benefits ranking senator talked about. it is not just the journey. it is the journey to get you improve controls. it is using the financial information for the benefit of the entity. we are about making leadership understand that. the feist chief of staff of the -- the vice chief of staff now sees it as the readiness. he has brought it where he looks at being ready to go. he does not have that understanding, governance is over. we're putting controls and place that allows the audit. the assistance that can talk to each other. i do not know how we got to where we were -- >> let me get back to the point. how much of the defense

department has undergone an audit? what percentage? >> for the budget statement about 10% at this point. for the budget statement, after hope, it will be in the high 80%'s or more. >> how have you broken down this task into components? what are the components. how have you broken it down? defenservice, and each agency and some trust funds on the side. we have broken it down, as my statement and the kids come in the various categories, disbursing activities, the activities we conduct financially. we have sought to improve those processes to the point where we can get an examination by an independent public accountant. have them come in and say it is either right or got to do the following things. >> is part of the problem because those systems are systemwide and they become massive, it becomes the focal to

get your arms around them. in a public company you would audit a department and knock it down to small enough parts where you complete -- since it is like cleaning out of the garage. cornersn out one of the first. having made this so massive, such a process that we are not getting it completed? >> i do not think so. it has been a lack of a coherent plan. i think we have gotten now, and you are seeing the results. we are going to be under audit i believe starting in october, november, for the fiscal 2015 statement on most of the department's budget. >> thank you. i am out of time. >> time is expired. senator ayotte, you are on. >> thank you. this is obviously a very important topic. i appreciate all of you being here, and i appreciate the chairman, and the ranking member, having this hearing. one thing i'm trying to get a hold of is -- and i know

secretary hale, we had a recent armed services committee on this acquisition topic as well as -- the department is just littered with -- programs throughout the services. billions and billions of dollars. there is lots of examples. billion wasted on satellite systems, 2.5 billion wasted wasted on telecommunication systems. 2007 to 2013, the air force on programs not going to field. i believederstand, this audit issue is incredibly important, and the fact that we are now diminished from a statement of budgetary resources, which was what was in the nda in terms of the requirement as to a statement of

budget activity which only shows us the year window, how is this tool going to help us with the acquisition programs, secretary hale? repeat that, let me this statement is just a means to get to the full statement, because you cannot produce the data or documentation quickly enough. of thenot backing off goal of auditing. it at all. we're are just getting there in a way that is cost-effective. i'm not going to sit here and tell you, senator ayotte, a panacea for every problem in the department of defense, including all the acquisition issues. issues ints are key terms of whether we succeed in acquisition, as are the skills and the workforce, and frank is working this issue is hard. i believe we could help why -- byning our controls tightening our controls, and we want to do that in the process of getting the financial statements in terms of getting all of us, including frank and

those, for better information. >> can i ask you about a particular one -- >> let me interrupt. here's the difference, op. in the -- here's they difference, bob. ceo's get companies, information every week. we do not have a. -- we do not have that. secretary hagel does not know the major acquisition programs, whether it be an enterprise resource program or a weapons system or anything else, he is not getting a weekly report, so he can act on it, because we do not have the information to give it to him. that is the key point. that is why the audit is important so you will get the financial information so you can flow the information up to the decision-makers so that when you got a red flag they know what. not two years after the red tie came up, but the day the red flag came out. >> not after we spent billions

of dollars. >> sounds reasonable to me, senator coburn. the agree fully with comments of senator coburn and how important this is. this morning, there was a description of the report that the pentagon is going to field to$11 billion contract overhaul its electronic health record systems, and this will be the biggest i.t. contract since care.gov's and with all due respect, there acrossen a lot of issues this. as i hear that, it raises red flags for me as far as what controls will be put in place, give