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, given that you are not in the

position that you would like to be, secretary hale, to have the data that you've just talked about. what are the controls that will be in place for taxpayers on this huge contract? it is important. it is going to under -- as i understand it, it will impact the health records for all of our men and women in uniform. we had notable examples of failed i.t. projects and this is an $11 billion project. what controls will be put in place as you go forward with this echo and i guess, a good question is -- will secretary weeklyet those reports to know whether the $11 million ?s being spent properly

>> he is deeply involved in that program. kindle meet with him weekly and i think this issue will come up. i think he will get regular .eports and on the regulation side, i believe our data is fundamentally accurate. we still need to verify that. -- not seeing the problems the key thing is to make sure the devoted things are written into the contract. i think frank kendall would say that we need to develop better to tryg for acquisitions to improve the training. >> i think this is a contract

that we also need to keep an eye on. it is $11 billion. i'm glad that the secretary is giving us feedback on this because there are too many projects that we have not gotten results will stop $11 million is a significant project. >> why not convert the v.a. system to the military? >> we always have a reason why, just like on our afp programs. rather than having the military modify the proven system. >> great idea. to ask franku need kendall that question. if we do go with a separate -- em to be operable

>> for the record, the federal money on i.t.nds every year and much of it is wasted. >> i wanted to ask about improper payments. you testified again today about the dod that .7%ormance rating was only and compared to governmentwide, it is 3.5%. i know that some of the data used in that report was going backwards. gaoll give it that, but basically found that the dod improper payment estimates were norher reliable, statistically valid, because of long-standing and pervasive financial management weaknesses.

that is what this hearing is all about. how do we know that what you're giving us today is accurate. more detail on how dod has evolved to get to this place where apparently your statistics are quite good? >> the main thing is we have tried to close the barn door before the cows lead, rather than looking at improper payments as we try to fix them. for example, we put into commercial payment something called the business activity monitoring system. it looks pretty simple. it has rules. if two voices come in with the days, spit itthin out to a human to see if it is a duplicate name it. that is a triple -- trivial one. we are trying to do others. we are trying to do improvement in areas where we still need to make further improvements. in terms of accuracy, and because of ipro, or two comply

it, it, -- to comply with in instances where you will get two different opinions, our statisticians have changed it to comply with gao. the data that you are seeing reflects that they are, with some exceptions. is the right goal. i think it is a success area for this department. >> thank you. may i ask one more question? >> yes. >> i just want to ask the air force, when secretary hale talked about the 80% goal in terms of this fall -- obviously, we are not where we want to be. but it was 100. -- >> it was 100%. >> correct. where are you on that?

because i think you are the service branch that has had the most difficulties and challenges. >> yes, ma'am. we certainly started behind in this effort, our financial andems modernization was remained several years behind the other departments. we are in the early stages of fielding a modern financial system. we are still relying on the 1968 accounting system, whereas the other services are further along. the judgment of audit readiness for the budget secretary will be made later this year available, right now it looks like we will be right on schedule. we have significant milestones to get through over the course of the summer. we have corrective action plans that we are laying in place, based on past engagement and public accounting firms. -- our current assessment is

>> beyond secretary hagel, but at the secretary level of each service branch? secretary -- the office just a few three ago, one of those was making every dollar count, and audit readiness was very much a part of that. navye secretary of the made it clear to me on day one this is his highest priority and he talks to me about it every week. >> did you say the secretary of the air force, or the navy? >> the navy, sir. >> thank you. >> secretary mccue is heavily

involved. i was in the staff office yesterday talking to them about getting better information for cost and readiness. he is heavily involved on a monthly basis. >> thank you. >> i am a recovering governor. when we would try to solve issues in the state of delaware, i would say that someone else has figured out how to solve it. need to find at that state, that governor, and whether their solution was exportable to our state. occasionally, other states would this or that,u do and we would try to help them. raburn, i don't know if in the navy you ever heard the but as theal speed,"

plane is taking off, it gathers speed and we call it refusal speed. pilots where the other tries -- decides to keep the plane on the ground or fly it. try to have the aircraft going down the runway, moving toward and being audible and having a clean audit. and somewhere along the way they have refusal speed and they say, we're going to fly. we will get this done. and they did. and it was not just the deputy secretary, who we have enormous respect for. it was done through their ordination. thinking back about my , whatence as a governor lessons have we learned? this is for each of you. what lessons have we learned and taken to heart for the department of homeland security? and not just to be auditable,

but to have a clean audit. it is pretty amazing. they have hundreds of thousands of employees and do all kinds of things. if they can do it, in a lot shorter time frame, how do they do a? what have you learned from them? sir, we have learned not only a lot from them -- the marine corps, but our sister services. i'm not sure if you know the fbi, -- i was the chief of services for the fbi. .> you've got quite a resume >> i've been very blessed, thank you. and everyone of my spirit is, if the boss doesn't get it, that it won't work. the tone from the top is absolutely -- >> leadership is key. and that includes this. >> absolutely, and it is also about me being actively involved in spending time responsible -- time with those responsible for

the subsections of this budget. i have regular meetings in their offices. i go to them. i go to the people that are actually making the transactions. you and i both know that you can tell by doing that walking around management whether you are ready or not, whether the tone and tenor is right. and from my past experience, i can tell you that the department of the navy is there. the momentum is there. the refusal speed, i think you called it. we are there and excited. we're ready to go. we are ready to take the lead that senator johnson has just described. it is time for us to do it. also, having a staff that is trained, that is one of the things i spent time thinking about. making, thinking about sure that government employees understand their particular role individually with audit. their day to day duties are well understood about what their personal role is in audit success. we are working on that fundamental training framework,

so every person involved in the financial management at the department of the navy understands their role. the other thing i have learned across the board is not only take understanding the culture of the organization doing the audit, but understanding the training. that is something that they have to -- understand of front and early, who you are and what your language and business is. the other thing i would say is that you should never dance in the end zone. you should never discount the difficulty of this work, nor should you discount the importance of getting on with it. thank you. >> before we can dance in the end zone, we got to get into the red zone. i think we may have moved into the other teams territory, but we are not even in the red zone. we can get there. if we keep this up, we've got to. it's not that far away.

the air force has the most ground to make up. you've said that a couple of times. what have you learned from dhs and the way that they made up ground? they made it up quickly and got into the end zone. i invited them to do a dance in the end zone. they declined. >> senator carper, dr. raburn has an exceptional resume. i have a very good staff to compensate for my lack of resume. and i will note that the acting cfo of the department of homeland security is a retired air force officer who used to work for me, so we've had a lot of opportunities to exchange thoughts and ideas on efficient fiscal management. >> what are some things you have learned, as well as from others at dhs to help this process? >> the biggest pieces getting -- the value of getting the auditor's eyes in. and to senator johnson's point earlier, i think we are taking this strategy that you've laid

out, which is starting the audit. we have had very recently a big in, lookinging firm at billions and billions of dollars of activity. they looked at it and to end. that ourd non-information technology controls were functioning generally well. i think he was 25 out of the 28 that they examined they found were well-designed and functioning well. some of our i.t. areas, we had issues where, for example, we were not doing a good job of purging user rosters. we had some that moved on, but still retain their access. you can fix those. i think that is exactly what is going on, and that is a key lesson from homeland security. you've got to build that list of concrete, definitive actions. years, the department would have auditors come in and issue a same-day disclaimer.

,ou cannot get to the answer then the system and data are not reliable and we are done. we are now to the place where we are focusing on these individual segments we call accessible units. we are breaking it down and getting to a finite and achievable list. we are not hitting them all right the first time, but we are getting most of them right and we are cleaning them up as we go. that is absolutely key. >> thank you. .uickly, 30 seconds the same question. >> my background is not in audit and accounting. i worked at pricewaterhousecoopers and i was the program engineer coordinator. we learned a lot from it. in part, i agree with senator johnson -- get in the game and start playing. you start learning the value of the audit, learn the culture of the audit, and understand that leadership, involvement, and commitment to it. i think we got the controls in

place and we've got leadership involved and we see now the benefit. we see people using the data of the systems, and that makes a difference. that is part of the value of the audit. >> quickly, 30 seconds, thing question. dhs, how have they helped you with this challenge? >> we actually hire the person that did the dhs -- but because of personal problems, she had to leave us. >> ishii in this room? >> is margot here? had some serious personal problems and i think we'll have to leave us. the biggest problem is in undervaluing the assets, which is not an issue we have confronted yet. we have margot with us and we will continue to benefit from that. >> we wish her well.

>> let's assume that gao is right on improper payments and fiscal validation. you disagreed with them, and you said you made some changes in how you are doing that. they are right and you are wrong. if we make that assumption, we don't know how all of the money is spent. and we don't know the accuracy of the improper payments. of $700 billion is $7 billion in oklahoma. i don't know what it is up here, but that is what it is. $7 billion is a lot of money. and i can tell you that i'm skeptical of ever hearing of improper payments from the dod, simply because of the massive size of it.

let's talk for a minute about plugs. tell me what plugs are in your , in terms of the pentagon's financial statements. >> the jargon we use, i think, is more explicit. journal vouchers. there are circumstances that we need to fix. i will use the analogy that you have 1000 people on your phone on your bank account and at the end of the road -- the month, 99 -- 999 of them report and one of them doesn't. we have to report what we spend. estimates those that have not reported and are supposed to go back and reconcile it. we have not always done that and it's one of the things we have to go back and fix. it is getting small.

issue and they've got to get fixed. i did not mean to imply that they are immaterial by saying one percent. heard from the senate armed services committee about processing directly, and in the process, bypassing the need for these transactions to be processed by e fast. claim -- explain why he made that decision and how it has improved the army's financial capabilities? >> yes, sir. it was part of a plan to analyze and optimize the system. we looked at the way it was currently dispersing, some of the at -- connectivity between the systems that causes some of the errors. when we look at direct is bursting out of the system, we tried to engineer the process

and see whether or not it would go direct treasury disbursement as we eliminate some of those errors. program anding that phasing it in and finding success. we are still measuring whether the results of such provided a reduced cost. we are going through that cramming with a cost-benefit analysis. we believe that from the disbursement we are making now is about $15,000 a month, and we are zero out of balance with the treasury. correct, easy reconciliation by not going through some of those other processes. , it turns out to be very much involved in the process. accounting still has oversight and participation in the process. this entitlement within the system provides oversight of what we are paying. it then creates that disbursement file out of the same system.

it provides a more easily and lessd and direct costly way of doing business. >> i do want to clarify. we have not made any decisions to change the rules between the army and d fast. we are looking at the army and saying, if it is cost-effective, we will do it. it is is not, we won't. >> it is only cost-effective if you can have real savings, or if you can have real accuracy, which you don't have now. i don't know how you put a dollar amount on it, other than you will market improve financial management, if you have real accuracy. during that testimony, you mentioned that dispersing straight from treasury is a best practice. who has determined that? what other agencies use this? >> most other agencies use treasury-direct dispersing. i don't recall saying in

testimony that is best practice. we are testing that out. we have seen other agencies do so. of aystem is capable changing of environment systems, and that is why we went to a procure to pay pilot. >> i have one other question for you. given the air force's success on supply, wouldn't it be nice if another agency went and learned from general orphans burger -- wolfensberger what she did? item of the size of it, but it would seem to me you would not have to -- i don't know the size of it, but it would seem to me you would not have to reinvent this, andif you did

may be transferred motivational .echniques, and processes it could consider -- it could significantly increase consistency and accuracy. that is money that is all tied up, and we all know that is a problem. >> yes, sir full stop in fact, i wrote that went down to go back and follow through with the air force on that one. we are very interested in it. and we are going through our own and we areility trying to improve that. data accuracy is one that we are very involved with now on the cost of readiness. we are looking at those key activities. >> the key thing that general wolfensberger did it she got

her commanders to buy into this as well. leadership is the key. the whole goal is to put better financially manage, so that you money and you buy better and you get a more efficient use of the american taxpayer dollar. i would say, meet with wolfram's sberger andlfen see. >> senator johnson. back to thent to go discussion of the goal of what we should be looking at in terms of an audit. from my standpoint, the goal of an odd it is to provide management information. and what i'm hearing -- maybe i'm making an incorrect assumption here. ready,l is to get audit in terms of the department of

defense, so that when you conduct an audit it will be a clean audit. am i understanding that yeah it is a step on the -- am i understanding that? >> it is a step on the road. be and gold -- it is not the end goal, but a step on the road. next i want to talk about the component parts, how you break this thing down so it is manageable. you do what you call accessible units. i would like to call it accountable units. , but theership is key way you will really get results is if you hold people accountable. i want to go back to how we have broken down this -- which is obviously an enormous task, but i go back to my private sector experience here. if you got a large corporation, you will have individual divisions within divisions, or different companies, and you also have individual

departments. each one of those departments, divisions, individual companies is accountable for their own successful audit. sometimes those audits are done by totally different firms. wouldn't that be part of the process, to do this successfully ? to break this down into smaller component parts and hold those individuals accountable, and again, putting pressure on individual units. you've got the navy, the marine corps. we have a clean audit, but what is wrong with the rest of the branches? just setting up that type of pressure. >> yes, i would agree that we have broken it down, both in terms of the fire, in terms of doing the state and budgetary resources first, and then moving it out in its broadest completeness. it is slightly different in terms of approach in terms of the services. one of the things that we did with the corps of engineers, we system, oure field first exam. we did it across five processes

and did it at the first three installations in general across the new system. the next year, we broadened it out to 10 installations and i nodded of eight of those businesses process -- business processes. and this year, we audited the whole army for the state and budgetary resources. the pieces get larger and larger to show success and identify a successful audit overall. >> again, coming from the private sector, you'll never get an unqualified opinion if you don't have prior experience. and because we are not doing audits, has that been a bit of a problem in terms of a clean audit? --ch again, would speak to certainly, let's say, let's start auditing, so you have that prior experience. >> i think so, senator. if you're not ready, you know you are not ready, and you will not get the benefit.

we are closer and closer to ready. that experience, some of my colleagues here talked about it. building the culture of an audit, making sure people understand how to be audited and know that they are accountable. we have the best we have for many years in the army. people were not held accountable to ensure that they knew they were auditable. it is part of the business now. it is what they are responsible for, and they understand that now. that is part of the audit, it builds that accountability. what we have seen is that it builds the competition between commands now. i want to show that i'm better than the other commands and getting the results better. during exam three, you go in and clicked on this four-star general's website, and you would have by insulation, the results of their individual audits of their documents, whether they turned them in on time, and whether they were right or wrong. doing it, theyrt will be accountable and hold the line. aboutary hale, you talked

as an example, 10 units that have not reported their budgetary outlays. how can that be? tell me about that. again, coming from the private sector, every division is reporting what their cash position is. how are those units not accountable for providing that kind of information in time? >> they are accountable, but if it does not happen on time that we can report to the treasury, we got to do something. we are down to less than one percent in most cases for those journal vouchers and entries. and it's got to get lower than that. >> again, i understand. the accounting department is going to have to account for it some way. how is the management structure holding those individuals accountable that are not providing pretty basic information? >> one of the things of the audit is that it is raising to the level of visibility to our commanders. i doubt that some of the new, but now they will -- of them

knew, but now they will. the vice chiefs are asking questions of their commanders. if we are having trouble with journal vouchers, they will be asking questions of them. do any of you want to add to this let me say that you are making my point that -- add to this? >> let me just say that you are making my point that we should just go ahead and audit. you are wasting time getting audit ready as opposed to just conducting the audit. road,a milestone on the i'm aware, but it is one we have to complete. a fixed-price contract, we would have paid a lot of money for it. we do need to be audit ready. there is one other area that i want to talk about, because the number of people have mentioned how disruptive the government shutdown and the budget disruption is in terms of obtaining an odd it. i understand the disruption.

it is incredibly difficult to manage and those kind of circumstances. but in the private sector, are're all kind of -- there all kinds of disruptions. you still have to audit your results. why was that specifically and why was that specifically and affect of your ability to audit, unless it was just a personnel issue? >> it slowed down paychecks and the time that they had. but i agree with you, i'm hoping it never happens again. we have to work with the congress and the president to make sure it doesn't. but thank you. -- >> thank you. >> thanks for all your questions. one quick question and a brief response from each of you. we have heard today that audits are not free. they can be pretty expensive in some cases. we don't want waste money on a knotted. i understand that. for each of our witnesses, starting with you, secretary

to have the resources in -- do you have4 the resources in this fiscal year 2014 to conduct an audit? >> i believe they are setting aside money through a five-year timeframe to carry out this program. it is something that has never been the case in those first 15 years. >> yes, they are adequate. we made sure that we did not touch the fund that we needed in 2015 to continue on. that is our priority. >> yes, i would agree. the department of navy is in the same place. >> i would agree as well. again, we are setting aside fy the otters will,

stationing fy 15. station in fyon 15. >> we have not solved that problem fully and we are working it. >> bob, your service has been number kabul. i want -- been remarkable. i want to tell you i appreciate it. i want to tell you that whoever , they need to have the financial experience, the management experience, the auditing experience to actually lead this organization. we have a good nominee, but he doesn't have any of those qualifications. replacement, not in terms of individuals -- but your ideal placement, what qualifications would they have? >> first and foremost, someone who is a leader. i think mike mccord would do that. someone who knows federal

financial management. and it is not just audit. you've got to worry about budget, too. that is part of the job of the undersecretary of defense comptroller. does thatrk -- mike well. we have people who need help, and i think you would agree with this, the details of audit accounting and all of the acronyms. i did, too. i am not an auditor. but we have good people sitting our chief and financial officer knows this well. i think he will be there to help mike, and i think he will do a good job if he is confirmed. but before we head to the next panel, two things. -- >> before we head to the next panel, two things. again, thank you. for the work that is being done, we are appreciative for that. we don't mean to appear unappreciative. but those that are at refusal

speed, we've got to keep going and get this plane in the air. we've seen at the hs a great example of -- at dhs a great example of what they have provided for us. they can be a great resource. use them. i'm sure they would be happy to help. with that, there will be a number of questions that we have, follow-up questions that we ask of you. i ask that you respond to those in a timely way. thank you, and today. >> mr. chairman, i will do my darndest to stay come as you both requested. i'm running short of time. i do want to tell you that i have very frequent contact with the dod ig, and my deputy chief financial officer has regular contact with both the gao and the ig. i have talked with him a couple of times on this topic. i will stay as long as i can. and i know my colleagues will do the same. >> we appreciate that. the first panel is excused. if the second panel would come

up, please. [captions copyright national cable satellite corp. 2014] [captioning performed by national captioning institute] >> welcome.

we are running very late. i want to make sure we have time to hear from you and ask questions, so we will do that in lieu of introduction. thank you for being here to help us as we deal with these challenging issues. you lead off,uld please? >> yes, sir. thank you. thank you for this opportunity to appear before you today on behalf of the offer -- office of defense inspector general. the steering is an important means of providing the ability to the congress, and a taxpayer on the efforts to achieve financial accountability. these efforts have been underway for over 20 years at our department. in my prepared statement, which i request be submitted for the record, i discuss areas being required -- july >> to me just say that all of your statements

will be submitted for the record. go ahead. >> in that statement, i emphasize the quality, timeliness, and enterprise controls and that resource planning systems are critical. i would also like to highlight some of the achievements we have -- actions we have achieved in the last few years. we have achieved cooperation among all stakeholders. the department has ultimate responsibility to provide auditable financial statements, but the office of inspector general under the ig act is responsible for providing independent and objective opinions on the financial statements. independent accounting firms provide support and work under the supervision of my office. as the department produces auditable financial statements, the gao will ultimately rely on the work of my office to develop

its opinion about the financial statements of the united states. transforming the financial management of the department has proven to be a complex and difficult undertaking. the department senior leadership withecognized difficulties financial management, problems with internal controls, and related financial systems. for sample, to work around and difficulty obtaining adequate support documentation for prior balances, the department has audit readiness around a jeweled activity versus a full statement of budgetary resources. while this incremental approach is a step forward, it does not meet the statutory requirements. because a schedule is a subset of the information required by the statement of budgetary resources. through our oversight, we will continue to work with the department and gao on moving toward auditable financial statements. the department must maintain its commitment and may actually need to increase its efforts to meet the 2014 and 2017 deadlines.

the department efforts cannot just be a next size to get a clean opinion. rather, it needs to be about obtaining quality data that can be relied upon regarding critical decisions in the office of the department. this concludes my remarks. >> thank you. member,hairman, ranking thank you for the opportunity to discuss the challenges faced for the department of defense and improving its financial accountability. given the federal government continuing this goal -- fiscal challenges, it is more important than ever that we have reliable, useful, and timely financial and performance information to help ensure fiscal response ability and demonstrate accountability, particularly for the government's largest department. will first discuss the effects of ongoing financial management weaknesses in dod management and operations, and then dod's actions to improve result --ral

financial results. my testimony is the result of ongoing work at dod. dod is establishing sound financial management and processes and sound routines that can routinely generate, financial complete information for day to day decision making. operational impact includes first dod's inability to assets thatount for are about 32% of the total billionnt assets, $254 in property and equipment. an approximate value of $1.3 trillion. - second, a flood estimating -- a flawed estimating system cost us to incorrectly calculate this.

to correct this financial management weaknesses, dod has numerous efforts underway. congress has played a major role through its oversight and mandates. important progress has been made, but key challenges remain. for example, in august, 2013, we reported that audit readiness efforts would benefit from a risk management strategy to help program managers and stakeholders the decisions about assessing risk, allocating resources, and taking action in conditions of uncertainty. dod has identified several risks. however, they were not, random. -- they were not comprehensive. dod is monitoring this program readiness as of its 2014 date on a statement of budget review

approaches. by this date will ensure the effectiveness of its processes, systems, and control. reportsless, dod milestone dates that have slipped and timelines that have been compressed, making a questionable whether the corrective actions necessary for audit readiness will be completed by december, 2014. our ongoing work with the army in d fast illustrates this issue. results from our ongoing review indicate that the army did not complete key tasks to make sure that it will be audit ready as planned. there are deficient gas in the audience -- the army's readiness gaps in the army's readiness. dod has identified contract pay as a key element of sbr. de-fast service

ensuring that the processes and systems and controls over contra pay our audit ready. however, preliminary results indicate that the fast also has numerous deficiencies that have not been remediated. corrects these weaknesses, it is important to maintain accurate -- its ability to maintain accurate data is questionable. of its not lose sight ultimate goal of the lamenting financial management reform. regarding information systems, dod has identified several multifunctional resource planning systems as critical to its financial management improvement efforts. the report on four of systems, we found deficiencies in areas such as data quality, data conversion, systems interface, and training that affects their ability to perform

essential business functions. the personnel, who are the users of the system, have reported difficulty in using the data activities. without the capability of these trained users, dod's goal of establishing effective management operations and auditing could be jeopardized. the commitment of dod leadership to improving the department's financial management continues to be encouraging. but if limitation of dod's audit readiness strategy department undertakingmbitious that will require resources and efforts at all levels, in all components, and across all dod financial and business operations, such as there was -- those in the high risk areas of contract management, supply chain management, support infrastructure management, and weapons systems acquisition. to support this committees overnight -- oversight, gao will

monitor the department improvement efforts. this concludes my statement. i will be happy to answer any questions. >> thank you. my colleagues have heard me quote more than a few times dr. alan blinder, who was the -- who was with the federal reserve when alan greenspan was chairman. he was at princeton. them during before testimony was, what do we need to do to make real progress with deficit to -- deficit production -- deficit reduction? blender said the a hundred pound girl in the room with health care costs. i asked him what we should do about it.

i will never forget what he said. he said, find out what works and do more of that. do you mean find out what doesn't work and do less of that? and he said, yes. for the folks before us today department wide, i have said this several times. i will keep saying it. we have an idea of what works, because we have seen dhs go through this successfully. asked them repeatedly what they can learn from the department of homeland security. some answers and some did not. the department of defense take for action and improve their opportunities to get to refusal speed and carry beyond that? do you want to go first, please? carper, i'm somewhat familiar with the department of homeland security. one of the key leadership -- key element is leadership. while dod has leadership at the highest level, i think it is

important for the key tenets of accountability and audit readiness to go down the second mayor and the cap -- second player and become institutionalized. .hat is where dhs was it was not only at the top levels, but at the institutional level and they did all the heavy lifting together. but thank you. >> i would agree -- >> thank you. >> i would agree. someone said this early this morning, but driving accountability through the ranks. there is no question there is commitment at the executive and leadership levels. making it apparent that the readily accessible, believable numbers are important in the day to day running of a business operation, or a military unit. it is driving accountability down and driving that understanding down. >> i think a lot about the culture. is it really a culture change? there are three things we need

to do to continue progress on deficit reduction. and this is from this and symbols commission. -- the bulls simpson commission. number one, save money. tax reduction. and number three, look at everything to get a better result. it is a culture change. it has to be pushed down to the others. we are in oversight committee, as you know. we are in oversight committee for the whole government. my nextsk you but question to help us be a guided missile as opposed to an unguided missile. you heard the previous panel talk about the process being made. some areas, maybe not so much the case. as we proceed with our oversight mission going forward them as we approach september, 2014, and beyond, make us guided missiles.

you may have heard some things that you did not feel entirely comfortable with, which would raise red flags for us. direct us to the point of concern, please. the biggest concern i would have, and it is an ongoing concern, is the enterprise planning systems, erp's. the reliability or unreliability of data certainly congregates the audit process and makes it extraordinarily difficult to get done. if we cannot take information from systems on its face value, if we have to spend an excessive amount of time verifying data, that in many cases makes audits undoable. the continued focus by not just the financial leadership, but the operational leadership, the i.t. leadership in the department on implementing those systems, and then those systems accurate --tionally that is critical.

the focus has to be on improving i.t. capabilities, not just financial management. >> i agree. just for the record, these weaknesses are long-standing weaknesses, like you and senator corporate and mentioned. mentioned.orcoran getting an audit in at this time will not reveal any new information. what is more important is to make corrective actions, rectify these weaknesses to make them efficient and effective audits. the issue of systems is certainly an important one. the other one is also the capability of the workforce. i think secretary hale had mentioned they have invested a fair amount of money in their training programs. it will be important for the workers to be trained to get audit ready. it will be about two years to get that done, and we are running against the time for

that to happen. >> all right, thank you. one less question. three years ago in 2011, dr. a session i chaired for the department of defense, requesting that you meet all goals by the end of 2013. what is the likelihood that you will meet the 2017 audit school? and what do you need to do to increase the chances of meeting that deadline? >> it looks increasingly unlikely that dod will be able to meet the auditability goal for 2014 on the statement of budgetary resources. there is not enough time to make corrective actions to have an efficient audits of the entire spr. some of these times the judges

will also impact the 2017 data as well. -- tying slippages will also impact the 2017 data as well. other one is the workforce issue. they have to be trained and be ready to be supported on it. >> i would agree that it is going to be difficult. but i would not put -- i mean, i will have to look back. it is obvious that the department can, with the right focus and continued focus, the department can change the course of history. i will not say anything is impossible. but it will be very difficult, in my view, a very difficult road over the next three years. a lot of attention to systems improvement. to me, that is the unpredictable part. how much improvement we can have in the systems. ago, ie or four years would not have bet my paycheck that the department of homeland security would become not just

on noticeable, but get a clean audit. they have shown it can be done. leadership is the key. my thanks to you for being here. >> let's take a little case study. the aarp program that the air force -- drp program that the air force canceled -- erp program that the air force canceled, let's talk about it. has anyone done and after scrub of that? have obligations, it will markedly impact auditability. -- if they have complications, it will markedly impact auditability. has there been a review of that? i noticed that we settled at $150 million to the contractor. to me, that says we don't know what we want. we were not managing the contract right, otherwise we should have had the contractor

paying us. what have we learned from that? has happened inside in terms of the inspector general's office looking at that? and what does gao see in terms of it being a prime example of how not to do it? done a follow-up strategy on the system you mentioned. is of the lessons learned not to have too big of systems be put out there in one increment. you should implement them in smaller chunks and add various stages that are tried and tested before you move forward. that was one of the key elements -- nine clicks for continuous improvement? >> absolutely. that was one of the elements that was lacking. -- that was one of the key elements -- >> for continuous improvement? >> absolutely. that was one of the elements that was lacking.

i'm not specifically familiar with the air force situation, but i can tell you we've done a number of audits around continued implementation and continue to do so. it seems to me that what we are trying to do -- or what the department is trying to do is there are over 140 feeder systems that connect to these erp systems, and there often seems a reluctant to changing those entry-level systems because that creates a ripple effect of significant amounts of training and volatility of record-keeping. i think what we've got to do is learn from -- and one other thing that i will mention is this. the core of the legacy systems, the 140 systems out there, they were billed for other purposes other than financial management. that is the core take away that i have learned in the seven months that i have been at aig.

those systems were built to account for people and for things, not always to account for dollars. what we are doing now with these erp systems is essentially to build an i.t. structure that is also accounting for dollars, not just the movement of people and equipment like the department has historically tried to manage. >> some of the times will we bring in a big system, what i've theced especially in defense department, not exclusively, is we modify a proven system that we are buying to fit our needs rather than -- much as you said, general -- to modify the proven system. and once you modify a proven system, you create holes and defects and problems. with the decision-making process and the knowledge about how to buy i.t., buying i.t. is hard. the other thing is you have to know what you want before you order it. and one of the biggest problems

is we do not know what we want. contract and suddenly, we are changing what our needs are during the contract. mentioned that a lot of the timelines have slipped. can you give us detail on that? bybased on the declaration the secretary in 2011, the timelines were compressed. i mean, the timelines before the declaration was made were somewhat beyond 2014. they were pulled back. one of the timelines that i want forcehlight is the air timelines. it is in the first quarter of 2015 for achieving audit readiness, or spr. it is questionable with the timelines getting extended whether or not the work will be

done to make corrective action to reach readiness. >> secretary hail, mr. rymer said that the ada violations were very small percent, 20 -- $20,000 of the department's

would you agree with that? >> yes, sir, i do. i spent a good deal of my early career in the banking industry. i remember every day eating a balanced sheep. i knew exactly where my business was every morning. i think we need to get to the level in the department where the availability of financial information is critical and financial information is used in the decision-making process more than i think it is used now. i think it is not used as much because it is simply not at fingertips. >> you argue without fully deployed -- it will be unable to produce reliable financial data will without resorting to her rohit efforts such as manual workarounds. can you explain what these

manual workarounds would look like and why they are not ideal effortsting to heroic such as manual workarounds. can you explain what these manual workarounds would look like and why they're not ideal? >> the auditor would request the data and the data being provided in a not timely fashion is a red flag in and of itself. given that we were working on a schedule of budgetary activity as opposed to a statement of budgetary resources, i do not think we have made that distinction well enough today, although it has been talked about. i would like to point out that the statement means it is something management is asserting and it is audible. financialle of activity -- with the marine corps audit, we were auditing a schedule, not auditing a statement. these starting points were

difficult to establish. meaning in some cases the reliability was difficult to read what it really means, sir, because we were working on a schedule of budgetary activity that had no omb required deadlines, delivery dates, there were, i think, within the department 10 omb units that would trigger the november 13th audit date. certainly, it is not even a reportable unit and the schedule of budgetary activity is not a report that needs to be sent up. what we did was essentially to show the marine corps what it takes to finish the race, we left the audit what i believe is an extraordinary long. of time.- long period to get to where we needed to get -- >> with the workarounds? >> well, yes.

essentially the system would not provide the data we needed -- what that taught them -- washat that taught them this is what you need to do to perform? >> yes, sir. >> going back to senator johnson. go back, find out what it is. let me go to senator johnson. >> thank you, senator coburn. my background is in manufacturing where you realize you have to have a process and control to produce a product. i want to talk about a common ability in the manufacturing setting. not so much when something goes wrong you hold someone accountable by firing them, i am talking about up front to keep the processing control.

in my plastics manufacturing business, the most significant weng we did -- we forced -- forced. we did not for us, we required attach theirr to initials to every piece of plastic produced. they knew they would be held accountable. it was amazing how that worked in terms of quality products. that is the point i am trying to drive. what is the level of accountability? what is the report generated by audit ready? how do you not hold anyone accountable for being audit ready? who is being held accountable? general? spent, in my view, and i a good amount of time in the army, so i think i can speak to this firsthand. when at the lowest level data is

entered, itn it is should be complete. the commanders, the first level supervisors, in my view, should islooking to see if it complete. oftentimes it is not. >> i understand, that is a detail problem. again, i'm talking about the overall issue. how do we get this management information system up and running and use the audit as a tool? when we talk about audit ready how do we hold people accountable other than these secretary of defense saying you were not ready audit ready? >> ultimately it has to be a personnel trust us. it has to be built into the formal expectations of managers -- >> is there a report being generated that your unit, your service is not audit ready?

>> nothing, sir, other than the disclaimers -- >> precisely. that is my point about what an audit would bring. it will be a report that will hold people accountable so they can work through that process so they can squeeze efficiency out of this process. you need the audit. the sooner we do it, the better from my standpoint. about those portable units. sector again -- that is my background. you get companies, they go through a not it. sometimes those companies get bought by larger organizations. -- you get companies, they go through an audit. have hundreds of individual divisions all being audited, all being held accountable, but in the end you do need information pulling up to the center.

so the consolidated books can be audited as well. that is basically what you're talking about with the 140 different siebel systems -- feedable systems. i have seen those systems be a disaster in the private sector. be a disaster unless you look at the component parts and look at what information needs to feed into the overall system. that is my question. where are we breaking down in terms of component parts and the department of defense to make this a manageable process. it has been going on for 20 years. it does not seem like a manageable process yet. is that part of the problem? general rymer? 12last year we did individual department audits and the department of defense -- >> how many do you think there should be? how many different component parts audits should there be?

to drive the accountability down? 12, 100, 1000? you what my bias would be? about 1000. >> 8000 sounds like a good number then, sir. thousand sounds like a good number then, sir. [laughter] but does that sound off base? does that sound reasonable? >> they are incredibly expensive. we do need to make sure that they are big enough that there is a bang for the buck. >> how much are we spending trying to get audit ready? get my drift? we're spending all kinds of time and energy to get this audit readiness to do what? where is the accountability? i would argue i would rather spend money on the audit, realize what a disaster that particular unit is, or how

successful a particular unit is. bestyou can lift up the practice. hey, the marines are doing it. army, why aren't you doing it? or even in the army, this commander can do it, why aren't you? we can use this as a management tool. again, getting back to the component parts -- i don't want you using my answer. just think about it. should we be talking about hundreds, thousands, tens? what would be the appropriate level for the individual audits to drive that accountability? >> sir, one thing to look at my the who command the unit, who owns the unit, does that person have control over the numbers? are they managing with the numbers? look at it organizationally? 10 is the omb requirement. right now i think 10 reportable units, if i'm not mistaken, i think 10 is probably too few, but frankly we are doing a lot more than 10, but they are not

necessarily financial statement audits. is a lotxplain there of auditing that are not necessarily financial station audits going on. there is financial accountability beyond just the financial statement audits. again, trying to look at a private sector model and transfer that over to the department of defense and think, had we break this up into accountable component parts? this up intobreak accountable component parts? how does this fit into the 10 big omb audits. we are not this going to conduct an audit until we have a clean audit, and and instead use the audit as a management tool, which is what it should be. thank you, senator coburn. >> thank you all again. i have a lot of questions to ask, but i am not going to ask

them. i am going to let you go eat lunch. the record will stay open for a certain amount of time, 15 days until may 28. i would very much appreciate responses -- especially from will move fromd there and my hope is we will have another follow-up in september, october, as to how it is going. general, i hope you will look at this. i note gao has been looking at this. is a big deal. if it flubs, everything flubs. that ought to be right on the top target list. >> yes, sir, there is quite a bit of work going on. what we will do, i will get with your staff and give you a summary of all the work that has been done and what is ongoing. >> thank you both for your service. the meeting is adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2014]

>> as this hearing comes to a close, if you would like to watch any of it again or see it in its entirety, and reminder to go to our website, www.c-span.org, check the video library. the u.s. senate voted to renew a package of expired tax breaks. the chamber is currently in recess, but they will be back at eastern. you can see them live on our companion network c-span2.

see the house live when they return right here on c-span. week, up later this veterans affairs secretary eric shinseki well. a senate hearing on the delay in patient care at a veterans hospital in arizona. some veterans groups are calling for secretary shinseki to resign. we will have live coverage beginning thursday at 10:00 a.m. eastern c-span. also, a senate subcommittee on africa will lead a review on on thellars see kidnapping of nigerian schoolgirls and the government's response. that will the airing on our companion network c-span3. at the white house today, president obama will award the medal of honor to army sergeant kyle white for his actions in afghanistan. that is scheduled for 3:00 p.m. eastern right here on c-span. book "sundays at

eight." what it wassay because i have been living it all my life. my errands emigrated from the south. from virginia. washington is where they met, married. without the great migration, i would not be here. so, i have lived with it all my life. i grew up with people from north carolina, south carolina, georgia, all around me in the neighborhood where i grow up. i was surrounded by the language, the food, the music, the ambitions, too, of the people who migrated from the south. a lot of common -- competition about whose child would go to what school. >> isabel wilkerson, one of 41 unique voices from 25 years of our conversations. eight," nowndays at

available at your favorite bookseller. seniorip ewing is a reporter for politico. his recent article indicates that attacks increased 43% in 2014. what -- why such a large increase in one year? >> what the state department says is there were many smaller terrorist attacks. even though there were not what experts call spectacular terrorist attacks like the september 11 attacks are the spanish subway bombing, there were many more small-scale bombings or shootings that took fewer lives, but collectively wound up with an increase from the year before. >> what did the report say about the state of al qaeda worldwide? american officials say the

core of al qaeda, the organization that attacked the u.s. on september 11, is pretty well on it's heels. they succeeded in killing a lot of the leadership. they have destroyed its ability to communicate and control terrorist attackers there and obviously against western europe and the united states. but the franchises of al qaeda that are moving west and south to him and, to africa, to north theya, are as dangerous as have ever been and officials in the state department say they are worried about a large number of foreign fighters taking part in the war in syria coming from all over the place including the u.s. and europe, learning terrorist attack skills and becoming radicalized. they could pose a threat to europe and the west. >> the state department report you are writing about says fewer americans were killed in 2014. how does that square with the

increase in terrorist attacks worldwide? >> american counterterrorism agencies including the fbi and other parts of the intelligence community have gotten a lot better at disrupting attacks inside the u.s. they're always cautious about reclaiming victory, but they do say in terms of organized events that could attack someplace like a sports stadium or a shopping mall, they are very effective at starting those before they start. where americans have been killed are places that are already a hotbed for terrorism, places like afghanistan and pakistan. >> you mentioned smaller terrorist groups -- given the recent activity by this group, boko haram in nigeria, what are you hearing from state department officials? >> the consensus seems to be that boko haram and other african-based extremist organizations are very dangerous locally. they have less ability to attack western europe and the u.s., but

the state reasons why department, the defense department wants to get involved in combating those terrorist networks in africa is to keep them from growing into the kind of organizations that the old al qaeda became in 2001 that have a way to touch the united states in a very destructive way, with these september 11 attacks and the ones that took place in africa, the destruction of the uss cole in yemen. they hope stopping them today will prevent large-scale future attacks in the coming decade. >> with core al qaeda on its heels, as you say, what does this mean in terms of that organization? is that pretty much done? the u.s.ot know if will ever snuff out the core al qaeda altogether, but if you can get it to the point where it cannot communicate, that may

ach -- that may make much of difference. some pakistani insurgents have ties to the pakistani government, specifically pakistan's intelligence agency. it is a very delicate needle to thread for the u.s. and its allies to go after al qaeda, go after extremists, but also keep a very strained partnership with the pakistanis in the counterterrorism effort. i'm not sure if they will ever get to 100% excess, although i know they would like to continue to try and press the pakistanis to go after terrorist as much as they can. is a statethis department report. how did they use this report in their planning? >> i think they use it by having -- baseline for what constitutes a terrorist attack. how many an idea of took place and what regions of the most dangerous terrorism and they can apply their own policies and practices raised on

that baseline. hhs focuses on the u.s. and its borders and the department of state looks at terrorist attacks in places like yemen and increasingly in africa. seniorip ewing is a reporter at politico. you can follow his reporting at politico.com. thank you very much for being with us. >> thank you. >> we want to take you to an event with michael chertoff. 2004 at theed in university of southern california and partly funded by the homeland security department. >> thank you for those very kind words of introduction. and, mr. undersecretary, thanks for your comments about what has been achieved. it is a powerful testament to the vision that congress had when it authorized these centers of excellence.

i think the promise of this has really been borne out. it has been over 10 years since september 11, and it is now the 10th anniversary of the founding of create. in 2007, as some of you will remember, i had the great privilege of speaking here early in the life of this organization, and even then i was very impressed by what was being done, but even more by what was being contemplated. what i would like to do in my remarks today is talk a little bit about the value that you bring to the homeland security enterprise, which is not just the department of homeland security, but also the organizations that are part of what protect us in the united states. and then to put that in the context of what i think are some emerging threats and challenges for the next 10 years. one thing is clear -- the threats are not static, our ability to anticipate them and

manage them cannot be static either. they will continue to be areas of research, development, and analysis that will require cutting-edge thought and innovation if we are to keep the country safe in an increasingly dangerous world. this institution is going to be at the forefront. i also want to acknowledge the dignitaries who are here, i think it is a great reflection of the esteem in which this organization is held. you have john pistole coming, dan gersten, and other senior leaders of the department of homeland security, and you have got a great collection of academics as well. so what are the core values and the core mission of an organization like this? it has four elements that make it a critical part of the homeland security enterprise.

first is risk ivan-based -based thinking. i will tell you that both when i was in public life and private life, many people do not understand risk. many people think risk is about elimination of risk, that someone ought to guarantee you that nothing that will ever -- nothing bad will ever happen. that kind of thinking often leads to disappointed expectations. or foolish and misplaced investment in solving all problems. having a risk-based methodology that manages risk, that is able to understand, analyze, and explain how to manage risk and also to allow you to make the trade-offs necessary to achieve risk within a reasonable cost framework, that is the central, if decision makers and the public at large are to have a firm appreciation of what can be cumbersome in the area of

-- what can be accomplished in the area of homeland security, but also no illusions about what to expect. a second key element is data analysis. many of us think we have intuitions about where the threats are or why they arise. some of them may be right or wrong, but if they are not backed up by data and research, they are not useful in decision-making. the ability to collect, analyze, understand, and operationalize data as this institution has been able to do over the last 10 years is critical to intelligent decision-making and wise allocation of resources. a third part of what i think is unique and important about it this institution is the ability to put the decision-making about homeland security in the context of economic-based thinking. to put it another way, how do we get the maximum return in reduction of risk for a reasonable investment? it is always about cost-benefit.

if you have a limitless amount of resource, you could create a risk free and garment, but -- you probably could create about as risk-free an environment as possible, but nobody lives in that world. in fact, now more than ever, with much constraint at the federal level, at the state level, with an economy that is perhaps not in the full swing of recovery people more and more , ask themselves, can we afford to protect ourselves? and the trade-off, the cost-benefit analysis that you provide them comes critical in making sure that with constrained resources we can get the maximum value in terms of security. finally it is important to have , an interdisciplinary approach as you have here as is evidenced by the fact that you have a school of engineering and a school of public policy sponsoring this. there's no one scientific theory or one discipline that covers all of the issues you do with in-home and security.

-- you deal with in homeland security. there are critical engineering issues, mathematical issues involving predictive analytics, but also sociological and psychological things that have to be studied to really understand how things work. one of the interesting things about homeland security as a government function is, unlike the defense department or the military, where you either command everybody that you are dealing with or you're controlling them in some fashion or killing them, you have to enlist civilians. most of the major muscle parts of homeland security involve people who voluntarily are rulesg to submit to the and get sufficiently educated in what is required in order to be able to comply. that is a very different kind of a skill than controlling the domain and commanding it. it is about understanding human psychology and sociology.