Pentagon Audit Readiness - April 18, 2012

Today's hearing drives at the heart of the fiscal crisis we face as a nation: how the federal government spends taxpayer dollars. We must closely scrutinize spending at every federal agency, including the Department of Defense, to identify and eliminate waste and duplication. However, as I've said in the past, we must ensure that budget cuts at the Department of Defense, do not undercut our warfighters or endanger our readiness for future contingencies.

To distinguish between necessary budget cuts and cuts that would harm our troops and damage military readiness, we must have reliable financial data and effective business processes and systems. Every wasted dollar is a dollar we deprive our warfighters of as they seek to protect and defend our country.

A recent finding by the Government Accountability Office illustrates how important it is to reform financial management at the DOD, and how the department does business. According to the GAO report released just last month, the total acquisitions cost of the Pentagon's 96 largest weapons procurement programs grew by over $74 billion, or 5 percent, just over last year's amounts. In the midst of our nation's fiscal crisis and tightening defense budgets, we can and must do better.

One specific area of financial management that should be reformed relates to the proliferation of request to transfer funds among defense accounts. I appreciate that the Department of Defense needs the budgetary flexibility to respond to emergent, higher priority needs for our warfighters engaged in hostilities, but we have been seeing a migration of funds for new unauthorized programs not tied to the war and a frenzy in the last 30 days of the fiscal year to spend taxpayer funds before they expire, regardless of the urgency of the requirements that the money is being spent on. Neither of these trends are conducive to a healthy, transparent financial management system and must be addressed in an era of declining defense budgets.

To his credit, shortly after taking office Secretary Panetta elevated financial management at the Department of Defense to make it a priority. Secretary Panetta directed the Department of Defense to cut in half the time it would take to achieve audit readiness of a key financial statement called the Statement of Budgetary Resources, or since we love acronyms so much, the SBR.

I fully support this goal, which would achieve an audit-ready Statement of Budgetary Resources by 2014. In fact, I introduced legislation last year that would have required by statute that the Department of Defense meet this goal. That's how important I think it is. My proposal passed the Senate Armed Services Committee and the Senate unanimously, but was unfortunately not included in the final conference report. I hope we can revisit this important priority this year in the Defense Authorization Act, and I certainly plan to bring this forward.

From our witnesses, I would like to hear their assessments of whether each of the services is on track to meet the 2014 goal. I am particularly interested in getting an update on the Air Force's progress on this because we know that the Air Force has some difficulty on this particular aspect of meeting the audit readiness goal of 2014 for the Statement of Budgetary Resources.

I'm also interested in hearing about the Defense Department's efforts to ensure that steps being taken now to achieve auditability will be repeatable in future years. Spending billions of dollars for a onetime effort to achieve auditability could not be replicated, that can't be used in the future makes absolutely no sense. We want to be able to use this information year-to-year and make it valuable for you. Such a short-sided approach would waste billions of dollars and not solve the Pentagon's longer term financial issues.

While much work remains to achieve the ultimate goal of full audit readiness for 2017, the department has achieved some encouraging progress, and I want to commend you for that. Notably some of the Department of Defense components, including the Army Corps of Engineers, have received clean audit opinions. By contrast, the Marine Corps received a qualified audit opinion of its Statement of Budgetary Resources from the Department of Defense Inspector General. It is imperative that those Department of Defense components work toward clean opinions like the Marine Corps. We'd like to see that, of course across the services, that we leverage the lessons learned from other organizations within the Department of Defense that have succeeded to make sure that every branch succeeds.

In testimony before Congress, over the last few months, the Department of Defense Inspector General has maintained that three problem areas must be resolved before the Department of Defense will be able to meet its audit readiness goals in 2014 and in 2017. They include the quality of the Department of Defense financial management data, weaknesses within its internal controls, and implementation of its enterprise resource planning or ERP system, as the chair has noted. I agree with the DOD IG's overall observation and would certainly like our witnesses to address each of these areas.

One area I would like to focus on is the Department of Defense's procurement of enterprise resource planning systems, automated systems that as the chair has described perform a variety of important business-related functions crucial to meeting the goal of audit readiness. Both GAO and the Department of Defense IG have repeatedly reported that these new systems, some of which cost billions of dollars to develop and deploy, lack elements that are critical to producing auditable financial statements, such as a standard set of accounts that match the United States standard general ledger. This requires manual workarounds, which increases the risk of human error and further degrades the quality of the Department of Defense's financial management data. The Department of Defense must successfully reengineer its inefficient business processes and implement these ERP's in a way that allows it to realize their intended benefits. Otherwise, it will do little else than line the pockets of the contractors hired to integrate these ERPs into the Department of Defense and won't reach our goal of achieving audit readiness.

With a $1.3 trillion deficit this year, we can't accept the status quo with respect to the Department of Defense or anywhere in our federal government. With at least $487 billion and up to a trillion in defense reductions being looked at by this committee and by the Congress and perhaps implemented over the next decade, we cannot afford to do without the reliable financial management data needed to help us distinguish between defense budget cuts that are necessary from those that may endanger our national security.

Madame chair, clearly there's much to discuss today and so I thank you so much for convening this hearing, and again I want to thank the witnesses for being here.

Speech taken from http://www.ayotte.senate.gov/?p=video&id=557