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| <title> - H.R. 2886, DEPARTMENT OF HOMELAND SECURITY FINANCIAL ACCOUNTABILITY ACT</title> | |
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| [House Hearing, 108 Congress] | |
| [From the U.S. Government Publishing Office] | |
| H. Hrg. 108-29 | |
| H.R. 2886, DEPARTMENT OF HOMELAND SECURITY FINANCIAL ACCOUNTABILITY ACT | |
| ======================================================================= | |
| HEARING | |
| of the | |
| SELECT COMMITTEE ON HOMELAND SECURITY | |
| HOUSE OF REPRESENTATIVES | |
| ONE HUNDRED EIGHTH CONGRESS | |
| FIRST SESSION | |
| __________ | |
| OCTOBER 8, 2003 | |
| __________ | |
| Serial No. 108-29 | |
| __________ | |
| Printed for the use of the Select Committee on Homeland Security | |
| Available via the World Wide Web: http://www.access.gpo.gov/congress/ | |
| house | |
| __________ | |
| U.S. GOVERNMENT PRINTING OFFICE | |
| 21-355 WASHINGTON : 2005 | |
| _____________________________________________________________________________ | |
| For Sale by the Superintendent of Documents, U.S. Government Printing Office | |
| Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800 | |
| Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001 | |
| SELECT COMMITTEE ON HOMELAND SECURITY | |
| CHRISTOPHER COX, California, Chairman | |
| JENNIFER DUNN, Washington JIM TURNER, Texas, Ranking Member | |
| C.W. BILL YOUNG, Florida BENNIE G. THOMPSON, Mississippi | |
| DON YOUNG, Alaska LORETTA SANCHEZ, California | |
| F. JAMES SENSENBRENNER, JR., EDWARD J. MARKEY, Massachusetts | |
| Wisconsin NORMAN D. DICKS, Washington | |
| W.J. (BILLY) TAUZIN, Louisiana BARNEY FRANK, Massachusetts | |
| DAVID DREIER, California JANE HARMAN, California | |
| DUNCAN HUNTER, California BENJAMIN L. CARDIN, Maryland | |
| HAROLD ROGERS, Kentucky LOUISE McINTOSH SLAUGHTER, | |
| SHERWOOD BOEHLERT, New York New York | |
| LAMAR S. SMITH, Texas PETER A. DeFAZIO, Oregon | |
| CURT WELDON, Pennsylvania NITA M. LOWEY, New York | |
| CHRISTOPHER SHAYS, Connecticut ROBERT E. ANDREWS, New Jersey | |
| PORTER J. GOSS, Florida ELEANOR HOLMES NORTON, | |
| DAVE CAMP, Michigan District of Columbia | |
| LINCOLN DIAZ-BALART, Florida ZOE LOFGREN, California | |
| BOB GOODLATTE, Virginia KAREN McCARTHY, Missouri | |
| ERNEST J. ISTOOK, Jr., Oklahoma SHEILA JACKSON-LEE, Texas | |
| PETER T. KING, New York BILL PASCRELL, JR., New Jersey | |
| JOHN LINDER, Georgia DONNA M. CHRISTENSEN, | |
| JOHN B. SHADEGG, Arizona U.S. Virgin Islands | |
| MARK E. SOUDER, Indiana BOB ETHERIDGE, North Carolina | |
| MAC THORNBERRY, Texas CHARLES GONZALEZ, Texas | |
| JIM GIBBONS, Nevada KEN LUCAS, Kentucky | |
| KAY GRANGER, Texas JAMES R. LANGEVIN, Rhode Island | |
| PETE SESSIONS, Texas KENDRICK B. MEEK, Florida | |
| JOHN E. SWEENEY, New York | |
| JOHN GANNON, Chief of Staff | |
| UTTAM DHILLON, Chief Counsel and Deputy Staff Director | |
| DAVID H. SCHANZER, Democrat Staff Director | |
| MICHAEL S. TWINCHEK, Chief Clerk | |
| (II) | |
| C O N T E N T S | |
| STATEMENTS | |
| The Honorable Christopher Cox, a Representative in Congress from | |
| the State of California, an Chairman, Select Committee on | |
| Homeland Security | |
| Oral Statement................................................. 1 | |
| Prepared Statement............................................. 3 | |
| The Honorable Turner, a Representative in Congress from the State | |
| of Texas, and Ranking Member, Select Committee on Homeland | |
| Security....................................................... 3 | |
| The Honorable Donna Christensen, a Delegate in Congress from the | |
| U.S. Virgin Islands............................................ 38 | |
| The Honorable Bob Etheridge, a Representative in Congress from | |
| the State of North Carolina.................................... 5 | |
| The Honorable Jim Gibbons, a Representative in Congress from the | |
| State of Nevada................................................ 5 | |
| The Honorable James R. Langevin, a Representative in Congress | |
| from the of State Rhode Island................................. 38 | |
| The Honorable Sheila Jackson-Lee, a Representative in Congress | |
| from the of State Texas........................................ 45 | |
| The Honorable John Linder, a Representative in Congress from the | |
| State of Georgia............................................... 38 | |
| The Honorable Pascrell, a Representative in Congress from the | |
| State of New Jersey............................................ 33 | |
| The Honorable Shadegg, a Representative in Congress from the | |
| State of Arizona............................................... 46 | |
| The Honorable Sweeney, a Representative in Congress from the | |
| State of New York.............................................. 35 | |
| WITNESSES | |
| Mr. J. Richard Berman, Assistant Inspector General for Audits, | |
| Department of Homeland Security | |
| Oral Statement................................................. 10 | |
| Prepared Statement............................................. 12 | |
| Dr. Bruce Carnes, Chief Financial Officer, Department of Homeland | |
| Security | |
| Oral Statement................................................. 5 | |
| Prepared Statement............................................. 7 | |
| Ms. Michele Flournoy, Senior Adviser, International Security | |
| Program, Center for Strategic and International Studies | |
| Oral Statement................................................. 25 | |
| Prepared Statement............................................. 27 | |
| The Honorable Linda Springer, Comptroller Office of Federal | |
| Financial Management, Office of Management and Budget | |
| Oral Statement................................................. 19 | |
| Prepared Statement............................................. 22 | |
| APPENDIX | |
| Material Submitted for the Record | |
| Dr. Bruce Carnes Responses to Questions.......................... 51 | |
| Mr Richard Berman Reponse to Question............................ 52 | |
| H.R. 2886, DEPARTMENT OF | |
| HOMELAND SECURITY FINANCIAL ACCOUNTABILITY ACT | |
| ---------- | |
| Wednesday, October 8, 2003 | |
| House of Representatives, | |
| Select Committee on Homeland Security, | |
| Washington, DC. | |
| The committee met, pursuant to call, at 1:05 p.m., in Room | |
| 2318, Rayburn House Office Building, Hon. Christopher Cox | |
| [chairman of the committee] presiding. | |
| Present: Representatives Cox, Camp, Linder, Shadegg, | |
| Gibbons, Sweeney, Turner, Norton, McCarthy, Jackson-Lee, | |
| Pascrell, Christensen, Etheridge, Lucas, Langevin, and Meek. | |
| Chairman Cox. Good afternoon. A quorum being present, the | |
| committee will come to order. The committee is meeting today to | |
| consider the management and financial accounting controls at | |
| the Department of Homeland Security and legislation to bring | |
| the Department within the coverage of the CFO Act. | |
| It was only 5 months ago this year that the Department | |
| opened its doors. The establishment of the Department of | |
| Homeland Security marks the largest reorganization of the | |
| Federal Government in history. It is a merger of 22 separate | |
| Federal agencies with more than $50 billion in assets, $36 | |
| billion in liabilities--although the accounting certitude of | |
| that figure is questionable--and roughly 180,000 employees. | |
| The President created the new department not to achieve a | |
| new M&A standard, but rather to enhance our capabilities to | |
| prevent terrorism. It is this core mission to make our country | |
| safer that requires us to examine how the financial systems of | |
| 22 separate agencies will be consolidated in order to achieve | |
| our objective. | |
| In conducting oversight of DHS, this committee must make | |
| financial accountability a top priority. This is necessary not | |
| only to ensure that taxpayer dollars are fully and accurately | |
| accounted for and spent prudently to achieve well defined and | |
| measurable objectives, and to prevent waste, fraud and abuse, | |
| but even more importantly, it is necessary so that the | |
| Department succeeds in its overall mission. That mission is of | |
| course protecting Americans. | |
| Today, in keeping with other oversight mandates, we will | |
| examine the financial policies, processes and systems being | |
| utilized and being proposed for use at the Department. Our | |
| analysis is being conducted within the context of legislation | |
| now pending before this committee, H.R. 2886, the Homeland | |
| Security Financial Accountability Act. | |
| In addition, we will explore the Department's steps towards | |
| a framework for strategic planning and program evaluation. | |
| Questions that we are interested in addressing today include | |
| how DHS will ensure that the appropriate amount of funds are | |
| requested for specific programs and how those programs will be | |
| held to performance standards. | |
| H.R. 2886, the Department of Homeland Security Financial | |
| Accountability Act, contains a number of financial management | |
| provisions. It includes measures subjecting the Department to | |
| the statutory framework and reporting mandates of the CFO Act. | |
| It imposes additional financial audit opinion requirements. | |
| I am interested to hear the views of our witnesses today-- | |
| we have an outstanding panel--about the impact of the various | |
| provisions of the bill. It is my estimation that the Department | |
| is making solid progress in financial management. | |
| Consolidating 22 separate agencies is no mean feat. But | |
| there is a broad plan to streamline and integrate financial | |
| systems and promote interoperability across the Department. I | |
| look forward to hearing your views on the panel about the | |
| progress of those initiatives today. | |
| It is imperative, I believe, that the objectives of | |
| individual programs be firmly linked with the strategic plans | |
| of the Department. Budgetary requests must reflect the | |
| priorities of these strategic plans so that money is spent | |
| appropriately and with minimal, if any, redundancy. And, | |
| finally, the performance of department programs must be | |
| examined regularly by this committee to assist in | |
| implementation, to assess progress, and to best allocate future | |
| resources. | |
| We already have laws in effect to promote the responsible | |
| use of scarce resources in the Federal Government. I think we | |
| need to use these laws to much greater effect. In 1993, | |
| Congress enacted the Government Performance and Results Act, | |
| which requires that every major Federal agency report their | |
| plans for future years and give an assessment of performance | |
| for previous years. | |
| These reports provide the basis for Congress to assess how | |
| each agency is performing. Ensuring that these statutory | |
| requirements are fulfilled in the Department of Homeland | |
| Security is critical to allowing this committee to provide | |
| effective oversight in partnership with the Department. I am | |
| pleased the Department has established the Office of Program | |
| Analysis and Evaluation, under the CFO, Dr. Carnes, with the | |
| responsibility for integrating strategy, performance, | |
| management and budget for the entire Department. | |
| The Department will need to rely on the best practices of | |
| established departments within the Federal Government as well | |
| as in the private sector while adapting these policies to meet | |
| the unique domestic security mission of the Department of | |
| Homeland Security. I dare say that back when we first wrote the | |
| CFO Act, and I was one of the original authors of the CFO Act, | |
| and I am a strong proponent of it, calling a hearing on the | |
| topic of financial accounting controls would likely not attract | |
| a good deal of attention. | |
| I think in the post-Enron world that is not so. I think | |
| nonaccountants now understand the importance of management | |
| control, or the purposes of achieving the objectives of an | |
| organization, and also recognize the down side of not having a | |
| good system of financial controls in place in a large | |
| organization. | |
| We want to make sure that we take every opportunity to | |
| improve the work of the Department of Homeland Security, to | |
| perfect it in its achievement of its mission, and we want to | |
| use financial controls to that end. | |
| I thank the witnesses with us here today for providing us | |
| with your testimony in advance. I look forward to hearing the | |
| summary of your testimony in a moment and engaging in a | |
| colloquy with you. I now recognize the ranking member, Mr. | |
| Turner, for any opening statements that he may have. | |
| Prepared Statement of the Honorable Christopher Cox, Chairman, Select | |
| Committee on Homeland Security | |
| On March 1 of this year, we witnessed the standing up of the | |
| Department of Homeland Security, the largest reorganization of the | |
| federal government in history. The restructuring brought under one roof | |
| 22 separate federal agencies, more than $50 billion in assets, $36 | |
| billion in liabilities and roughly 180,000 employees. The President | |
| created the new Department, to enhance our capabilities to prevent | |
| terrorism, to protect our infrastructure against it, and to respond to | |
| any attack that might occur. | |
| In conducting oversight of the Department of Homeland Security, | |
| this Committee must make financial accountability a top priority. We | |
| must insist that taxpayer dollars are fully and accurately accounted | |
| for. And we must ensure that every precaution is taken to prevent | |
| fraud, waste, and abuse. | |
| It is imperative that the objectives of individual programs be | |
| firmly linked with the strategic plans of the Department. Budgetary | |
| requests must reflect the priorities of these strategic plans, so that | |
| money is spent appropriately and with minimal redundancy. | |
| At one time these issues may have been considered dry, but in our | |
| post Enron debacle environment no one can discount their importance. | |
| Both the Executive branch and the Legislative branch of the federal | |
| government must fulfill our obligation to protect the taxpayer's bottom | |
| line. | |
| Mr. Turner. Thank you, Mr. Chairman. I appreciate you | |
| calling this hearing for the purpose of examining the financial | |
| planning and management practices of the Department of Homeland | |
| Security, and, specifically, to have a hearing on H.R. 2886, | |
| the Department of Homeland Security Financial Accountability | |
| Act. | |
| Over the course of this fiscal year, the Department will | |
| spend around $30 billion on a wide range of programs and | |
| activities designed to keep this country safe from terrorism. | |
| It is important, I think, that the Department have all of the | |
| tools and the practices necessary to ensure that taxpayer | |
| dollars are spent efficiently and effectively. Also, I think it | |
| is important that these tools allow the Department to provide | |
| the Congress with all of the information that we need to carry | |
| out our responsibilities. | |
| I am encouraged by several steps that I have seen the | |
| Department take recently in laying the groundwork for sound | |
| fiscal management. Among these are the establishing of a | |
| planning and programming and budgeting system similar to what | |
| has existed within the Department of Defense for many years to | |
| help in developing its 5-year budget plan, the creation of a | |
| Program Analysis and Evaluation Office to review program and | |
| budget requirements and analyze them in the context of an | |
| assessment of key threats and vulnerabilities; also, setting up | |
| an investment review board and a joint requirements review | |
| process to monitor the Department's progress in developing | |
| major programs and making related acquisition decisions. Each | |
| of these are good first steps. | |
| Mr. Chairman, I think we all agree, however, that there is | |
| much more that must be done to be sure that we make the right | |
| choices regarding the security of our nation. The most | |
| important task I think that the Department has yet to | |
| accomplish is the development of a comprehensive threat and | |
| vulnerability assessment. | |
| It seems that from testimony that we have had from | |
| Assistant Secretary Liscouski that such an assessment is some | |
| years away. I believe he estimated perhaps 5 years away. This, | |
| in my judgment, is unacceptable. Without a threat and | |
| vulnerability assessment, we cannot possibly decide how to | |
| allocate valuable funding between a variety of options such as | |
| cargo screening, improving the electrical grid, increasing | |
| bioterrorism protection, or tending to some other | |
| vulnerability. | |
| At the Department of Defense, each installation assesses | |
| its vulnerabilities every year so security changes can be based | |
| on a current assessment of risk. But with the Homeland Security | |
| Department right now, we are in essence driving down the road | |
| without a road map to tell us where to go. Indeed, without a | |
| true threat and vulnerability assessment, we run the risk of | |
| trying to protect everything equally, which means we protect | |
| nothing effectively, or, worse yet, we end up funding programs | |
| based on current events or media attention rather than on | |
| rational evaluation of risk. | |
| A threat and vulnerability assessment should be part of an | |
| updated annual Homeland Security strategy. An updated strategy | |
| could serve, in turn, to articulate the administration's goals | |
| across the government, better define our capabilities and needs | |
| and provide clear guidance to the budget planning process. | |
| We all know that the threats we face are real, and the | |
| decisions we make today will decide our security tomorrow. | |
| Right now we are making our decisions without a good road map. | |
| Mr. Chairman, I think we also need to ensure that the | |
| Department has a robust financial management system in place as | |
| provided for, in part, by the legislation that we are looking | |
| at today. | |
| Such financial systems can also assist the Department in | |
| developing specific performance goals and benchmarks that can | |
| be used to evaluate whether it is in fact achieving the high | |
| goals that we have set for it. | |
| And finally, Mr. Chairman, we must insist in the coming | |
| years that the Congress be provided with accurate, detailed | |
| budget information that it needs to carry out its oversight | |
| work. The Department's fiscal year 2005 request, which will | |
| arrive on our door step only about 4 months from now, must be | |
| sufficiently comprehensive to allow us to fully understand the | |
| required costs of homeland security. Such materials were not | |
| provided with last year's request. | |
| If we believe that information is lacking, we should ask | |
| the hard questions and take the necessary steps to ensure that | |
| we have what we need. | |
| Finally, Mr. Chairman, while great progress I think is | |
| being made, we know the task ahead will be difficult and much | |
| work remains to be done. | |
| I appreciate each of the witnesses who are with us today. I | |
| appreciate your commitment to the security of our country, and | |
| I thank you for being with us today. | |
| Thank you, Mr. Chairman. | |
| Chairman Cox. Mr. Gibbons, do you wish to be recognized for | |
| an opening statement? | |
| Mr. Gibbons. Mr. Chairman, in view of the importance of our | |
| witnesses' testimony today and the significance of which this | |
| committee views its interest in this subject, I am going to | |
| waive my opportunity to make an opening remark. I will submit | |
| them for the record at a later date. I want to thank you for | |
| your leadership on this issue and look forward to the testimony | |
| of the witnesses. | |
| Thank you. | |
| Chairman Cox. Does any member on the minority side wish to | |
| be recognized for purpose of an opening statement? | |
| Mr. Ethridge. Mr. Chairman, I will submit mine for the | |
| record and waive. | |
| Chairman Cox. Thank you. If not, we can jump right into the | |
| testimony of our witnesses. I will recognize you in turn. We | |
| will begin with Dr. Bruce M. Carnes, the Chief Financial | |
| Officer for the Department of Homeland Security. As we | |
| mentioned, we have your written submission, and you are free to | |
| summarize your testimony as you see fit. | |
| STATEMENT OF DR. BRUCE CARNES, CHIEF FINANCIAL OFFICER, | |
| DEPARTMENT OF HOMELAND SECURITY | |
| Mr. Carnes. Thank you, Mr. Chairman. I will summarize my | |
| statement. Mr. Chairman, Mr. Turner, members of the select | |
| committee, I am delighted to be here to discuss our progress | |
| and the challenges in building financial management business | |
| and program evaluation processes at DHS. | |
| As the CFO at the Department of Homeland Security, I am | |
| committed to building financial policies, processes and systems | |
| that are a model for the Federal Government. Much has already | |
| been done in the few months that we have been in existence to | |
| bring the financial policies, processes and systems of 22 | |
| disparate organizations into one department. | |
| In March, we successfully transferred more than $50 billion | |
| in assets, $36 billion in liabilities and 180,000 employees to | |
| the Department. Within a few weeks we created the financial | |
| structures and support systems necessary to support these | |
| transfers. We have also launched a consolidated bankcard | |
| program that will reduce the number of programs within the | |
| Department from 27 to 3, created an investment review board to | |
| evaluate acquisitions above $5 million. | |
| We are requiring certified project managers. We have | |
| development a joint requirements council. We have created an | |
| investment review board. We have initiated a 5-year budget and | |
| planning program; established a budget process modeled after | |
| DOD's POM process, program objectives memorandum process; | |
| launched a consolidated business and financial management | |
| systems program; and created a program analysis and evaluation | |
| organization. | |
| We are developing a future years homeland security program | |
| and a strategic plan. All of these activities have been | |
| accomplished by a handful of outstanding and dedicated staff | |
| that I am very fortunate to be in charge of, and my task is to | |
| get out of their way and let them do their jobs. They are doing | |
| them spectacularly. | |
| When we stood up, we inherited 22 disparate financial | |
| processes. We have consolidated them to nine, primarily by | |
| terminating memos of understanding with legacy agencies and | |
| shifting the workload to in-house financial support units. We | |
| are studying ways to streamline the financial processes used by | |
| DHS, with a goal of enhancing efficiency, reducing costs, and | |
| improving the quality of financial data. | |
| We have 83 financial management systems, few of which are | |
| integrated. Some are outdated, lack functionality and are | |
| expensive to operate and maintain. To tackle this problem, we | |
| have launched an aggressive problem to transform DHS's business | |
| and financial management policies, processes and systems. | |
| As part of this, we will develop and implement a | |
| departmental business and financial enterprise solution that | |
| results in a single suite of financial management systems for | |
| the Department. The objective of this program is to provide the | |
| business equivalent of a global positioning system for our | |
| operators and to provide CFO compliance and information for the | |
| Congress, the Treasury, and OMB and auditors. | |
| We are launching a comprehensive review of the finance and | |
| accounting operations of all DHS components. This will include | |
| an assessment of performance standards, business processes, | |
| workload requirements, systems capabilities, staffing | |
| requirements and productivity levels. It will provide | |
| recommendations for establishing department-wide performance | |
| standards, improved business processes, possible consolidations | |
| of operations and systems improvements. Action plans will be | |
| developed to implement those recommendations. | |
| Another challenge we face is preparing consolidated | |
| financial statements within the time frame established by OMB. | |
| This is a formidable challenge, but early on we decided that we | |
| needed to move aggressively to comply. We have submitted our | |
| interim statements to OMB on time, and we expect to have our | |
| fiscal year 2003 statements completed ahead of schedule. | |
| Part of the challenge that we face in preparing our | |
| statements is mitigating the impact of 18 inherited material | |
| weaknesses that were identified in audits of the agencies that | |
| became the Department of Homeland Security. I have directed the | |
| Department's components to establish corrective action plans | |
| for each of these material weaknesses. We have established a | |
| system to monitor the implementation of those action plans. And | |
| these components report to me on a quarterly basis on their | |
| progress against them. | |
| In addition, I am creating a unit within my organization to | |
| conduct internal audits, some of which will be focused on any | |
| material weakness that is not being corrected on schedule. | |
| A word, if my might, about H.R. 2886. As the CFO of DHS, I | |
| applaud the spirit with which H.R. 2886 was introduced. I agree | |
| that increased accountability is important and necessary, as | |
| demonstrated by the continuing rash of corporate accounting | |
| scandals. But I want to assure the committee that as the | |
| Department's CFO, I have the same duties and responsibilities | |
| as CFOs in other agencies, and I am held accountable for | |
| ensuring the Department's financial integrity in the same | |
| manner. | |
| The proposed legislation will not change the way I perform | |
| my job, nor will it give me any authority that I do not already | |
| have. Similarly the legislation will not change the | |
| requirements that the Department must comply with in accounting | |
| for its finances. | |
| Section 3 of the bill requires that the Department submit a | |
| performance and accountability report that incorporates a | |
| program performance report. We will include program performance | |
| information in our fiscal year 2003 performance and | |
| accountability report. But that section also requires that the | |
| Department's report include an audit opinion of our internal | |
| controls, beginning in fiscal year 2005. | |
| The bill mandates that the CFO Council and the President's | |
| Council on Integrity and Efficiency jointly conduct a study. An | |
| audit of internal controls could be costly and possibly | |
| redundant. The Department believes that the proposed study is | |
| necessary and that any decision to require DHS to audit its | |
| system of internal controls should await the outcome of that | |
| study. | |
| One of the principal things I did when I went to DHS was to | |
| create a PA&E organization. I spent a number of years in DOD. | |
| And when I went from DOD to Energy, I created such an | |
| organization. I have created one at DHS. | |
| We can get into its functions if you would like later on in | |
| the hearing, but it is one of the organizations within my shop | |
| of which I am most proud, and which is most essential to the | |
| development of our strategic plan and our future years homeland | |
| security program. | |
| Thank you, Mr. Chairman. I will be happy to take your | |
| questions. | |
| [The statement of Mr. Carnes follows:] | |
| Prepared Statement of Bruce M. Carnes, Chief Financial Officer, | |
| Department of Homeland Security | |
| Mr. Chairman, members of the Select Committee, I am pleased to be | |
| here to discuss our progress and challenges in building financial | |
| management, business and program evaluation processes at the Department | |
| of Homeland Security. | |
| DHS Financial Management and Program Evaluation Accomplishments and | |
| Goals The Department of Homeland Security was created to protect the | |
| American people by preventing terrorist attacks, reducing our | |
| vulnerability to attack, and minimizing the loss of life and speeding | |
| recovery should one occur. At the same time, the Administration saw the | |
| creation of the Department as an opportunity to build a model for | |
| management excellence by efficiently and effectively managing resources | |
| to deliver measurable results. | |
| As the Chief Financial Officer at the Department of Homeland | |
| Security, I am committed to fulfilling this vision by building | |
| financial policies, process and systems that are a model for the | |
| Federal government. Just as we have consolidated border and | |
| transportation security functions, merged response activities, | |
| integrated terrorist threat intelligence, and coordinated homeland | |
| security research and development efforts, I believe we must with equal | |
| vigor transform our business practices and systems. | |
| Since the Department was established, much has already been done to | |
| bring the financial policies, processes, and systems of 22 disparate | |
| organizations into one Department. In March 2003, we successfully | |
| transferred more than $50 billion in assets, $36 billion in | |
| liabilities, and more than 180,000 employees to the Department. Within | |
| a few weeks, we created the financial structures and support systems | |
| necessary to support these transfers. This was accomplished with only | |
| handful of staff--a remarkable achievement of which we are proud. | |
| We have also launched a consolidated bankcard program that will | |
| reduce the number of programs within the Department from 27 to three, | |
| created an investment review board to evaluate acquisitions above $5 | |
| million, initiated a five-year budget and planning program, established | |
| a budget process modeled after the Department of Defense's Program | |
| Objectives Memorandum process, launched a consolidated business and | |
| financial management systems program, and created a Program Analysis | |
| and Evaluation organization charged with leading the Department's | |
| program evaluation effort and ensuring compliance with performance and | |
| accountability requirements. | |
| Our success in these areas has laid a solid foundation for our | |
| efforts to become a model of excellence in Federal financial | |
| management; however, much remains to be done. As we move forward, using | |
| the President's Management Agenda as our guide, we seek to: | |
| <bullet> increase efficiency and effectiveness by producing | |
| financial data that is timely, reliable, and useful to decision | |
| makers; | |
| <bullet> strengthen accountability by ensuring that internal | |
| controls are in place across the Department and appropriate | |
| oversight reviews are conducted; | |
| <bullet> significantly reduce costs by consolidating functions, | |
| systems, and processes and by instituting best business | |
| practices; and . | |
| <bullet> achieve results through the use of rigorous planning, | |
| measurement and evaluation processes. | |
| These goals are ambitious and we face significant challenges in | |
| achieving them. | |
| DHS Financial Management Challenges and Solutions | |
| Consolidating the Department's 22 Financial Processes. Currently, | |
| the Department has 22 disparate financial processes. Several of these | |
| were established through memorandums of understanding with the | |
| Department's legacy agencies. Using these processes helped ensure | |
| sufficient financial support services were available when the | |
| Department was first established. However, they are labor-intensive and | |
| cumbersome to manage. Beginning October 1, 2003, we consolidated the | |
| number of processes from 22 to 10--primarily by terminating the | |
| memorandums of understanding with legacy agencies and by shifting the | |
| workload to in-house financial support service units. | |
| This is only a good start. In FY 2004, we will consider options to | |
| further streamline the financial processes used by the Department with | |
| the goal of enhancing efficiency, reducing costs, and improving the | |
| quality of financial data. | |
| Multiple and Redundant Financial Systems. The Department has 83 | |
| financial management systems, few of which are integrated. Some are | |
| outdated, lack functionality, and are expensive to operate and | |
| maintain. To tackle this problem, we have launched an aggressive | |
| program to transform the Department's business and financial management | |
| policies, processes, and systems. | |
| As part of this initiative, we will develop and implement a | |
| departmental business and financial enterprise solution that results in | |
| a single suite of financial management systems for the Department. The | |
| objective of the program is to provide the business equivalent of a | |
| Global Position System that will: | |
| <bullet> Provide decision-makers with the business information | |
| (e.g., budget, accounting, personnel, procurement, travel) they need in | |
| near real-time; | |
| <bullet> Improve data quality and timeliness; | |
| <bullet> Provide required information to our stakeholders, | |
| including the Office of Management and Budget, the Congress, the | |
| General Accounting Office, our Inspector General, and the public; and | |
| <bullet> Help the Department obtain a clean opinion on our | |
| financial statements. | |
| This program will have a major impact on the way the Department | |
| manages its business and financial operations and will result in the | |
| Department's becoming more efficient and effective by eliminating | |
| redundant systems and consolidating functions. Developing and | |
| implementing the envisioned suite of systems will require a substantial | |
| up-front investment; however, once implemented, we anticipate that this | |
| program will produce significant cost savings. | |
| Lack of Standard Business Practices. Just as the Department has | |
| multiple financial systems and processes, we have multiple business | |
| practices for managing our financial operations. While some diversity | |
| is desirable to ensure that innovation thrives and best practices | |
| emerge, some standardization is also necessary. | |
| Thus, we are launching a comprehensive review of the finance and | |
| accounting operations of all Department of Homeland Security | |
| components. The review will include an assessment of performance | |
| standards, business processes, workload requirements, systems | |
| capabilities, staffing requirements, and productivity levels. The | |
| review will also provide recommendations for establishing department- | |
| wide performance standards, improved business process, possible | |
| consolidations, and systems improvements. Action plans will be | |
| developed to implement recommendations. We anticipate that the | |
| Department will begin to realize cost savings from implementing the | |
| recommendations as early as FY 2005. | |
| Challenges Relating to Coordination and Communication. In any | |
| organization as large as the Department of Homeland Security, | |
| communication and coordination can be a challenge. To tackle this | |
| problem, early in my tenure I established a departmental Chief | |
| Financial Officer's Council, which I chair, and whose members include | |
| the budget and finance directors from the Department's components. The | |
| Council has been instrumental in sharing information and priorities and | |
| for discussing the problems confronting the components. | |
| While the Council has been effective in providing direction to the | |
| budget and finance officers, the fact remains that they are part of a | |
| different command structure. While this has not been detrimental to | |
| accomplishing the initiatives that we have pursued thus far, as we | |
| begin to make the sweeping changes needed to become a model for | |
| financial management excellence, working within the current structure | |
| could become a greater challenge. | |
| Preparing Consolidated Financial Statements. Another challenge we | |
| face is preparing consolidated financial statements within the | |
| timeframe established by the Office of Management and Budget. Although | |
| this is a formidable challenge, we decided early on that the Department | |
| needed to move aggressively to meet the requirements of OMB Bulletin- | |
| 01-09, as amended, which requires agencies to prepare financial | |
| statements. We have submitted our interim statements to OMB on time and | |
| expect to meet OMB's due date for the final audited statement. | |
| Part of the challenge that we face in preparing our statements is | |
| mitigating the impact of 18 inherited material weaknesses that were | |
| identified in prior-year audits at the Department's legacy agencies. To | |
| tackle this problem, I directed the Department's components to | |
| establish corrective action plans for each material weakness. I also | |
| established a system to monitor implementation in which the components | |
| report to me on a quarterly basis on their progress in correcting their | |
| material weaknesses. In addition, I am creating a unit within my | |
| organization to conduct internal audits, some of which will be focused | |
| on any material weaknesses that are not being corrected on schedule. | |
| Through these processes, I believe that we will make significant | |
| progress in reducing the number of material weaknesses and ultimately | |
| eliminate them. | |
| H.R. 2886 ``Department of Homeland Security Financial Accountability | |
| Act'' | |
| As the CFO of the Department of Homeland Security, I applaud the | |
| spirit with which H.R. 2886, ``Department of Homeland Security | |
| Financial Accountability Act'', was introduced. I agree with the bill's | |
| sponsor, Congressman Platts, that increased accountability is important | |
| and necessary as demonstrated by the continuing rash of corporate | |
| accounting scandals. | |
| While I agree with the overarching goal that H.R. 2886 seeks to | |
| accomplish, I believe that legislation may not be necessary. Section 2 | |
| of the bill proposes to subject the Department to the same financial | |
| management and accountability requirements as all other cabinet-level | |
| departments. It also proposes to change the status of the Chief | |
| Financial Officer from a presidential appointee reporting to an under | |
| secretary to a presidential appointee subject to Senate confirmation | |
| reporting to the Secretary. | |
| As the Department's CFO, I have the same duties and | |
| responsibilities as CFOs in other agencies and am held accountable for | |
| ensuring the Department's financial integrity in the same manner. The | |
| proposed legislation will not change the way I perform my job nor will | |
| it give me any authority that I do not already have. Similarly, the | |
| legislation will not change the requirements the Department must comply | |
| with in accounting for its finances. The Department complies with the | |
| provisions of the Chief Financial Officers Act of 1990 and will | |
| continue to do so. | |
| Section 3 of the bill requires that the Department submit a | |
| performance and accountability report that incorporates a program | |
| performance report. The Department will include program performance | |
| information in its FY 2003 performance and accountability report. | |
| Also included in Section 3 is a provision that would require that | |
| the Department's performance and accountability report to include an | |
| audit opinion of the Department's internal controls over its financial | |
| reporting beginning in FY 2005. In addition, the bill mandates that the | |
| Chief Financial Officers Council and President's Council on Integrity | |
| and Efficiency jointly conduct a study of the potential costs and | |
| benefits of requiring agencies to obtain audit opinions of their | |
| internal controls over their financial reporting. | |
| An audit of internal controls would be costly and very possibly | |
| redundant. The Department believes that the proposed study is necessary | |
| and that any decision to require the Department to audit its system of | |
| internal controls should await the results of the study. | |
| Again, I support the intent of the proposed legislation. Should | |
| H.R. 2886 ultimately be enacted, the Department would look forward to | |
| working closely with the Congress on this important Issue. | |
| Program Analysis and Evaluation | |
| One of the first actions I took as the Department's Chief Financial | |
| Officer was to establish a Program Analysis and Evaluation (PA&E) | |
| Office and to recruit a highly experienced director to the lead | |
| organization. PA&E's primary responsibilities include: | |
| <bullet> designing and managing the Department's Planning, | |
| Programming and Budgeting System; | |
| <bullet> managing the development of the Future Years Homeland | |
| Security Program; | |
| <bullet> coordinating the development of the Department's strategic | |
| plan; | |
| <bullet> ensuring the Department meets performance-based budgeting | |
| requirements; | |
| <bullet> managing the Department's Investment Review Process; and | |
| <bullet> preparing the Department's Annual Performance Plan and the | |
| program and performance section of the annual Performance and | |
| Accountability Report. | |
| The Department has made significant progress in each of these | |
| areas. We expect to issue a directive on the Department's new Planning, | |
| Programming and Budgeting System (PPBS) within the next month. The PPBS | |
| is being modeled after the Department of Defense's system and will | |
| include as an integral component guidance for establishing goals and | |
| performance measures which reflect program missions and assess desired | |
| outcomes. The PPBS will be the basis for developing the Department's | |
| first Future Years Homeland Security Program, which will be submitted | |
| to Congress in accordance with the provisions of the Homeland Security | |
| Act. We have made substantial progress on the Department's first | |
| strategic plan and expect to transmit a draft to Congress for review in | |
| early November. In the area of investment review, since May 2003, our | |
| Investment Review Board has evaluated approximately ten percent of the | |
| Department's major acquisitions (over $50 million) and will increase | |
| its efforts over the coming months. Under the leadership of the Deputy | |
| Secretary, the Department launched a comprehensive effort to develop | |
| measures of effectiveness to help assess performance and make more | |
| informed resource allocation and budget decisions. Finally, we are on | |
| track to issue on time the Department's first Annual Performance Plan, | |
| which will include rigorous performance measures for each of the | |
| Department's organizational elements. We will also publish the | |
| Department's first Performance and Accountability Report in January | |
| 2004. | |
| We believe that through these initiatives we are taking the steps | |
| necessary to help improve performance, increase accountability and | |
| achieve the Department's mission. | |
| Closing | |
| In closing, I want to assure this committee that the Department of | |
| Homeland Security is advancing as rapidly yet judiciously toward our | |
| goal of becoming a model for management excellence. In the coming | |
| months, we will move aggressively to implement the plans that I have | |
| described for consolidation, streamlining, and increasing | |
| accountability. We will also announce further plans to help us reach | |
| these goals. | |
| We look forward to working with the Congress as we progress with | |
| our plans and will seek your continued support as we move forward. | |
| Chairman Cox. Thank you. Our next witness is J. Richard | |
| Berman, Assistant Inspector General for Audits at the | |
| Department of Homeland Security. | |
| STATEMENT OF J. RICHARD BERMAN, ASSISTANT INSPECTOR GENERAL FOR | |
| AUDITS, DEPARTMENT OF HOMELAND SECURITY | |
| Mr. Berman. Chairman Cox, Ranking Member Turner, and | |
| members of the committee. Thank you for the opportunity to be | |
| here today to discuss financial management and program | |
| evaluation at the Department of Homeland Security and H.R. | |
| 2886. | |
| On March 1, 2003, DHS was created by consolidating 22 | |
| domestic agencies to better protect the Nation against threats | |
| to the homeland. Each of the component agencies brought to DHS | |
| its distinct business processes as well as financial | |
| weaknesses. This presents DHS with significant challenges in | |
| integrating financial operations, creating a common | |
| infrastructure and developing goals, objectives and meaningful | |
| performance measures to guide and track progress. | |
| Measures of effectiveness are critical to the process of | |
| evaluating the degree of success of department programs and | |
| operations, and making more informed resource allocation and | |
| budget decisions. | |
| OIG will use the Department's goals and performance | |
| measures, as well as the President's management agenda in | |
| shaping its own work plans and priorities and will verify and | |
| validate program performance data as part of its audits and | |
| inspections. | |
| In the area of financial systems and reporting, DHS must | |
| integrate and establish effective controls over the financial | |
| systems and operations of the incoming components, including | |
| correcting the weaknesses that it has inherited. | |
| While some components, such as INS, have received | |
| unqualified audit opinions on their financial statements, they | |
| expended significant human resources and costs to prepare | |
| financial statements because of their inadequate financial | |
| systems and weaknesses in control. | |
| DHS inherited a total of 18 material weaknesses identified | |
| in prior year financial statement audits at the legacy | |
| agencies, and we will be assessing these material weaknesses as | |
| part of our 2003 financial statement audit. | |
| Information systems are another key area that DHS must | |
| address in order to establish sound financial management and | |
| business processes. This is an area in which opportunities | |
| abound to achieve greater economy and efficiency. | |
| To meet these challenges DHS will need to build a unified | |
| financial management structure capable of supporting both | |
| efficient financial statement preparation and reliable, timely | |
| financial information for managing DHS's current operations, | |
| including information to support performance-based budgeting. | |
| Grants and contracts management are also major areas of | |
| concern. DHS awards over $7 billion annually in grants under | |
| its emergency preparedness and disaster assistance grant | |
| programs, which were absorbed primarily from FEMA and the | |
| Department of Justice. | |
| Previous FEMA and Justice OIG reports identified | |
| significant shortcomings in the preaward process, cash | |
| management, monitoring and grant closeout processes in the | |
| emergency preparedness programs. | |
| Further, these programs have redundant or similar features, | |
| such as emergency planning, training, and equipment purchases | |
| and upgrades for State and local emergency personnel, and | |
| meaningful performance measures are desperately needed in these | |
| areas. | |
| Additionally, FEMA's OIG found that FEMA had ineffective | |
| performance and financial oversight over disaster assistance | |
| grants. This, in turn, enabled grant recipients and subgrantees | |
| to misuse millions of dollars in Federal funds. In the 7 months | |
| since our office was created, we have reported about $40 | |
| million in questioned grant expenditures. A sound grants | |
| management program is needed, one that complies with Federal | |
| requirements and that includes effective monitoring of and | |
| assistance to States and other grantees. | |
| Similarly, DHS absorbed billions of dollars in contracts | |
| from the component agencies that were awarded under differing | |
| procedures and circumstances. DHS must integrate the | |
| procurement functions of the legacy agencies, some lacking | |
| important management controls. For example, at TSA, where | |
| contracts totaled $8.5 billion at the end of 2002, the | |
| Department of transportation OIG found that procurements were | |
| made in an environment where there was no preexisting | |
| infrastructure for overseeing contracts. TSA had to rely | |
| extensively on contractors to support its mission, leading to | |
| tremendous growth in contract costs. We are continuing to | |
| examine these contracts. | |
| Other DHS components also have complex, high cost | |
| procurement programs underway that we are or will be examining. | |
| Early attention by DHS to strong systems controls for | |
| acquisition and related business processes will be critical, | |
| both to ensuring success of the programs and to maintaining | |
| integrity and accountability. | |
| With regard to H.R. 2886, OIG has several comments. First, | |
| the bill waives the financial statement audit requirement for | |
| fiscal year 2003. The amended version offered by the House | |
| Subcommittee on Government Efficiency and Financial Management | |
| dropped this provision and we support that change. With respect | |
| to the proposed requirement for an opinion on DHS's internal | |
| controls in fiscal year 2004, the OIG believes such a | |
| requirement will be beneficial, but that it is not practical to | |
| perform such an audit of internal controls in that year. | |
| The amended version extends the deadline to fiscal year | |
| 2005, and OIG supports that change for the reasons outlined in | |
| my prepared statement. The amended version also includes a | |
| requirement to study the costs and benefits of issuing an | |
| opinion on internal controls. We support this requirement as | |
| well. | |
| We believe the cost for such an opinion could be | |
| substantial--by one estimate, a 35 percent increase in total | |
| audit costs. And funds have yet to be provided for even the | |
| overall financial statement audit, which we estimate will cost | |
| about $11 million, and that is without an opinion on internal | |
| controls. | |
| Mr. Chairman, this concludes my remarks. I would be happy | |
| to answer any questions you may have. | |
| [The statement of Mr. Berman follows:] | |
| Prepared Statement of J. Richard Berman | |
| Mr. Chairman and Members of the Committee: | |
| Thank you for the opportunity to be here today to discuss financial | |
| management and program evaluation at the Department of Homeland | |
| Security (DHS). | |
| On March 1,2003, DHS was created by consolidating 22 disparate | |
| domestic agencies to better protect the nation against threats to the | |
| homeland. In order for DHS to accomplish its multiple missions, it has | |
| organized most of these 22 agencies into four major directorates. The | |
| Border and Transportation Security Directorate, which maintains the | |
| security of our nations' borders and transportation systems, is the | |
| largest and consists of several legacy agencies, including the | |
| Transportation Security Administration (TSA), the U.S. Customs Service, | |
| the Office of Domestic Preparedness (ODP), and law enforcement | |
| functions, such as the Border Patrol, of the Immigration and | |
| Naturalization Service (INS). The Emergency Preparedness and Response | |
| Directorate is primarily the former Federal Emergency and Management | |
| Agency (FEMA), and ensures that our nation is able to recover from | |
| terrorist attacks and natural disasters. | |
| Smaller agencies were incorporated into the above directorates as | |
| well as into the Science and Technology and Information Analysis and | |
| Infrastructure Protection Directorates. Additionally, the Coast Guard | |
| and Secret Service retained their distinct identities within DHS. The | |
| newly created Bureau of Citizenship and Immigration Services will | |
| assume the responsibility for immigration services from the former INS. | |
| Providing the infrastructure to hold the department together is the | |
| Management Directorate, which is responsible for budget, management, | |
| and personnel activities. | |
| Each of the component agencies brought to DHS its distinct business | |
| processes, which presents DHS with challenges in integrating | |
| operations, creating a common infrastructure, and developing goals, | |
| objectives and meaningful performance measures to guide and track | |
| progress. All of these challenges impact financial management at DHS. | |
| Financial management in the federal government revolves around | |
| requirements found in several laws, including the Federal Managers | |
| Financial Integrity Act, the Chief Financial Officers Act, the Federal | |
| Financial Management Improvement Act (FMFIA), and the Government | |
| Performance and Results Act. Agencies must ensure that: (1) government | |
| obligations and costs are lawful; (2) funds, property, and other assets | |
| are safeguarded; (3) reliable, timely, and useful information is | |
| available to make fully informed decisions and to provide | |
| accountability; and (4) performance is measured. | |
| Following is an overview of the major financial management | |
| challenges facing DHS, along with the steps we believe are needed to | |
| address these challenges and establish sound financial management and | |
| business processes at DHS. We also provide substantive comments on H.R. | |
| 2886, The Department of Homeland Security Financial Accountability Act, | |
| including the amended version offered by the Subcommittee on Government | |
| Efficiency and Financial Management. | |
| OVERVIEW OF FINANCIAL MANAGEMENT CHALLENGES AND SOLUTIONS | |
| Financial Systems and Reporting | |
| DHS must integrate and establish effective controls over the | |
| financial systems and operations of the incoming components, many of | |
| which bring with them longstanding weaknesses in need of correction. | |
| DHS inherited a total of 18 material weaknesses identified in prior | |
| year financial statement audits at the legacy agencies. I have included | |
| a list and brief description of these weaknesses as an appendix to my | |
| statement. We will be assessing these material weaknesses, and the need | |
| to retain or add to them, as part of our FY 2003 financial statement | |
| audit. | |
| Correcting such weaknesses presents a major challenge. For example, | |
| some components, such as INS,\1\ have received unqualified audit | |
| opinions on their financial statements, but expended tremendous human | |
| resources and costs to prepare their financial statements, and | |
| weaknesses existed in financial systems and controls. In the past, INS | |
| has halted normal business operations for up to two weeks each year in | |
| order to conduct manual counts of millions of applications in order to | |
| calculate earned revenue figures for its annual financial statements. | |
| Poor systems were a major cause of these costly efforts. | |
| --------------------------------------------------------------------------- | |
| \1\ Within DHS, INS has been broken apart and joined with the | |
| Bureau of Customs and Border Protection and the Bureau of Immigration | |
| and Customs Enforcement. Another part formed the Bureau for Citizenship | |
| and Immigration Services. | |
| --------------------------------------------------------------------------- | |
| While combining the 22 entities and their myriad financial systems | |
| and processes pose complex challenges, opportunities abound to achieve | |
| greater economy and efficiency. Information systems are a key issue | |
| that DHS must address in order to establish sound financial management | |
| and business processes. Many of the smaller agencies that came into DHS | |
| are still supported by their legacy agency systems and will need to | |
| migrate to a DHS platform. The larger agencies brought their own | |
| processing capability, but several of these systems have material | |
| weaknesses involving system functionality and security. Overall, DHS | |
| reports over 80 financial management systems, few of which are | |
| integrated. | |
| To meet these challenges, DHS will need to build a unified | |
| financial management structure, including integrated and compliant | |
| systems as well as consistent policies and procedures. These systems | |
| must support not only efficient financial statement preparation; they | |
| must provide reliable and timely financial information for managing | |
| DHS' current operations, too. A key factor will be the sustained | |
| commitment of top DHS leadership, which the Chief Financial Officer | |
| (CFO) already has demonstrated. The CFO meets regularly with financial | |
| officers and staff from DHS components and legacy agencies that still | |
| provide accounting support to discuss the continuing transition and | |
| current DHS-wide financial management issues. Further, the CFO has | |
| formed a group to develop financial system requirements for the agency | |
| in coordination with the Office of the Chief Information Officer. | |
| Grants Management | |
| DHS awards over $7 billion annually in grants under its emergency | |
| preparedness and disaster assistance grants programs. | |
| DHS absorbed three major emergency preparedness grant programs from | |
| FEMA and the Department of Justice (DOJ): the First Responder Program-- | |
| $3.2 billion; the Assistance to Firefighters Grant Program--$750 | |
| million; and the Emergency Management Performance Grant Program--$165 | |
| million. DHS also absorbed about $450 million in miscellaneous | |
| emergency preparedness grant programs. Previous FEMA and DOJ Office of | |
| Inspector General (OIG) reports identified significant shortcomings in | |
| the pre-award process, cash management, monitoring, and grant closeout | |
| processes. Each of these programs has redundant or similar features | |
| such as emergency planning, training, and equipment purchases and | |
| upgrades for state and local emergency personnel. Furthermore, program | |
| managers need to develop meaningful performance measures related to the | |
| degree to which the DHS grant programs have enhanced state and local | |
| capabilities to respond to terrorist attacks and natural disasters. | |
| Another complication is that these programs have been divided | |
| between two separate DHS directorates. Preparedness for terrorism was | |
| placed in the Border and Transportation Security Directorate, while | |
| other preparedness efforts are located in the Emergency Preparedness | |
| and Response Directorate. This bifurcation creates additional | |
| challenges related to interdepartmental coordination, performance | |
| accountability, and fiscal accountability. On September 2, however, DHS | |
| Secretary Ridge announced that soon he will be sending to Congress a | |
| plan centralizing these programs within a single office. | |
| Additionally, DHS absorbed about $2.8 billion in disaster | |
| assistance grant programs from FEMA. FEMA's OIG found that it had | |
| ineffective performance and financial oversight for these grants, which | |
| in turn enabled grant recipients and subgrantees to misuse millions of | |
| dollars in federal funds. Grant recipients' problems with financial | |
| management, procurement, and sub grant monitoring are long standing. | |
| Between 1993 and 2000, for example, auditors questioned the use of | |
| funds totaling nearly $900 million dollars. An assessment of mitigation | |
| grants awarded between 1989 and 1998 disclosed that half of the $2.6 | |
| billion in grant awards was never spent. FEMA's OIG found recurring | |
| grant management problems at the state level, too. Often states did not | |
| monitor or accurately report on sub grant financial and performance | |
| activities. They did not always make payments or close out projects in | |
| a timely manner. Their financial status reports to FEMA were often | |
| incorrect or past due. And, they did not always maintain adequate | |
| documentation supporting their share of disaster costs and other | |
| financial requirements. The OIG found that FEMA seldom used its | |
| enforcement power to compel grantees to fix problems, even when the | |
| grantees had long histories of noncompliance. Finally, the DIG cited | |
| FEMA's debris removal program for its susceptibility to serious fraud, | |
| waste, and abuse. | |
| A sound grants management program to remedy these concerns must | |
| include: | |
| <bullet> A comprehensive grants management system that complies | |
| with grant financial systems requirements issued by the Joint | |
| Financial Management Improvement Program. In addition, DHS must | |
| ensure compliance with the Federal Financial Assistance | |
| Management Improvement Act of 1999, which requires use of | |
| electronic application and reporting by grantees via the | |
| Internet. | |
| <bullet> Effective monitoring of and assistance to states and | |
| other grantees in all phases of the grants management life | |
| cycle from award to closeout. Grant closeouts and required | |
| audits should be within established time periods, and | |
| extensions must be adequately justified, approved, and | |
| documented. | |
| <bullet> Adequate training and supervision of the grants | |
| management workforce. | |
| <bullet> Meaningful performance goals and measures of | |
| effectiveness. | |
| Contract Management | |
| DHS also absorbed billions of dollars in contracts from the | |
| component agencies that were awarded under differing procedures and | |
| circumstances. DHS must integrate the procurement functions of several | |
| legacy agencies, some lacking important management controls. The | |
| General Accounting Office (GAD), for example, reported that Customs had | |
| not established process controls for determining whether acquired | |
| software products and services satisfied contract requirements before | |
| acceptance, nor established related controls for effective and | |
| efficient transfer of acquired software products to the support | |
| organization responsible for software maintenance. At TSA, where | |
| contracts totaled $8.5 billion at the end of calendar year 2002, the | |
| Department of Transportation OIG found that procurements were made in | |
| an environment where there was no pre-existing infrastructure for | |
| overseeing contracts. TSA had to rely extensively on contractors to | |
| support its mission, leading to tremendous growth in contract costs. A | |
| review by TSA of one subcontractor involved with hiring airport | |
| screeners found that, out of $18 million in expenses, between $6 | |
| million and $9 million appeared to be attributed to wasteful and | |
| abusive spending practices. Our office is currently reviewing several | |
| of the TSA contracts including a detailed audit of the screener | |
| contract, in conjunction with the Defense Contract Audit Agency. | |
| Also, some DHS components have large, complex, high-cost | |
| procurement programs under way that need to be closely managed. For | |
| example, Customs' Automated Commercial Environment project will cost $5 | |
| billion, and Coast Guard's Deepwater Capability Replacement Project | |
| will cost $17 billion and take more than twenty years to complete. | |
| Further, some contracts, regardless of their earlier merits, may need | |
| to be revised or may no longer be necessary to accomplish DHS's | |
| mission. | |
| Early attention to strong systems and controls for acquisition and | |
| related business processes will be critical both to ensuring success | |
| and maintaining integrity and accountability. Steps would include: | |
| <bullet> Establishing an overall acquisition strategy for | |
| modernization of legacy program and financial systems. | |
| <bullet> Reviewing all contracts transferring to DHS to ensure | |
| they are relevant to the agency's mission and--particularly for | |
| systems development contracts--will not be affected by, or | |
| conflict with, DHS system integration efforts. | |
| <bullet> Ensuring that contracting officers and their | |
| representatives are properly warranted, trained, and | |
| supervised, and that they maintain proper documentation in | |
| contract files. | |
| <bullet> Establishing a robust and effective contract | |
| management and oversight function. | |
| <bullet> Establishing effective systems and controls for | |
| managing purchase and travel cards. | |
| Improper Payments | |
| The Improper Payments Information Act of 2002 requires agencies to | |
| review all programs and activities they administer annually and | |
| identify those that may be susceptible to significant erroneous | |
| payments. Where the risk of erroneous payments is significant, agencies | |
| are to estimate the annual amount of erroneous payments and report the | |
| estimates to the President and Congress with a progress report on | |
| actions to reduce erroneous payments. | |
| Since DHS must comply with this Act in FY 2004, we will be | |
| performing limited procedures during the FY 2003 financial statement | |
| audit to assess the agency's readiness to meet the reporting | |
| requirement. | |
| Performance Reporting/Program Analysis and Evaluation | |
| Appropriate plans (including workforce plans), goals, objectives | |
| and meaningful performance measures must be established as soon as | |
| possible, and is a challenge for any agency. DHS has implemented a | |
| comprehensive Measures of Effectiveness project under which such | |
| measures will be established through a top-down process based on the | |
| DHS strategic goals. We commend the agency for this effort. | |
| Measures of effectiveness are critical to the process of evaluating | |
| the degree of success of department programs and operations, and making | |
| more informed resource allocations and budget decisions. DIG will use | |
| the department's goals, as well as the President's management | |
| initiatives, in shaping its own work plans and priorities, and will | |
| verify and validate the department's performance data as part of its | |
| audits and inspections. | |
| COMMENTS ON H.R. 2886 | |
| Presidential Appointment and Senate Confirmation of DHS CFO | |
| H.R. 2886 would amend U.S.C. 31 to include DHS as one of the | |
| cabinet level agencies required to have CFOs appointed by the president | |
| and confirmed by the Senate. As a result of this amendment, the DHS CFO | |
| would also report directly to the Secretary of DHS rather than to the | |
| Under Secretary for Management, as is now the case. | |
| The OIG has no position on this change. As a general rule, we | |
| believe that making high-level presidential appointees subject to | |
| Senate confirmation is conducive to making such an official fully | |
| accountable to the Administration and the Congress. On the other hand, | |
| the absence of such confirmation does not necessarily mean that the CFO | |
| can-not be held accountable. Our primary interest is that the CFO | |
| commit to full compliance with the CFO Act, the Federal Financial | |
| Management Improvement Act, and all other applicable statutory | |
| requirements and general good business practices, and this CFO has done | |
| that. | |
| Financial Statement Waiver | |
| H.R. 2886 waived the requirement for a financial statement audit of | |
| DHS until FY 2004. The amended version deleted this language, a change | |
| that the OIG supported. Completion of a FY 2003 financial statement | |
| audit for DHS is important for several reasons. Effective in FY 2004, | |
| OMB accelerated the reporting deadlines for Performance and | |
| Accountability reports, including audited financial statements, to | |
| November 15, 2004. It is unlikely that our office could complete its FY | |
| 2004 audit of DHS' financial statements by that date, without at least | |
| one year's prior experience, given the short history of DHS and the | |
| scale and complexity of its programs and operations. Further, the lack | |
| of an audit this year and possible audit timing problems next year | |
| could negatively affect GAO's government-wide financial statement audit | |
| by increasing the risk of DHS receiving a disclaimer or a qualified | |
| opinion. | |
| We believe emphatically that financial accountability for DHS | |
| should not be postponed. Its newness, size, and complexity strongly | |
| argue for more oversight, not less. GAD has designated the | |
| establishment and operation of DHS as a ``high-risk'' area. An audit of | |
| DHS' financial statements is a key oversight mechanism. Not only do | |
| audited financial statements provide insight into the reliability of | |
| financial reporting, the audit report itself provides details on | |
| internal control weaknesses and non-compliance that put financial | |
| reporting and safekeeping of assets at risk. We strongly believe that | |
| this information should be reported sooner rather than later so that no | |
| time is lost in charting and implementing corrective actions. | |
| The CFO of DHS is working diligently to have auditable financial | |
| statements for FY 2003 by November 15. Our audit is well underway and | |
| we plan to complete the audit by January 31, 2004. | |
| Opinion on Internal Controls over Financial Reporting | |
| H.R. 2886 required that beginning in FY 2004 DHS include in its | |
| performance and accountability report an audit opinion on the | |
| department's internal controls over its financial reporting. The | |
| amended version requires DHS to include management's assertion on | |
| internal controls in the FY 2004 report but defers the audit opinion on | |
| internal controls until FY 2005. | |
| The OIG believes that a requirement for an opinion on internal | |
| controls would be beneficial in concept, but it is not practical to | |
| render an opinion on internal controls in FY 2004 for several reasons. | |
| Deferral of this requirement to FY 2005 would allow time for the | |
| related auditing standards and procedures, and the related costs, to be | |
| more properly considered. | |
| Fundamental to rendering an opinion on internal control, under | |
| attestation standards currently proposed by the American Institute of | |
| Certified Public Accountants (AICPA), is ``management's assertion'' on | |
| controls over financial reporting. Management must provide the auditor | |
| an assertion that significant controls over financial reporting exist | |
| and are designed and operating effectively during the period under | |
| review. In order for management to reasonably make this assertion, it | |
| must make an assessment of those controls including an evaluation of | |
| control effectiveness using suitable criteria, such as the GAO's | |
| Standards for Internal Control in the Federal Government, and support | |
| the evaluation with sufficient evidence such as testing.Management's | |
| assessment of internal controls under the AICPA guidelines would be an | |
| extensive, time consuming process requiring sufficient lead time to | |
| institute. The need for management to first assess and test controls | |
| contributed to a one year deferral of the requirement for publicly held | |
| companies to have an independent audit of internal control, pursuant to | |
| the Sarbanes-Oxley Act of 2002. | |
| Further, DHS's situation is significantly more complex, with its | |
| inception occurring this year, compared to that of a publicly held | |
| company that has established processes, financial systems, and the | |
| general infrastructure to support the extensive effort required before | |
| an audit of internal controls can be performed. | |
| Finally, with the advent of Sarbanes-Oxley, changes are occurring | |
| in the auditing profession. Although Sarbanes-Oxley applies only to | |
| public companies, it could have an impact on auditing standards for | |
| other entities too, including government agencies. The Auditing | |
| Standards Board (ASB) of the AICPA in June 2003 submitted to the new | |
| Public Company Accounting Oversight Board (PCOAB) \2\ its recommended | |
| new, significantly expanded attestation standard for reporting on | |
| internal control over financial reporting. In the submission letter, | |
| the AICP A said it believed the proposed standard should apply to all | |
| engagements and not just to public companies. | |
| --------------------------------------------------------------------------- | |
| \2\ The PCOAB has jurisdiction over auditing standards for public | |
| companies covered by Sarbanes-Oxley. | |
| --------------------------------------------------------------------------- | |
| It should be noted that the intent behind the requirement to opine | |
| on internal controls over financial reporting is similar to the intent | |
| behind FMFIA, although FMFIA has involved a far less rigorous process. | |
| Consideration should be given to combining these requirements when | |
| deliberating the proposed internal control reporting requirements. | |
| Even without an opinion on internal controls, our financial | |
| statement audit report will identify material weaknesses and other | |
| reportable conditions related to financial reporting. For example, DHS | |
| financial statement auditors for FY 2003 will consider internal | |
| controls related to financial reporting for grants, procurement, | |
| property and equipment, inventory, budgetary reporting, liabilities, | |
| and many other categories. | |
| We believe there would be significant additional cost to render an | |
| opinion on internal controls. The size of this increment would depend | |
| on the extent of evaluation and testing performed by DHS and the audit | |
| approach for the financial statements. In the private sector, one | |
| survey found that the cost of complying with the internal control | |
| reporting requirements of Sarbanes-Oxley would increase the average | |
| audit cost by 35 percent. This might be on the low-end for DHS because | |
| of its newness and complexity. Further, there will likely be | |
| significant costs associated with management's assessment of internal | |
| controls, which, as explained above, would be a prerequisite for the | |
| audit. | |
| We believe that rendering opinions on internal controls over | |
| financial reporting at agencies could be beneficial by identifying | |
| additional weaknesses, and focusing attention on the state of financial | |
| management in the government. The terminology of a clean opinion versus | |
| a qualified opinion or disclaimer provides a ranking system that is | |
| easy to grasp. The downside is the additional cost to fund agency | |
| preparations and the audit itself. | |
| Study of Potential Costs and Benefits of Audit Opinions on Internal | |
| Control | |
| The amended version of H.R. 2886 requires that the CFO Council and | |
| the President's Council on Integrity and Efficiency jointly conduct a | |
| study of the potential costs and benefits of requiring agencies to | |
| obtain audit opinions of internal controls over their financial | |
| reporting. We endorse this provision. | |
| We believe the costs, as discussed above, could be substantial. | |
| Therefore, it is worth examining the issue to ensure that the most | |
| efficient and effective audit procedures can be adopted and that the | |
| costs are in line with the benefits. We assume the study will include | |
| such an examination. | |
| CONCLUSION | |
| Mr. Chairman, this concludes my prepared statement. I have tried to | |
| limit my remarks to the areas of greatest concern and your specific | |
| questions. Please be assured that our office will continue to place a | |
| high priority on these issues. Again, I appreciate your time and | |
| attention and welcome any questions you or members of the Committee | |
| might have. | |
| Appendix | |
| To the Statement of J. Richard Berman Assistant Inspector General for | |
| Audits U.S. Department of Homeland Security | |
| Summary of Material Weaknesses | |
| Related to FY 2002 Financial Statement Audits | |
| Federal Emergency Management Agency | |
| 1. Information security controls for FEMA's financial systems | |
| environment need improvement. | |
| Deficiencies existed in the areas of security program planning, | |
| training and awareness, background investigations, system | |
| certification and accreditation, technical vulnerabilities, | |
| terminations, service providers, and wireless communications. | |
| 2. FEMA's financial system functionality needs significant improvement. | |
| Functionality deficiencies included: (1) inadequate accounting | |
| functionality in the property management system, (2) | |
| inefficient payroll processing, (3) no managerial cost | |
| accounting system, (4) interface problems with the HHS' funds | |
| disbursement system, and (5) inaccurate vendor table data | |
| leading to inefficiencies. | |
| 3. FEMA must improve its financial reporting process. | |
| Deficiencies in FEMA's financial reporting process included: | |
| (1) significant delays in preparing financial statements, (2) | |
| unfinalized standard operating procedures for statement | |
| preparation, (3) lack of an integrated financial reporting | |
| process, (4) untimely close-outs for interagency agreements, | |
| (5) notable adjustments related to de-obligations, expense | |
| accruals, and the recording of disbursements as advances, and | |
| (6) inconsistent treatment of three unusual contingent | |
| appropriations. | |
| 4. FEMA must improve its real and personal property system processes. | |
| FEMA lacked a property management system that met its | |
| accounting needs. The system only tracked equipment, not other | |
| types of property. The system changed acquisition dates for | |
| equipment upon transfer and did not link the location of | |
| equipment to the accounting records. FEMA did not have | |
| procedures to ensure proper property inventories or to ensure | |
| the consistent recording of equipment on either a system or | |
| component basis. Processes to identify, value, and track | |
| construction in progress and deferred maintenance were not | |
| fully implemented. | |
| 5. FEMA must improve its account reconciliation processes. | |
| Reconciliation deficiencies were noted in the areas of accounts | |
| payable, unliquidated obligations, fund balance with Treasury, | |
| the suspense fund, reimbursable activity, and intragovernmental | |
| balances. Deficiencies were related to timeliness, procedures, | |
| documentation, or consistency. | |
| 6. FEMA must improve its accounts receivable processes. | |
| FEMA needed to improve its billing timeliness for certain | |
| accounts, although it had made progress during the year. | |
| Immigration and Naturalization Service | |
| 1. INS' information system controls need improvement. | |
| Deficiencies existed in the areas of access controls, audit | |
| trails, back-up procedures, change controls, and system | |
| software controls. | |
| 2. INS' existing systems are not adequate to record revenue | |
| transactions in accordance with federal standards. | |
| The INS did not have a reliable system that could provide | |
| regular, timely data on the number and value of immigration | |
| applications and petitions received, completed, and pending. | |
| This information was necessary to support general ledger | |
| entries required for recording fee revenues that were earned | |
| when the related applications were completed. Instead, the INS | |
| recorded earned revenue in its general ledger when the fees | |
| were received. | |
| 3. INS' processes for financial accounting and reporting need | |
| improvement. | |
| Due to limitations in the design and operation of its legacy | |
| financial accounting system, INS did not maintain integrated | |
| perpetual general ledger records for many key accrual balances. | |
| Instead, the INS used stand-alone systems and performed limited | |
| general ledger updates, or it obtained the required balances | |
| through manual processes and data calls and recorded ``on-top'' | |
| adjustments as part of the financial statement preparation | |
| process. Additionally, the INS did not perform monthly, or at a | |
| minimum, quarterly reconciliations of certain major account | |
| balances. | |
| Transportation Security Administration | |
| 1. Hiring qualified personnel | |
| TSA had not hired sufficient accounting personnel for the | |
| Financial Reporting office. At the end of fieldwork, the | |
| vacancy rate in the CFO's financial management structure was 50 | |
| percent. | |
| 2. Financial reporting and systems | |
| Personnel separations from TSA were not processed on a timely | |
| basis in the personnel system. Other deficiencies existed in | |
| the areas of access controls, security plans, and risk | |
| assessments. | |
| 3. Property accounting and financial reporting | |
| TSA did not maintain complete and accurate records of its | |
| passenger and baggage screening equipment, and an adjustment of | |
| approximately $149 million was required to properly record | |
| construction in progress. | |
| 4. Policies and procedures | |
| TSA did not have written accounting policies and procedures to | |
| support TSA's financial management and budgeting functions. | |
| Such policies and procedures might have prevented the following | |
| deficiencies: | |
| a. An adjustment of approximately $1.0 billion to accrue | |
| accounts payable properly for year-end. | |
| b. An approximate backlog of $322 million in purchase orders/ | |
| obligating documents that were not entered into the accounting | |
| system at year-end, often because of incomplete and erroneous | |
| accounting information. | |
| c. Adjustments of $309 million and $101 million to correct for | |
| improper expensing of equipment meeting TSA's capitalization | |
| criteria. | |
| d. Untimely recording of accounts receivable for air carrier | |
| and passenger security fees. | |
| e. Lack of a process to develop appropriate disclosure | |
| information related to leasing arrangements when initially | |
| drafting financial statements. | |
| f. An adjustment of approximately $45 million to correct the | |
| expensing of a grant advance payment. | |
| TSA also did not have a process in place to monitor and | |
| evaluate its accounting and internal control systems to meet | |
| FMFIA reporting requirements. | |
| 5. Administration of screener contracts | |
| TSA did not have policies and procedures to provide an | |
| effective span of control to monitor contractor costs and | |
| performance. Contractors did not always provide evidence to | |
| support rates or specific cost and pricing data, nor did they | |
| always definitize their contracts, as required. These | |
| deficiencies left TSA vulnerable to inflated labor rates and | |
| other inappropriate charges. | |
| United States Customs Service | |
| 1. Customs did not adequately monitor the effectiveness of its internal | |
| controls over the entry duties and taxes in 2002. | |
| After the events of September 11, 2001, Customs suspended its | |
| Compliance Management program. This program evaluated Customs' | |
| risk-based approach to trade compliance by assessing whether | |
| revenue collections reasonably approximated those actually due. | |
| Without the CM program, Customs lacked an important internal | |
| control related to revenue collection during FY 2002. | |
| 2. Drawback controls need to be strengthened. | |
| Customs' Automated Commercial System (ACS) could not perform | |
| certain processes that would have facilitated monitoring of the | |
| drawback program. To monitor the program, Customs used a risk | |
| management process to select claims for review. Although the | |
| process was supposed to allow for statistical projection of the | |
| results, personnel were allowed to reduce the random sample to | |
| a baseline number, thus impeding the statistical projection of | |
| results. Reconciliation procedures for related drawback claims | |
| also were not sufficiently comprehensive. | |
| 3. Customs IT system logical access and software maintenance security | |
| controls need improvement. | |
| Deficiencies existed in the areas of network and host-based | |
| system configuration, password management practices, logical | |
| access controls, application programs, computer-related | |
| facilities and equipment, and software patches. These | |
| weaknesses put Customs at risk of unauthorized system access, | |
| modification, disclosure, loss, or impairment. | |
| 4. Core financial systems need to be improved and integrated. | |
| Customs' core financial systems did not provide certain | |
| financial information necessary for managing operations. Also, | |
| they did not capture all transactions as they occurred during | |
| the year, did not record all transactions properly, and were | |
| not fully integrated. Additionally, the systems did not always | |
| provide for essential controls with respect to override | |
| capabilities.As a result, extensive manual procedures and | |
| analyses were required to process certain routine transactions | |
| and prepare year-end financial statements. | |
| Chairman Cox. Thank you. Our next witness is Linda M. | |
| Springer, Comptroller of the Office of Federal Financial | |
| Management at the Office of Management and Budget. Welcome. | |
| STATEMENT OF LINDA SPRINGER, COMPTROLLER, OFFICE OF FEDERAL | |
| FINANCIAL MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET | |
| Ms. Springer. Thank you, Mr. Chairman. Appreciate the | |
| opportunity to appear before you and the Members today to | |
| testify on accounting and financial controls at the Department | |
| of Homeland Security. | |
| In the face of many challenges involved with its creation, | |
| the Department has demonstrated a very strong commitment to | |
| financial excellence and should be recognized for its efforts | |
| during this past year. Although the creation of the Department | |
| began just 7 months ago, it is off to a good start with regard | |
| to its financial management. The Department has shown | |
| commitment to preparing audited financial statements in the | |
| first year of its existence and to demonstrate accountability | |
| to both the Congress and to the American people. | |
| It could have waived, asked for a waiver of that | |
| requirement under the Accountability of Tax Dollars Act of | |
| 2002, but the Department instead elected to not only prepare | |
| statements, but do them on the accelerated time frame to which | |
| we are holding other agencies accountable. | |
| This commitment, coupled with the preparation of quarterly | |
| financial statements, shows the Department's determination to | |
| be fiscally responsible from its inception. | |
| Many issues have been raised regarding the proper | |
| accounting treatment of the new Department's financial activity | |
| and its presentation in the financial statements that must be | |
| addressed. OMB has worked and continues to work with the | |
| Department of Homeland Security to resolve these issues in a | |
| timely manner. | |
| Undoubtedly there will be new issues that will surface, but | |
| we look forward to working with the Department to address them | |
| together, in the Department as well. Both the Office of the CFO | |
| and the Office of the Inspector General have partnered very | |
| effectively with OMB in that regard. | |
| The Department must also begin to address longstanding | |
| weaknesses inherited from its components, as you have heard | |
| earlier, such as weak financial accounting and reporting | |
| processes, inadequate information technology systems, | |
| ineffective real and personal property processes and other | |
| internal control issues. | |
| The Department has inventoried these weaknesses and is | |
| developing corrective action plans. And it will take time, | |
| obviously, to implement those, and some of those weaknesses are | |
| still in existence. | |
| With regard to performance and information for management | |
| purposes, it is necessary for financial managers at the | |
| Department to provide management, administration and the | |
| Congress with quality, timely information and analysis that | |
| better informs about its financial implications of program | |
| decisions as well as the impact of those decisions on agency | |
| performance goals and objectives. | |
| It is the responsibility of the Department's management to | |
| put a process in place that sets performance measures | |
| consistent with its strategies, as well as sets goals for | |
| achieving its missions and objectives. | |
| You may be familiar with OMB's PART process, that was put | |
| into place for the fiscal 2004 budget season, and the PART | |
| process attempts to marry up performance measurement with the | |
| budget process, and that applies to the Department of Homeland | |
| Security as it does for every other agency. | |
| For fiscal 2004, last year's budget process, eight programs | |
| at the Department of Homeland Security were PARTed. We have a | |
| verb to go with that process. And this year an additional nine | |
| programs will be added to the PART process from the Department. | |
| The PART process leads to recommendations that will enhance | |
| program performance and will also support GPRA implementation. | |
| The PART is a very comprehensive process, and an additional 20 | |
| percent of programs in each agency are added each year to the | |
| purview of the PART program at OMB. | |
| We believe that this is an important complement to the work | |
| that the Department is doing, that the Chief Financial Officer | |
| described to you earlier. | |
| With respect to H.R. 2886, there are a few comments that We | |
| would offer with respect to the amended version. We are pleased | |
| that the amended version does not include the fiscal 2003 | |
| requirement for reporting. Obviously, we commend DHS for its | |
| recognition of the value associated with going through an audit | |
| in its initial year. | |
| With respect to the internal control audit opinion, the | |
| amended bill contains a requirement for the Department to have | |
| that opinion level audit of internal controls, beginning with | |
| fiscal 2005. Additionally the amended bill would also require a | |
| study, jointly performed by the CFO Council, the President's | |
| Council on Integrity and Efficiency, which is the IG group, and | |
| analyzed by GAO. | |
| The administration acknowledges that obtaining an audit | |
| opinion on internal controls is potentially useful, yet it is a | |
| very significant undertaking. We believe that the insights of a | |
| study would be very beneficial across the board, inclusive of | |
| the Department of Homeland Security. So we believe that--while | |
| we applaud the amendments, we also believe it would be helpful | |
| to go further and let the Department benefit from the results | |
| of the study in the event that that is not done in time for the | |
| 2005 fiscal year. | |
| It is important to note a recent event. You are aware that | |
| the SEC had promulgated rules regarding company executives | |
| assessing the adequacy of their internal controls. The Public | |
| Company Accounting Oversight Board just yesterday met and | |
| issued requirements for auditors, the actual audit guidance for | |
| assessing these internal controls. So there is clearly a lot of | |
| activity in the public--or in the private sector that sets a | |
| precedent that we will be considering as we review this | |
| requirement, potential requirement. | |
| With regard to the CFO Act piece of H.R. 2886, it is OMB's | |
| position that the substantive provisions of the CFO Act should | |
| and do apply to the Department of Homeland Security as they do | |
| for every other major department and agency of the government. | |
| The CFO Act specifies a very specific organizational structure | |
| that is inconsistent with the structure that Congress approved | |
| when it passed the Homeland Security Act of 2002. | |
| The administration believes that the current construct | |
| within the Department is, with a strong and competent leader in | |
| two position of Under Secretary for Management, supports not | |
| only the CFO office, but provides value in the overall | |
| comprehensive view of coordinating not only financial functions | |
| but procurement and IT functions. We think that that does add | |
| great value, that particular construct. | |
| In every other respect, though, the Department is very much | |
| in conformance with the Act from a financial accountability | |
| standpoint. | |
| In conclusion, Mr. Chairman, we believe that the Homeland | |
| Security Department in its short lifetime has demonstrated a | |
| very strong commitment to financial management practices of the | |
| highest order, and we have a strong interest, as you do, in | |
| preventing potential waste, fraud and abuse, and OMB will be | |
| very diligent in working with the Department. | |
| With that, I would close and be happy to take your | |
| questions. | |
| [The statement of Ms. Springer follows:] | |
| Prepared Statement of The Honorable Linda M. Springer | |
| Thank you, Mr. Chairman, for the opportunity to appear before you | |
| today to testify on accounting and financial controls system at the | |
| Department of Homeland Security (DHS). | |
| As you know, the enactment of the Homeland Security Act of 2002 | |
| (P.L. 107-296) represents an historic moment of almost unprecedented | |
| action by the Federal Government to fundamentally transform how the | |
| nation will protect itself from terrorism. Rarely in our country's past | |
| has such a large and complex reorganization of government entities | |
| occurred with such a singular and urgent purpose. | |
| The government is undertaking a unique effort to transform a | |
| distinct group of agencies with multiple missions, values, and cultures | |
| into a strong and effective cabinet department. This unique opportunity | |
| comes with many challenges, including those related to the new | |
| department's stewardship obligation to use tax dollars appropriately | |
| and to ensure accountability to the President, the Congress, and the | |
| American people. However, with great challenge comes great opportunity- | |
| both the opportunity to reengineer and develop seamless systems and | |
| processes that support day-to-day operations and the opportunity to | |
| provide analysis and insight about the financial implications of | |
| program decisions that will ultimately assist this Administration, the | |
| Congress, and other decision-makers in evaluating the value and cost of | |
| federal programs. | |
| Overview of DHS Financial Management | |
| The creation of the Department of Homeland Security marks one of | |
| the largest and most complex mergers ever undertaken by the Federal | |
| Government. As with any merger, some of the new Department's efforts | |
| must focus on the most immediate challenges. Other efforts, however, by | |
| their nature will take several years to successfully develop and | |
| implement. For instance, cost control and asset management, coupled | |
| with the need to successfully blend individuals from departments and | |
| agencies with different cultures, values, and missions, are critical to | |
| its effectiveness and efficiency. In the face of the many challenges | |
| involved with its creation, DHS has demonstrated a strong commitment to | |
| financial excellence and should be recognized for its efforts during | |
| the past year. Although the creation of DHS began just seven months | |
| ago, it is off to a good start with regard to its financial management. | |
| DHS has shown commitment to preparing audited financial statements | |
| in its first year of existence to demonstrate accountability to the | |
| Congress and the American people, even though the Accountability of Tax | |
| Dollars Act of 2002 allows the Department to request a waiver from this | |
| requirement. This commitment, coupled with the preparation of quarterly | |
| financial statements, shows the Department's determination to be | |
| fiscally responsible from its inception, accounting for all transferred | |
| assets, liabilities, and operations. DHS' goal is to obtain an | |
| unqualified (clean) opinion for fiscal year 2003 and, if events permit, | |
| to issue its performance and accountability report on an accelerated | |
| timeframe. | |
| An early challenge DHS must overcome is to obtain a clean audit | |
| opinion on its financial statements, which will demonstrate tangible | |
| evidence of its efforts to create a premier financial management | |
| organization. Reaching that goal, however, will require a cooperative | |
| effort among the 22 entities that were transferred to the Department | |
| mid-year. | |
| Many issues have been raised regarding the proper accounting | |
| treatment of the new Department's financial activity and its | |
| presentation in the financial statements that must be addressed. OMB | |
| has worked, and continues to work, with DHS to resolve these issues in | |
| a timely manner. Undoubtedly, new issues will surface, but we look | |
| forward to working with DHS to address them together. | |
| DHS must also begin to address the longstanding weaknesses | |
| inherited from its components, such as weak financial accounting and | |
| reporting processes, inadequate information technology (IT) systems | |
| functionality and security controls, ineffective real and personal | |
| property processes, and insufficient internal controls over duties and | |
| taxes. The Department has inventoried these weaknesses and developed | |
| corrective action plans, although these weaknesses are not yet | |
| resolved. | |
| DHS has already taken steps to integrate the diverse financial and | |
| performance information systems. It has identified the financial | |
| management systems to which the smaller component agencies may migrate | |
| beginning October 1. However, this step is just the first of many in a | |
| long process to streamline the Department's systems. The Chief | |
| Financial Officer (CFO) must also identify the Department's IT assets | |
| and then, in conjunction with each program, determine what IT assets | |
| are needed to meet mission requirements. The CFO must work with the | |
| Chief Information Officer (CIO) to identify a financial management | |
| system or systems to meet user needs, whether it be commercial-off-the- | |
| shelf, internally developed, or a hybrid of the two. | |
| Establishing Sound Financial Management and Business Processes | |
| The push to create a citizen-centered, results-oriented government | |
| has been exacerbated by the demands on available resources. It is | |
| necessary for financial managers to provide its management, this | |
| Administration, the Congress and other decision-makers with quality, | |
| timely information and analysis that better informs about the financial | |
| implications of program decisions and the impact of those decisions on | |
| agency performance goals and objectives. | |
| It is the responsibility of DHS management to put a process in | |
| place that sets performance measures consistent with its strategies, as | |
| well as sets goals for achieving its missions and objectives. OMB's | |
| PART assessment supplements the Department's performance reviews in the | |
| context of the budget process. In addition, DHS management must hold | |
| the agency fully accountable in order to attain sound financial | |
| management. OMB, along with the Office of the Inspector General (OIG), | |
| has the role of overseeing this process. OMB looks forward to | |
| continuing to work with the Department to ensure that DHS works to | |
| achieve sound financial management practices. | |
| OMB believes that DHS must focus its attention on four critical areas: | |
| <bullet> Ensuring top leadership drives the transformation to a | |
| single agency, single vision/goal | |
| <bullet> Creating the financial organization that adds value | |
| and supports the Department's mission | |
| <bullet> Establishing seamless financial systems and businesses | |
| processes | |
| <bullet> Providing meaningful information to decision-makers by | |
| routinely generating reliable cost and performance information | |
| analysis | |
| Ensuring Top Leadership. Leadership is critical to establishing sound | |
| financial management within the Department. The merger of 22 disparate | |
| entities into a single financial organization must begin with a clear | |
| vision of performance and expectations that is communicated throughout | |
| the organization at all levels. To be successful, DHS' top leadership | |
| must make attaining that vision a priority, and the message must be | |
| reinforced in both words and actions. | |
| Creating the Financial Organization. A premier financial organization | |
| must recognize that it exists to provide quality, timely and relevant | |
| information about the financial implications of program decisions and | |
| the impact of those decisions on agency performance goals and | |
| objectives. To accomplish this purpose, leading financial organizations | |
| must serve their customers both internally and externally, aligning | |
| their mission and organizational structure to better support the | |
| entity's mission and objectives. DHS should take all necessary steps | |
| toward creating a financial team that supports the overall missions, | |
| goals, and objectives of the Department. | |
| Seamless Financial Systems and Business Processes. Building a premier | |
| financial organization will also require DHS to establish seamless | |
| financial systems and business processes to enable it to successfully | |
| fulfill its mission and achieve its goals and objectives. At the | |
| earliest opportunity, DHS must determine the essential system and | |
| process infrastructure that it requires throughout the organization. | |
| This infrastructure must also be flexible enough to support information | |
| needs at the detailed program level. | |
| Providing Meaningful Information. In seeking to create a premier | |
| financial organization, DHS must also pursue means that will permit it | |
| to routinely generate reliable cost and performance information | |
| analysis. Such analytics combined with other value-added activities | |
| will support the agency's mission and goals. This capability is a | |
| requirement for ``getting to green'' on the Improved Financial | |
| Performance initiative of the President's Management Agenda, and it | |
| gets to the heart of first-class financial management. | |
| The creation of DHS provides an opportunity to reengineer much of | |
| the management reporting formats produced by its components to meet the | |
| needs of its users. As DHS looks to develop a new strategic plan that | |
| will outline its goals and objectives, its financial organization | |
| should design reporting formats that are aligned to measure performance | |
| in executing its strategy. | |
| H.R. 2886, "Department of Homeland Security Financial Accountability | |
| Act" | |
| OMB has high expectations of solid financial management practices | |
| for this new Department, especially in light of its unique role and | |
| function within the Federal Government. To that end, OMB appreciates | |
| your consideration of H.R. 2886, the ``Department of Homeland Security | |
| Financial Accountability Act,'' and we look forward to discussing | |
| several issues of this legislation with you. | |
| Fiscal Year 2003 Financial Reporting and Audit. The original version of | |
| H.R. 2886 contained a provision that lifted the requirement of DHS to | |
| prepare and submit audited financial statements for any fiscal year | |
| before fiscal year 2004. However, much work has been done, and | |
| continues to be done, toward the completion of the fiscal year 2003 | |
| financial statement process at DHS. Thus, OMB is pleased that the | |
| amended H.R. 2886 does not include this provision, and we commend DHS | |
| for its recognition of the value that is provided in this initial year | |
| by preparing and undergoing an audit of financial statements. | |
| Internal Control Audit Opinion. The amended H.R. 2886 contains a | |
| requirement for DHS to ``include in each performance and accountability | |
| report an audit opinion of the Department's internal controls over its | |
| financial reporting,'' beginning with its fiscal year 2005 report. | |
| Additionally, the amended H.R. 2886 would also require that a study | |
| regarding the potential costs and benefits of requiring this audit | |
| opinion be jointly performed and submitted by the CFO Council (CFOC) | |
| and the President's Council on Integrity and Efficiency (PCIE), as well | |
| as analyzed by the Comptroller General of the General Accounting Office | |
| (GAO). | |
| The Administration acknowledges that obtaining an audit opinion on | |
| internal control is a potentially useful, yet very significant, | |
| undertaking. While we agree that an opinion level internal control | |
| audit could have merit, a review of this magnitude will require the | |
| allocation of additional resources and sufficient time to coordinate | |
| among agency Chief Financial Officers, Inspectors General, and | |
| independent public auditors. Additionally, this provision, if enacted, | |
| has the potential of imposing a more stringent requirement on DHS than | |
| other Federal departments and agencies. | |
| It is our understanding that this internal control audit opinion | |
| requirement is partly intended to hold Federal agencies to the same | |
| standards for financial accountability as the private sector. At the | |
| present time, however, no other sectors are required to obtain an audit | |
| opinion on internal control. While SEC registrants will be subjected in | |
| the future to such a requirement under Section 404 of the Sarbanes- | |
| Oxley Act (enacted July 2002), the effective date has been delayed as a | |
| result of public comments. This deferral recognized several different | |
| concerns, which would also apply to federal agencies. | |
| OMB is pleased that the amended version of H.R. 2886 includes a | |
| provision requiring a cost benefit study. However, we are concerned | |
| that the internal control audit opinion requirement for DHS would take | |
| effect with the fiscal year 2005 report, despite any potential | |
| determinations by the joint CFOC/PCIE study and the subsequent GAO | |
| analysis that such a requirement is not beneficial. Thus, OMB supports | |
| delaying the requirement of an internal control audit opinion until | |
| after the results of the cost-benefit study can be carefully analyzed. | |
| Applying the CFO Act to DHS. It is OMB's position that the | |
| substantive provisions of the CFO Act should apply to the new | |
| Department of Homeland Security as they do every other major Department | |
| and agency of the Federal Government. However, the CFO Act specifies an | |
| organizational structure--direct reporting of the CFO to the agency | |
| head--that is inconsistent with the structure Congress endorsed when it | |
| passed the Homeland Security Act of 2002. The Homeland Security Act | |
| enacted the President's proposal to consolidate management | |
| responsibilities at the new Department under the Under Secretary for | |
| Management. The Administration believes that with a strong and | |
| competent leader in the position of Under Secretary for Management, | |
| sound management policies and practices receive maximum standing within | |
| the agency. | |
| I hope we can work together to apply the substantive provisions of | |
| the CFO Act to the new Department of Homeland Security, while remaining | |
| faithful to the President's original proposal to create the new | |
| Department, as well as the Homeland Security Act of 2002. | |
| Conclusion | |
| OMB believes that DHS, in its short life, has demonstrated a | |
| commitment to sound financial management. Similar to the Committee, OMB | |
| has a strong interest in preventing potential waste, fraud, and abuse | |
| at DHS and at all federal agencies, and we look forward to working with | |
| the Department to ensure that its accounting and financial controls | |
| system are as effective and efficient as possible. | |
| Thank you, Mr. Chairman. I look forward to answering your | |
| questions. | |
| Chairman Cox. Thank you. Our finance witness is Michele | |
| Flournoy, who is a Senior Advisor at the Center for Strategic | |
| and International Studies, in the International Security | |
| Program. Welcome. | |
| STATEMENT OF MICHELE FLOURNOY, SENIOR ADVISER, INTERNATIONAL | |
| SECURITY PROGRAM, CENTER FOR STRATEGIC AND INTERNATIONAL | |
| STUDIES | |
| Ms. Flournoy. Thank you, Mr. Chairman, Mr. Turner, and | |
| other members of the committee. Thank you for inviting me to | |
| testify this afternoon. I have been asked to address a slightly | |
| different issue, as an outsider, the issue of what a strategic | |
| planning system might look like for the Department of Homeland | |
| Security, based on my own experience in strategy and planning | |
| at the Pentagon. | |
| The Department of Homeland Security faces several | |
| challenges that really emphasize the need for and importance of | |
| strategic planning. Its mission is vital to the welfare of the | |
| Nation. It is facing very real day-to-day terrorist threats. It | |
| is trying to integrate this very diverse array of organizations | |
| with their own cultures and traditions and ways of doing | |
| business. | |
| It is responsible for spending billions of taxpayer | |
| dollars, and it is trying to balance the very near term with | |
| the long term. It needs a unifying vision, a strategy for | |
| achieving its objectives, and a clear set of priorities to | |
| guide resource allocation and risk management. It is difficult, | |
| if not impossible, to do these things absent an effective | |
| strategic planning process. So what should that planning | |
| process look like? | |
| I think there are five critical elements. The first and | |
| what I would call the foundation is a comprehensive and | |
| integrated assessment of homeland security threats and | |
| vulnerabilities. Such an assessment is absolutely critical to | |
| setting priorities, to making the hard choices about where to | |
| place emphasis and where to accept or manage risk, to | |
| reconciling competing interests and to allocating resources | |
| effectively. | |
| The second key element is the development and refinement of | |
| the President's homeland security strategy. This is a strategy | |
| that should define our national objectives in homeland | |
| security, as well as the strategies and capabilities and | |
| processes necessary to achieve those objectives. It should | |
| clarify an interagency division of labor. It should also | |
| clearly articulate priorities for resource allocation across | |
| the Nation's portfolio. | |
| Unfortunately, the current iteration of that strategy falls | |
| short of meeting these criteria. I believe it needs to be | |
| revised. I would urge you to consider tying this document to | |
| the budget and performance review cycle and calling on the | |
| administration to actually update and submit it to Congress on | |
| an annual basis as a foundation for not only the Department's | |
| planning, but for interagency planning and homeland security. | |
| The third key element of strategic planning is, as has been | |
| mentioned, a 5-year plan for the Department of Homeland | |
| Security, and I applaud DHS's efforts in embarking on this | |
| exercise. This is something that should provide the Department | |
| with a blueprint for developing its budget, identify and | |
| prioritize capability shortfalls that need to be addressed, | |
| specify short-term actions that deserve to be taken on a | |
| priority basis as well as highlight longer term investments | |
| that need to be made. | |
| It should be, in my view, an internal classified document | |
| that provides front-end authoritative guidance to the various | |
| components of the Department for their budget submissions. It | |
| should be a living document that is reviewed and revised on an | |
| annual basis, though it ideally could form the basis for multi- | |
| year appropriations. | |
| The fourth key element is an annual program and budget | |
| review process. And, here again, I would applaud the formation | |
| of a PA&E office in the Department. This is critical to | |
| ensuring that the program and the budget of the Department | |
| actually reflects the Secretary's priorities and the | |
| President's priorities for homeland security. It is really the | |
| key process that ensures that the components are building their | |
| budgets according to the Secretary's guidance. It is a key | |
| element that allows the Secretary to enforce his vision, his | |
| priorities across the rest of the Department. | |
| It is also key to making hard choices, key trade-offs that | |
| need to be made early in the budget making progress as opposed | |
| to late when it is more difficult to deal with them. | |
| The final key component I would highlight for you is an | |
| annual execution or performance review. That is a retrospective | |
| look that looks at the Department's previous year of | |
| performance and tries to identify where resources were not | |
| spent according to plan, flag programs that are no longer a | |
| priority, highlight priorities that weren't foreseen before. | |
| This is a critical tool for the Secretary to identify key | |
| issues for the next program and budget cycle, and to enforce | |
| accountability within the Department. | |
| In addition to these elements, there are a lot of | |
| intangibles that will be critical to making this a success: | |
| Ownership by the Secretary of the process, making sure the | |
| process includes all relevant internal and external | |
| stakeholders, making sure that there is appropriate interaction | |
| across the interagency spectrum. | |
| I think this approach has a number of organizational | |
| implications for the new department, and I believe that these | |
| could be implemented with a relatively few number of personnel, | |
| but would give the Secretary disproportionately large leverage | |
| in making these organizational changes. The first is to | |
| establish a strategic planning office whose mission expressly | |
| is to define and prioritize objectives of the Department and to | |
| develop the 5-year plan. This, in my view, should also include | |
| a threat assessment unit that is charged with thinking like a | |
| terrorist, not dealing with the day-to-day threat assessment | |
| but the long term. How is this threat evolving? How do we stay | |
| ahead of it as we plan for the future? | |
| The second key element is a Program Analysis and Evaluation | |
| Office that is charged with undertaking homeland security | |
| mission area assessments and program assessments to identify | |
| priorities for resource allocation and to orchestrate the | |
| program and budget review process. | |
| The third is an office that is focused on program | |
| performance and execution, again an office that would look | |
| retrospectively at the previous year's execution and try to | |
| enforce a degree of accountability within the Department for | |
| upholding the Secretary's priorities. | |
| Finally, as you all consider changes, I would urge you to | |
| keep in mind the need for flexibility and adaptability. This is | |
| a department that is dealing with a dynamic threat that needs | |
| unprecedented flexibility to be able to respond to that threat | |
| in a timely manner. | |
| Overall, let me just sum up by saying that I think there is | |
| no other department of the Federal Government where a coherent | |
| and effective strategic planning process is more important. | |
| Thank you very much. | |
| [The statement of Ms. Flournoy follows:] | |
| Prepared Statement of Michele A. Flournoy Senior Advisor for | |
| International Security Center for Strategic and International Studies | |
| Mr. Chairman, members of the Committee, thank you for inviting me | |
| to testify this afternoon before this distinguished body. I have been | |
| asked to address the issue of what a strategic planning system for the | |
| Department of Homeland Security might look like, based on my strategy | |
| and planning experience in the Pentagon. | |
| Although the Department of Defense and the Department of Homeland | |
| Security are different in many ways, they do share some common | |
| challenges - challenges that underscore the need for and importance of | |
| strategic planning in each case. Both are: | |
| <bullet> charged with missions that are vital to the health and | |
| welfare of the nation--protecting the American people and our way of | |
| life is a mission in which we cannot fail; | |
| <bullet> facing persistent and resourceful enemies; | |
| <bullet> large, complex bureaucracies comprised of a number of | |
| diverse and (in some cases, previously independent) organizations with | |
| their own cultures, traditions, and ways of doing business; | |
| <bullet> responsible for spending billions of taxpayer dollars as | |
| efficiently and effectively as possible; | |
| <bullet> perennially in the position of having more program than | |
| budget; and . | |
| <bullet> trying to balance near-term demands against long-term | |
| investments. | |
| These challenges make it that much more important for each Department | |
| to have a unifying vision, a strategy for achieving its objectives, and | |
| a clear set of priorities to guide resource allocation and risk | |
| management. It is difficult, if not impossible, to create these absent | |
| an effective strategic planning process. | |
| Strategic planning is even more crucial for a brand new department | |
| that is bringing together diverse cultures and personnel systems, | |
| finding its place in the interagency process, and dealing with very | |
| real and immediate threats and operational responsibilities while still | |
| trying to get its telephone and computer systems to work. Without a | |
| clear strategic planning process, directed from the top, and a cadre of | |
| professionals for whom this is their only responsibility, the immediate | |
| will always crowd out the long-term planning that is so critical to the | |
| Department's ultimate success and to the nation's security. | |
| Strategic Planning in the Department of Homeland Security: Elements of | |
| Success | |
| In my view, strategic planning for homeland security must include five | |
| critical elements: | |
| <bullet> A comprehensive, integrated assessment of homeland | |
| security threats and vulnerabilities: Such an assessment is critical to | |
| setting priorities, reconciling competing interests, and allocating | |
| resources effectively. If we try to protect equally against all | |
| possible threats, we will protect adequately against none. Although | |
| there has been significant discussion of threats and vulnerabilities, | |
| no one in government has yet conducted the kind of creative, integrated | |
| analysis that is necessary to determine which should be accorded the | |
| highest priority - and which should be accorded the least. Without a | |
| regular, disciplined, and comprehensive threat and vulnerability | |
| assessment process that considers both the probability of various types | |
| of attacks and the severity of their consequences, decision makers will | |
| have little analytic basis for making tough strategy choices about | |
| where to place emphasis, where to accept or manage a degree of risk, | |
| and how best to allocate resources to improve America's security. | |
| <bullet> Development and refinement of the President's Homeland | |
| Security Strategy: This strategy should define our homeland security | |
| objectives as well as the strategies, capabilities and processes | |
| necessary to achieve those objectives. It should also define a clear | |
| division of labor among all of the actors at the federal level, clearly | |
| identifying which agencies have lead responsibility in which areas, and | |
| which should be prepared to provide support. In short, the strategy | |
| should point the way toward well-defined roles and responsibilities, | |
| coordination processes, and operational procedures for enhancing the | |
| accountability and performance of the U.S. government across the | |
| homeland security domain. Based on the integrated threat vulnerability | |
| assessment described above, the strategy should also clearly articulate | |
| priorities to guide resource allocation for homeland security across | |
| the nation's investment portfolio--creating a foundation for unifying | |
| the efforts of the federal government and establishing the conditions | |
| for effective cooperation and coordination with state and local | |
| governments and the private sector. Unfortunately, the administration's | |
| current Homeland Security Strategy falls short on a number of these | |
| counts and needs to be revised. In order to ensure that it remains a | |
| living and relevant document, the Homeland Security Strategy should be | |
| tied to the budget and performance review processes and reviewed, | |
| updated and submitted to Congress on an annual basis. The Department of | |
| Homeland Security should play a critical role in assisting the Office | |
| of Homeland Security in drafting this document for the President. | |
| <bullet> Development of a Five-Year Plan for the Department of | |
| Homeland Security: Keying off the integrated threat-vulnerability | |
| assessment and the President's Homeland Security Strategy, the | |
| Secretary of Homeland Security should develop a five-year plan to guide | |
| the Department's activities and investments. Such a plan should clarify | |
| the Department's roles and responsibilities in supporting the Homeland | |
| Security Strategy, articulate the Department's objectives in its areas | |
| of responsibility, and develop strategies for achieving these | |
| objectives. It should provide the blueprint for developing the | |
| Department's budget, identifying and prioritizing capability shortfalls | |
| that need to be addressed, specifying short-term actions to be taken on | |
| a priority basis, and highlighting long-term investments to be made to | |
| enhance performance in critical areas. This plan should be a classified | |
| document issued by the Secretary to provide authoritative front-end | |
| planning and programming guidance to the Department's various | |
| components in developing their budget submissions. It should also be a | |
| living document that is reviewed and revised on an annual basis, though | |
| it could ideally form the basis for multi-year appropriations for the | |
| Department. The process of developing this plan should include all | |
| stakeholders within the Department, as well as close consultations with | |
| the White House Office of Homeland Security, relevant Congressional | |
| committees like this one, and key state, local and private sector | |
| partners. The development of such a strategy-based, integrated, multi- | |
| year action plan will be critical to ensuring that the new Department - | |
| and the USG more broadly--gets the highest possible return on what is | |
| likely to be tens, if not hundreds, of billions of dollars invested in | |
| homeland security over the next several years. | |
| <bullet> An Annual Program and Budget Review Process: In order to | |
| ensure that the Department's resources are being spent according to its | |
| priorities, the Secretary of Homeland Security should establish a | |
| rigorous program and budget review process whereby the activities and | |
| expenditures of the Department are reviewed annually in light of the | |
| Five-Year Plan's objectives and priorities. This review process would | |
| provide a mechanism for ensuring that the actions of various components | |
| accord with the Secretary's guidance, and would provide the Secretary | |
| with a critical mechanism for monitoring and enforcing implementation | |
| of his priorities and those of the President. It also would ensure that | |
| the most difficult and important resource decisions and trade-offs come | |
| to the Secretary's attention early rather than late in the budgeting | |
| process. | |
| <bullet> An Annual Execution Review: The purpose of this review | |
| would be to examine how the Department's monies were actually spent in | |
| the previous year, particularly in the Secretary's highest priority | |
| areas in the Five-Year Plan, in order to identify areas in which | |
| resources were not allocated according to plan. This retrospective | |
| exercise is also an opportunity to identify gaps in previous planning, | |
| flag programs that are no longer a priority due to changing | |
| circumstances, and highlight new opportunities for investment that were | |
| not previously foreseen. This is a critical tool for the Secretary to | |
| identify issues and lessons learned for next program/budget cycle and | |
| to enforce accountability within the Department. | |
| In order to be effective, a strategic planning process for the | |
| Department of Homeland Security would require several additional | |
| elements. First, it must be ``owned'' by the Secretary. That is, he | |
| must be engaged personally in leading the process and must communicate | |
| to the Department that this is the process he will use to set his | |
| priorities and make critical resource allocation decisions. Second, the | |
| process must include all internal stakeholders. Any office responsible | |
| for implementing an element of the Secretary's Five-Year Plan should be | |
| consulted during its formulation. Third, the process must be resource | |
| constrained. A strategic planning process that does not take resources | |
| into account will fail to help decision makers to make tough choices | |
| about where to place emphasis and where to accept or manage risk. In | |
| order to be useful and relevant, the strategic planning process must | |
| consider the fiscal guidance as a critical input. Fourth, outside | |
| stakeholders, ranging from key committees and members of Congress to | |
| key partners in state and local government, should be engaged in | |
| regular and substantive consultations as the strategic planning process | |
| unfolds. Although parts of the Department's Five-Year Plan may need to | |
| be classified, the process should not be conducted in secret. DHS will | |
| need to create unclassified fora and documents to enable public | |
| scrutiny and debate. Your views, as the committee of jurisdiction, | |
| should provide critical input to the Secretary as he devises and | |
| revises his Five-Year Plan. Finally, the Department's strategic | |
| planning effort should obviously take into account broader interagency | |
| efforts to enhance homeland security in order to create greater unity | |
| of effort across the U.S. government. Ideally, the White House should | |
| conduct an annual review of all homeland security programs across the | |
| federal government. | |
| Organizational Implications | |
| Putting such a strategic planning process in place would require | |
| empowering the Secretary of Homeland Security's office by creating a | |
| cadre of 50-75 professionals dedicated to and trained for this | |
| function. This small investment of resources would significantly | |
| leverage the Secretary's ability to fulfill his mandate. | |
| First, the Secretary's office should include a strategic planning | |
| office whose mission would be to define and prioritize objectives for | |
| the Department and develop the Secretary's Five-Year Plan to meet those | |
| objectives. This office would also interact with the White House in the | |
| development of the President's Homeland Security Strategy. This office | |
| should include a small threat assessment unit specifically charged with | |
| "thinking like a terrorist" and researching likely ways in which the | |
| security of the United States could be breached in the future. In | |
| contrast to the near-term, operational focus of the more substantial | |
| information analysis directorate, this small analytical staff would | |
| focus on the mid- to longer- term, and would undertake disciplined | |
| reviews of evolving terrorist objectives, doctrine, and techniques in | |
| an effort to inform the development of longer-term strategy and | |
| investment priorities for the Department. This office should draw | |
| widely on the intelligence and research communities in both the United | |
| States and other countries. | |
| Second, the Secretary's office should include a program analysis | |
| and evaluation office charged with undertaking assessments of homeland | |
| security mission areas and programs to identify priorities for resource | |
| allocation as well as orchestrating the Department's annual program and | |
| budget review process. This office could also participate in the annual | |
| cross-cutting interagency review of homeland security programs proposed | |
| above. | |
| Third, the Secretary's office should include an office responsible | |
| for reviewing program performance or execution within the Department, | |
| as described above. Putting this office under the Chief Financial | |
| Officer, who controls the dollars, would likely enhance its | |
| effectiveness in being able to hold other parts of the Department | |
| accountable and enforce implementation of the Secretary's guidance. | |
| Finally, the administration and Congress should strive to make the | |
| new Department as flexible and adaptive as possible. Given the dynamic | |
| nature of threats, the homeland security mission will require an | |
| ongoing reevaluation of strategy and possibly some rapid changes in | |
| programs and resource allocation to respond to new threats that emerge. | |
| That is why it is important to make the new Department more adaptive, | |
| flexible, and able to work across organizations than those of the past. | |
| More specifically, it is imperative that the new Secretary of Homeland | |
| Security be given the authorities to reprogram substantial monies in | |
| response to new threats, facilitate more rapid acquisition of high | |
| priority goods and services, and reform and reorganize offices within | |
| the Department with appropriate notice to Congress. This will obviously | |
| require an unusually close working relationship with this committee. | |
| Conclusion | |
| Given the importance of its mission, the size of its budget, and | |
| the enormity of the challenges it faces, the Department of Homeland | |
| Security is in dire need of an effective strategic planning | |
| process.Based on lessons learned in the Department of Defense, the | |
| relatively minor process and organizational changes recommended here | |
| could have a substantial impact on the new Department's effectiveness. | |
| Absent such reforms, the Department is unlikely to be able to fulfill | |
| its mandate of making meaningful improvements in our homeland security. | |
| Concrete steps should be taken on an urgent basis to empower the | |
| Secretary of Homeland Security to establish an effective strategic | |
| planning process in the new Department. | |
| Strategic Planning in the Department of Homeland Security | |
| Strategic planning for homeland security must include five critical | |
| elements: | |
| <bullet> A comprehensive assessment of homeland security threats | |
| and vulnerabilities | |
| <bullet> Development and refinement of a Homeland Security Strategy | |
| <bullet> Development of a Five-Year Plan for the Department of | |
| Homeland Security | |
| <bullet> An Annual Program and Budget Review Process within DHS | |
| <bullet> An Annual Execution Review within DHS | |
| In order to be effective, the strategic planning process must also: | |
| <bullet> Be ``owned'' by the Secretary | |
| <bullet> Include all internal stakeholders | |
| <bullet> Be resource constrained | |
| <bullet> Engage outside stakeholders, such as key members of | |
| Congress, in regular and substantive consultations | |
| <bullet> Take into account broader interagency efforts to enhance | |
| homeland security. | |
| Putting such a strategic planning process in place requires | |
| empowering the Secretary of Homeland Security's office. These changes | |
| would likely require identifying and training 50-75 people to fulfill | |
| these functions--a small investment of resources that would | |
| significantly leverage the Secretary's ability to fulfill his mandate. | |
| <bullet> Establishing a strategic planning office to define and | |
| prioritize objectives for the Department and develop the Secretary's | |
| Five-Year Plan to meet those objectives. This office would also | |
| represent the Department in the drafting of the President's Homeland | |
| Security Strategy. It should include a small threat assessment unit | |
| specifically charged with ''thinking like a terrorist'' and researching | |
| likely ways in which U.S. security could be breached in the future. | |
| <bullet> Creating a program analysis and evaluation office. This | |
| office would undertake its own assessments of mission areas and | |
| individual programs as well as orchestrating the Department's annual | |
| program and budget review. | |
| <bullet> Tasking part of the CFO's office with reviewing program | |
| execution within the Department on an annual basis to ensure | |
| implementation of the Secretary's guidance. | |
| <bullet> Giving the Secretary authorities to make the new | |
| Department as adaptive and flexible as possible in the face of changing | |
| threats and opportunities. | |
| Chairman Cox. All of the members except the chairman and | |
| the ranking member will be recognized for 8 minutes, who will | |
| be recognized for 5 minutes of questions. | |
| Does any Member on our side wish to proceed? Mr. Gibbons. | |
| Mr. Gibbons. I will yield to Mr. Linder. | |
| Mr. Linder. I just have one question for Ms. Flournoy. You | |
| said something that got my attention, that we should have some | |
| group of people in this Department trying to think like | |
| terrorists. | |
| If you were thinking like a terrorist, would you be | |
| thinking suicide bombings at large events? | |
| Ms. Flournoy. I don't think like a terrorist every day. I | |
| do think that is something we need to assess. But I am not in a | |
| position to give you a credible assessment of likelihood and | |
| severity of consequences and so forth. | |
| My point in raising it is I know the Department has a | |
| directorate that is responsible for information analysis. But | |
| they rightly have a very near-term day-to-day focus and | |
| responsibility. I think you need a separate group of people who | |
| are focused on the long term and who can inform the strategic | |
| thinking of the Department while looking at the long term, and | |
| they should be separate from the other directorate and part of | |
| the strategic planning organization. | |
| Mr. Linder. Thank you. | |
| Chairman Cox. Mr. Gibbons. | |
| Mr. Gibbons. Thank you, Mr. Chairman. I had a couple of | |
| questions for Dr. Carnes and perhaps Mr. Berman. The view that | |
| we have consolidated 20 plus organizations into one with | |
| disparate financial and accounting methods is not uncommon, | |
| either in government or in the private sector, especially in | |
| the day and age of massive corporate mergers. | |
| Has there been any consultation sought from the private | |
| sector with regard to how individuals or entities within this | |
| new agency are coping with or dealing with the experiences of | |
| mergers of financial accountability? | |
| Mr. Carnes. Yes, sir. A couple of points, if I could. First | |
| off, before I came into the administration, I spent 8 years in | |
| Defense in the finance and accounting arena, and I was the | |
| Deputy Director of DFAS. When I went to DFAS, we had 328 | |
| finance and accounting systems in DOD. When I left we were down | |
| to 30 systems. We consolidated systems and we consolidated | |
| operations. | |
| So I am blessed, I guess you could say, with having had a | |
| fair amount of experience in that area myself. I have brought | |
| some people in who I knew at DOD who have also been involved in | |
| that, and they are applying their skills and knowledge to the | |
| problems that we have in consolidation and integration at | |
| Homeland Security. | |
| In addition, we have consulted with private sector | |
| companies. I will just give you an example. The Hewlett- | |
| Packard-Compaq merger, for instance, is one that we recently | |
| met with. And they came in and met with the Secretary, and they | |
| have briefed the senior leadership on how integration of | |
| disparate systems and business processes worked in their case. | |
| I have also visited a number of companies who have engaged | |
| in this process, too. So, yes, we do have some familiarity with | |
| that. | |
| Mr. Gibbons. Let me say that in my experience in life | |
| change is not inevitable, but the most difficult thing about | |
| change is not accepting the new, but letting go of the old way | |
| that you have done things. When you change from 22 separate | |
| accounting systems to 10, primarily through terminating | |
| memorandums of understanding with legacy agencies that are out | |
| there, as you report in your testimony, what has been your | |
| experience? What comments, what push-back have you received | |
| from those individuals who are reluctant to accept changes to | |
| their accounting? | |
| Are you able to convince them, cajole them, persuade them | |
| in some way to change the accounting methods, even though they | |
| are used to the old way that they have done things in the past? | |
| Mr. Carnes. Yes, sir, if you will allow this little | |
| anecdote. When I was in DOD, my early years there, we used to | |
| try to persuade the military services to change their | |
| accounting and finance systems and practices by saying they | |
| would be CFO compliant. And I would say to my masters that you | |
| show me a CINC who cares about CFO compliance and I will show | |
| you a CINC who doesn't deserve his job. His job is to fight | |
| war. Our job is to do that as well. | |
| And what we are doing is, we are selling our initiative, | |
| because we are going to provide to our operators at the pointy | |
| end of the spear the information they need to know and business | |
| processes that tell them where they are. | |
| So they are going to get something themselves that is | |
| useful here, and they are looking at it. They are involved in | |
| the requirements definition process. | |
| Mr. Gibbons. So this is an incentive basis which you have | |
| encouraged them to adopt to the new consolidated procedures of | |
| accounting? | |
| Mr. Carnes. Yes, sir. | |
| Mr. Gibbons. Mr. Berman, of the 80 reports that are out | |
| there, financial reports I would imagine, financial management | |
| reports, there is an absolute need for consolidation throughout | |
| this process. What are you doing to assure Congress that we are | |
| getting the right information as reported to us in this process | |
| while you look at the consolidation of these various financial | |
| management systems so that we have the confidence to know that | |
| what is needed for our oversight is actually what is being | |
| reported to us? | |
| Mr. Berman. Yes, sir. One thing that we have done, similar | |
| to what Dr. Carnes was describing, we have in fact adopted a | |
| model for the financial statement audit that is used by large, | |
| complex corporations. | |
| In order not to miss major issues inherent in the | |
| individual components, we actually have six separate teams, | |
| each headed by a partner of our CPA firm, that are looking at | |
| the underlying systems, controls and accounting processes at | |
| those separate components, and then merging all of that | |
| information into one consolidated opinion. | |
| This, we believe, will flesh out all of the weaknesses that | |
| need to be fixed, including the 18 we have inherited, and | |
| possibly some additional ones, so that appropriate attention | |
| can be placed on those issues. | |
| I would point out also that for the kind of incentives | |
| discussed by Dr. Carnes, we are still talking about the future. | |
| The individual components are still largely run using their own | |
| systems, which again has largely complicated the audit, and | |
| presented some major challenges. | |
| But in the end, I think we will have a comprehensive road | |
| map of those issues that need to be addressed. | |
| Mr. Gibbons. Let me ask a question with regard to the grant | |
| system, because out there is an enormous amount of financial | |
| aid, financial grants that are being submitted to States at | |
| their request. How are we matching up all of the information we | |
| are getting back to see whether or not those grants are | |
| effective? Are we achieving what we intend to achieve; in other | |
| words, a greater measure of security for this country through | |
| those grants? | |
| How are you looking at the follow up of those grants? | |
| Mr. Berman. We inherited a sizable sum from--in terms of | |
| grant programs--from FEMA. And, again, there was--there is | |
| quite a history there. We also inherited the entire staff of | |
| the IG at FEMA. So, we basically inherited quite a body of | |
| knowledge on how those programs are run. | |
| One of the common findings there is the fact that greater | |
| attention needed to be placed on overseeing the work of the | |
| States. Typically, those grants were made to the States, and | |
| the States in turn subgranted to local governments, and that is | |
| where a lot of the breakdowns occurred. | |
| We are beginning to focus a lot of our attention on the | |
| actual accomplishments of those grants and working with FEMA | |
| and the States to perhaps address some of these systemic | |
| problems up front. | |
| One of the areas where we did not inherit a lot of staff is | |
| from the Department of Justice. So, one of the first things we | |
| did was initiate some work looking at the Office of Justice | |
| Programs' mechanisms for awarding and controlling their grants. | |
| We are looking into why it has taken so long for ODP to issue | |
| grants and for the States and localities to spend the money | |
| that they received in 2002. | |
| So, we have a sizable amount of work underway that will | |
| help us identify and fix substantive problems in that whole | |
| process. | |
| Mr. Gibbons. Thank you, Mr. Chairman. My time has expired. | |
| Chairman Cox. Well, it is good of you to say that for a | |
| change. The chairman usually has to point that out. | |
| Mr. Pascrell is next on this side. | |
| Mr. Pascrell. Thank you, Mr. Chairman. Mr. Chairman, before | |
| I get to the questions just an observation, particularly in | |
| view of what we are discussing today. All of us up here are, as | |
| you are, concerned about developing a Homeland Security | |
| Department that is effective as well as being efficient. | |
| But in our hesitancy, excuse me, in our rush to communicate | |
| to the American people that we are actually doing something to | |
| defend our neighborhoods, I think we should send up a very | |
| strong cautionary note about spending. | |
| Because, somehow and in some way, we will jointly defend | |
| the Nation at home. But we can't overreact. And I think that is | |
| a pretty strong word and I want to use that word. We cannot | |
| overreact and simply spend money on what we think we need. | |
| And that leads me to my first question. I was going to ask | |
| it to Mr. Carnes, but I would rather ask it first to Ms. | |
| Flournoy, and here is the question. Would a comprehensive | |
| threat and vulnerability assessment aid the Department's | |
| program and budget review process? | |
| Ms. Flournoy. I believe, sir, that it would not only aid | |
| it, but it is difficult to do an effective strategy development | |
| and program review process without it. You know, in the DOD | |
| context we always started with a threat assessment. You have to | |
| start with an assessment of the environment in which you are | |
| working and, make judgments about where you are going to place | |
| emphasis, where are you going to accept or manage risk. That is | |
| the basis for making choices and strategies, setting | |
| priorities, deciding on programs and so forth. | |
| So I think it is exceedingly difficult to undertake that | |
| whole strategic planning process without that as a starting | |
| point. | |
| Mr. Pascrell. That is the way it is supposed to work? | |
| Ms. Flournoy. That is the way it is supposed to work, and | |
| in other departments it does work. | |
| Mr. Pascrell. We have not included that, though, in this | |
| legislation, unless I have missed something, Dr. Carnes. | |
| Mr. Carnes. It is not in the legislation, sir, but we begin | |
| with a threat assessment. | |
| Mr. Pascrell. What do you mean we begin? | |
| Mr. Carnes. When we begin at the Homeland Security | |
| Department to do our program and planning, we draw a picture, a | |
| threat picture, if you will, with the best information we have | |
| available at the time, to develop that threat assessment so we | |
| can guide the development of our programs. | |
| Mr. Pascrell. Has that been shared with the Government | |
| Reform Committee or this committee? | |
| Mr. Carnes. Sir, Mr. Cox referred to--Mr. Turner referred | |
| to Mr. Liscouski's testimony. I am not familiar with that | |
| testimony. So I don't know what they have provided to the | |
| committee. But I can find out for you and get back to you. | |
| Mr. Pascrell. But I think we would all agree then that in | |
| order-before we should spend money--before we have to spend | |
| money--there should be this assessment, and it should be very | |
| clearly defined so that we are going in a specific direction | |
| and we are not spending money before we think or plan. We all | |
| agree on that? | |
| Mr. Carnes. As a general matter, I agree with you. | |
| Ms. Flournoy. Absolutely. | |
| Mr. Pascrell. Should this be included in this legislation, | |
| do you think? | |
| Mr. Carnes. No, I don't think so because I think that the | |
| habits that you are talking about are basic institutional | |
| behaviors that DHS is adopting and following. If I might add | |
| one point, Ms. Flournoy's comments on what the five key | |
| elements are of developing this plan, I could not agree more | |
| with her. These are five key elements. We support them and we | |
| are doing them. | |
| Mr. Pascrell. Do we have that, Chairman Cox? The | |
| assessment, upon which we are going to base the budget, look at | |
| the budget, review the budget, have oversight over this budget? | |
| Mr. Carnes. I was going to say, Mr. Chairman, if I might-- | |
| pardon me for interrupting--we will publish in the very near | |
| future our strategic plan which derives from our assessment of | |
| the threat at the time, and that will guide the development of | |
| our programming guidance and our budgeting guidance and then | |
| our program and budget as it is proposed to the Congress. | |
| Mr. Pascrell. You know the situation we are in with regard | |
| to the budget process. We are heading for the perfect storm and | |
| we are looking at, all of us, both sides of the aisle, at what | |
| is being spent, and I think we are trying to do that in a | |
| respectful and responsible way. | |
| Just a few weeks ago, the Comptroller General of the United | |
| States said in a very, what I think is--we all should read the | |
| speech he gave before the National Press Club--the Federal | |
| Government's current financial statements and annual reports do | |
| not give policymakers-I guess that is us-and the American | |
| people an adequate picture of our government's overall | |
| performance and true financial condition. | |
| Would you agree with that, Dr. Carnes? | |
| Mr. Carnes. Yes. | |
| Mr. Pascrell. Would you agree with that, Mr. Berman? | |
| Mr. Berman. I would. | |
| Mr. Pascrell. And would you agree with that, Ms. Springer? | |
| Ms. Springer. I would within the context that he was | |
| describing it. | |
| Mr. Pascrell. What about Ms. Flournoy? | |
| Ms. Flournoy. I would from a lay person's perspective. | |
| Mr. Pascrell. This is a pretty serious issue. The recent | |
| accountability failures in the private sector served to | |
| reinforce the importance of proper accounting and proper | |
| reporting practices and I'm very concerned about those | |
| practices so that we do not duplicate the error within the | |
| private sector, particularly in a new department where we are | |
| trying to organize it and we are not clear yet as to what | |
| direction it is going in and we are not even clear as to who | |
| has oversight over that department. | |
| I mean the fact that something like this has to go to two | |
| committees, that it has to go to the Committee on Government | |
| Reform and then it has to go to the Homeland Security | |
| Committee--and God knows maybe it won't have to go next year | |
| because maybe we won't be here--says to me the significance of | |
| this committee, which I think is always a question. But one | |
| wonders whether we really want to get to the objective, and | |
| that is to have a true assessment before we spend the people's | |
| money. | |
| Chairman Cox. Will the gentleman yield? Obviously Dr. | |
| Carnes is not going to comment on our House committee | |
| organization but I would point out to the gentleman that the | |
| CFO Act has been within the jurisdiction of the Government | |
| Reform Committee, which was previously the Government | |
| Operations Committee, since its inception, since we originally | |
| wrote the legislation. I was very actively involved in that as | |
| a member of the committee. And the CFO Act applies to everybody | |
| single Cabinet department in the Federal Government. As a | |
| result, that committee, the Committee on Government Reform has | |
| jurisdiction over its reach to the extent that it applies to | |
| all of these different departments and there are always at | |
| least two committees, as a result, that will have jurisdiction | |
| over this. And it is completely normal that that is the case. | |
| Mr. Pascrell. Well, Mr. Chairman, if I may. | |
| Chairman Cox. As the authorizing committee, we would | |
| maintain our jurisdiction over the Homeland Security Act. | |
| Mr. Pascrell. Chairman, this is the debate we have all the | |
| time, and we know who the authorizing committees are. And the | |
| problem is that the members--the chairmen and ranking members | |
| of all those authorizing committees are on our committee and | |
| the question is jurisdiction and I think it is a very valid | |
| question as to whether we want to move forward or whether we | |
| want to get stuck in the bureaucracy. We need answers and we | |
| need action. That is why I asked the question. That is why I | |
| brought emphasis to the point. | |
| Thank you. | |
| Chairman Cox. The gentleman makes a very good point, and I | |
| think as you know our Rules Subcommittee is working diligently | |
| on this. My own view, and I think the view of most of the | |
| members of this committee, is that it is vitally important that | |
| there be one authorizer for this department if we are going to | |
| have success, if we are as a Congress going to participate in | |
| an effort that is going to be successful. | |
| Mr. Sweeney is recognized for 8 minutes. | |
| Mr. Sweeney. Thank you, Mr. Chairman. I am probably not | |
| going to take the full 8 minutes. I have some simple questions | |
| and really a statement, and it is consistent with some of the | |
| questions that have been asked. Certainly, I think it is | |
| consistent with what Mr. Pascrell was just talking about, but | |
| it is a perspective that I don't think has been stated by too | |
| many Members of Congress. | |
| All of you have given testimony that--and all of you have | |
| endorsed the notion of establishing a process of developing | |
| better strategic planning or some strategic planning in this | |
| instance. But haven't we in Congress set you up for a fall? And | |
| that is from my point of view we have established a system of | |
| formulization throughout ODP grants and the grant process that | |
| is fundamentally so flawed you cannot do strategic planning | |
| because you are locked into some arbitrary formulizations that | |
| from where I come from do not make a lot of sense. They are | |
| counterintuitive or counterproductive to the idea that we | |
| establish a stream of funding that is threat-based. We sort of | |
| treated it like Congress kind of treats everything, and that | |
| is, ``I have got to make sure I bring something home.'' | |
| And so this committee I think is going to, in a broad bill, | |
| address some of the formulization issues. I have a bill of my | |
| own that bases the ODP portion--and I hope it serves as a | |
| precedent--on threat, vulnerability and consequences and, | |
| therefore, I think directs from Congress to the agency itself | |
| the kind of focus that you need to be able to create the | |
| strategic planning and the management style that you need. | |
| I would like to hear from Mr. Carnes and Mr. Berman on | |
| this. And then I want to talk about the back end of it because | |
| I think what we need to do is give you the tools to be able to | |
| focus the dollars where they need to go and then we need to be | |
| assured--I agree, Ms. Flournoy, that there needs to be | |
| flexibility here, but we need to have the confidence that | |
| within that flexibility we are going to be able to quantify the | |
| results. | |
| Dr. Carnes, please tell me how much an impediment is the | |
| current formulization process? | |
| Mr. Carnes. The Secretary in the fiscal year 2004 | |
| appropriations process talked about this issue at great length | |
| in a variety of different forums, and I will just say that we | |
| are very pleased in the way the appropriation came out with the | |
| flexibilities that we can get in the ODP grants because those | |
| flexibilities do provide some discretion to respond to where we | |
| see an increased threat and vulnerability and risk. | |
| Mr. Sweeney. If I could interrupt, if there is a | |
| requirement that you send 40 percent based on some per capita | |
| notion, seemingly grabbed out of the sky in our rush to make | |
| sure we get something established, which is understandable, how | |
| effective can you be at getting dollars to where real risk | |
| exists and how flexible can you be to adjust that? I don't see | |
| how it works. | |
| Mr. Carnes. I guess I would answer it this way. Obviously, | |
| in a world--in one kind of world you would have complete | |
| flexibility to deploy your assets as you deem appropriate. | |
| There are, however, other concerns that those involved in this | |
| process have and bring to bear, and that is what gets enacted. | |
| Mr. Sweeney. We cannot get it passed--I understand, we | |
| can't pass it unless someone feels like they are bringing | |
| something together. Is it an impediment? Rate it: High, medium, | |
| low. | |
| Mr. Carnes. I think I am going to leave that to the | |
| Secretary. Thank you, Mr. Sweeney. | |
| Mr. Sweeney. Well, Dr. Carnes, how are not going to answer | |
| that if you are the person in the position best able to offer | |
| us that advice? I am trying to help you here. | |
| Mr. Carnes. I am going to say at least medium. | |
| Mr. Sweeney. Mr. Berman? | |
| Mr. Berman. First of all, I would agree with Dr. Carnes' | |
| characterization as medium. Our office certainly endorses and | |
| would endorse any move to apply some sort of threat analysis | |
| before distributing those funds. | |
| One of the things we found in our recent assessments, | |
| interestingly enough, is that one of the reasons why it has | |
| taken some States and localities so long to spend the money | |
| they received in 2002 is that they are really trying to do it | |
| right. They have slowed down the process, in some cases, in | |
| order to try to make the equipment being purchased at the local | |
| level interoperable and to ensure that local plans are somehow | |
| integrated with State plans. This is not necessarily across the | |
| board, but we have seen a lot of that discipline at the State | |
| level already, and we are encouraged to see that. | |
| But again, I think in the final analysis there deserves to | |
| be a heavy emphasis on risk assessment. | |
| Mr. Sweeney. Right. The other two witnesses want to comment | |
| at all? Okay. Let me ask this question as a follow-up. | |
| I believe we have to restructure the methodology to get the | |
| funds out. But then we need to have the confidence that once | |
| that happens, we have tangible and appropriate measurements. So | |
| what are the metrics that would be needed to be developed in an | |
| audit process and how confident should we be that this mega | |
| agency now would be able to develop it so it could be | |
| implemented agency-wide? | |
| DOD--Ms. Flournoy, I agree with everything that you said, | |
| except DOD has had problems with its own audit processes. So | |
| maybe we could have that discussion about the audit metrics. | |
| Mr. Berman. I think the basic thrust of the IG's work is to | |
| assure that funds are invested wisely and that those | |
| investments produce measurable improvements in security. | |
| Which is where risk-based assessment comes in. First, there | |
| needs to be an agreement as to what is it exactly we are trying | |
| to accomplish with those grants? What are we trying to protect? | |
| What is the baseline today and how much do we expect that | |
| baseline to improve based on the investments we make? | |
| Mr. Sweeney. Dr. Carnes, have your offices begun that kind | |
| of focused attention and developed that kind of product? | |
| Mr. Carnes. Yes. Yes, we have. I have got right here, this | |
| is a draft list of performance metrics that we are going to--we | |
| are running through a clearance process in the Department right | |
| now that will accompany the budget when it comes up. This will | |
| be the grade card. When we do our budget review, the thing we | |
| want to know is what is the thing you are buying, why are you | |
| buying it, and what are we getting for it? | |
| Now, those are--your question was a great question because | |
| those are rock bottom, the very toughest issues to decide. I am | |
| not so much interested in process as I am in product. I want to | |
| know what the thing is. But the real trick is to figure out | |
| does it make a difference? That is a very tough one to assess. | |
| Is that the thing that prevents terrorism? How do you know? | |
| That requires good intel. You have to know where to aim. | |
| Mr. Sweeney. As I see my time has run out, let me give you | |
| a little bit of advice. The more interactive you are with this | |
| committee in particular, but with Congress in general on the | |
| establishment of those metrics, the more successful you are | |
| going to be. And believe me, we all want you to be very | |
| successful. Thank you. | |
| My time has expired, Mr. Chairman. | |
| Chairman Cox. Dr. Christensen is recognized. | |
| Mrs. Christensen. Thank you. Mr. Chairman, I do not have | |
| any questions at this time. | |
| Chairman Cox. Mr. Langevin is recognized. | |
| Mr. Langevin. Thank you, Mr. Chairman. If I could just | |
| follow up on a question Mr. Pascrell touched on and the | |
| previous question also for Mr. Carnes. In your testimony, you | |
| said that DHS has initiated a 5-year budget and planning | |
| program, and I am certainly pleased to hear that. But I am | |
| curious to know a little bit more about how this plan is being | |
| developed, whose input you are seeking in setting it up. | |
| Specifically, I want to know if the Information Analysis and | |
| Infrastructure Protection Directorate has had any role in this | |
| planning process and what information you are basing that plan | |
| on, given the fact that DHS has really yet to develop a | |
| comprehensive threat and vulnerability assessment, because it | |
| seems to me that this is obviously a critical precursor to a | |
| significant long-term budget decision. Likewise, how is your | |
| programming and budgeting system being developed in the absence | |
| of an overarching set of goals and priorities based on threats | |
| and vulnerabilities? I certainly appreciate the fact that you | |
| are seeking to follow DOD's successful program, but as you | |
| know, DOD already has in place comprehensive multi-year | |
| strategic plans, the QDR, Quadrennial Defense Review Plan and | |
| others that are continually updated and used throughout the | |
| Department as a reliable statement of priorities. So if you | |
| could elaborate on that, I would appreciate it. | |
| Mr. Carnes. Thank you for that question. It is a big | |
| question. We were going to do, when we went over to Homeland | |
| Security, a 5-year program and planning exercise whether it was | |
| required by law or not and we were pleased to see that it was | |
| required by law and that it referenced the DOD model in statute | |
| as the one that we should follow. | |
| The first year, in developing our fiscal year 2005 budget | |
| proposals, obviously we started in the spring and had to do | |
| lots of things simultaneously that normally we would do | |
| sequentially. We took our guidance from the President's | |
| National Strategy for Homeland Security. The Secretary issued | |
| guidance based on the President's strategy and his refinements | |
| of that strategy and issued guidance to the components to | |
| develop budget proposals in response to that. In the meantime-- | |
| to that guidance. In the meantime, we began the development of | |
| our strategy and our POM process to lead to the 5-year program. | |
| So all of these are going simultaneously, as I say. Beginning | |
| with the next one we do, these will all be sequential and one | |
| will flow to the next and one drives the next. | |
| But we do not, absent--we do not have information on which | |
| to build a program. What we are talking about now is the | |
| refinement and a fine-tuning, a calibration of the strategic | |
| plan and of the program guidance to implement that strategic | |
| plan. But the principles that guided our program and budget for | |
| 2005 and the 2004 budget that was just passed were pretty clear | |
| principles and laid out very directly and succinctly, and those | |
| are what guided our program and what are guiding our program | |
| now. | |
| As to a threat picture, yes, we do have to have a threat | |
| picture. Is IAIP at the state that it wants to be? I don't | |
| think that it is. It is still evolving but that does not mean | |
| it is not doing anything. It is doing quite a lot of intel | |
| work. Quite a lot of threat assessment. And it is lashed up in | |
| the TTIC with FBI and CIA. And the Intelligence Community, | |
| working together, is providing this threat picture. That is | |
| what shapes our programmatic response. | |
| Mr. Langevin. So how are IAIP and others--. | |
| Mr. Carnes. We are doing what we call an environmental scan | |
| before we issue what the programming guidance would be, and the | |
| IAIP is the source of that information. They are the ones who | |
| inform the process with a threat picture. | |
| Mr. Langevin. And then they and others are communicating | |
| that and that is the way you are going to form a comprehensive | |
| 5-year plan? | |
| Mr. Carnes. Every major component in the Department is a | |
| major player in the development of a 5-year plan. When we have | |
| a threat picture and when we refine the threat picture, then | |
| programmatically we develop guidance that the Secretary sends | |
| out to respond to that threat, to address that threat. The | |
| programs then develop their program proposals which come in and | |
| get reviewed by the senior officers of the Department. That | |
| leads to budget guidance. That goes to a budget review board of | |
| all senior officers of the Department trading off this against | |
| that and then in responding coherently to the whole thing, to | |
| the whole threat. | |
| So we try to make our decisions corporately as a | |
| corporation of senior leaders in the Department, but wearing | |
| two hats if you will. They are also proponents for their own | |
| particular organizations, but they are asked to make corporate | |
| decisions. The guidance comes from on top, the response comes | |
| from below. It filters up to the top and then the programmatic | |
| response is adjusted to fit that threat. | |
| Mr. Langevin. Now, have you brought in consultants that | |
| help the DOD prepare its QDR to help you in this planning | |
| process as well? Not consultants, but people from DOD? | |
| Mr. Carnes. Oh, yes, this guy right here I stole from | |
| Energy and previously they stole him from DOD. He is Dick | |
| Williams, the head of PA&E for me, and he has a long experience | |
| in program analysis and evaluation and he is doing a first rate | |
| job. And he has brought on his staff people from DOD and we | |
| have people throughout the organization with a DOD background. | |
| Mr. Langevin. I hope to follow up on this further. | |
| If I still have time, Mr. Berman, I appreciate your | |
| comments about the need for a grants management program and I | |
| certainly agree wholeheartedly. I was, though, very surprised | |
| to find recently that there is not even a simple database in | |
| place to track the money that flows to each State from DHS. My | |
| staff recently called the Department to find out more | |
| information just, for example, about a DHS grant being | |
| announced in Rhode Island which we had not received any notice | |
| of. And there was apparently no easy way for DHS to look up the | |
| list of grants that Rhode Island had received. Instead we had | |
| to speak to at least three different legislative liaisons in | |
| separate offices before we could even take an educated guess as | |
| to where the money was coming from. | |
| Let me say for the record that the staff there was very | |
| helpful, but I just found it amazing that no comprehensive | |
| database exists in order to help them access such basic | |
| information. | |
| So my question is would you comment on that and would your | |
| grants management program offer solutions to this problem? | |
| Mr. Berman. Absolutely. We have the same frustrations with | |
| the lack of such a system and we rely heavily on our--at least | |
| three of our regional offices to track the grants going into | |
| those areas. But certainly such a system would be at the heart | |
| of any system that would allow DHS to manage the flow of those | |
| grants and the status of those grants. | |
| We are somewhat hopeful with some of the developments at | |
| ODP--or what was ODP--in developing Internet-based systems to | |
| make it at least easier for applicants to request grants and | |
| then subsequently to track those. But we are still a long way | |
| away from the system that you are describing. | |
| Mr. Langevin. My time has expired. Thank you. | |
| Chairman Cox. I thank the gentleman. The chairman | |
| recognizes himself for purposes of questions. | |
| Dr. Carnes, my understanding is that the Department expects | |
| to have auditable fiscal year 2003 financial statements by | |
| November 15th? | |
| Mr. Carnes. Yes, sir. | |
| Chairman Cox. And you are on track to have an audit | |
| completed in January; is that right? | |
| Mr. Berman. That is correct, sir. | |
| Chairman Cox. January 31st? | |
| Mr. Berman. That is correct. | |
| Chairman Cox. Do you expect, Dr. Carnes, that that will be | |
| accompanied with a clean opinion? | |
| Mr. Carnes. Yes, I expect that it will. There are a couple | |
| of hurdles we have got to get over and I think we are going to | |
| get over them, but I think we will get a clean opinion. | |
| Chairman Cox. You were clear in your testimony, I believe, | |
| that it is the view of the Department that the CFO should not | |
| report to the Secretary and not be confirmed by the Senate; I | |
| am correct? | |
| Mr. Carnes. Yes, sir. | |
| Chairman Cox. And that is OMB's view as well? | |
| Ms. Springer. Yes, it is. | |
| Chairman Cox. Mr. Berman, you stated that OIG has no | |
| position on this change? | |
| Mr. Berman. That is correct. We have certainly seen it work | |
| both ways. Our primary concern is that the Department does, in | |
| fact, follow all of the requirements that fall under the CFO | |
| Act, and the Department, and Dr. Carnes has pledged to do that. | |
| Chairman Cox. Ms. Flournoy, you worked at DOD. At the | |
| Department of Defense, the CFO reports to the Secretary; is | |
| that correct? | |
| Ms. Flournoy. Yes, and it requires Senate confirmation. | |
| Chairman Cox. Did that work in your view? | |
| Ms. Flournoy. It did. | |
| Chairman Cox. Is there a reason that you can imagine that | |
| DHS should be unique among Cabinet level agencies and not have | |
| that requirement apply to it? | |
| Ms. Flournoy. Sir, I am not expert in that area so I really | |
| can't offer you a judgment. | |
| Chairman Cox. I am going to give Ms. Springer an | |
| opportunity to convince me that DHS should be the unique | |
| cabinet department in this case. | |
| Ms. Springer. I don't know if I will be convincing to you, | |
| Mr. Chairman, but I will give you a few points of information | |
| that may be helpful. | |
| My observation since I have been here over the past year is | |
| that while the act does require the reporting line to be drawn | |
| between the CFO and the Secretary, that in practice most of | |
| those CFOs are working connected to either the Deputy or some | |
| other Under Secretary, for Management in some cases. | |
| Chairman Cox. In fact that is right and that reporting | |
| requirement is as much an imposition of responsibility on the | |
| Secretary as it is a guarantee of a reporting line to the CFO. | |
| Ms. Springer. Right. And so I think that what has motivated | |
| that is to make sure that the Secretary is well plugged into | |
| financial accountability issues, that he or she takes them | |
| seriously. | |
| Chairman Cox. So in a word that the Secretary is | |
| accountable? | |
| Ms. Springer. Right. And I think that what we have found at | |
| the Department in our observation of Dr. Carnes and his | |
| interaction with Secretary Ridge and that there is that | |
| continuity or connection, that the Under Secretary facilitates | |
| that in this case, that the Under Secretary actually is able to | |
| coordinate the message that gets to the Secretary so he | |
| receives it in its fullest context. | |
| So its relationship to IT and procurement and other financial | |
| issues--. | |
| Chairman Cox. Given the way the other agencies are | |
| functioning under the CFO Act, is there any reason to think | |
| that that could occur in DHS in the way that you are | |
| describing? | |
| Ms. Springer. It could occur. We have seen the product | |
| coming out of the Department on par and with the same | |
| seriousness that we see in other areas. I would say it both | |
| could work but it was more a sense of the coordination that | |
| this structure would provide. | |
| Chairman Cox. Dr. Carnes, are you planning to use outside | |
| auditors for any purposes? | |
| Mr. Carnes. The IG is using outside auditors in auditing | |
| our financial statements as well as doing some of the work with | |
| his own folks. I could conceivably--I can envision a | |
| circumstance in which I would hire a team from such an outfit | |
| to come in and look at an issue that I was concerned about if I | |
| did not have the staff to be able to do it. | |
| Chairman Cox. Mr. Berman, do you want to describe your | |
| plans in this regard? | |
| Mr. Berman. Yes, sir. Again, Dr. Carnes is correct. We are | |
| using a firm--we have engaged a firm to do both the audit-- | |
| Chairman Cox. Which firm is that? | |
| Mr. Berman. KPMG. They have been engaged to do the audit | |
| for both 2003 and 2004 since in effect you almost need to start | |
| planning 2004 because of the accelerated time frames. | |
| Chairman Cox. Can you describe the scope of the engagement? | |
| What are their responsibilities in connection with the audit? | |
| Mr. Berman. They are responsible for arriving at an opinion | |
| on the financial statements presented as a whole. I would also | |
| clarify for the record OIG's position on the issue that you | |
| addressed with Dr. Carnes regarding a clean opinion. I | |
| appreciate Dr. Carnes' optimism that we will have a clean | |
| opinion. I think from the IG's standpoint we see the road ahead | |
| a little bit steeper than that. The obstacles are quite | |
| formidable and I would not want people to at this point expect | |
| a clean opinion. It will be a real challenge. | |
| Chairman Cox. Apart from the significant work involved in | |
| KPMG's engagement to audit the Department's financial | |
| statements, have we asked KPMG or any other outside firm to | |
| consult on the subject of the consolidation of financial | |
| controls within the Department with the 22 legacy agencies? | |
| Mr. Berman. One of the reasons that we chose KPMG, and in | |
| fact this case we went sole source for those 2 years because | |
| KPMG has already done substantive audit work at many, if not | |
| most, of the big components and we felt that KPMG could bring | |
| to the process a depth of knowledge about the specific | |
| operations of those individual components that we could not | |
| gain anywhere else. | |
| So now KPMG itself essentially is relying on its own staff | |
| in areas where perhaps some other IGs--or other CPA firms might | |
| bring in additional experts, such as in the area of penetration | |
| tests. They are using their own specialized staff, for example, | |
| to attempt to penetrate some of the financial systems or the | |
| networks that those systems are connected to. So essentially at | |
| this point we are relying primarily on KPMG. | |
| Chairman Cox. My specific question was are we asking them, | |
| in addition to their audit work, or are we asking any other | |
| firm, to offer assistance to the design of financial controls | |
| in the Department of Homeland Security, which after all is a | |
| merge of 22 legacy agencies? | |
| Mr. Berman. At this point, no, sir. | |
| Mr. Carnes. Actually, sir, that is my job and we have met | |
| with many of the firms already, and they have wasted no time in | |
| actually coming to see me because they know that is the | |
| business that we are going to be in. And we on our staff had a | |
| lot of familiarity with these firms, having worked with them on | |
| these kinds of projects in the past. We will be offering an RFP | |
| for contractor support and it will be substantial. We will | |
| probably have 350 people involved in this initiative, most who | |
| will be contractors or subcontractors from one of the major | |
| firms. Probably one of the major firms, but anyway whoever does | |
| the best job in the contract. But we will be having a lot of | |
| outside support. | |
| Chairman Cox. And this RFP that you have in mind is going | |
| to cover what? | |
| Mr. Carnes. It is going to cover the integration of | |
| finance, accounting, and budget systems across the Department | |
| and procurement systems, and it is going to develop the plan | |
| for integrating them and then deploying the solution within 2 | |
| to 3 years. | |
| Chairman Cox. And when do you expect to issue your RFP? | |
| Mr. Carnes. In the late winter, early spring. We are | |
| engaged in a requirements definition process working with the | |
| components of the Department. | |
| Chairman Cox. Is it going to be the aim of that undertaking | |
| to redesign the financial controls of the Department? | |
| Mr. Carnes. We are not going to throw out anything that | |
| works but anything that does not work we are going to shoot in | |
| the head and redesign it. | |
| Chairman Cox. One of the things that I admire about your | |
| background is that before you entered government service you | |
| were an English professor and we need such people in this | |
| business who can speak English. But I want to be very clear | |
| what we are talking about here. We have got 22 separate | |
| agencies all with their legacy systems, 18 material weaknesses | |
| identified in the most recent audits. A lot of problems. And a | |
| great opportunity-- | |
| Mr. Carnes. Right. | |
| Chairman Cox.--to throw out all the trash and do it right | |
| in a way that works for homeland security, which in fairness to | |
| all of these agencies was not even their design in the first | |
| place. | |
| Mr. Carnes. Right. Right. | |
| Chairman Cox. That is an ambitious opportunity but it is a | |
| great opportunity. And my question is, is that what we are | |
| doing? And is that work that is going to commence essentially | |
| with the issuance of this RFP next spring? | |
| Mr. Carnes. Basically, that is what we are doing. We will | |
| shrink the number of systems way down. We will have solid | |
| internal controls. It will be JFMIP compliant and it will be | |
| instantaneous real-time information for our managers, decision | |
| makers and operators, and we will strangle things that are not | |
| working. | |
| Chairman Cox. How do we--when we hire a firm to do this, | |
| how do we ensure that this is not just a financial exercise? | |
| Let's take the One Face at the Border initiative of the | |
| Department. we are putting together APHIS and Customs and INS, | |
| each of which has separate accounting systems. The way that you | |
| pick and choose among those or redesign them has a great deal | |
| of influence on the way people do their work. If we pick the | |
| INS approach as opposed to the Customs approach, that probably | |
| makes people at Customs unhappy. How do we make sure we are | |
| infusing management objectives into this process? | |
| Mr. Carnes. That is the essence of the requirements | |
| definition process. We are going to meet--the people who are | |
| involved here are not just or even financial geeks. We want | |
| operators who are folks--you cannot manage an organization with | |
| a financial statement, in response to somebody's question a | |
| moment ago. You cannot run an organization that way. You have | |
| to be accountable and produce the financial statements so that | |
| people know what you did with your money, but you cannot run an | |
| organization that way. | |
| You have to have a financial system that has the capability | |
| of giving you meaningful information. The essence of that is | |
| the involvement of our senior people throughout the Department. | |
| It is our expectation that the Secretary will shortly launch | |
| that initiative and call upon them to be involved from the get | |
| go. | |
| Chairman Cox. On the subject of getting useful management | |
| control information, let me dive immediately into what we | |
| learned about INS at the end of last year. | |
| The INS, which Congress abolished and is no more and is | |
| reconstituted within DHS in two principal parts, was on the way | |
| in the door unable to provide data on the number of immigration | |
| applications it received. It could not tell us how many of | |
| those applications were a work in process and how many of those | |
| applications were complete. This showed up in an audit because | |
| there are fees that are paid in conjunction with this, and in a | |
| flourish of Enron style accounting the Federal Government was | |
| booking the revenue before it did the work and then lost track | |
| of the work as a result. | |
| The proper way to do this, it is my understanding, is to | |
| book the fee as revenue to the government when you process the | |
| application and not before. This is something that has been | |
| identified as a problem. But it is not just a financial | |
| problem, it is a Homeland Security problem because if we cannot | |
| track our work flow, there are human beings behind these | |
| applications and they are the human beings that we are | |
| interested in putting into our watch lists and tracking in a | |
| U.S. visit program and in all other aspects. | |
| So the breakdown of a system that is supposed to keep track | |
| of the most basic thing, which is I applied, I have an | |
| immigration application and petition, I sent you a check, and | |
| we do not even know those figures that is pretty frightening, | |
| isn't it? | |
| Mr. Berman. Yes, sir, you are absolutely correct in your | |
| description of that problem. We are hopeful that the problem | |
| will be fixed this year. | |
| The DHS has implemented, the component (CIS) has | |
| implemented, a new system which is now being tested. To the | |
| extent that the system has been operating this year, we are | |
| comparing the results in that system to the actual results in | |
| selected offices. And hopefully, that will get us over this | |
| problem. | |
| Chairman Cox. I am sorry; I was just having someone whisper | |
| in my ear and I missed your last sentence. | |
| Mr. Berman. If those tests are successful which the | |
| auditors are conducting now--comparing the actual applications | |
| in selected offices with what the numbers are in the new system | |
| that they have developed--hopefully we will be over this | |
| particular problem. But this has yet to be seen. Those tests | |
| are still under way. | |
| Chairman Cox. We got the same bleak report when it came to | |
| grants. The amount of money that was missing was rather | |
| significant over the period between 1993 and 2000 and grant | |
| programs that are now the responsibility of DHA. $900 million | |
| just went missing. | |
| Mr. Berman. Sir, it is not that the funds were missing, but | |
| basically what happens is these grants are related to | |
| particular disasters. For some of these disasters, like the | |
| Northridge earthquake, there is still an office, a FEMA office | |
| on the West Coast, trying to resolve those issues almost a | |
| decade after the actual event. Unfortunately, what happens is | |
| some of these individual grants do not get closed out until | |
| years after the event. When the auditors arrive, they find that | |
| some of the funds were not spent in accordance with the actual | |
| grant agreement, and that is what results in much of those | |
| questioned costs. | |
| Chairman Cox. In fact, the $900 million to which you refer | |
| in your testimony and to which I just referred as well is not | |
| money that went missing. That is money that was spent for | |
| questionable purposes? | |
| Mr. Berman. That is correct, sir. | |
| Chairman Cox. But there was another $2.6 billion, half of | |
| which was not apparently spent at all, and that is the money | |
| that in my mind is missing. What is happening to money that is | |
| not spent? It is granted, but it is not spent? | |
| Mr. Berman. Yes, sir, this is basically no-year money. And, | |
| the reasons are quite varied. In some cases, the States and/or | |
| the localities simply are slow to develop specific plans to | |
| meet the State's requirements. | |
| Chairman Cox. No-year money is the same accounting device | |
| that we used this year when we created the BioShield program. | |
| And my understanding of this accounting and this legal | |
| authority that we are granting in this fashion is that it is | |
| indefinite so it mimics a permanent indefinite appropriation. | |
| Are you telling me that there is money that is out there from | |
| 1993 and we are going to get a drawdown on that at some point? | |
| Mr. Berman. Yes. As far as the money that was cited by the | |
| former FEMA IG, I don't know the exact status of that. I am | |
| hopeful that by this time the bulk of that, if not all of that | |
| money has been spent. | |
| On the other hand--. | |
| Chairman Cox. I am not sure. If the grant was made way back | |
| then and people are just coming up with a reason to spend it | |
| now, maybe it would be best to jump in with legislation and | |
| take that money back. | |
| Mr. Berman. Sir, we are currently looking at the money that | |
| was awarded by ODP in 2002 to get a more recent understanding | |
| of how that money is being spent. And similarly, we found most | |
| of that money has not actually been spent. Now, a lot may have | |
| been obligated, but as much as 90 percent may still be unspent. | |
| Chairman Cox. I had intended to go last and wait until all | |
| the other members asked their questions, but I know that Ms. | |
| Jackson-Lee was here and wishes to ask questions. Mr. Shadegg, | |
| I don't know if you wished to ask questions, so I will yield to | |
| my colleagues. | |
| Ms. Jackson-Lee. Thank you, Mr. Chairman. I will not have | |
| time to ask my questions, but I simply would like to indicate | |
| that my interest is to ensure that there is fiscal | |
| accountability, and as well I have always been concerned about | |
| ensuring that grants that are rendered by the Department have | |
| the opportunity to be directly rendered or given to local | |
| communities. The process that you have now is that it is | |
| directed through the States. And so any time we have that | |
| opportunity to refine that, I know that may be legislative, but | |
| I would hope that we would be able to take that into | |
| consideration in terms of the funding. Right now the funding is | |
| through the States and I believe that is a delaying tactic that | |
| is not warranted. | |
| Ms. Flournoy, I think you have talked about threat | |
| assessment and the necessity of that. Do you have a quick | |
| response as to the need for having a strategy--Homeland | |
| Security strategy that would then direct the CFO as to how to | |
| budget priorities? If you could just give me a quick answer on | |
| that. | |
| Ms. Flournoy. Sure. I think developing a comprehensive | |
| strategy is one of the critical elements of a strategic | |
| planning process. I think it needs to happen at the interagency | |
| level, signed by the President, and then within the Department | |
| of Homeland Security they need to develop their own strategy in | |
| concert with the President's strategy to go forward. | |
| Ms. Jackson-Lee. Would that also include local communities | |
| and States as well, that they do a far-reaching effort in terms | |
| of input? | |
| Ms. Flournoy. The focus of the strategy would probably be | |
| on how the Department is going to use its resources. But to be | |
| effective they would have to include representatives from local | |
| and State government and communities as stakeholders in helping | |
| them define their vision. | |
| Ms. Jackson-Lee. Thank you for your leadership. I yield | |
| back. | |
| I ask unanimous consent to put my statement in the record. | |
| Chairman Cox. Without objection. | |
| The gentleman from Arizona is recognized. | |
| Mr. Shadegg. Thank you, Mr. Chairman. I want to begin, Ms. | |
| Flournoy, by thanking you. I thank all the witnesses for your | |
| testimony and for your efforts on behalf of the Department. I | |
| particularly want to say, Ms. Flournoy, that I agree with you | |
| and your testimony on the importance of threat-based or | |
| vulnerability-based assessment. It seems to me any other | |
| prioritization of the agency's resources or of our Nation's | |
| resources to protect us against a terrorist attack, other than | |
| one based on threat, is a mistake. When we do it based on | |
| population or based on some other type of formula, I think we | |
| are making a mistake. And this is my own personal bias. | |
| I strongly believe that the American people expect us to be | |
| very forward-looking in our approach to homeland security. And | |
| by that, I mean that I think they want us to be looking at the | |
| threat before it occurs, doing all of the intelligence we can, | |
| all of the assessment and evaluation we can, and everything | |
| humanly possible to preclude those attacks before they occur. | |
| Now, that is not to diminish the importance of first | |
| responders. God forbid a future attack is successful in | |
| inflicting harm on Americans on American soil. But I think the | |
| Department's focus has to be very aggressively on reaching out | |
| and looking at where is it that we are threatened? Where is the | |
| next attack going to come from, where are we vulnerable, and | |
| how can we prevent that attack if that is at all possible. So I | |
| encourage you for that testimony and strongly concur in it. | |
| I want to turn next to Ms. Springer. You put out, I guess, | |
| a report OMB does each year called performance and management | |
| assessments. I want to ask a couple of questions out of the | |
| section of that report on Homeland Security. Apparently what | |
| you do is you go through program by program. This particular | |
| program that caught my attention is Disaster Relief Fund Public | |
| Assistance. As I understand the format, you evaluate the | |
| purpose of the program, its purpose, its management, its | |
| results and accountability. On page 43, if you happen to have | |
| this report, you say that the purpose is very high. You rate | |
| that as a 90. But then you say the results and accountability | |
| are very low. And you say for example: ``The program''--now | |
| this is the disaster relief fund which goes in after a | |
| hurricane--``the program has no long-term outcome measures, it | |
| cannot meaningfully track operations with annual performance | |
| measures and the program fails to adequately screen requests | |
| for assistance to determine whether Federal help is needed.'' | |
| On a program as important as disaster relief, I think that | |
| is a very, very telling analysis. And you come back and say | |
| rating results not demonstrated, meaning they have not | |
| demonstrated results from their program. The question I want to | |
| ask is not specifically about that but as a general | |
| proposition, doing this year over year, do you see departments | |
| then improve programs of this type? Can we expect that as a | |
| result of this evaluation, the Disaster Relief Fund Public | |
| Assistance Program will improve and have you had discussions on | |
| that topic with DHS? | |
| Ms. Springer. Okay. It is an excellent set of questions. | |
| Let me just first say there is someone at OMB who is charged | |
| with overseeing this Budget and Performance Integration | |
| Initiative. It is one of the President's management initiatives | |
| that all the agencies are rated on. I am not that person, but-- | |
| so I will provide you with what information I do have and would | |
| be glad to give you a more detailed answer. | |
| That program was one of eight programs that was measured | |
| last year. The whole process of evaluating those programs had | |
| its inaugural year with that fiscal 2004 budget process and the | |
| objective was that in rating it, not only the purpose but its | |
| effectiveness and its results and accountability and all the | |
| things that you mentioned, would continue from year to year, | |
| with that being the first year. It will be reviewed again in | |
| this year's process as well as another nine programs that will | |
| be added and we will look for improvement obviously. | |
| The theory behind this whole process is that if the results | |
| are not demonstrated, it may mean that there is more funding | |
| required to get it to that threshold. On the other hand, it may | |
| mean that the funding is not being properly utilized. There are | |
| a number of conclusions you can draw and it will be reviewed | |
| again each year after that first inaugural baseline year where | |
| the results were not demonstrated. And we found that in a | |
| number of programs, but this process complements and | |
| supplements what the Department is doing itself. | |
| Mr. Shadegg. I want to ask the Department about that in a | |
| moment. This is a flyer explaining that FEMA is funding a | |
| series of programs, $13.4 million in FEMA money. And albeit | |
| some of the programs on the list may be important programs to | |
| be done, I am not certain they should be being done by FEMA. Of | |
| the $13.4 million they are going to have a year-long | |
| celebration of trees, gardens and other healing spaces called | |
| gardens and healing spaces, multicultural dialogue that | |
| includes a greater discussion of who we are, where we are from, | |
| why we are here and how we are doing. Theater workshops, | |
| building trust during war workshop, peace workshop and anger | |
| management workshop. And I don't know if that comes out of that | |
| program or elsewhere, and I am not necessarily saying that some | |
| of these things are not good, but I think my constituents back | |
| home in Arizona think of FEMA dollars as going in after a | |
| disaster and doing more specific. | |
| Chairman Cox. Will the gentleman yield? | |
| Mr. Shadegg. Yes. | |
| Chairman Cox. If they are good, they certainly need to be | |
| renamed at a minimum. And if those are accurate descriptions I | |
| am skeptical that they are worthwhile. | |
| Mr. Shadegg. There may have been times that my wife would | |
| have liked me to have had an anger management class. I am not | |
| sure FEMA should have been paying for it, and I don't know how | |
| I feel about a peace workshop and I am not against peace. | |
| In any event, Dr. Carnes, do you have a comment on either | |
| the evaluation done by OMB or on this program? | |
| Mr. Carnes. As the guy who is on the receiving end of the | |
| grades that OMB hands out, it is a very effective club. I take | |
| them seriously because OMB then tortures us with the results | |
| and slashes our budget. | |
| Mr. Shadegg. I don't want to slash your budget. I want you | |
| budgeted to do what you need to do. | |
| Mr. Carnes. It is incumbent upon us to do this right. And | |
| as much as any--half the time I would say the problem is we | |
| cannot say what it is we are doing. I said in response to an | |
| earlier question I want to know what the thing is that we are | |
| buying. Too often grant folks tend to talk about the process | |
| they are using. I am interested in the thing, then I can | |
| measure it. So sometimes it is just that the program cannot | |
| define what it is about very well or how it is going to do its | |
| job. | |
| Sometimes it is because they just do a poor job of | |
| executing, then you have to either fix--you have to fix it. As | |
| to that project, it is an interesting project. | |
| Mr. Shadegg. Maybe I should give you this flyer and you | |
| could get back to us on those specific projects. | |
| Mr. Berman. The IG would be interested in the flyer as | |
| well. | |
| Chairman Cox. Did that come from OMB? | |
| Mr. Shadegg. No, it came from a Northern Virginia community | |
| resilience project that was funded by a FEMA grant. I yield | |
| back the balance of my time. | |
| [Information follows:] | |
| [GRAPHIC] [TIFF OMITTED] T1355.001 | |
| Chairman Cox. Does any other member wish to be recognized | |
| for questions? I have one last question and that concerns again | |
| the grants. | |
| Since 1999, Federal law has required that applications for | |
| these grants be made electronically and that the reporting also | |
| be accomplished electronically. Is that actually happening, Mr. | |
| Berman? | |
| Mr. Berman. It is with regard to the ODP grants, basically | |
| the emergency preparedness grants. It is not happening with | |
| regard to the FEMA grants, the disaster assistance. Again--. | |
| Chairman Cox. That legal requirement does apply to FEMA, | |
| does it not? | |
| Mr. Berman. I believe so, sir. | |
| Chairman Cox. Maybe, Ms. Springer, you could shed some | |
| light on why we are not in compliance. | |
| Ms. Springer. I may be able to help a little. As part of | |
| that grants modernization, that is law, P.L. 106-107, perhaps. | |
| Chairman Cox. The Federal Financial Assistance Management | |
| Improvement Act of 1999. | |
| Ms. Springer. That is right. As part of that the grants.gov | |
| is going on line with an E-find capability which in effect will | |
| be like a yellow book on-line for anyone to go on and find | |
| grants that may be applicable. First responder grants for | |
| localities. And secondly, there will be an E-apply capability | |
| that will be going live this fall, and under that capability an | |
| applicant who finds a grant will be able to apply on-line one | |
| time entering a set of information that could be utilized for | |
| any grants that may be plugged into that system in effect. So | |
| the applicant does not need to repeatedly enter the same | |
| information. | |
| It is just a start. It is not in its full-fledged | |
| capability. But that is the Government-wide answer to making | |
| that applicable. | |
| Chairman Cox. What about the E-comply program since we have | |
| testimony that, quote, FEMA seldom used its enforcement power | |
| to compel grantees to fix problems even when the grantees had | |
| long histories of noncompliance? And FEMA was specifically | |
| cited in one category for serious fraud, waste and abuse. | |
| Compliance is also, is it not, the subject of this same | |
| 1999 law? | |
| Ms. Springer. Yes, it is. And another thing that goes with | |
| that is the Single Audit Act, which requires audits of | |
| grantees. So that is another piece of this overall grants | |
| review to make sure that the money is going to the purpose for | |
| which it is intended. | |
| Chairman Cox. Dr. Carnes, do you want to comment on this? | |
| Because it is good to hear that we are aiming for legal | |
| compliance sometime in the indefinite future. But given that | |
| the noncompliance is so directly related to fraud, waste and | |
| abuse, this seems like something we want to leap on. | |
| Mr. Carnes. It is a problem and we have got to fix it and | |
| fix it right away. | |
| Chairman Cox. I appreciate it. The committee will work with | |
| you on this and stay interested, because the creation of the | |
| Department is really an opportunity to fix these problems. | |
| These are problems that DHS inherited. DHS has been around only | |
| for month, not years, and so I look at this as an opportunity | |
| to fix the long-standing problems in the legacy agencies that | |
| you have acquired, to reconfigure them for the Homeland | |
| Security objectives and to do so with alacrity. | |
| In that vein, Dr. Carnes, for what it is worth from the | |
| committee's standpoint, if the time for the issuance of the RFP | |
| that you described for the audit is either late winter or early | |
| spring, it would be very pleasing if it were late winter and | |
| not early spring. The faster the better. My concern is this: | |
| that very soon it will be the way we have always done it. So we | |
| have this opportunity now with the creation of this new | |
| department to change things that otherwise might be impossible | |
| in government to change. But if we let a year or two slip under | |
| our noses, then there is not only going to be the old INS way, | |
| there is going to be the DHS way and people that work at DHS | |
| will say this is the way we have always done it at DHS. | |
| This is a golden opportunity. We will only get it once. | |
| Never again in the history of this cabinet department, which | |
| will probably live indefinitely, will this golden moment occur | |
| again. The faster the better. | |
| Mr. Carnes. Yes, sir. | |
| Chairman Cox. Thank you for being outstanding witnesses. | |
| The hearing is adjourned. | |
| [Whereupon, at 3:00 p.m., the committee was adjourned.] | |
| A P P E N D I X | |
| ------------ | |
| Material Submitted for the Record | |
| Dr. Bruce Carnes Responses to Questions from the Hon. Jim Turner | |
| Question: 1. Would your office benefit from a capability within the | |
| Department involving the ability to carry out long-range strategic | |
| assessments concerning the nature of the terrorist threat facing the | |
| country? | |
| a. To your knowledge, does the Department possess, or plan to | |
| establish, such a specific capability, either in your office, | |
| the Under Secretariat for Information Analysis and | |
| Infrastructure Protection, or elsewhere? | |
| Answer: The Under Secretary for Information Analysis and Infrastructure | |
| Protection (IAIP) will provide this capability. Actionable | |
| intelligence, including long-range strategic threat assessments, which | |
| can lead to stopping or apprehending terrorists, is essential to the | |
| primary mission of DHS. IAIP will fuse and analyze information from | |
| multiple sources pertaining to terrorist threats. This information | |
| includes foreign intelligence, law enforcement information, private | |
| sector data, and publicly available information. The Department will be | |
| a full partner and consumer of all intelligence generating agencies, | |
| such as the National Security Agency, the CIA and the FBI. | |
| Timely and thorough analysis of projected terrorists threats and | |
| the projected threat environment is critical to the Department's | |
| ability to prioritize program and resource requirements to safeguard | |
| our homeland. IAIP will provide long-term vulnerability and threat | |
| assessments as input in preparing long-range planning guidance to | |
| support preparation of the Future Years Homeland Security Program | |
| (FYHSP). Program and resource requirements within the Department will | |
| be prioritized to counter projected terrorist threats. | |
| Question: 2. Would an annual National Homeland Security Strategy | |
| document, which could include a comprehensive threat and vulnerability | |
| assessment, aid the Department's program and budget review process? | |
| a. In particular, would it assist you in developing internal | |
| budget guidance for the Department's components, which could | |
| result in an articulation of program and budget priorities over | |
| the five year span of the Future Years Homeland Security | |
| Program? | |
| Answer: Yes, an annual National Strategy for Homeland Security would be | |
| valuable in helping develop program planning guidance, and for that | |
| reason the Department is developing an annual DHS Strategy. From that, | |
| the Department is building a long-term comprehensive planning | |
| programming and budgeting system to support the Future Years Homeland | |
| Security Program (FYHSP). The system will align resources to programs | |
| that support the Department's objectives, demonstrate accountability, | |
| are performance driven, have identified long term benefits, and meet | |
| the Department's priorities. As part of this system, the Department | |
| will issue an annual program planning guidance, based on the Under | |
| Secretary for Information Analysis and Infrastructure Protection's | |
| long-term threat and vulnerability assessment, the National Strategy | |
| for Homeland Security and the Department's strategic plan. The program | |
| planning guidance will: | |
| <bullet> Provide guidance to the agencies in preparing their | |
| input to the FYHSP. | |
| <bullet> Define the projected homeland security operating | |
| environment based upon threat assessments regarding the | |
| security of the homeland. | |
| <bullet> Define the national homeland security priorities | |
| necessary to help achieve and maintain homeland security goals | |
| and objectives; and | |
| <bullet> Ensure the necessary framework (including priorities) | |
| to manage Department resources effectively for successful | |
| mission accomplishment consistent with the National Strategy | |
| for Homeland Security. | |
| Question: 3. What is the current status of the Department's initiative | |
| to consolidate the 83 separate financial systems, few of which are | |
| integrated, that it inherited from its legacy agencies earlier this | |
| year? | |
| a. What integration goals have been established, when will such | |
| goals be achieved, and how many financial systems is the | |
| Department planning to operate when consolidation effectors are | |
| complete? | |
| Answer: The Resource Management Transformation Office (RMTO) working | |
| under the DHS Chief Financial Officer (CFO) has initiated the eMerge\2\ | |
| Program to transform the business and financial management policies, | |
| processes, and systems of DHS into a single solution that addresses the | |
| financial management, acquisition, and asset management requirements | |
| for the Department. eMerge\2\ is a business-focused program partnering | |
| the CFO, Chief Information Officer, Chief Procurement Officer, and | |
| Chief Administrative Officer to deliver a consolidated enterprise | |
| solution to DHS operators, policy-makers, and decision-makers. | |
| Status | |
| The RMTO has defined the strategic goals and developed the detailed | |
| program management plans and strategies (e.g., Risk Mitigation, | |
| Configuration Management) necessary to execute the program. The | |
| eMerge\2\ acquisition strategy will integrate requirements development | |
| with alignment to the DHS enterprise architecture, while building in | |
| quality and program audit. | |
| The eMerge\2\ Program was reviewed and approved by the DHS | |
| Investment Review Board (IRB). (The IRB selects all major DHS programs | |
| that are to go forward, then controls and evaluates their progress. It | |
| is composed of top DHS Leadership, chaired by the Deputy Secretary of | |
| DHS and includes the Under Secretaries of Management, EPR, BTS, S&T and | |
| IAIP. The IRB provides approved programs with strategic guidance and | |
| ensures alignment with DHS missions, strategies and goals.) The | |
| approval of this program on September 24th designated eMerge\2\ as a | |
| DHS program operating under the DHS CFO. | |
| Plans | |
| The program is divided into two major phases. Phase I addresses the | |
| core requirements that are common for all agencies in acquisition and | |
| procurement, budget formulation and execution, civilian pay and travel | |
| settlements, accounts payable, asset management, funds control, general | |
| ledger and reporting, and accounts receivable. The requirements | |
| definition will be complete by April 2004. Phase II, which will include | |
| delivery of a consolidated enterprise solution, will begin with | |
| implementation at one site in early FY 2005 and implementation at | |
| additional sites from March 2005 through FY 2006. | |
| Mr. Richard Berman Response to Question from the Hon. Jim Turner | |
| Question: If the Department was formally made a part of the 1990 Chief | |
| Financial Officer's Act, would that make it easier for the Office of | |
| the Inspector General to monitor compliance with it, and, thus, assist | |
| in ensuring that federal resources are managed appropriately? | |
| Answer: As I mentioned in my testimony, even though DHS is not | |
| presently subject to the CFO Act, the current DHS CFO, to his credit, | |
| has pledged to comply with all of its requirements as if he were | |
| legally bound to do so. We applaud his position, and we will monitor | |
| and report on whether he adheres to it through our regular audits of | |
| department programs and operations. | |
| While the current DHS CFO agrees to comply with the provisions of | |
| this law even though he is not obliged to do so, his successor may not | |
| take that position. If a future CFO were not to follow this law, we | |
| believe that it would be harder for OIG to obtain management's | |
| agreement to take any corrective actions we might recommend to address | |
| any deficiencies we might find in the area of financial management. | |
| <all> | |
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