National Sea Grant College Program Amendments Act of 2015

Floor Speech

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Mr. GRASSLEY. Mr. President, I come to the floor today to send a message to Secretary of Defense Carter. I wish to alert him to a problem that needs high-level attention. It is standing in the way of one of the top priority goals of the Congress--auditing the books of the Defense Department.

The need for annual financial audits was originally established by the Chief Financial Officers Act of 1990. By March of 1992, each agency of the Federal Government was supposed to present a financial statement to an inspector general for audit in accordance with the prescribed standards. To date, all departments have earned unqualified or clean opinions. But there is one glaring exception; that is, the Defense Department. It has a dubious distinction, under both Republican and Democrat administrations, of earning an unblemished string of failing opinions known as ``disclaimers.''

In the face of endless slipping and stumbling, Congress finally cracked down--except it looks as though the crackdown hasn't done any good. At that time, there was a new line drawn in the sand. It was placed in section 1003 of the National Defense Authorization Act of 2009. In 2009, the Department was given a charitable 7-year reprieve from the requirement to have their books auditable, and it was given until September 30, 2017. Those 7 bonus years did not buy us in the Congress much. All the slipping and sliding and stumbling have continued undiminished.

The 25-year push to audit the books is stuck at a roadblock. Billions of dollars have been spent trying to solve the root cause of the problem, but the fix is nowhere in sight. And until it is, auditing the books will remain an elusive goal for the Department of Defense but a goal that has been met by every other agency of the Federal Government.

What I am talking about is the Department's broken accounting system. This problem has been a festering sore for many years. It adversely affected every facet of the audit effort. The broken accounting system is driving the audit freight train. How could the mighty Defense Department be buffaloed for so long by something so simple? The Pentagon develops and produces the most advanced weapons the world has ever known and does it with relative ease. Yet the Defense Department can't seem to acquire the tools it needs to keep track of the money it spends.

With little or no fiscal accountability, Congress cannot exercise effective oversight of defense spending. If Congress can't do that, then adding money to the defense budget, and borrowing at the same time to do it, is foolish, in my book. That is precisely why I opposed a recent amendment to add $18 billion to the Defense bill.

I want to take a moment to put my spotlight on the issue. My hope is to stimulate creative problem-solving and innovative solutions that seem to not be getting their proper attention at the Department of Defense.

A recent press report pinpointed the cause for all the stumbling that is going on at the Defense Department. It drew on testimony by the government's preeminent authority on accounting, Comptroller General Gene Dodaro. His testimony before the Senate Committee on the Budget had a razor-sharp edge. It zeroed right in on the old stumbling block-- underlying accounting problems. While the Pentagon is spending in excess of $10 billion a year to modernize its vast accounting system, the GAO director said these investments ``have not yielded positive results.'' And since DOD officials ``continue to make system investments that don't produce better systems,'' he said, those responsible ``need to be held accountable.'' They are wasting money, in other words. As a clear, unambiguous indicator of the continuing accounting mess, he cited in excess of $1 billion in Antideficiency Act violations incurred by DOD. The Antideficiency Act violations, according to the Comptroller General, means the Department is ``spending money that it should not be spending.''

I agree with the Comptroller General. That is what I call unlawful spending. A good accounting system, one with effective internal controls, should be able to detect and should be able to stop illegal spending and particularly fraud and theft. What is in place today doesn't accomplish that goal. Unauthorized spending is usually discovered, instead, by chance and long after the fact.

When asked how much of DOD's $600 billion in yearly expenditures is actually accounted for, the Comptroller General stated bluntly--his words--``very little.'' The Comptroller General's assessment is a very bruising indictment of how the taxpayers' precious money is mishandled in the Pentagon.

The Secretary of Defense has a fiduciary responsibility under the Constitution and under the law to account for every penny spent. None has honored that responsibility. One Secretary of State, however, made a good-faith effort. Leon Panetta formally launched the audit readiness initiative in October of 2011. While giving it a big boost with visibility, this effort sputtered to a standstill, like all the others, over the past decades.

During Secretary Carter's nomination hearing, Senator Manchin of West Virginia questioned him about the faltering efforts to audit the Defense Department. The Secretary replied: ``I am committed on the audit front.'' In response to a followup question, he stated: I will hold the Chief Financial Officer ``responsible and accountable for making auditability one of my top business reform priorities.'' During a meeting in my office, he provided me similar assurances. These solemn vows don't give me a whole lot of confidence. His predecessors spoke the same words, but all we see is a trail of broken promises.

To win this war on making the books auditable, it will take perseverance and guts. It will take top-notch, hands-on leadership skills and a chief financial officer who grasps the root cause problem and is committed to solving it.

In watchdogging the audit process for years, I have come to know the underlying problem all too well. I have been down in the trenches and have seen it up close with my own eyes. I was introduced to the problem when it just popped up right in the face. It came in the form of unusual notations in audit reports published by the inspector general. They read: ``No audit trail found.'' That red flag prompted me to dig deeper. So I asked: How do you perform financial audits with no money trail to follow?

The answer: You don't, except with great difficulty, risk, and expense.

One question led to another and eventually to my first indepth audit oversight report. It was published in September 2010. It zeroed right in on the root cause problem. I call it the audit-accounting mismatch.

My observations were derived mainly from reviewing Corps of Engineers audits for fiscal years 2008 to 2010. These were some of the Department's earliest attempts to comply with the Chief Financial Officers Act, requiring all agencies of the government to have auditability of their books.

The results of my study were mixed. This work provided a startling introduction to a problem. During extensive interviews, senior managers readily admitted that auditors had to do manual workarounds that are prone to errors. They could not connect the dots between contracts and payments and accounting records and make the necessary match-ups. Transactions were not properly posted to accounts and supporting documentation had gone missing. In fact, financial records were so bad it took hundreds of highly paid certified public accountants doing manual labor, characterized as ``audit trail reconstruction work'' or ``pick-and-shovel work'' to finish the job. Such labor-intensive accounting procedures are very costly--$50 million for the Corps of Engineers alone--and leave gaping holes in audit evidence even after it is spent. Such unorthodox procedures place outcomes on very shaky ground.

True, these observations were made 5 years ago, but I keep running into the same old problems. For example, I am seeing it again today in my ongoing inquiry into the Department's Task Force for Business and Stability Operations in Afghanistan. I see it everywhere I go.

The recently concluded Marine Corps audit is a perfect example of the same old problem. The broken accounting system is still driving the audit freight train. The Marine Corps, which is the smallest of the military services, had been claiming for several years that it was audit ready. However, when the time came, the Marine Corps flunked the test. Oversight audits by the inspector general and the Government Accountability Office concluded there was not sufficient, appropriate audit evidence to support a clean opinion. The transaction data was largely incomplete, unreliable, unverifiable, and unsupportable. In the opinion of the experts, the final call ``was not even close.''

When I spoke about the results of the Marine Corps audit on the floor last August 4, 2015, I underscored the need for reliable transaction data. Transactions are the lifeblood of financial statements, and the lack of those transaction statements doomed the Marine Corps audit from the get-go.

I ask Secretary Carter to pause and reflect on why the Marine Corps audit was unsuccessful. I urge him to explore the questions with Chief Financial Officer Mike McCord. He might be surprised at what he hears. Maybe Mr. McCord does not understand the problem. If he did, why would he continue throwing money at solutions that don't produce what is needed most; that is, reliable transaction data. Why doesn't he know the same old garbage is still coming out the other end of the sausage machine? How is it Comptroller General Dodaro knows it? Why do I see it plain as day? It is written all over that Marine Corps audit that failed--and a whole bunch of other audits--in big bold print. So why can't Mr. McCord see it? He does not seem to have a handle on the core problem--the so-called feeder systems. Though ridiculed recently on Federal News Radio as being ``museum ready,'' they remain the heart and soul--the foundation--of any accounting system.

In most business operations, transactions are transmitted instantaneously from the cash register or other points of origin to finance and accounting. At the Pentagon, they take a roundabout route. From their points of origin, transactions must first pass through a series of gates--literally thousands of feeder and other business systems. The trip through the bureaucratic maze is neither smooth nor certain. Somewhere along the way, vital linkages are broken. When ledgers and account balances are no longer hooked up to transactions, forget about auditing the books. It is nothing more than a pipedream.

In a nutshell, this is the root cause of the problem that still has the very mighty Pentagon buffaloed, and it is lying in wait for the next go-around. According to Comptroller General Dodaro, Mr. McCord is making the wrong choices, wasting billions of dollars on systems that don't work. CFO McCord wants us to believe that staying the course offers the best chance for success. I disagree. More of the same will not cut it. He needs to refocus on doable solutions. Maybe it is time for some new ideas, a whole new approach.

The audit strategy needs to be rebalanced. It is out of whack. The roadblocks need to be bypassed. Other agencies seem to be taking care of business by pooling accounting resources to save money. So why not draw on those skills and capabilities from other government agencies that meet the requirements of the law and use them to leverage a potential solution--maybe where we know things have worked successfully.

Why not allow a service provider--let's say, at the Department of Defense as an example, take any Department--to handle a slice of the Defense Department's bookkeeping pie, like civilian pay? Run a test and see if it works. If it works, build on it. For the next go-around, tear off a bigger chunk, farm it out, and see what happens. Try alternative solutions. Keep experimenting until the answer is found. After all these decades, nothing seems to be right for this agency, compared to all the other agencies of government that meet the requirement of the financial records law.

CFO McCord needs some direction. Secretary Carter needs to challenge him to do the impossible. As difficult as it may be in the Pentagon bureaucracy, the Secretary needs to encourage him to think outside the box. Maybe Comptroller General Dodaro and CFO McCord could put their heads together. Maybe if they would team up, they could figure out how to simplify the whole system and make it play like a symphony orchestra.

Mr. McCord seems to be having trouble shaking mistaken notions, and here is a new one. He thinks the whole Department is poised for a major breakthrough; that the looming congressionally mandated September 2017 deadline is within reach. The Marine Corps audit proves that isn't possible. The military services--the Army, Navy, and Air Force--echo his assessment. They claim to be ``on track to be ready for audit'' by the deadline. I suspect they are about as ready as the Marine Corps was. The experts think the other services are in far worse shape than the Marine Corps. If true, the probability of earning a departmentwide clean opinion is slim to none.

Now, suddenly, to my amazement, Mr. McCord appears to be backing away from his prediction about meeting the deadline. On June 15, he told the House Armed Services Committee that the Department is, in his words, ``many years'' away from a clean opinion. How can the Department be audit ready and meet the deadline if it is still years away from a clean opinion? His messages are downright confusing and maybe contradictory. If he knows DOD is years away from a clean opinion, then he must also know it is not audit ready or even close to it. Mr. McCord needs to explain his apparent inconsistency.

Clearly, the impending deadline remains an elusive goal. However, of one thing I am certain, the next round is being touted as ``the largest audit ever undertaken.'' If Mr. McCord fails to come up with some workable solution that gets a firm handle on transactions, there will not be enough auditors in the universe to tackle this job. This job is just too big for the pick-and-shovel routine, and the cost could be astronomical.

I want Secretary Carter to succeed. I am counting on him to get the faltering audit readiness initiative back on track and moving in the right direction. The taxpayers deserve nothing less.

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