Shared Sacrifice in Resolving the Budget Deficit

Floor Speech

Mr. GRASSLEY. Mr. President, I want to extend some remarks I made on the Senate floor on June 6. The report I was reporting on on June 6 evaluated audits produced by the Department of Defense Office of Inspector General in fiscal year 2010. I called that report a report card because that is exactly what it was. Each of the 113 unclassified reports published in fiscal year 2010 was reviewed and evaluated and graded in five categories. My report was produced by the Department of Defense Office of Inspector General in fiscal year 2010. After each report was graded individually, all the scores for each report in each category were added up and averaged to create a composite score for all 113 reports.

Although 15 top-quality audits were highlighted in the report, the overall score awarded to the 113 was basically D-minus. That is low, I know. Maybe the score should have been a little higher. Clearly, none reflected any of the reforms Inspector General Heddell, DOD, put in place in December of 2010, as all were published well in advance of that date.

My oversight staff read these reports as educated consumers. We expected these reports to provide leverage in the monumental day-to-day Department of Defense oversight task. We want them to provide assurance that the Defense Department is spending taxpayers' money wisely. Some reports did that but most did not.

This report, prepared by this Senator from Iowa, is sure of one thing: The audits which are the subject of my report card are not somehow exempt from oversight and public scrutiny. In other words, these audits should just not sit on the shelf and collect dust; they need, as well, to be put under the public microscope, especially when they cost almost $1 million apiece to produce. Mr. President, $1 million for an audit report is a heck of a lot of money. So that is exactly what we did in the report card--put these reports in the public spotlight, and I will keep them there until I see sustained improvement at the inspector general of the Department of Defense.

As the report states and as I explained in my speech on June 6, this grading system was subjective and imperfect. However, as subjective and inexact as it may be, I believe it provided a reasonable and rough measure of audit quality.

Following my speech, Defense Department Inspector General Heddell pounced on my report. He expressed strong opposition to the low score. He complained that it did not adequately reflect $4.2 billion in what he called "achieved monetary benefits,'' identified in fiscal year 2010 reports.

To address IG Heddell's concerns, my staff asked the audit department to prepare an information paper that linked the $4.2 billion in savings to the audit where those savings were reported. That information was provided to me on June 20. I call it a crosswalk. It takes me to the exact page in each report where the savings were discussed. This document listed $4.4 billion in identified potential monetary benefits and collections of $4.2 billion.

After reviewing the crosswalk, I have concluded that Inspector General Heddell had a legitimate gripe about my report card. He is right. It should have included a section that addressed potential savings. So I will address those issues right now, focusing on four reports that contain almost all of the $4.2 billion in savings listed in the collections column.

In grading these reports, we did not give sufficient credit for potential savings and inefficiencies. They were a casualty of the grading system for one simple reason: If the exact dollar amounts of the alleged fraud and waste were not verified using primary source accounting records--and using primary source accounting records is very important--then they did not pop up on my oversight radar screen.

My staff is attempting to work with the audit office to develop a mutually
agreed upon set of standards for grading audits. The purpose of these discussions would be to create a grading process that would accurately capture the true quality of all reports, including policy reviews that uncover real savings and efficiency.

From the beginning, I have been very critical of the audit office for producing far too many policy reviews and far too few hardcore contract and payment audits. For the most part, the policy audits have no measurable monetary impact whatsoever. However, I have learned recently that at least a few are important for other reasons. I am told that some of these reports are a real value in the work of our Armed Services Committee here in the Senate. Contract and payment audits are also very important and I would say most important. They go right to the heart of the IG's core mission: to root out and deter fraud, waste, and theft. If done right, they, too, can produce big payoffs. Those audits earned top scores in my report card. I am not saying the audit office should do nothing but contract and payment audits. What I am saying is this: The current mix of audits creates a huge imbalance in favor of policy reviews as opposed to monetary reviews. So a better balance needs to be established by the Inspector General's Office.

That said, I have an admission to make to my colleagues. I finally found a policy audit that I like. This report is entitled ``Recapitalization and Acquisition of Light Tactical Wheel Vehicles.'' That audit report is No. 2010-039, dated January 29, 2010. It identified potential savings of $3.84 billion. That is 90 percent of the savings uncovered in all the fiscal year 2010 audits.

In my report card, I gave this audit a low grade. This audit failed to connect the dots on the money trail and verify dollar amounts using primary source contracts and payment records, plus it took 16 months to complete. When you add the 4 to 6 months of planning that often precedes an audit start date, you are probably looking at 2 years to complete the audit, and that is far too long. But this report had other important qualities that were overlooked. It uncovered gross violation of applicable procurement regulations, including the use of sole-source contracting arrangements. It also determined that the proposed vehicle might duplicate the capabilities of existing vehicles.

In the midst of this audit, for reasons that remain unclear, the project manager decided to stop the program "and put the $3.84 billion in funding to better use in fiscal years 2010-2013.'' This language suggests that all of the money was reallocated within Army accounts for other purposes. Clearly, the audit may have helped to stop $3.84 billion in potential waste. That is excellent. But this does not constitute savings in the classical sense, as all the money was shifted to other Army projects. Waste could have happened in those other projects as well.

It reminds me, while we are here in session in what normally would be a recess and I am reporting that the inspector general found $3.84 billion in potential waste, now that they are trying to find trillions to cut down on the budget deficit, it might be a time to look at the Defense Department and stop the reprogramming of money. If it is going to be saved, it ought to be saved, and that means it will cut down on the deficit.

Using a modified grading system to reflect the good quality of this audit, it would have earned a higher score were it not for an excessively long completion time. In this particular case, however, the impact of the audit was apparently felt while the audit was still in progress, so the timeliness rule may not apply here and probably should be set aside.

There are three other audits containing savings and inefficiencies that I would like to discuss.

The next one is entitled "Implementation of the Predator/Sky Warrior Acquisition Decision Memorandum,'' No. 2010-082, dated September 10, 2010. The purpose of this audit was to determine whether the Air Force and Army had complied with the Department of Defense directives and law to combine the Predator and Sky Warrior drone programs. The Defense Department estimated that $400 million could be saved by merging the two programs.

While the audit was in progress, the Department of Defense pulled the rug out from under the auditor. A new directive was issued stating that the two programs did not have to be combined. To counter this move, the auditors recommended administrative action against those who failed to comply with the original directive. The Department of Defense nonconcurred and tossed the auditors a bone. The Department of Defense wiggled out of harm's way by offering to do a meaningless lessons-learned exercise. In the end, the auditors caved in, agreeing that the Department of Defense plan was responsive and backed off.

Despite what appeared to be an unsuccessful outcome, the Office of Inspector General still claimed that this audit produced $60 million in savings. The audit itself indicates that the $60 million was, in fact, "reprogrammed to meet higher priority operations.'' That means it was reallocated to other Department of Defense accounts and thus not saved.

Since this audit was all about an opportunity to save $400 million and the Department of Defense balked, maybe these so-called savings might be better characterized as lost savings. In my report card, this audit earned low scores mainly because it failed to verify actual costs of two drone contracts using primary source accounting records, and it failed to assess the validity of the Department of Defense estimated savings of $400 million. I am not convinced this audit deserves a higher score, especially since it took 22 1/2 months to complete, and the recommendations, though initially tough, were watered down in the end.

The last one I wish to report on is entitled "Deferred Maintenance and Carryover on the Army Abrams Tank,'' No. 2010-43, dated March 2, 2010. This report concluded that contrary to the Army's claim, depot maintenance on M-1 tanks was not deferred in fiscal year 2008. All planned overhauls were, in fact, completed, but a large sum of money was left over. The Army requested and received a formal, written waiver to carry over $346 million in unneeded and unused fiscal year 2008 M-1 maintenance funds for use in 2009 and beyond. The reason given was inadequate capacity at the Lima, OH, tank plant. Without the waiver, this money would have been canceled and lost.

The report concluded that the Army documents contained "inaccurate, misleading'' information that may have caused a violation of the Antideficiency Act. It recommended that the waiver be rescinded and $275 million in fiscal year 2008 money be canceled and reprogrammed or reduced.

The Army appeared to agree with the recommendations to disclose the $275 million carryover to Congress but did not concur with other recommendations.

This report does not point to any real savings. This report probably deserves higher scores except for the timeliness and strength of the recommendations. It was untimely, taking 22 months to complete.

In addition, there were unresolved issues about the waiver document. Did the official who signed the waiver know that the document may have allegedly contained false and misleading information? And was he questioned about its truthfulness? If so, the report should have recommended that he be held accountable.

The last of four reports uncovered $2.2 million in purported savings, but this one appears to be more about helping the Army spend--not save--money.

It is entitled "Controls Over Unliquidated Obligations for Department of the Army Contracts,'' number 2010-073, dated July 19, 2010.

This report deserves high scores for hitting most of the dots on the money trail, including verification of exact dollar amounts using primary source accounting records. Such nitty gritty accounting work is highly commendable.

Unfortunately, the objective of this audit appears to be questionable. The report finds that sloppy Army accounting work ``could increase the risk that funds are unavailable for other needs because funds available for de-obligation are not identified in a timely manner.'' Now what does that really mean?

It means the money in question is no longer needed and is at risk of being "lost'' because it is about to expire.

Having un-needed money lying around in the Pentagon is almost always a recipe for more waste. In the Pentagon, there is no such thing as un-needed money. Every dollar has a mission.

This report is all about managing money to make sure every cent is spent before it expires. Avoiding the loss of appropriations is the primary responsibility of the Army Comptroller or Chief Financial Officer--not the IG.

In this scenario, the IG's primary focus should be to ensure that "lost'' appropriations are not used illegally--or that un-needed monies are not wasted by being shifted to another questionable project. Money that is not needed should be reported to Congress and returned to the Treasury.

Although this audit deserves high scores in several categories, its long completion time--16 months--and questionable focus lowers its overall score.

To summarize, there are two main problems with these four reports on savings and collections. The fourth one I am not going to go into now to save time, but I will include that for the Record. None was timely, No. 1. No. 2, reported savings are unverified and elusive.

First, these four reports took an average of 19 months to complete. Two took a total of 45 months, or almost 4 years, to finish. That does not include the 4 to 6 months it takes, I am told, to get an audit rolling. As I have said on other occasions, the power of top quality audit work is greatly weakened by stale information.

Secondly, these four reports supposedly produced $4.2 billion in collected savings. But all of that money appears to have been shifted to other Department of Defense accounts and spent. To the best of my knowledge, not one cent was saved or redeposited in the taxpayers' bank account. Only in government could all the money be spent and still claim savings.

What we are talking about here is lost savings that grew out of waste that was thankfully discovered and avoided. Waste that is avoided surely has monetary benefits.

In closing, I wish to share a simple observation with my colleagues. For some reason, auditors in the Office of Inspector General show a great reluctance to use the word ``waste''--w-a-s-t-e--in their reports. That word rarely, if ever, appears in their audits. At the same time, auditors seem overly eager to tout savings and efficiency. Why would that be? Could it be that their superiors in the Pentagon take a dim view of the word "waste''?

Savings may be nothing more than the flip side of waste. Auditors detect and verify potential waste and then convert it to potential savings by proposing remedies to eliminate the waste. Maybe the auditors need to start calling it what it is--call it waste--and then talk about savings.

I yield the floor.

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