"The CFO Act makes Mr. Hamre responsible for ?improving internal controls and financial accounting.' Because of his personal involvement in an illegal payment process and his failure to clean up the books, I do not believe that Mr. Hamre deserves to be promoted from Comptroller and Chief Financial Officer (CFO) to Deputy Secretary of Defense," Grassley said. Hamre has been recommended to the President for the new post by Secretary of Defense William Cohen.
The procedure in question is one the DoD uses to make "progress payments" on contracts for work in progress. Grassley said that under Hamre's policy, payments are deliberately charged to the wrong accounts. Once the payments are made, DoD attempts to "adjust" the accounting ledgers to make it look as though the checks were charged to the right accounts when the money was, in fact, charged to some other account. "This is what I call ?cooking the books,'" Grassley said. "And it's not ?Mickey Mouse' accounting stuff that only ?bean counters' need to worry about. Mr. Hamre's progress payments, combined with sloppy bookkeeping and a lack of effective internal controls, create an environment for DoD employees to tap the money pipe undetected and steal literally millions of tax dollars."
In his letter to the President, Grassley noted that the DoD Inspector General (IG) declared in 1992 that such "progress payment procedures" at the DoD were illegal. "Therefore," Grassley said, "the Department's CFO, Mr. Hamre, had a responsibility to institute some reforms. But instead of fixing the problem as his senior deputy had pledged to do, Mr. Hamre tried to legalize the crime." Grassley cited the fact that earlier this year Hamre circulated a piece of draft legislation for review and comment. It would have sanctioned the payment procedures that the IG had declared illegal and that Hamre personally had authorized in writing after becoming CFO in October 1993.
Specifically, the IG stated that DoD's progress payment procedures "result in the rendering of false accounts and violations of Title 31, Section 1301." Grassley said Section 1301 is a little known but very important law. "It embodies a sacred constitutional principle: Only Congress decides how public money may be spent. Section 1301 is the device the Congress uses to control the purse strings," he said.
Grassley twice has spoken out on the Senate floor against the proposal of Hamre to change the law to accommodate this progress payments process. "While Mr. Hamre has done an excellent job of making a case for the DoD budget before Congress, he is also the Department's CFO, where he is responsible for financial management and accounting. This has been his downfall. The DoD's books are in shambles," Grassley said. In fact, the DoD books cannot be audited as required by the CFO Act of 1990, and the situation is not expected to improve in the near future. The IG said in 1996 that it expects to continue giving DoD disclaimers of opinion "well into the next century."
Grassley said, "Because of systemic financial mismanagement, we don't know how the DoD money is being spent. If you don't hold accountable the individual who is accountable by law, then who? The bottom line is, these problems cannot be corrected unless those responsible are held accountable."