Chuck Grassley

United States Senator from Iowa

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Grassley: Clean Audit Opinions at Pentagon Remain Elusive

Sep 12, 2017

Floor Speech of Sen. Chuck Grassley
Delivered Tuesday, September 12, 2017

Mr. President, I come to the floor today to question the plan for auditing the Department of Defense (DoD).

The new Chief Financial Officer (CFO), Mr. David Norquist, presented a plan to the Armed Services Committee on May 9th. It appears flawed like all the others.

The department may be audit ready by the September 30th deadline, but the goal – a clean opinion – isn’t in the mix. 

In its place, we get another lame excuse: “I recognize it will take time to go from being audited to passing an audit.” 

We have heard this story over and over again for 26 years. When will it end? The Pentagon hasn’t a clue. 

If the department is truly audit ready, then why is the CFO predicting failure before the audit even starts? 

Double-talk is necessary. 

A monster is lurking in the weeds. And nobody wants to talk about it. It’s the “Deal-breakers.” They are red flag accounting issues listed in DoD reports for years. They are prefaced by this warning: “The Deal-breakers prevent clean opinions.” 

If Mr. Norquist wants to win this war, he better get on top of the “Deal-breakers.” But he ignored them in testimony, focusing instead on this apparent distraction: 

DOD has spent too much time “preparing for full-scope audit without starting it.” 

We need to pinpoint “vulnerabilities,” he said, to “drive change to a clean opinion.”  

Suggesting DoD lags behind on audit starts or needs more audits to spot weaknesses seems wrongheaded. 

The department has conducted non-stop audits since 1991 – 294 financial audits to be exact. Ninety percent were failures. But a few were full-scope audits with clean opinions.

Together, the Corps of Engineers and Military Retirement Fund earned 28 clean opinions out of 43 starts.

In the case of the Corps of Engineers, auditors relied on unorthodox procedures known as “manual work-arounds” or “audit trail reconstruction work.” 

Highly-paid auditors scrambled around searching for missing records.

These procedures work on small jobs but are an inefficient substitute for a modern accounting system. 

On big jobs, they are a non-starter. 

Yet that’s exactly where Mr. Norquist intends to go – the toughest, the un-auditable: The Army, Navy, Marine Corps, Air Force, and Defense Department.

This is where auditing hit the wall. Over 200 starts without a successful finish. 

If these audits begin before the accounting house is in order, the Norquist plan may be swallowed up by the swamp.

The destructive power of the “Deal-breakers” was hammered home by the most important audit so far -- the Marine Corps audit. Their impact was exposed in a first-rate report issued by the Government Accountability Office (GAO). I spoke at length about it on August 4, 2015. Today, I will touch on it briefly.

Back in September 2008, the Marine Corps – the smallest of the big ones – stepped up to the plate. It boldly declared that it was audit ready. As a pilot project, it would lead the way.

High hopes for a break-through were not to be.

Ten years and five audits later and the Marine Corps is still stuck on square one.

The Inspector General and GAO determined that it was never ready for audit. It failed for the same reason as all the others -- The “Deal-breakers.” 

To make matters worse, there was an attempt to cover-up these shortcomings. 

Initially, a clean opinion was issued. 

The Secretary of Defense, Chuck Hagel, gave the Marine Corps an award for being the first service to earn a clean opinion. 

The opinion did not stand up to scrutiny. The evidence did not meet “professional auditing standards.” So the Inspector General had to withdraw it, leaving Mr. Hagel with egg all over his face. 

The Deputy Inspector General for Audit was removed and reassigned. 

And, the accounting firm involved lost the contract to Kearney & Company where Mr. Norquist was a partner. 

Without strong leadership, the Marine Corps could be the Norquist template: 

Audit ready … but light-years away from a clean opinion. 

That’s no-wheres-ville. Why go there?

Although lessons were learned, the end result was mostly waste – 32 million dollars for 5 premature audits.  

The “deal-breakers,” which doomed the Marine Corps audit – and all the others, are alive and well. They are still driving the freight train with no fix in sight.

Yet in spite these formidable barriers, the Marine Corps is once again shooting for the moon.

It jumped out in front of the other military services by starting a full financial audit, which the press calls a “mammoth task.” Why would the outcome be different this time around? 

The government’s expert on accounting, Comptroller General Gene Dodaro, understands the dilemma. 

The 10 billion dollars spent annually on fixing the accounting system, he says, have “not yielded positive results.” Money is being spent in the wrong places. Mr. Dodaro wonders if DoD has the “talent” to get it right. 

With his plan resting on shaky ground, Mr. Norquist may need to shift gears.

For starters, the cost of the full financial audits, which are touted as the “largest ever undertaken,” could top $200 million. Spending so much money on audits doomed to failure would be a gross waste tax dollars. 

I am not suggesting Mr. Norquist back off.

He just needs to get a handle on the root cause problem. And the “feeder systems” are it. As the main source of unreliable transaction data, they are the driver behind the “Deal-breakers.” Fix them and the rest should be a piece of cake.

DoD reports have repeatedly called for “testing the feeder systems.” However, according to the GAO, those tests were never performed.

So aggressive testing and verification of transactions is the right place to start.  

Senators Johnson, Ernst, Paul and myself are sponsoring an amendment to make that happen.

Once all the tricky technical issues are ironed out and testing provides confidence that the data is reliable, the plan will gel. Audit readiness will be self-evident – not contrived. Full financial audits could begin. Clean opinions should follow. 

Twenty-six years of hard-core foot-dragging shows that internal resistance to auditing the books runs deep. It will take strong, confident leadership and determination to root it out. 

I am counting on Secretary Mattis and CFO Norquist to get the job done in the shortest time possible. 

 

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