Chuck Grassley

United States Senator from Iowa

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Grassley Notes More Slipping and Sliding on Pentagon Clean Audit Deadline

Dec 08, 2016

Floor Statement of Senator Chuck Grassley
More Slipping and Sliding on Pentagon Audit Deadline
Delivered Thursday, Dec. 8, 2016

I come to the floor today to alert the Trump Administration to a problem. There’s a festering sore needing high-level attention. I am talking about a formidable barrier. It stands in the way of an important goal: auditing the Department of Defense’s (DoD) books. At times, this barrier makes the goal seem unattainable.

The need for annual financial audits was originally established by the Chief Financial Officers (CFO) Act of 1990. By March 1992, each agency was to present a financial statement to an inspector general for audit. To date, all have earned unqualified or clean opinions except one -- the Department of Defense (DoD). It has the dubious distinction of earning an unblemished string of failing opinions known as disclaimers.

In the face of endless stumbling, Congress drew a new line in the sand. It’s in Section 1003 of the fiscal year 2010 National Defense Authorization Act. The Pentagon was given an extra seven years to clean up the books and get ready.

Well, guess what? The slipping and sliding never stopped.  The revised September 2017 deadline is staring us in the face, and all the evidence tells me the department will never make it. The 25-year effort to audit the books is stuck in the mud. 

Billions of dollars have been spent trying to solve the root cause problem – a broken accounting system. But the fix is nowhere in sight. And until control at the transaction level is achieved, auditing the books is nothing more than a pipe dream. 

Under the fiscal year 2010 law, the Financial Improvement and Audit Readiness (FIAR) Plan is supposed to tell us whether the financial statements of the Defense Department “are validated as ready for audit by not later than September 30, 2017.”

The latest FIAR report hit the street last month. It does not answer the key question: Is DoD ready for audit? I read it and don’t know for sure. It is a study in fuzzy thinking. It’s like a riddle, and here’s why. 

True, the department boldly declares that it is audit ready. But in the very same breath, the Comptroller and Chief Financial Officer, Mr. Mike McCord, takes a step backward. He warns that earning a clean opinion is “many years” away.  Being audit ready should offer a reasonable prospect for success. Something is out of whack here.

The ultimate objective of Section 1003 is a successful audit or clean opinion. 

Mr. McCord’s words seem to turn that objective upside down. How can the department be audit ready and meet the deadline if it’s still years away from a clean opinion?

Mr. McCord’s message appears to be downright confusing, contradictory, and possibly misleading. If he knows DoD is years away from a clean opinion, then he must also know that it is not audit ready – or even close to it.  He has to know the accounting system is incapable of producing reliable information that meets prescribed standards. That tells me DoD is not audit ready, and he knows it – like everybody else.

Before he steps down, Mr. McCord owes us an explanation for his confusing statements. 

And once the new Pentagon leadership team is up to speed, I look forward to further clarification.

I also hope the new team will address the wisdom of doing full financial statement audits when there is limited control at the transaction level. By proceeding with full-scale audits without it, Mr. McCord has put the cart in front of the horse. Spending hundreds of million dollars a year for audits with a zero probability of success is wasteful. 

I would like to remind my colleagues why a successful audit is so important.

First and foremost, it would conform with constitutional requirements. It would strengthen internal controls and facilitate the detection of fraud and theft. But it is also important for more practical reasons. It would help to bring about better, more informed decision-making. 

Management can’t make good decisions with bad information. If accounting information is inaccurate and incomplete – as it is today, then management doesn’t know what anything costs or how the money is being spent. And if they don’t have that information at their fingertips, well, then how could they possibly make good decisions? 

Recent revelations about the 125 billion dollars in “administrative waste,” which was allegedly suppressed by senior defense officials, is living proof of bad decisions. If the time ever comes when DoD’s accounting system can generate reliable information, then such mistakes could be avoided.

So I keep coming back to the same old questions:

Why has faulty accounting information been tolerated at the Pentagon for all these years?

How is it that the Pentagon is able to develop the most advanced weapons the world has ever known with relative ease, yet, for some strange reason, it seems unable to acquire the tools it needs to keep track of the money it spends. 

Why is this national disgrace being tolerated in the Pentagon? There are never-ending bureaucratic explanations but no solutions. With good leadership, this problem can be solved.

The man nominated to be the next secretary of defense -- Mr. James Mattis -- strikes me as the kind of person who will tackle this problem head-on and run it to the ground until fixed. 

His record suggests he will not tolerate this kind of endless foot-dragging and inexcusable failure. Twenty-five years of lame excuses probably won’t sit too well with him. Either he will whip the accounting system into shape or heads will roll. According to press reports, failure is not a word that he knows or uses. 

With a new sheriff in town, maybe the endless, helpless woe-is-me hand-wringing at the Pentagon is about to come to a screeching halt. A modern, fully integrated finance and accounting system might be more than a dream.


 

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