good morning this hearing on the subcommittee on readiness and management, will come to order, today this subcommittee meets to receive the testimony from david nor quest concerning the department of defenses 2018 and 2019 audits. last year when

he was serving as the d.o.d., secretary norquist completed the first d.o.t. audit ever, soon thereafter secretary norquist was audited and confirmed as secretary of defense with all of senate support, he has a wealth of knowledge on these issues and i thank him for being here today. to a lot of people aside from my good friend senator purdue who i'm hopeful will be here a little bit later, the d.o.t. audit might not coming across as most interesting topic of the world however the ranking member cain and i take our oversight responsibilities seriously and are happy to have the support and timely hearing, another responsibility we take seriously is one of providing the funding needed to rebuild our military with the specific focus on restoring readiness. conducting an audit of this

magnitude is a massive undertaking, in fact until secretary norquist arrived it had never happened, the pentagon had never completed an audit, let me repeat it in its history the department of defense and never complete an audit, kind of remarkable. the fyi 19 and d.o.t. audit it's one of the largest in any organization in history over the course of this year this audit has required more than 1400 auditors and hundred of d.o.t. site inspections, the auditors and inspectors evaluated thousands of items to account for 2.8 julian dollars in d.o.t. assets, conducting an audit of this size is no easy task but it is a critical function that the d.o.d. must do and there is also reveal

issues that we all must learn from, there is still much more work to be done but i commend the secretary for undertaking this difficult but important task. as of last friday the department of defense completed its second agency wide audit and while it did not receive an overall opinion a much knowledge was gained from actually doing the audit, i'm sure we will hear more but over seven did come back, so why do we take the time to do an audit? >> in part it is to encourage the mower spawns full use of resources within the department and from a readiness perspective to promote real change within the department, while identified-ing cyber mobility and d.o.t. technology systems or locating unaccounted for equipment to approving the record keeping of personnel is not a glamorous undertaking it

does produce process improvements and technological upgrades that are long overdue. these improvements are critical to the d.o.d.'s responsibility that quote it is important to gainful value from every taxpayer dollars spent on defense, there by earning the trust of congress, on quote, that is from the 2019 a national defense strategy, in other words if d.o.t. wants congress to fund the military in order to counter the competition like that from russia and china we in the congress and the american people need to have the confidence that these dollars are being spent wisely. the chairman regularly states that they have been preparing the military for a return to strategic competition and does represent a prime example of

bipartisanship for that support and our troops in the senate, they explicitly state the audit as a priority towards driving a better budget discipline for the department i hope this starts with the audit and spreads throughout within the d.o.t. -- this subcommittee has set out evoke for during the process, some of the successes, some of the failures and i know my ranking member senator kaine is also interested, so i will turn the dies over to him for his opening remarks >> thank, you mister chairman and secretary northwest, it is good to have you here. when i saw the amount of pressed remains a couple this morning i thought. finally, the pentagon on it is going to get the attention that it's deserved. apparently this other things going on on the hill, but we want to welcome you and thank you for your on

record public service, but also for you're making sure that the auto nobility of the d.o.t. is a top priority. the fact that all federal agencies were mandated to do audits beginning in 1990 and the d.o.t. has been the last to get in line is well, so much so that the nda and i believe 2015 has committed and said, okay, you've had enough, time you want to make this happen, and i was ratified to be part of the committee when we finally gave the ultimatum and ratified under your leadership the d.o.t. is moving to get this done. last week, the department announced officially failed the 2019 audit. that is not surprising. i think actually would've found a great deal of skepticism on this committee on the 2019 report saying, everything is fine, when you start something as complex as this, if you are not finding the areas to improve, failings that need to

be corrected, that will be policymakers to question the veracity or the sufficiency of the effort, brought the report last week showed us that there is so much more to be done to give taxpayers what they deserve, a fully audible pentagon, what it is such a football committee recently and one thing on the witnesses name that she used, the efficiency for lethality, the idea that the auto should drive us do not spend on things we should, reduce spending on things we shouldn't as a way of then directing those resources to more lethality, to a more effective partner of defense, so i hope we can talk about a number of issues today. what benefits the military forces already seeing. the audit its, findings benefits inefficiency but it was always my hope as a mayor and governor and looking at odds to also learn some things that might improve the effectiveness of operations. i don't think it is just a number counting exercise, it can be an

exercise that leads to save to a dollar here in a dollar, there it should also lead to greater efficiencies and activists as, well so i hope we can talk about that. how is the process of the audit already helping the pentagon cleanup any doubting or accounting practices that need to be improved. what reserve support of the, audit additional reserves the need to be applied so it can be as effective as possible moving forward, and in your opinion, secretary, northwest how long were they realistically the until so, i look forward to working with the committee with your leadership. to make good on this promise made so long ago the american taxpayer >> will be central to not in that we will learn from the audit in the process of continuous improvement to get better what we do, thank you. >> thank you senator cain, mister, secretary thank you again for being here, we look for the opening statement if you want any

longer written statement >> thank, you mister chairman. ranking member, cain distinguished members of the, committee thank you for the opportunity to testify for you today on the department offense financial statement audit. as we miller questions about the audit i would like to address. first, why do we even have an audit. second, what are the result of this year's audit and third, how does the odd another reforms benefit american taxpayers? so, the short answer on what we have an audit is the d oh d is an extraordinarily large and complex organization. i employ nearly 300 service in civilians while a typical commercial airline as between up to 600 aircraft our military flight approximately 16,000 aircraft. we manage 290 billion inventory, more than six times the size of walmart, the world's largest retail company.

financial statement audits are approving commercial solution that uses independent auditors to effectively assess complex operations. a financial statement audit is comprehensive and it includes verifying account, location and condition of our military equipment, property, material and supplies. a test vulnerabilities and our security system, of our business system, and it evaluates the accuracy of records such as promotions and separations. in short, it provides the independent feedback that both leadership in congress needs. this, year more than 1400 auditors conducted over 1600 site visits with the following results. it's a somewhat last, year they reported no evidence of fraud, no significant issues with the amounts paid to civilian a

military, members and the d.o.t. could account for the existence and completeness of major military equipment. in addition, one more organization received a, payment the defense commissary agency, so now, seven of the 24 will have an on modified opinion this year, and up the 2370 findings in fbi 2018, the department was successful in closing more than 550, or 23% of the findings. the audit demonstrates progress but we have a lot more to do. how does the audit benefit the american taxpayer? while, the original in primary purpose of the oddest is transparency, but we have seen how the audit saves money by improving inventory management, identifying vulnerabilities in cybersecurity and providing better data for decision-making. so, let me give to examples, the navy at fleetwood 600 jacksonville conducted a ten week assessment and identified 81 million dollars worth of active material not tracked in the inventory system that was now available for immediate use, decreasing maintenance time and feeling 174 requisitions. they also eliminated are needed equipment, freeing up approximately 200 square feet 200,000 square, feet the equivalent of 4. 6 acres. we are already seeing the benefits of better data in the use of data analytics. for example, the department uses a tool to automate the quarterly review

process of its obligations. this tool a limited inefficiencies, i provided to the analysts the time and the insights they needed to identify 360 million in high risk funds, moving them from the low priority function to better use of those before they are counselor expired. the audit is a foundational element in the national defense tragedy. we are moving forward on multiple funds, improving their enterprise, consolidating i, thierry aligning and reforming health care consistent with congressional direction, reforming how we do back on investigations to make them more effective and less expensive and eliminating duplicate and inefficient business systems, as well as

identifying efficiencies in what we like to call the court of the state. i would be remiss if we did not mention the harmful impact of the ongoing continuing resolution and i recognize i am preaching to the choir. the department the white house both express the urgent need for congress to pass the fbi 2020 authorization and appropriation bills. the sea ourself got measures are wasteful to the taxpayer. they delay storm damage repairs and the damage that are on gains that our military has made in our readiness and modernization. ultimately it is good for the enemy, not for the men and women of the united states military. the administration and i urge congress to come to an agreement as quickly as possible consistent with the budget deal reached in the summer. in closing, i would like to thank president trump for his leadership and the d.o.t. workforce for embracing this complex an important issue and i would also like congress and this committee, i don't particularly the committee staff for your commitment to this massive undertaking and the role you played in making an annual financial statement audit, a regular way of doing business. the department of defense is one of the most complex enterprises in the world. in partnership with this, congress we must continually

improve our business practices in order to reduce costs and maintain our competitive edge. the american taxpayer should be as responsible and spending the money as in earning it. >> thank you, secretary, let me begin with a kind of basic question, and i am not sure you have the answer, since you have only been in your position, in the control position for a couple of years but, from your perspective why was the pentagon never audited? you would think, given what you just mention, how important it is to the country, how large it is, how complex it is, that is exactly the kind of federal agency that you do want to audit. >> why was this the

first time that somebody undertook this daunting task? and again, i commend you for doing it. >> thank you, chairman, so let me just clarify, the pentagon has multiple audits, we have gao, the ig and others, they do program, audits particular subjects. the difference with the financial statement is this shear bread the depth of it. it is an end and audit on a dramatic scale. >> what you just did twice. >> what we did to twice. >> that had never. >> happening never happen before. >> why? >> well, there's a couple of reasons. one is, it is an extremely hard task that would outlast anyone who started it. >> the pentagon used a hard task. >> it is. >> they want more work to, for example. >> they, did they did.

the challenge with the audit is there was an emphasis on trying to get ready for it, and this is where i brought a fundamentally different view from those who had come before me. they, said is too expensive to pay the auditors, let's get ourselves ready enough that we could pass the audit, and then bring the auditors in. my experience at home and security, where they were under audit, was that that would be a major mistake. homeland security, we did not have a choice. when i showed up, the auditors were already there. i found the auditors and the feedback to be the central piece of getting us to that clean opinion, so my view, is the money we paid the auditors, make sure that all the other money we are spending was going towards valuable things, we were getting feedback on whether we're being successful so, even though the defense department was spending money on fixing problems, they had no audit baseline by which to tell you, where they better from when you are the next? we have fixed that this approach, we have carefully measured those items, precisely for that purpose, i think that is the biggest difference, i believe that the auditors are the key step in bringing this to the clinton opinion, not something you bring in the end when you think you are ready. >> let me dig into the little bit more because the audit did cost a lot of money, i think the fbi 19 audit cost close to a billion dollars. >> yes. >> so, if we're doing this annually,

>> which is you're goal, correct? >> yes. >> will this eventually pay for itself in terms of course it already paying for itself? >> so, let's take that into pieces. so, before we started the audit, the department was spending 770 million dollars to fix problems. the audit piece is about 195 two billion dollars that we paid to external auditors. we know from the experience of the core of engineers that when they went from no opinion to a clean opinion, the cost of their audit dropped and have so over, time that number will come down as we move from we have to do details sampling to what we call testing controls but that is a level of funding that is necessary for transparency. when you think 200 million is one 30th of 1% of our budget, to be held accountable, that is fine. we don't have to spend certain money line d.o.t. signs that support, that those numbers will come down as well. the big, number about half a billion, dollars in remediation and the question there is, can you show what you optics, in the absence of the audit it is very hard. one of the things i learned in my prior jobs is, self reporting of fixing problems is not a very reliable indicator. i was dependent upon the artist confirming that people had in fact fix it i'm one of the best in the order

showed us it is one or organizations they've fix problems on the orders with all ten. they have great confidence in that organizations ability to go forward. another opposition claims extending the auditor agrees with them on three, off a problem, i have been training i need to, do some people need to talk. to that is not going to get them to success, but you can't wait to get to the process to find that. you need the auditors doing that on a continual basis so, we have already seen benefits and savings and a return on investment i haven't expected to see this early, long before we go to the point where expect the cost to come down, i could go on more but i will let you >> let me just ask another basic question. so, for those of us who are not auditors. what exactly does this entail? we are going to installations, you have people fanning out over all of our military bases, supply depots.

what exactly are they doing? they're not counting every >> rifle and every tank. or are? they >> know, they can't because the sheer labor that would be involved is the problem. what the commercial practiced brings us his best practices which means they will go up to the highest level of the organization and look into their data bases and say, show me everything you think you own so, they start there with a post ampleness from that, and on for going right, they come in with a listen they say i need to see not just a tank, i need to see this tank with a serial number that is supposed to be here i want to show up, is in working condition? because that is one of the things they test for, if it isn't working condition. do you have proof of ownership? is it where it is supposed to be? they walk through each of those, and they find a series of items,

and they're going other directions, which is the 25 things you found, show us that you at the department level have it in your system so it is always one direction and it comes together on what they are looking for is examples of breakdown, where the summary is not equal to the parts, but that sampling process across inventory and then they do the same thing with hey, you are someone serving, now you have the records to backup that soldier was in fact promoted, day they in fact qualify for duty, paid you have the paperwork to support that, and can you produce in a timely manner? that is the process they go through. it is relatively extensively it is the standards we are held to. >> thank, you thank you mister secretary, i'm glad you're here to testify and hopefully we are all going to learn from this and most important at the pentagon as well. senator? >> i'm going to start with a question that is based not on the audit putting a role as deputy secretary of defense to official within the pentagon to support her nomination. and the last eight, or been a number of articles that have come out on a read to headlines >> as

examples. business insider and the army is prepared to move lieutenant colonel alex vindman and his family to a safe location if necessary. reuters army sensing impeachment with the vindmans security and u.s. official. these articles are based done by the wall street journal. vindman is a virginia resident like you are. lieutenant colonel vindman is a patriotic american law you are. i'm not going to ask you whether you think it's appropriate to attack his loyalty or his patriotism or is judgment or his character because we know what you would think about such an attack and whether you think it's okay to use the white house social media account or their assets to amplify such an attack because we know what you would think about that but i will ask

you this. and your role as deputy secretary of defense. will you make sure that members of >> the military are not punished or face reprisals for cooperating with congress? >> we take very seriously our responsibility to respond to congress and to the earlier part of your sentence it's related to personal security so not going to comment on measures we take on security but we do take them seriously and we expect to be responsive and truthful to congress. >> thank you very much for that. i would urge you at this particular >> time to be very diligent and protect members of our military if they are cooperating with congress and i think that your words delivered here should hopefully give some assurance and some confidence to those who are very worried because their families are calling their offense and our constituents and they're

nervous about what might happen and you're getting that assurance publicly and we need something to them. >> a lot of the d.o.d. programs have been classified, so with the nda we have officials in this room in a close session and's classified that we have to spend and a more classified setting to figure out our own responsibilities with >> those. talk a little bit about how the audit approaches the classified programs? and how you can do a meaningful one while respecting the classified nature and information? >> the challenge we had at the beginning was classified information in the budget but it was either redacted or in documents is what's otherwise just protected. we talked with gao which wants to summarize and their concern too is if you do that here and have redactions that you wouldn't be able to have a government wide audit. we will keep it unclassified and i'd like to tip my hat to the accounting standards of the federal government because we said we need you all to get a security clearance because we need to have conversations with you that are classified and you

have to give us the accounting standards on how to treat classified information. they did, that was one of the things we went through and they issued it as classified documents that allows us when nasa was going to clean up nato is that we have a question about satellites. do we dispense or depreciate? we have some things that are classified and we will go to them and their clearances will be able to say, here's how you should handle it and it allows us to present the data in unclassified report. do auditors have security influences at the highest level because it's not in the audit, even it's a serious animal sensitive item the ig will test it. there is nothing not classified >> from the skill of the audit. >> let me ask you this. in a public hearing like this, we would like to get some

success stories. it's less about the findings and the agencies but do you have examples of things that you've learned in the >> audit process that you've already been able to direct toward this officially contact that the d.o.d. witness talked about. >> we have. let's talk about a couple of examples and i can go on extensively on this. let me pick the issue of inventory and i use the navy as an example the. operators went down and pulled samples and tested them backwards but they started discovering that they extort facilities that i've never been loaded into the inventory system. new loaded up and you find spare parts. the spare parts are not where somebody is trying to order them can get to them so i will give credit to dixon smith because he was particularly aggressive and he traveled on so many bases if you open it up and they started

to find some concerns about taking 100% but it's the bases that they already visited which is five or six and they found 167 million dollars worth of usual supplies. in the system they addressed the demand that were on back order and other items that now can be put back into the system and you have to part but if somebody doesn't know it's near, if they rotated in the new person doesn't know that's word store and more importantly, the department doesn't know it so the base doesn't see it, here out. each one of those is an immediate and direct savings to the taxpayer. >> my time is expired but >> i have a list i'm happy to keep going. >> thank you mister >> chairman. mister secretary thank you for being here and the latter of november 15th regarding the audit test with 100%. tell me briefly if you would how >> important are

those testimonies like that? it looked like he was going on elsewhere to. >> this is what the core of the auditor does. they have samples from above and they come down to a base and they're not testing anything but they're on a list of what they're looking for. it's 60 of the places they showed up at 100 percent accuracy. we think we looked for that base to happen and we sent letters that we had in some of your state and that is incredibly valuable. one of the things i heard from the auditors is the importance of the local leadership. when they show up and the command of the base meets them and walk some around, they can quickly see they have the result because that leadership has control and oversight of the process. we have other places where the

samples will need to get it on everyone but this is going to get solved from the local level and fixing the systems that live between was accurate at the local level and what we report at the department level. the one of the reasons that i sent this out is that we don't >> want to use sticks, we want to give kudos to those who deserve it and that will help drive this process. >> as the process goes forward and the leaders on various locations >> the word and participate and cooperate and that will help everybody? there's also an evaluation form, senior, >>

officers and civil service, the ses have the audit as part of their performance evaluation. >> i want to move now to an area that senator cain kind of touch. john are you familiar with the anti deficiency act? >> i. and >> i'm having i'm struggling here with a couple of things. on the one thing, i hear your testimony, and you and i have talked to my office and i just applaud your effort so much and you have emphasized the responsibility of taken seriously your responsibility reporter kong russ and on the other hand i am also seeing this administration continually thwarting congress oversight capabilities. they're not producing witnesses, they're, not producing, documents just because they don't particularly like the subject matter of the particular hearing, particularly the one going on in the house i don't recently i read a report this morning were omb council has stated that as a legislative branch of government, the gao, when they report efficiencies or violations of the anti deficiency act of the administration, the executive branch agencies have no obligation to report that back

to congress, and it just seems to me that there is a concerted effort of the administration to just basically take those things that they don't want to report and just ignore the article one branch of the constitution, and i'm really concerned about that. have you seen omb council's opinion? and if so, i would like to hear your >> thoughts about that and whether or not that squares with what you said earlier about your ability and your earnest, on a status report to congress. >> so, i have not seen that opinion and i don't know whether there is a model of law there, but i was a better practice whenever i had to sign out one of those it when everybody, went to the white house, what do the president, went to the leader of the house in the senate, it went, i, believe to gao's and in practice i know that when we have an anti deficiency act violation, the notification is broad spread. >> well, i appreciate, that i think that this is new and so i may follow up with you because i think this is changing a practice that has >> been in a practice across administrations including this administration but now we have come apparently with council who expressed a new version of that so, i'm a follow-up to give you a chance to look at that guidance to see

how it might affect the department of defense, and your obligations to report to congress. if i have, time and i'm not sure, should i mention navy, where you found 81 million dollars worth of material near jackson were destroyed of inventory and you are able to do some things. how important is that? one of the lessons you can learn and take away from that episode where there was like 280 million dollars that were unaccounted for, that immediately put to use, so obviously a little concerning to congress that 281 million bucks at one place cannot be accounted for? tell me a little bit of what you're trying to implement? >> >> the issue is the value of the inventory, but our concern, is over, time people, if they buy inventory if they store without putting it into the system, they may know it's there but they may not, the department is not no is there, but it is an official, and unofficial way to use taxpayer resources the value of the audit is, that is a problem of the auditors will come up every year and pope them for that problem and expose it because it required if we have, it is in >> the issue is the value of the inventory, but our concern, is over, time people, if they buy inventory if they store without putting it into the system, they may know it's there but they may not, the department is not no is there, but it is an official, and unofficial way to

use taxpayer resources the value of the audit is, that is a problem of the auditors will come up every year and pope them for that problem and expose it because it required if we have, it is in our system and properly recorded, and that is why you can cover what you have a cover everything you have. this is valuable for making sure we make the best use of taxpayers, money we think there is a connection between this and some of the challenges of seniors which is, a lot of this applies at year-end and so, the more we can limit, that the more we can have the discipline over when you buy, it you lock into the system, right? you make sure it is properly reported but the discipline, this it is the value of the audit, they come every year. it is not enough to clean out your office once, they're coming next year in the year after you've got to make this a habit. >> so are you satisfied the systems in place

or adequate but it is just a question of plugging them in as opposed to, you need to upgrade the system? >> we will need to operate the system and some of the comments i got, i met with each of the auditors and i said, , as you fielder new systems which are more compliant and effective, you need to make better use of technology, a lot of people doing this manually, filling out paper and others, if they had tablets where they just do it more directly, they could darker skin all of those reduces the labor and that increases complies and so what we are looking for here is, they said people stop doing it because >> they did not elaborate was too hard, but the other main solution speeds that up, but it highlights the very value of that. >> well, thank you mister secretary, i will follow up with a written questions regarding the omb >> guidance, thank you mister chairman. >> thank you, mister chairman, considering how long it took for the d.o.t. to undergo an audit, thank you very much for expressing your

firm belief that odds are very important, but as you noted, your auditors conducted a number of statements, 600 site visits and two of these visits were at arbor when in the marine corps base hawaiian both these come back 100% and thank you also wondering how important it is that local leadership buys in a cooperates with the audit, so i do want to give a shout out to the folks at joint base pearl harbor. >> excellent, thank you for doing. >> that thank you. and one of the areas that were pointed out in the most recent audit, were newly identified high risk areas involving privatized housing programs and i won't go into my questions about those by soon but you're going to be undergoing things the need to do to bring those programs up to snuff because there's a lot of concern about military housing. >> absolutely. >> senator cain touched on this other matter recently regarding

the threats to alex vindman and the deputy sect assistant secretary of defense laura cooper. who i don't know if he's already testified but certainly will be testifying. not to mention the constant efforts to out the whistleblower and basically the whistleblower feeling very threatened by everything that's going on. so, i know that you're doing they're doing your review with the government and miss cooper to remain safe. or what steps have you >> already taken during your career to have these steps with their identity and which they come forward to report the news of misconduct? >> this is something that we have as a matter of fact and all sorts of things. we have ig reports and this is just part of the culture of the people that come forward and we expect of to be honest and truthful in their feelings in doing so. we look forward to the ig to the

reprisal to be held accountable for it and the security as i mentioned that we think there is a security issue that we will deal with local authorities and these are the types of things that occur and different forms and provide the same >> standard and approach and i think it's an important signal that we do as an organization. >> this environment is very important for the d.o.d. from the top to say that the whistleblower's will come from the d.o.d. or that will participate in this proceedings that they will be safe and i think it's important for that message to be quite obvious. and put out there and i hope that's what you will do. on october 22nd, the day before mr. cooper was scheduled to testify before the house deposition, you signed a letter

to miss cooper lawyer permitting her from participating in the impeachment inquiry. on her deposition she was asked whether she was concerned about the repercussions of the d.o.d. for testifying under subpoena after receiving your letter and she said that this was a challenging environment and a servant that was just tried to put fill my obligation in this set of challenges in both respects. this is quoting chris cooper. in light of how's >> resolution six 60 which is a procedure per public hearings will you reef a refrain from hearing any other official from cooperating going forward? >> i did not prohibit what i told her the information and spoke to a lawyer and the information we received in interviews about the impeachment process at the challenge we would be able to send a lawyer >> and have that

available information but we understand the individuals are making their own decisions. >> even if you're just forwarding a letter from your department and i forget where it emanated from but for you to send it it does create a >> chilling effect. are you intending to continue to forward these kinds of letters or from any other? >> i don't know any other, >> individuals but it felt inappropriate do not have their lawyer be aware of this information so that's why we shared, it. >> you can understand why? >> it's just if you don't send it what do you do so we strive is that the right tone in the letter. >> in the, >> letter did you said were just forwarding this? >> i will send it to you but i think we tried to be clear about the nature and a very professional and factually to handle this. >> can i ask one more question. i have no idea what my time is but during the hearing i asked secretary whether he would give it to reinstating the role for undocumented family members of active duty service members. secretary esper said that he

would look into it for sure. we are still waiting for a response on this issue that we received a response from acting secretary of defense or personnel and readiness mr. james stewart who referred to comment on the program to the department of homeland security and working closely with dhs on future policy. we can understand why activity service members are very concerned if the administration of homeland security is going ahead and boarding undocumented members. even as they are serving our country. so, i'd like to know what steps the d.o.t. as taken with the dhs as referred to that is from james stewart on this issue and whether d.o.d. has looked to reinstate this program and not to deport the documents of active duty personnel. >> i'll take that one for the record i don't know the answer to the question. >>

well, i hope you got the message that we certainly don't want active duty service members families being deported. that program should be reinstated. >> thank you mister chair. this is a really important hearing for all of us >> and secretary norquist thank you for hearing today and testify on this. on this topic senator sullivan and i were talking about this to have some results being put in front of us. you have done really what your predecessors haven't been able to do or did not do which is making the op-ed a priority. we have had past controllers and chief financial officers at the pentagon and both political parties who have wind and complained and dragged their feet on this issue and found

that every last excuse under the sun not to get it done. wave hand pentagon hearings going on and on here on the hill for decades. so thanks for doing the hard job and getting this done and not delaying it for longer. despite the disclaimer from the last two years, we are much further along in this progress towards a clean opinion and i just want to make that statement and thank you very much for your leadership on this topic. the national defense strategy makes it clear that the united states is a very distinct challenge and maintaining the supremacy and the global arena. this has implications on our homeland defense and overseas operations and the vibrancy of a open society. before we dive into the strategic roles, it's good to see a step back and do a little bit of housekeeping. what i'd like you to explain mister secretary is in addition to the physical responsibility,

how do you think they have the audits findings and do the nds and how does it benefit our operational and capabilities? why do we need to do this? >> absolutely. the nds has three lines of effort with mythology and working with our allies and the third one is reform in the way we defend for more efficiency. the reason for that is that we can see the same deficit that everyone else can and understand the fiscal limits of this department in the way it meets operate. we have a responsibility will guard a somewhat level we see to make sure that were using the maximum benefit so that includes both driving and efficiencies out of our business process as well as cutting low priority items and

some of the things that are not bad things but just not as essential as others. what the audit is helping us to it's not only identify those inefficiencies where individual systems are not talking to each other. if you get to the point where they only enter the data once and it flows through the system. there's a lot of labor savings and costa come out of the way you operate versus manual and to these where they create data errors. the other problem of the national defense strategy is that you're trying to improve readiness. that's the issue of the spare parts and the people's hands and can i get the maintenance faster. the last part is the data analytics. one of the things on

what the private sector is able to do is use terms were you can use a big data but they're able to manipulate incredibly large subs of data and there's tens of billions of transactions where we get audited and it goes back to eight or nine years ago because those funds are still available for a payment and disbursement. the ability to organize those to search them, to track them to be able to find errors. that allows us to adjust to some of the best practices in the private sector and another thing what you can do is trust your data. those reforms we can adopt private sector practices unless we get to the quality >> of the data that we have. >> thank you. along that quality versus quantity issue, the d.o.d. has close to 22% of the notice of findings from the fiscal year 18 audit. but the number has actually increased. so, should we enter with that as >> the system is working? or should we be worried that were not making enough progress? >> the first answer is the system is working and are sumo hundred

more auditors. one of the things that we took as a lesson learned from my time at homeland was we set up these contracts and an auditor when i think you're not going to pass they stop working. you have a disclaimer and you're done. our ig has been a tremendous help in this process and the contract is going on even if you keep going keep on and we want to find as many problems as you can find. the auditors find but 1300 additional findings but the more clearly they identify assume or we can make sure we have correct natural plans to address this. the first couple years will find will keep closing them and be more efficient and a certain point will be able to >> fully see those numbers come down but i see this as exactly what we are paying them for. >> my time is expiring so i just want to say again, thank you for your leadership on this issue and it

is such a bureaucratic beast and trying to sort through and boil it down. you've been able to take this on and we really do appreciate your effort so thank you very much mister secretary and thank you mister chair. >> i would add my appreciation to what we've heard from my colleagues about the work that you're doing. you talk about the list of examples of successful space that you've already uncovered. at some point it would be helpful for us to get more of that list so we can share that with others. but what's been successful today about the audit is that you can go back to your early comment about the sea are and preaching to the choir about to see because we do agree preaching to the choir but there doesn't seem to be a universal appreciation in congress and the administration for what we had in continuing resolution for this year. at one point, are you concerned

that the budget caps is sea frustration and what the impacts are that what we see is that were not able to get appropriation bills. >> i'll go to sea quest ration they are designed to be disruptive is set to not want to get you to do it so if we get ammunition to buy more against republicans and democrats and we get to october and say let's not start running and let's wait to place that order. we have reached an artificial intelligence and republicans and democrats all agree that let's give the chinese up three month head start to keep up on that technology. not letting this drag out but the last part is we have families in training that are constantly disrupted because we believe that there's a deal but they don't know that means insulation. in the fiscal sense they withhold the money and delay training and sometime in december and march we had all that over and say we do it in six months. we kept to get back the october training exercise with the time lost and

with inventory and others it is a misuse of taxpayer money to manage the frustration that's even worse and it's catastrophic cut that undermines that they don't know if you're going so we have to be very cautious about how they spend money. you have problems making payroll and wicked wave it and take an even deeper cut and you completely lost anyone who has maintenance in their district and they know the importance of ships coming in on time and you can't recover and the facility can't take twice as many if they don't come in on time if you've lost it. we need to avoid and minimize the length of it. >> i certainly agree 100%. i want to >> ask about the issue that's outside of the audit that goes to your current role. that is as you are aware, there are a number of virtually all military facilities with p fast

chemicals and secretary esper to his credit appointed attacks for us to address that. military installation but my understanding is that the navy is close to a breakthrough on finding a replacement for the firefighting >> form that would be equally effective. can you give us any update and could you take that for the record. >> i know this is very important and we spent 22 million dollars and continue, we need to prove protect some service members but we also stated that one has to be environmentally safe. as you

pointed out this was a high priority who has >> the task force indifferent actions with this is something or getting to lead solution and is ultimately displaced and up. >> finally, in june the department release new standards for dispense contracts and model certification. in this program, and we appreciate the need for this program and there is cybersecurity in place for our contractors but can you talk about the extent to which the defense is working with the contractors because one of the things we heard from the business that we work with is that they're very concerned about the time frame in which

you have to comply and with the assistance and the big folks that's not an issue as much as the smaller people that subcontracted and work with the fence who don't have the capacity and the assistance that they need to comply. can you talk about what's happening on that? >> one of the issues we have is a vulnerabilities when our supply chain that we deal with. other countries tend to attack their neck of the woods and extract port and data. cnn see is much expected and much like a financial statement dot it we will be able to a verify part of the intent is to recognize that the larger firms are needing to work with the small businesses and when we have requirements if they are able to hire who's they have access to so that they can work with the network that means as compliance and we

don't try to build your network you describe the one that certified and you know you can count on it and that from provides it to you as part of their i.t. service. this is something that i know that the secretary for and as we work very closely and we need them most of all i don't want this to be a barrier to entry. >> we don't want to lose all the innovations coming out of this. >> that's where it's coming from an you're absolutely right senator. >> thank you. >> thank

you mister chair >> and mister secretary along similar lines but a little bit different question. focusing on the purchase of unsecured items and back in august i sent a letter to you highlighting the threat that was posed by commercial self computers. another type of electronic equipment and especially those that have been made in communist china as well which present those cybersecurity risks. i appreciate the letter that you sent which was discussed in which the department is addressing those >> vulnerabilities, but maybe just give us a quick update on the progress that the department has made in that area. >> one of the challenges you have in the particular economics is when you have a chinese product where you start buying other ones and they have those components that were made with the company that provides a two is a u.s. based company and a component where this is where the department has to have analysis of what's buying. they have their supply chain and we test the product which is security standards and penetration testing. we need to understand the supply chains and places where we can afford

to help them raining in because it creates a vulnerability and working with those firms directly and if you include the middleman but another classes you have to understand that they are assembling parts and some of those pieces are at the risk >> and that's what you have to work very carefully. that's the process that were getting cooperation with, >> our ceo and our secretary for acquisition. >> is it possible eagle commitment that could have been affected in areas of concern? >> i'll take it for the record so i know how far along it is. >> wonderful. thank you very much mister >> chair. >> thank you. mister secretary as i said in my opening comments i want to get your opinion on when it would be reasonable to expect as we work through the process of these annual audits and engage in corrected activity that we

might be >> reasonable to expect that the department would have a completely clean set of audits? >> here's the trajectory you should use. we have 24 organizations i would expect every year to see bloom and fort and another opinion to working to modify. within the five or so years i expect to see the majority of them within the department. they will come in until the last one falls so it took them ten years but five of those were waiting on the card. everyone got their opinion in those five years it was just the coast stark property so you start to see the number come down which would be very helpful by the way because the coast guard took that as an opening question of one left out as to why you're opening it up. but, you will see that over time i knew get to the number of problems going down and they're

holding them up and that is very helpful for focusing it. i don't know how it takes to the last one because it takes the longest but that will be the final pin to drop. >> mister chair i would like to be introduced to the record around these questions. >> secretary norquest talked about under his's secretary to daniel levant for laura cooper as you referenced in that letter and it's about a page and a half along and it's the penultimate one which reads the relevant part with you and miss cooper and the administration in one direction. the executive personnel cannot participate and the impeachment inquiry under the circumstances. i would like to introduce this for the record and i'd have some following without this. >> without objection. >> miss secretary let me ask to other questions. you mentioned that certain base commanders were willing to work and did you run into some resistance from other commanders and other

correlation between >> that and not scoring soar well or what's the word out from leadership to make sure there was good cooperation? >> i think it's gotten better every year to year and they said that they were engaged and the more likely to see the results and focusing in on the items and what they need to be accountable for. but here's the big surprise, one of the concerns i had for those of you advocating for those pushing is that it's a paperwork drill and all of you're doing is checking a bunch of paper where the bills match my envoys and the issue of inventory and the military that we don't and this is about having their mission. and the push back and i would want to see and until you started everyone assumed there would be the natural outcome. i think we've seen a change and a level of and francis but we will continue to see it grow. >> let me ask something related to that topic for the immediate

that i'm glad we covered but not surprisingly the headlines were a little alarming. there was a reuters piece a couple of days ago and it's failing grade on his second audit and a bloomberg peace was yesterday i think which had the headline airforce inventory listed on the sites of 79 nuclear missiles. so, misidentification of 79 active nuclear armed missiles almost the fifth of the fleet. that's pretty alarming. can you talk to some of these headlines and particularly the one in regard >> to 79 missing nuclear missiles. were they really missing? that would be concerning if that was a case. >> the proper title would've been 79 and muscled voters cause they're not icbms because if they're pulled out and put into maintenance there was an issue in the accuracy because of its manual tracking and it was still in the base. but i

don't think unsolved missile boaters at the same drama as the title that you read. this comes up in the audit and you'll have some story that represses trillions of dollars and there are some kinds of understandings and they are written with something that makes sense but to hear these stories come out to get part of my job which is explaining, our missiles are in the ground and they don't tend to move for the icbms. 79 would not have been relocated. but the answer is that is still a problem but it's not the irregular supply issue. >> on that headline, it's useful and in track of the missile but it wasn't as if there was a loss? which we knew where the icbms were. >> the proper title would've been 79 and muscled voters cause they're not icbms because if they're pulled out and put into maintenance there was an issue in the accuracy because of its manual tracking and it was still in the base. but i don't think unsolved missile boaters at the same drama as the title that you read. this comes up in the audit and you'll have some story that represses trillions of dollars and there are some kinds of understandings and they are written with something that makes sense but to hear these stories come out to get part of

my job which is explaining, our missiles are in the ground and they don't tend to move for the icbms. 79 would not have been relocated. but the answer is that is still a problem but it's not the irregular supply issue. >> on that headline, it's useful and in track of the missile but it wasn't as if there was a loss? which we knew where the icbms were. >> they gave it 100 percent thumbs up and i met with them on issues they knew but they just talked about supply issues in general. >> a failing grade is accurate?

>> we didn't pass. to be fair, seven organizations did and they get credit because in some of them started those audits before anyone else in the department. some of the funds were for five or ten years and that's by the leadership of the organization and is not full sail from the department levels on any of those. regardless of that we still have another way to go? >> from my perspectives you had for dwayne right and what were the findings >> there? positive? negative? good examples of what can be improved? >> it's a great example of wayne right and we had 180 items where was everything from the aircraft that came here. they looked around and they had 25 items they found and went back to the database and said can you show me these 25. 25% pass rate and six things was a serial number that didn't match and we can't be certain this is the same

item. but this item seal would match but it wasn't recorded in the system for a missing piece. six is somewhat small but it's a samples of the question becomes, what do you do if you extrapolate that? that is a good example of the visits they did it passed around the country as a type of thing where that feedback is helpful to find out why. why do they have these six errors and they can determine these other areas as well and they're thinking about the difference sample or what i still have the same errors. and a five six to nine months to work on it it would >> be great. >> first of all, i want to thank you for your perseverance for the ranking member and having been warriors on this for years. i want to thank you secretary for giving yourselves our first audit and i know it's a labourious process but i just have a

couple of quick questions. when you look at the cost of this first force why is pretty substantial and is a third largest expense and second only to medicare. but it's only a little bit larger than operations and is finished routinely and my question is, over time, to see a possibility that we could get to the answers you're quicker than now that we have to start at it? or to clean report which then what is the quantity? we talked about some of the subjective differences but they're obvious but how do we quantify that? it seems to me that you already paid for this in many regards but can you just tell the committee? >> they talk about the car of the cost so the

amount we pay is 195 and compared to our size they are not dramatically different than the large firms. the corps of engineers and their experience or audits move from the sampling but those costs will come down. we expect to see the amount we pay the auditors and we have a similar amount where we spend in labor or federal employees where only used to support the audit. some of that will come down and that's just the cost of doing business correctly. when you look at what they spend to process in a very good data on how much they spend but their costs will go down by a least 40 million when they start getting cleaned data which will cover the cost of the audit and the cost. >> it's a byproduct of an audit process. >> when you think about the labor we spend is we have to figure out what the codes are which that flies through and you're all set. the

second half of that is the money we spend and or doing this to comply our standards so were spending that money but miss difference is we don't have an audit to tell us who was right. you are feeling the new accounting system and in the past he would start discover you do what you want to and the auditors are going to show up every here and test that system. you're not going to be done until the auditors give you a list of programs thinking am i paying to make this system work. that level of discipline that fits the taxpayer to get it to the right level. what i was surprised by when you look at the money that the navy has saved with 167 million and you look at the 316 million that is department was able to use data analytics to recover, that is the cost of what were spending on the audit so in terms of paying the auditors we are now just living off the benefit of our findings where what we spend is better and improving discipline to the system. i originally expected this would be a savings but we have the patience but what we are seeing is the benefit now and the benefit to the

taxpayer. >> i know you talked about continuing resolutions and we now know because secretary has actually talked to us about that and the service heads have also done that across the border. we now have a cost of a couple hundred million dollars in terms of the sea are practice that we've been under the 45 years. only four times in the last 45 years have we actually funded the government on time and no need

for a continuing resolution. in the last decade, the first quarter has been under a continuing resolution. this current debate that we have tomorrow and a continued resolution can you describe to us how the audit interacts with the growing awareness of how insidious thing called a two-year resolution devin states the military. you're going to spend more than last year. because at times it tends to tie the hands on the military and it's a tremendous cost there which would cause are lack of doing our job here in congress. how would the audit help us identify and expose those wasteful afterwards. we are spending against four billion dollars that >> we absolutely don't want to spend those and continue the resolution law. >> you think of the contract where

you're buying some supply. you place the order at the beginning of the year for the entire year. instead, he will take that in somebody's got to make an order that covers the first six weeks. we have to do a contracting reaction and you have to work in the system and they do another contract for another four to six weeks. we keep breaking this contract and increasing the amount of manual labor and increasing the chance for data era and for a vendor to have the quantity at the right cost. we have the volume of transactions which are generated and the additional work and the consequences with this inventory where we held back money for at least six months and we pushed forward and expect people to move out and be able to execute it with a three to six months left. >> with this inventory and expect it expectation for three months. >> i order the

inventory and it's a rush because i don't get to normal sequence like i did and loaded into the system later. life gets busy, the part of the people doing the audit are the most affected because it's the finances and all of these folks who are spending their time over here who are over on the other side or in the process. it's very disruptive and when the audit highlights that with the families or deployments is a pretty serious problem. >> thank you mister >> chair. >> thank you mister chairman and mister secretary, thank you for being with us today. i will have to tell you, going back to my freshman here in the house in 2003, we started working on the management initiative or the d.o.t. audit processes trying to simplify this and get everybody into a system where data would be inter operable

with people to put a lot of this online at that point and in the cloud. but what is frustrated me and i think what continues to frustrate some of our men and women in uniform is that you take two steps forwards, you take a couple of steps back and you end up not making as much progress as you would like to see made. so, with our interest in tennessee with milling ton air naval station arnold air or our national guard presence and the full-time intel. unit as i talk with these men and women. one of the things that continues to come up is having a standardize process and having the best practices. and being able to look, not just at what is immediately in front of you but looking out. further out and the senator of purdue just talked about the necessarily

for having the budget on the cr and that's a big part of that and we realize that. but one comes back to being an issue with d.o.d. is the fact that they just can't seem to get ahead of this process. you have to get those best practices in place. what i would like to hear from you is that if you have a system in place to really incentivize identification of cost savings by d.o.d. employees. if that would help and also what about a best practices database? it's not something that as you go through this and you poll this data where you go in and research this. are you willing the with this database that is going to be available with a system wide. with the third thing i would say is leveraging layers from the private sector. who can really come in based on

their experience and help you streamline that process. you have to optimize operation for the department. because right now, this is one of the problems i think our unit have further deployed. which is the number of hoops they have to jump through to get authority for something in a timely manner. as you look

holistically at this and what you tend to glean from it if you will answer those it would be helpful. >> sure. one of the most important things is how they put a spotlight on some of those problems. one of the things that we have said at the department is that we have three forms that include the army, navy and special forces which is on the idea aspect of the logistics which you talk about the financial management. we are all gonna find the same problem so we have the right fix and a solution so for example, the army is experimenting with what it does is that when you depart, it runs through the accounts and every place you have a log in accounting turns it off. instead of waiting for six different organizations that the paperwork and turn off your access. that works and

everybody can adopt and how do i make sure somebody doesn't log in with one user and one account and use this as another and used to control to prevent something from doing both those functions. all those best practices as a form that share the private sector and secretary spencer at the navy brought in the private sector and has been looking through adopting some of the best practices on the navy aircraft in order to fix these supplies that they have been facing. when they have those with the services, what each of these answers there's, a lot of analogy to what we do even though were in the private sector and the more we used to call it best practices when i

was in college, we staked their ideas and we use them and we use it to drive a fish and see in the process. >> thank you for accommodating. >> we can do this all day secretary any other time to do it. (laughs) this is so impactful and we talk about dollars but where do we go from here? where do you think we're going to identify? if you're not where the to quantify that i understand that but one of the purposes of audits as to look at operational goodness and best practices. but i'm looking at the top line. this is our first deep dive of the d.o.d.. when you look at the impact of cr and other things. given the idea what do you think the potential is going to be for some rationalization and will highlight this quickly. we spent about 14% of the total

money on overhead and that's about 2% of out the vietnam era i'd like to know, where that increase is in that process as well. then we allocate the balance which is the system with nds. we are getting more advocacy about where the money is spent at will give us some flexibility to address that. my question, what is the next step this year and what do you hope to improve our the first audit? secondarily, what do you think the rationalization potential could be in >> d.o.d.? if you already quantified it i would totally understand it but i want to know what you're thinking. >> the next big step and the small steps will keep identifying but the next big step is to take advantage of the data that we have. 13 transactions and blocks and as a single entry you can't do that. we have individual transactions where you can search on them where the budget would see it had 100 million dollars and it can now click on that and give every single transaction. but now if you want to get after it, or get after these expenses you can do those transactions and sort out is this overnight as an export maintenance or is this overhead as an hired an it consultant. that level of transparency data within what i want to push for is that we should be able to have a >> the next big step and the small steps will keep identifying but the next big step is to take advantage of the data that we have. 13 transactions and blocks and as a single entry you can't do that. we have individual transactions where you can search on them where the budget would see it had 100 million dollars and it can now click on that and give every single transaction. but now if you want to get after it, or get after these expenses you can do those transactions and sort out

is this overnight as an export maintenance or is this overhead as an hired an it consultant. that level of transparency data within what i want to push for is that we should be able to have a meeting where it looks like you'd have a business company and the business to despair and you have to report to your cfo. that would have a summary of the financial activities where we will have a discussion on what it means. if you don't trust the data you can but if you start having this transaction level we use in defense called p be planted doesn't have a back loop. and here is how it comes back and wait change that to accountability which is what did you get for it before in the program for the next five

years and how we take that information back into the system and this is moving accounting from a note that we sent a support to somebody and a report is the data that really produces the leadership >> and the usual format and the private sector companies because they trust their data and we want to have that as an entity piece. >> of all the people i come to the hill to testify you have consistently been a straight shooter and i appreciate that and thank you for all what you've done and thank you mister chair. >> i want to thank the secretary as well and the colleagues on the senate and on this audit and budget issue for senator blackburn thank you to them and the secretary did raise the issue of the cr which is important. you described it but there is a way to deal with it which is the defense appropriations bill which my colleagues on the other side stop filler bowstring which and

just vote on it and with the bipartisan concern and get on the double vote and the appropriations and we will continue to press and certainly will. >> i want to thank you again and you submit any additional questions for the record by friday and i appreciate and wolf you promptly respond to any additional questions from the members of this committee. with that we are ..."