[House Hearing, 107 Congress] [From the U.S. Government Publishing Office] VULNERABILITIES TO WASTE, FRAUD, AND ABUSE: INSPECTORS GENERAL VIEWS ON NATIONAL SECURITY, INTERNATIONAL RELATIONS, AND TRADE PROGRAMS ======================================================================= HEARINGS before the SUBCOMMITTEE ON NATIONAL SECURITY, VETERANS AFFAIRS AND INTERNATIONAL RELATIONS of the COMMITTEE ON GOVERNMENT REFORM HOUSE OF REPRESENTATIVES ONE HUNDRED SEVENTH CONGRESS FIRST SESSION __________ MARCH 15, 2001 __________ Serial No. 107-51 __________ Printed for the use of the Committee on Government Reform Available via the World Wide Web: http://www.gpo.gov/congress/house http://www.house.gov/reform 77-881 U.S. GOVERNMENT PRINTING OFFICE WASHINGTON : 2002 ____________________________________________________________________________ For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512�091800 Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001 COMMITTEE ON GOVERNMENT REFORM DAN BURTON, Indiana, Chairman BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California CONSTANCE A. MORELLA, Maryland TOM LANTOS, California CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York ILEANA ROS-LEHTINEN, Florida EDOLPHUS TOWNS, New York JOHN M. McHUGH, New York PAUL E. KANJORSKI, Pennsylvania STEPHEN HORN, California PATSY T. MINK, Hawaii JOHN L. MICA, Florida CAROLYN B. MALONEY, New York THOMAS M. DAVIS, Virginia ELEANOR HOLMES NORTON, Washington, MARK E. SOUDER, Indiana DC JOE SCARBOROUGH, Florida ELIJAH E. CUMMINGS, Maryland STEVEN C. LaTOURETTE, Ohio DENNIS J. KUCINICH, Ohio BOB BARR, Georgia ROD R. BLAGOJEVICH, Illinois DAN MILLER, Florida DANNY K. DAVIS, Illinois DOUG OSE, California JOHN F. TIERNEY, Massachusetts RON LEWIS, Kentucky JIM TURNER, Texas JO ANN DAVIS, Virginia THOMAS H. ALLEN, Maine TODD RUSSELL PLATTS, Pennsylvania JANICE D. SCHAKOWSKY, Illinois DAVE WELDON, Florida WM. LACY CLAY, Missouri CHRIS CANNON, Utah ------ ------ ADAM H. PUTNAM, Florida ------ ------ C.L. ``BUTCH'' OTTER, Idaho ------ EDWARD L. SCHROCK, Virginia BERNARD SANDERS, Vermont ------ ------ (Independent) Kevin Binger, Staff Director Daniel R. Moll, Deputy Staff Director James C. Wilson, Chief Counsel Robert A. Briggs, Chief Clerk Phil Schiliro, Minority Staff Director Subcommittee on National Security, Veterans Affairs and International Relations CHRISTOPHER SHAYS, Connecticut, Chairman ADAM H. PUTNAM, Florida DENNIS J. KUCINICH, Ohio BENJAMIN A. GILMAN, New York BERNARD SANDERS, Vermont ILEANA ROS-LEHTINEN, Florida THOMAS H. ALLEN, Maine JOHN M. McHUGH, New York TOM LANTOS, California STEVEN C. LaTOURETTE, Ohio JOHN F. TIERNEY, Massachusetts RON LEWIS, Kentucky JANICE D. SCHAKOWSKY, Illinois TODD RUSSELL PLATTS, Pennsylvania WM. LACY CLAY, Missouri DAVE WELDON, Florida ------ ------ C.L. ``BUTCH'' OTTER, Idaho ------ ------ EDWARD L. SCHROCK, Virginia Ex Officio DAN BURTON, Indiana HENRY A. WAXMAN, California Lawrence J. Halloran, Staff Director and Counsel Kristine McElroy, Professional Staff Member Jason Chung, Clerk David Rapallo, Minority Counsel C O N T E N T S ---------- Page Hearings held on March 15, 2001..................................1, 125 Statement of: Griffin, Richard J., Inspector General, Department of Veterans Affairs; Roberta L. Gross, Inspector General, National Aeronautics and Space Administration; and Richard L. Skinner, Deputy Inspector General, Federal Emergency Management Agency.......................................... 66 Lieberman, Robert J., Deputy Inspector General, Department of Defense; and Gregory H. Friedman, Inspector General, Department of Energy....................................... 4 Sigmund, Ambassador Anne M., Acting Inspector General, Department of State; Everett L. Mosley, Inspector General, U.S. Agency for International Development; Charles D. Smith, Inspector General, Peace Corps; and Dev Jagadesan, Acting Inspector General, U.S. International Trade Commission................................................. 126 Letters, statements, etc., submitted for the record by: Clay, Hon. Wm. Lacy, a Representative in Congress from the State of Missouri, prepared statement of................... 228 Friedman, Gregory H., Inspector General, Department of Energy, prepared statement of.............................. 33 Griffin, Richard J., Inspector General, Department of Veterans Affairs, prepared statement of.................... 68 Gross, Roberta L., Inspector General, National Aeronautics and Space Administration, prepared statement of............ 76 Jagadesan, Dev, Acting Inspector General, U.S. International Trade Commission, prepared statement of.................... 197 Lieberman, Robert J., Deputy Inspector General, Department of Defense, prepared statement of............................. 6 Mosley, Everett L., Inspector General, U.S. Agency for International Development, prepared statement of........... 152 Sanders, Hon. Bernard, a Representative in Congress from the State of Vermont, prepared statement of.................... 221 Shays, Hon. Christopher, a Representative in Congress from the State of Connecticut, prepared statement of............ 3 Sigmund, Ambassador Anne M., Acting Inspector General, Department of State, prepared statement of................. 129 Skinner, Richard L., Deputy Inspector General, Federal Emergency Management Agency, prepared statement of......... 97 Smith, Charles D., Inspector General, Peace Corps, prepared statement of............................................... 175 VULNERABILITIES TO WASTE, FRAUD, AND ABUSE: INSPECTORS GENERAL VIEWS ON NATIONAL SECURITY, INTERNATIONAL RELATIONS, AND TRADE PROGRAMS ---------- THURSDAY, MARCH 15, 2001 House of Representatives, Subcommittee on National Security, Veterans Affairs and International Relations, Committee on Government Reform, Washington, DC. The subcommittee met, pursuant to notice, at 9 a.m., in room 2247, Rayburn House Office Building, Hon. Christopher Shays (chairman of the subcommittee) presiding. Present: Representatives Shays, Putnam, Weldon, Schrock, Otter, Kucinich, and Clay. Staff present: Lawrence J. Halloran, staff director and counsel; Vincent Chase, chief investigator; Nicholas Palarino, senior policy advisor; Kristine McElroy, Thomas Costa, and Robert Newman, professional staff members; Alex Moore, fellow; Jason M. Chung, clerk; David Rapallo, minority counsel; and Earley Green, minority assistant clerk. Mr. Shays. A quorum being present, the Subcommittee on National Security, Veterans Affairs and International Relations' hearing entitled, ``Vulnerabilities to Waste, Fraud, and Abuse: Inspectors General Views on National Security, International Relations, and Trade Programs'' is called to order. In testimony before the subcommittee last week, Comptroller General David Walker described serious management challenges and high-risk operations in national defense, veterans, and international relations programs. He called for sustained systemic improvements in efficiency and accountability in response to rapid technological advances, shifting security threats, changing demographics, and economic globalization. Today, the Inspectors General [IGs] from nine departments and agencies within our oversight jurisdiction will amplify and supplement that reform agenda from their very unique perspective as internal auditors and watchdogs. Despite the diversity of the programs and functions under discussion this morning, recurring themes ring through each IG's description of wasteful information technology acquisitions, antiquated human capital policies, sloppy financial controls, and the lack of performance-driven, results-oriented management. From the Marine Corps to the Peace Corps, from diplomacy to deep space, waste, fraud, abuse, and mismanagement threaten vital national missions and undermining public confidence in Government. Our mission is oversight, best defined as ``watchful and responsible care for Federal programs and resources.'' It is not an episodic game of ``gotcha,'' but the vigilant, methodical examination of agency goals and performance. In that endeavor we rely heavily on our oversight partners, the General Accounting Office [GAO], and the inspectors general to illumine general trends and specific problems in need of reform. We welcome their testimony today, are grateful for their service, and look forward to their continued help in the subcommittee's work. [The prepared statement of Hon. Christopher Shays follows:] [GRAPHIC] [TIFF OMITTED] T7881.001 Mr. Shays. At this time I would recognize the vice chairman of the committee, Mr. Putnam. Mr. Putnam. Thank you, Mr. Chairman. I'm looking forward to hearing the testimony. I have no opening statement. Mr. Shays. Mr. Schrock. Mr. Schrock. No. Mr. Shays. Mr. Otter. Mr. Otter. No, Mr. Chairman. Mr. Shays. Thank you. So we are--Ed's ready and I'm ready and Mr. Putnam is ready. Mr. Lieberman, we are going to swear you in, and Mr. Friedman. Let me just announce who we have. We have Robert Lieberman, Deputy Inspector General, Department of Defense; and Mr. Gregory Friedman, Inspector General, Department of Energy. If you'd raise your right hands, please. [Witnesses sworn.] Mr. Shays. Thank you. It is great to have you here, Mr. Lieberman and Mr. Friedman, and we welcome your testimony. Obviously, you may need to go beyond 5 minutes. I'm not sure, given the number of Inspectors General, how many questions we are going to have, but it is important we put on the record your testimony, so--Mr. Lieberman. STATEMENTS OF ROBERT J. LIEBERMAN, DEPUTY INSPECTOR GENERAL, DEPARTMENT OF DEFENSE; AND GREGORY H. FRIEDMAN, INSPECTOR GENERAL, DEPARTMENT OF ENERGY Mr. Lieberman. Thank you, Mr. Chairman. My written statement describes the top 10 internal management problem areas that we believe confront the Department of Defense. In brief, these are as follows. First, Defense has a very poor track record for developing or acquiring information systems; yet, it depends heavily on thousands of information systems to carry out almost all of its activities and spends well over $20 billion a year on those systems. Second, security is a major challenge to all users of network computer systems, and Defense is one of the largest such users in the world. Third, a range of other security concerns also need continued attention. For example, there is a backlog of several hundred thousand overdue security clearance investigations, a problem of which you are well aware. Additionally, the task of protecting military technology by revamping the export control regime remains unfinished national business. Fourth, Defense remains unable to compile auditable annual financial statements because its efforts to acquire systems that can meet new Federal accounting standards are incomplete. Even more fundamentally, Defense accounting systems are too complicated or error prone and do not provide reliable, timely, and useful information to managers for decisionmaking purposes. Fifth, acquisition reform remains very much a work in progress, with major challenges remaining in terms of remolding the weapons acquisition effort to match evolving national strategy, force structure, and available funding. At present, Defense has nearly 1,300 weapon acquisition projects worth $1.4 trillion underway. Besides reaffirming what capabilities are actually needed and affordable, the Department needs to do more to improve purchasing practices across the board to control costs and speed up acquisition lead time, but without cutting corners on testing or on the quality of material being put into the hands of the war fighters. Sixth, the military health system faces enormous cost pressures, as do other public and private health care systems. It now costs about $20 billion annually. Seventh, the Department must find better alternatives to the cold war practice of relying on huge stocks of supplies and parts. Modern, Web-enabled business practices are being introduced, but Defense remains behind the private sector in terms of efficient supply chain management. Eighth, Defense must find ways to address major unfunded requirements in mundane infrastructure areas like facilities, where the backlog of real property maintenance, alone, is over $27 billion. But, at the same time, we must continue to trim unnecessary overhead and support costs. At least one more round of base closures is clearly needed. Ninth, there is widespread consensus that the readiness of the armed forces is suffering from the combined effects of the force structure not being designed for the type and frequency of missions being performed and shortcomings throughout the whole range of support activities needed to train, equip, maintain, and sustain the forces. Also, Defense leaders have warned candidly of a logistics death spiral caused by the rapidly increasing cost and frustration of maintaining old weapons systems, especially tactical aircraft. Tenth, the combined impacts of eliminating half a million civilian jobs without proportional workload decreases, the pending retirement of nearly half the remaining civilian work force, and severe competition for skilled workers have created significant staffing problems and dislocations throughout the Department. Outsourcing is a partial solution but brings its own oversight challenges. In summary, this has been a very broad-brush treatment of numerous and formidable management challenges already acknowledged by the Department in various ways. The Office of the Inspector General looks forward to assisting in every way that we can as the new administration and Congress take on these problems. I am looking forward to discussing them with you in further detail. That concludes my summary. Mr. Shays. I thank you, Mr. Lieberman. Your statement is quite in-depth. It will be available, obviously, to us and the staff. [The prepared statement of Mr. Lieberman follows:] [GRAPHIC] [TIFF OMITTED] T7881.002 [GRAPHIC] [TIFF OMITTED] T7881.003 [GRAPHIC] [TIFF OMITTED] T7881.004 [GRAPHIC] [TIFF OMITTED] T7881.005 [GRAPHIC] [TIFF OMITTED] T7881.006 [GRAPHIC] [TIFF OMITTED] T7881.007 [GRAPHIC] [TIFF OMITTED] T7881.008 [GRAPHIC] [TIFF OMITTED] T7881.009 [GRAPHIC] [TIFF OMITTED] T7881.010 [GRAPHIC] [TIFF OMITTED] T7881.011 [GRAPHIC] [TIFF OMITTED] T7881.012 [GRAPHIC] [TIFF OMITTED] T7881.013 [GRAPHIC] [TIFF OMITTED] T7881.014 [GRAPHIC] [TIFF OMITTED] T7881.015 [GRAPHIC] [TIFF OMITTED] T7881.016 [GRAPHIC] [TIFF OMITTED] T7881.017 [GRAPHIC] [TIFF OMITTED] T7881.018 [GRAPHIC] [TIFF OMITTED] T7881.019 [GRAPHIC] [TIFF OMITTED] T7881.020 [GRAPHIC] [TIFF OMITTED] T7881.021 [GRAPHIC] [TIFF OMITTED] T7881.022 [GRAPHIC] [TIFF OMITTED] T7881.023 [GRAPHIC] [TIFF OMITTED] T7881.024 [GRAPHIC] [TIFF OMITTED] T7881.025 [GRAPHIC] [TIFF OMITTED] T7881.026 Mr. Shays. We need to deal with some housekeeping, Mr. Friedman, before we begin with you. I would ask unanimous consent that all members of the subcommittee be permitted to place an opening statement in the record and that the record remain open for 3 days for that purpose. Without objection, so ordered. I'd ask further unanimous consent that all witnesses be permitted to include their written statements in the record. Without objection, so ordered. Mr. Friedman, you have the floor. Mr. Friedman. Thank you, Mr. Chairman. Good morning to you, Mr. Chairman and members of the subcommittee. I am pleased to be here at your request to testify on the major performance and management challenges facing the Department of Energy. These challenges, which were reported in our November 2000, special report and actually are before you on the chart that you can see, are the startup of the National Nuclear Security Administration contract administration, energy supply and demand technology, environmental remediation, human capital, information technology, infrastructure, property controls and asset inventories, safety and health, and security. Progress in resolving these issues is dependent in large measure on whether the Department effectively implements the Government Performance and Results Act. The Office of Inspector General continues to focus attention on the Department's performance measures and results. I'd like to summarize my full statement, Mr. Chairman, by focusing on five of the challenge areas--startup of the NNSA, infrastructure, security, contract administration, and human capital. First, I'd like to address the startup of the NNSA. As with the establishment of any organization, the NNSA faces a number of significant challenges. These include logistical and organizational issues and human capital concerns. The NNSA also faces a number of major policy issues. For example, it is responsible, as you are well aware, for the stewardship of the Nation's nuclear stockpile and for reducing the threat of nuclear proliferation and terrorism. In addition, the NNSA will need to address many of the other departmental challenges that my office has identified. This is particularly true of the second challenge I will discuss, the nuclear weapons infrastructure. For several years the Office of Inspector General has reported that the condition of the Department's infrastructure is inadequate and is, in fact, deteriorating at an alarming pace. The nuclear weapons production infrastructure is a case in point. According to the Department's own estimates, it will need between $5 and $8 billion over the current budgeted amount to address the deteriorating infrastructure of the weapons production plants. The Department and NNSA must act swiftly to counter the effects of deferred maintenance and the loss of certain critical manufacturing capabilities. The third challenge I would like to discuss is security. Previous reviews by the Office of Inspector General, the Congress, and others have identified weaknesses in the Department's security program. For example, we have found that security ratings were changed without documented rationale, computers were not always sanitized prior to disposal, and weaknesses existed that increased the risk that unclassified computer networks could be damaged by malicious attack. Lapses in security were also frequently cited during the debate leading to the NNSA's creation. Contract administration also continues to be a major challenge to the Department. In short, we have concluded that many of the Department's contract reform goals have yet to be achieved. For example, while performance incentives have been included in most Department contracts, Office of Inspector General reviews have disclosed systemic weaknesses in the way these incentives have been administered. Further, while contractor fees have risen dramatically, there has not been a commensurate increase in the financial risk and accountability of the Department's major contractors. An integral part of contract administration is project management. My office has issued many reports that have been critical of the Department's planning, justification, and management of its major projects. Cost overruns, schedule delays, and other management problems have plagued Department projects, including the $47 billion tank waste project at Hanford and the National Ignition Facility at the Lawrence Livermore National Laboratory, which is now projected to cost in excess of $3.5 billion. Finally, the Department faces a number of human capital issues. Since 1995, the Department has reduced Federal staff significantly through reductions in force, buy-outs, attrition, and a hiring moratorium. The staff eligible for retirement today has nearly doubled in the last 5 years. By the year 2005, 34 percent of today's Federal staff will be eligible to retire, and the Department's major contractors--specifically those dealing in the nuclear arena and the Defense complex--are experiencing similar and in some cases more severe losses. Many of those retiring take with them technical and scientific knowledge that is not easily replaced. The Department and NNSA must take aggressive action to ensure that it maintains the technical, scientific, and management resources it needs to meet its critical mission requirements. I want to inform you the Department has made progress in some areas. These include integrating research and development activities, commencing operations at the waste isolation pilot plant, and improving financial reporting of environmental liabilities. However, a great deal more needs to be done. In this regard, Secretary Abraham and General Gordon have asked me to provide regular briefings on the progress made in addressing the challenge areas. Mr. Chairman and members of the subcommittee, this concludes my statement. I would be pleased to answer any questions that you may have. Mr. Shays. Thank you very much. [The prepared statement of Mr. Friedman follows:] [GRAPHIC] [TIFF OMITTED] T7881.027 [GRAPHIC] [TIFF OMITTED] T7881.028 [GRAPHIC] [TIFF OMITTED] T7881.029 [GRAPHIC] [TIFF OMITTED] T7881.030 [GRAPHIC] [TIFF OMITTED] T7881.031 [GRAPHIC] [TIFF OMITTED] T7881.032 [GRAPHIC] [TIFF OMITTED] T7881.033 [GRAPHIC] [TIFF OMITTED] T7881.034 [GRAPHIC] [TIFF OMITTED] T7881.035 [GRAPHIC] [TIFF OMITTED] T7881.036 [GRAPHIC] [TIFF OMITTED] T7881.037 [GRAPHIC] [TIFF OMITTED] T7881.038 [GRAPHIC] [TIFF OMITTED] T7881.039 [GRAPHIC] [TIFF OMITTED] T7881.040 [GRAPHIC] [TIFF OMITTED] T7881.041 [GRAPHIC] [TIFF OMITTED] T7881.042 [GRAPHIC] [TIFF OMITTED] T7881.043 [GRAPHIC] [TIFF OMITTED] T7881.044 [GRAPHIC] [TIFF OMITTED] T7881.045 Mr. Shays. Let me first welcome Mr. Kucinich. I don't know if you have any opening statement you want to make? Mr. Kucinich. Just include it in the record. Mr. Shays. OK. We will include it in the record, and I'll start us out. Basically, let me just start with you, Mr. Friedman. I'd like to know--and I am going to ask the same question of you, Mr. Lieberman, as well. I'd like--you both have been very helpful in outlining some key issues. I'd like to know the most serious problem that faces the Department. I'd like to know the least-serious on the list that you have given in your full statement. I also ultimately would like to know--and I'll jump back to them and remind you when I'm asking you--the easiest to address, the hardest to address, and the one that has been there the longest. What's the most serious problem, Mr. Friedman, that you think needs to be addressed? Mr. Friedman. Well, that's a difficult question, Mr. Chairman, but I think human capital may well be the most difficult problem. You can't address all the others unless you have the right people in place to take the appropriate corrective actions and to move forward into the future, so my quick answer to you would be that human capital is the most serious problem. Mr. Shays. And you've given us 10 in your full statement of problems to deal with. What is the least-serious problem of these? Mr. Friedman. I suppose property controls and asset inventories. Mr. Shays. What would be the easiest to address? Mr. Friedman. Well, I think, actually, all of them are significant challenges or they wouldn't be on the list, but I think the easiest to address are the ones that can be addressed in the shortest period of time--probably deal with contract administration. Mr. Shays. In other words, the one if they just put their mind to it they could get it done. Mr. Friedman. I think contract administration could be addressed quite easily. Mr. Shays. And it could be done in the shortest period of time? Mr. Friedman. That's correct. Mr. Shays. OK. And, again, you said the hardest to address is what? Mr. Friedman. Well, the hardest--let me state it differently. I think the most significant challenge in this certain in part falls within the purview of this committee-- deals with the environmental remediation of the former weapons sites. As you may be aware, Mr. Chairman, right now the unfunded liability in the Department's books for environmental cleanup is $230 billion, and that is to be a project the likes of which have never been seen in the free world or in any part of the world, for that matter. I think over time--it is a 60 to 70-year project, so that is going to be the longest-term project that we face. Mr. Shays. How many years? Mr. Friedman. 60 to 70. Mr. Shays. Why that long? Mr. Friedman. Well, these are some of the most technologically challenging sites to clean up. The stuff is very hazardous. It is very difficult. The technology is not always there. It is a major project, and funding is a function, as well. I mean, we couldn't spend that kind of money---- Mr. Shays. Are these dangerous sites? Mr. Friedman. Absolutely yes. Mr. Shays. I'm going to do something here. I want counsel to explain to the committee what our jurisdiction is as it relates, because we're hearing basically overall--you know, our jurisdiction basically is what, as it relates to Department of Energy? The Counsel. The Department of Energy is military nuclear programs and the civilian support offices that engage with the nuclear safety--military security programs. Mr. Shays. In other words---- The Counsel. And the laboratories. Mr. Shays. Anything else? The Counsel. That's it. Mr. Shays. OK. The bottom line for us, we asked for that jurisdiction given national defense concerns and so on, and our concerns with the fact that we oversee the intelligence community and we oversee terrorism. You said the problem has been there for years. If we went back 20 years, we would have seen this as a problem if Inspectors General had written reports on it? Mr. Friedman. Well, the environmental remediation problem-- -- Mr. Shays. Will go out in years, but what---- Mr. Friedman. But it basically started 60 years ago with the Manhattan project. Mr. Shays. Fair enough. I'd like to ask the same round of questions to Mr. Lieberman, and then I'm going to yield to Mr. Kucinich--not yield, give him the floor. Most serious problem facing DOD? You understand why I let you go second, don't you? It is a little bigger here. Mr. Lieberman. I do, Mr. Chairman. Mr. Shays. So I gave you plenty of time. Mr. Lieberman. All I can say is---- Mr. Shays. Don't look so surprised. [Laughter.] Mr. Lieberman. I hope the rest of your questions aren't as tough as the first one. Mr. Shays. OK. We can take--which one has been around the longest? We can go backward? Mr. Lieberman. I believe that the inability to provide good financial information to managers has been around for at least 25 years. Mr. Shays. It's such a mammoth Department. It has just been hard to get a handle on information systems, financial? Mr. Lieberman. Yes. And I think there was a trend that goes very far back--as a matter of fact, probably 25 years is conservative. And that trend was that financial reporting was considered a control mechanism strictly to make sure that people did on the spend more money than they were authorized to spend. Mr. Shays. OK. Mr. Lieberman. And that was fine. That's a legitimate goal for financial managers. Unfortunately, the idea of capturing costs and providing timely financial management information for managers to use in decisionmaking, in comparing the costs of different alternative ways of doing business, got lost many, many years ago and Defense spent millions of dollars designing several hundred financial reporting systems back in the 1960's and 1970's, none of which provided that kind of cost information. Mr. Shays. OK. Let me ask you, what is the hardest or easiest problem to address--again, whichever one you want to do first. Mr. Lieberman. The easiest is probably the infrastructure problem, simply because that is a money problem. Mr. Shays. OK. Mr. Lieberman. And we know how to do base closures. All we need is authorization to do them. Mr. Shays. OK. And the hardest? Mr. Lieberman. The hardest--I think is a very close race. I do think that the financial management situation is not going to be fixed unless a completely different mindset takes hold within the Department, and that may well happen with the new administration that is looking very hard at this particular question. Mr. Shays. What would be the other one that is close first? Mr. Lieberman. The Department's inability to acquire useful information systems, no matter what their purpose is. Mr. Shays. OK. And the most serious problem facing the Department? Mr. Lieberman. I think the decline in military readiness is the most urgent problem. Mr. Shays. And the least-serious problem? I mean, not that it is not a problem, but---- Mr. Lieberman. Well, I think the infrastructure situation is bad. It gets worse every year. But it is tolerable. Mr. Shays. OK. Mr. Lieberman. It is painful and it is a morale depressor, but you can live with that. Mr. Shays. Thank you. Let me do this. Let me recognize Mr. Kucinich. I do want to welcome Butch Otter from Idaho. Nice to have you here, and we'll get to your questions as soon as Mr. Kucinich is finished. Mr. Otter. Thank you. Mr. Kucinich. Thank you very much. Good morning, Mr. Chairman. Good morning to our witnesses. One of the concerns that I have in reviewing areas that relate to NNSA is the area of Presidential policy directives. Mr. Friedman, are you charged with oversight to see if Presidential policy directives are, in fact, being followed with respect to the proliferation or non-proliferation initiatives? Mr. Friedman. Well, that is within our area of interest, yes. Mr. Kucinich. And are you familiar with Presidential Decision Directive 60? Mr. Friedman. I am not. Mr. Kucinich. You're not? I'm very interested in whether or not that policy directive is being followed, and also the work that your office does with respect to monitoring the stability of systems which puts thousands of nuclear missiles on alert. Now, do you--what kind of control do you have in a situation where we have intercontinental ballistic missiles that are on a ready alert status? What is your work in connection with that? Mr. Friedman. Well, to the extent the Department of Energy is involved, Mr. Kucinich, and as a role in implementation or execution of a particular Presidential decision directive, it would not be unusual for the Inspectors General to take a look to review the implementation and see what steps are being taken. I'm just not familiar with PDD 60. To give you one example, we recently completed a review of Presidential Decision Directive 63, which deals with the critical infrastructure. So it is not unusual to do this; I'm just not familiar with No. 60. Mr. Kucinich. OK. Mr. Friedman. And I couldn't obviously speak to the role of the Department of Energy in implementation of that particular PDD. Mr. Kucinich. But you can speak to oversight in connection with NNSA? Mr. Friedman. Yes. Mr. Kucinich. In your testimony, I believe you mentioned that among the major policy issues which confront NNSA is reducing the threat of nuclear proliferation and nuclear terrorism by helping to upgrade physical protection and material control and accounting system in nuclear facilities in the states of the former Soviet Union. Mr. Friedman. Right. Mr. Kucinich. Do you have teams which go to those states on a regular basis and are involved in inspection? Mr. Friedman. Well, the last review we did of that program was about a 1\1/2\ or 2 years ago, and we found weaknesses in the way the program was being implemented in the fact that all of the money that was being appropriated by the Congress was not achieving what we thought were the goals of the Congress when the money was appropriated. Mr. Kucinich. Are the weaknesses in effect oversight weaknesses, or are they weaknesses in the way the programs are being managed? Are they weaknesses in the sense of we're not seeing an effective diminishment of the role of nuclear weapons in these former states? Mr. Friedman. No. If I recall correctly, really there were three or four components. One was that the government at the time was siphoning off tax money from the money that was being appropriated, which reduced the amount of money that was actually achieving the goal for which the program was established. Second, the U.S. Government Federal oversight of the work that was being done, the management of the work that was being done was inadequate. But we thought there was progress being made in a general sense. Mr. Kucinich. So do you then, in connection with the work in the former Soviet states, help to keep track of the weapons, themselves? Mr. Friedman. We do not. No. To the extent that the U.S. Government and the Department of Energy is involved in that process, we would review the actions from time to time of---- Mr. Kucinich. Storage of such materials? Mr. Friedman. It includes storage. The basic program was designed to ensure that nuclear devices that were in those states were protected from terrorist or rogue states obtaining them as an anti-terrorism move around the world. Mr. Kucinich. Now, does your directive include chemical and biological weapons? Mr. Friedman. It does. Mr. Kucinich. Do you have anything to say about that? I guess that could wait until the next---- Mr. Shays. You can continue. Mr. Kucinich. OK. I had a discussion with the former Russian premier, Serge Kurienko, recently. He is now Governor of one of the largest areas in the old Soviet Union, in Russia. He was expressing to me concern about the condition of 40,000 tons of chemical weapons which exist in Russia which present, as he called it, the potential for a world ecological disaster. He has asked for attention to be paid to this, and I wondered if, you know--and since Russia has these large stockpiles of chemical and biological weapons materials, what is being done with respect to the policy of the United States in trying to re-engage Russia and assist them in an effective disposition of these chemical weapons? Mr. Friedman. Mr. Kucinich, I misunderstood your question and I didn't answer appropriately, so let me clarify what I intended to say. The Department of Energy, to the best of my knowledge, does not have responsibility for overseeing or participating with the Russian program. Mr. Kucinich. OK. Mr. Friedman. What we do, though, through our Defense labs and other labs, is undertake for the Department of Defense and others a comprehensive program to work with biological select agents, including anthrax and others, to find ways to detect it before it is used and to prevent its use and to treat soldiers in the field, or whatever the case might be, in the event it is used. Mr. Kucinich. OK. Mr. Friedman. And we have looked at that within the last 2 years. Mr. Kucinich. OK. I will save that for another hearing, then. Mr. Lieberman, we've heard some of the record associated with the Department of Defense's financial management, much of it put forth by your own Department, and last week we heard Mr. Walker of the GAO give the Department of Defense a failing grade in terms of financial management and indicated that they're probably worse than any other agency in this regard. What is your assessment of those--of the financial management and inventory practices? Mr. Lieberman. I believe there are profound problems in the financial management area, not only with financial reporting but, as I said, with providing useful decisionmaking information, which includes inventory information, to those people who need to manage our supply chain. Mr. Kucinich. One of the things that Mr. Walker said that I thought was noteworthy was he said that the Department of Defense's strategic plan ``is not tied to desired mission outcomes.'' Would you agree with that? Mr. Lieberman. We've not really looked at that. I am aware of a very extensive set of performance measures and goals that Defense has put into place in response to the Results Act. GAO has criticized that list of measures for the last few years, but the IG has really not been involved in it. Mr. Kucinich. OK. You also indicated that the Department of Defense ``Employs overly optimistic planning assumptions in its budget formulation; thus, all too frequently has too many programs for the available dollars, and tough decisions in tradeoffs between needs and wants are avoided.'' Would you agree or disagree with that statement? Mr. Lieberman. Well, it is a sweeping statement, but I think I would basically agree that there are too many programs chasing too few dollars. Mr. Kucinich. Right. Well, what he told us then is that the Pentagon--and these are points that were made--not only doesn't fully know what it buys with its money, and where those purchases are, but also assumes it has as much money to spend on whatever it wants without considering what it needs to fulfill its mission. That was, in essence, what I got out of that hearing, Mr. Chairman. I just wondered if you would have any comment on that possibility. Mr. Lieberman. I don't quite understand the last part of that formulation. Did he say that Defense assumes it has enough money to do anything? Mr. Kucinich. Well, I'm making an interpretation that it has as much money to spend on whatever it wants. That is kind of an assumption. There seems to be very little control there in terms of standard budgeting practices, and their wants seem to propel far ahead of what the needs of any particular department might be. Mr. Lieberman. Well, I wouldn't go quite that far. Defense does have a very sophisticated, complicated budget formulation system, and the Congress intensively reviews proposed Defense budgets, at least as intensively as it reviews any other department's proposed budgets annually. Projecting Defense requirements is not an easy business, and it is true that the military services are constantly pushing for more-advanced technology. I don't think it--it's certainly not fair to say that Defense assumes that it is always going to get enough money to catch up with whatever requirements it postulates. On the contrary, a lot of the inefficient behavior I think we see in program execution is caused by chronic under-funding--that is, too many programs chasing too few dollars--and therefore you get a lot of programs being run, for instance, at inefficient production rates because they are not fully funded. I think that the ongoing review of the basic assumptions about what we need to buy is going to straighten out a lot of the current imbalance here between stated requirements and what is actually program. Mr. Shays. Thank you. Thank you, Mr. Chairman. If we have another round, I'd like to get back into some of these accounting questions. Thank you. Mr. Shays. OK. Thank you. Butch Otter, you have the floor. Mr. Otter. Thank you, Mr. Chairman. I apologize for not being here for both of your formal remarks, but I have had a chance to scan them. I just have a couple of questions, and I think most of them are relative to national policy rather than any specifics. But it concerns me, reflecting back on Mr. Friedman--you mentioned the Manhattan project. One of the greatest failures of an otherwise successful program, the Manhattan project, was that, while everybody was enthusiastic and very aggressively working to make sure that Manhattan project worked and was successful, nobody was working on the circumstances of what would happen if it was successful, and so consequently we ended up in a cold war for a long, long time because we failed to control and failed to understand the aspects and the costs of stand-down of that same project. It seems to me that we really lack any kind of institutional memory and institutional discipline for some of that, because I take a look at some of the nuclear power plants that were begun and built, never operated, shut down, cost a lot of money, still costing a lot of money. I know up in my country in the Pacific Northwest we built one that never got started. It never started up and still had billions of dollars price tag on it. When we put the economy at risk, I think we risk the national security. I'm wondering if we are developing, along with the aspects of--it seems now we have a very enthusiastic time to develop a national energy policy and what it means to the economy, what it means to national security, what it means to our lifestyle and our values system. Are we also in the process of that, Mr. Friedman, in developing a national energy policy? Do we have the capacity to also measure the stand-down costs and the costs of what if our national energy policy works, No. 1? And, No. 2, when we have these problems of shutting these facilities down and scrapping them, it seems like the largest and long-term cost of cleaning them up, whether it be through EPA's Superfund sites or stockpiling of strategic and dangerous materials, what happens to those costs, as well? I know that is kind of a general cornucopia of problems, but I'd like you to speak to the national policy of standing down our strategic energy requirements some day. Mr. Friedman. Well, I want to give you as precise a response as I possibly can. Our responsibility in terms of the Department's responsibility, I should say--and I'm not here speaking for the Department, per se--the Department's responsibility with regard to the commercial nuclear plants-- and I assume that's what you are referring to, at least in part--clearly is to ultimately accept the waste from those plants at Yucca Mountain in Nevada or at some other site hopefully at some point in the future. With regard to the--my area of expertise, if you will, deals more directly with the nuclear facilities that were created as part of the weapons program and the stand-down associated with those plants. But I do have some personal views about the overall process. And I hope I am being responsive to your question. Mr. Otter. Yes, you are. Mr. Friedman. Right now, as I understand the numbers, we depend upon nuclear energy for about 20 percent of our electricity needs. That number may be not quite right, but it is pretty darned close. And those plants clearly are--there is a trend that they are going offline because of age. One of the issues that I understand that is being addressed under the task force that the Vice President is heading is how do we fill the gap, the void that exists when those plants do, in fact--when they are, in fact, shut down and we have a shortage of electricity as a result of that power plant not being in existence. So I think that, as I understand the charge from the President to the Vice President and what the Vice President has done with regard to the Department of Energy is to address broadly all of the issues that exist, both in terms of fossil fuels and nuclear and the rest, and what will happen as we move forward into the future. I don't know if that is responsive to your question. I hope so. Mr. Otter. I think that is responsive to my question, Mr. Friedman. I guess I have one followup right now. Is there any way-- scrap that. How many production plants, nuclear power plants, do we have shut down today, not as a result of antiquated technology and exhausting their productive capacity, but for any other reason other than the plant is no longer able to produce energy? How many megawatts of electricity? Mr. Friedman. On the commercial side? Mr. Otter. Yes. Mr. Friedman. I really don't have the answer to that. Mr. Otter. Who would have the answer to that? Is that an important answer for you to know? Mr. Friedman. Oh, absolutely. Well, it's an important answer in the interest of public policy. It's an important question to ask and it's an important answer to know. That information is absolutely critical, and should be critical, I think, to the Vice President's task force. Mr. Otter. Wouldn't you agree that the general comfort of the population is also in the interest of national security, and the comfort that they would have with a potential energy supply, or lack of same? Mr. Friedman. Well, absolutely. Let me give you one statistic that is not on the nuclear side. Our daily consumption of petroleum in this country is in the neighborhood of 17 million barrels a day, or 18 million barrels a day. And worldwide demand is about 70 million to 71 million barrels a day. So you can see that, in terms of the security of this country, the financial strength of the country, the way of living in this Nation, energy policy is absolutely critical in terms of the disproportionate amount of worldwide supply that we utilize in this country to sustain our economic strength and our ability, if you will. Mr. Otter. OK. Mr. Lieberman, the same question relative to the stand-down aspects. Have we got somebody working on what happens if our national defense policy does work? You know, you talked about shutting down some of the defense plants, whether it's a base or whatever. Do we have a life expectancy? You know, in the private sector--I come from the private sector--when I build a potato french fry plant that produced 350 million pounds a year, I knew exactly how long the life of that plant was going to last. I knew exactly at what point I've got to quit adding equipment and just shut it down and order the tombstone. Do you do the same thing with our national defense plants? Mr. Lieberman. As far as industrial facilities are concerned, most of that is private sector now. The old arsenal system was basically dismantled after World War II. There are still a few naval shipyards and Defense facilities that do maintenance and things like that. I would say that on the average, nowadays the physical plant, age-wise, is far beyond whatever projections would have been made originally. It's very over-aged. The average of any building on a DOD base, whether it be a barracks, a mess hall or whatever, is over 40 years. Many of these facilities are antiquated. And there really is no systematic replacement policy, such as you would find in the private sector. Mr. Otter. Should there be? Mr. Lieberman. Yes, I think so, but that is a concept that is very hard to implement in practice. Mr. Otter. Mr. Chairman, is my time up? No? Let me just ask you one question. Relative to some stuff that you said before, that you've got too many project demands and, I understand, many of those are congressionally inspired, many of those are beyond your scope. I'm the new kid on the block here, but I still understand that. If, indeed, you had a life expectancy of every program that you put into place, and the cost of taking it out of production, private sector today, many antiquated plants, any energy inefficient, people inefficient, regulation inefficient--are kept going because they have with them a historical right to produce. And to open a new plant, you may not get the permits to produce. So is the Department of Defense in that same trap, between shutting down an old project and getting permission to start a new one, and so subsequently we run terribly inefficient, cost- ineffective operations? Mr. Lieberman. Generally, yes. If you look at the base structure, the Department's own studies say that we have, like, 23 percent excess capacity. The same thing holds true for industrial capacity. In the aerospace industry or whatever, we are paying contractors their overhead costs for maintaining facilities that we don't really need at the present time. But it's very difficult to shut things down. To shut a base, we need to have special authorization from Congress, the base closure process, which is very painful. The department has put forward a request with this year's budget for another round of base closures. And certainly, there is not universal consensus that's going to happen, because nobody wants their base closed in their state or their district. Everybody says, ``Yes, you should reduce the number of bases, but don't close mine.'' So, it is difficult. And also, when we field weapons systems, if we're talking about capital equipment, who would have ever thought the B-52s would still be flying today? I read an article just the other day about mechanics working on Navy F-14 Tomcat fighters that are 29 years old. They're older than the mechanics. Originally when that system was fielded, no one ever imagined that those airframes would be called upon to still be in service after they're, say, 20 years old. But that's the name of the game nowadays is to deal with systems and facilities that are clearly over-aged and very maintenance intensive, very costly to operate. That F-14 requires 40 hours of maintenance team work for each hour that it flies, and it eats up spare parts at a horrendous rate. Mr. Shays. Let me use that to go to my question. Your statement on page 6, Mr. Lieberman, you say, ``Despite some successes and continued promises from ongoing reforms, the business of creating and sustaining the world's most powerful military force remains expensive and vulnerable to fraud, waste, and mismanagement.'' And this is the point I'm interested in--``in fiscal year 2000, the DOD bought about $150 billion in goods and services, with $15 million purchasing actions.'' Excuse me, this is the part--``The Department currently is attempting to stretch its acquisition budget across 71 major programs, at an estimated cost of $782 billion, and 1,223 smaller programs worth $632 billion.'' That adds up to $1.4 trillion. Over what period of time is that looking to be spent? Mr. Lieberman. In some cases that would stretch out 8, 10 years into the future for a large system with a very long production life. Mr. Shays. Are we over budget, based on that number? In other words, given the budget we have today, I mean, is that just--is that like a balloon that just doesn't have the money to pay for it? Mr. Lieberman. Those are costs that may or may not ultimately get funded, depending on how much money Congress appropriates for procurement in the future. Mr. Shays. Well, what I'm going to ask you to do, I want to know how over-subscribed are we, you know, using this last sentence with the 71 programs and 1,223 programs. My understanding is that we are billions and billions of dollars over-subscribed, given that--you know, if you were just to add the cost of living to the programs for the budget that we would add each year, if we did that for the next 10 years how much more would we need to pay this? We have about $60 billion a year, I think what we do. So that's $600 billion over 10 years. And yet you're saying we have $1.4 trillion. Is that correct? Mr. Lieberman. Well, $60 billion is increasing. That's in future years. Even in your terms of future years it would be more than that. Mr. Shays. So if you do $60 billion and you add cost of living each year--I mean, in other words, the budget basically rises by the--should, ideally, unless we're just looking to expand. Mr. Lieberman. Well, but, Mr. Chairman, there have been real increases above inflation in---- Mr. Shays. Well, I know there have. Mr. Lieberman [continuing]. The procurement budgets for---- Mr. Shays. And we'll go bankrupt if that continues. I mean, the fact that it has happened can't keep the--I mean, I could make the same argument and say we haven't had proper accounting in the Department of Defense for years, so that doesn't mean I want to have it continue. I don't want to see us keep adding well beyond the cost of living every year to any budget, as a general rule. But you have answered my question. If I took and factored in a cost of living to $60 billion, you're telling me that in the next 10 years we'd need $1.4 trillion to do all these programs. Let me ask you, is that a 10-year? Over 10 years is that accurate? Mr. Lieberman. Ten years is just a guess. Mr. Shays. OK. Mr. Lieberman. I would imagine a few---- Mr. Shays. Let's do this. Mr. Lieberman [continuing]. Of those programs---- Mr. Shays. I don't need the answer today, but that's a project I'm interested in. I'm requesting that you give us a sense of, given all the different programs that are on the books and anticipating one or two that are going to be coming, what would we need to fund them over a cycle that makes sense, not stretched out so they become even more expensive. Well, either way. Let me just ask you, what did you mean by ``logistics death spiral'', that's very catchy phrase? Mr. Lieberman. It is, and the former Under Secretary of Defense for Acquisition, Technology and Logistics coined that phrase. I didn't. Mr. Shays. What does it mean? Mr. Lieberman. It means that the equipment that we have in the hands of the forces right now is becoming more and more costly to maintain, harder to maintain, breaks more often, is more frustrating for the mechanics to deal with, and these logistics costs are steadily rising, which is unfortunate because the Department needs to save money in the logistics area so that it can apply those savings to modernization of the equipment, buying new equipment. So we're caught in a trap. In order to maintain what we have out there in operational status, we have to spend an awful lot of money; therefore, we can't afford to replace it with new equipment. The new equipment always costs more than the old equipment. In the case of aircraft, for example, several times more. That's---- Mr. Shays. I understand. What are the most significant open Office of Inspector General recommendations DOD has not addressed? Mr. Lieberman. I'd like to go back and think about that a bit, Mr. Chairman, and give you a list. Mr. Shays. Yes. That's important to us. If you've made recommendations that are being ignored or they haven't made any progress, we'd like to know. Mr. Lieberman. We did provide a list of some of those in our December 1st letter to the congressional leadership, but that's a few months out of date, so I want to update it. Mr. Shays. Why don't you. So you'll followup on that? Mr. Lieberman. Yes, sir. Mr. Shays. Mr. Kucinich. And then we'll get to the next panel. Mr. Kucinich. Thank you very much, Mr. Chairman. As the chairman was speaking, I was handed a page out of the December IG report, which says, ``There needs to be a far- reaching re-balancing of acquisition programs to match available funding. That sounds like a modest statement. And it also goes on to say that, ``We reported in June 2000, that, of 17 major weapons acquisition programs approved, the key development milestones between March 1996, and July 1999, 14 programs lacked clearly defined open system design objectives of strategy for achieving such objectives.'' That's the IG report. That seems to coincide with what Mr. Walker said before this committee, this subcommittee, last week. Now, because I understand that GAO and the IG office have distinct missions, and sometimes you don't always--you may work parallel, but you don't always know what each other is doing, I wanted to share with you some of the observations that he made that may reflect, Mr. Chairman, on the issue of a logistics death spiral, because he said, ``For example--'' and this is a direct quote--``in the logistics area they may have the item. They may not know where it is or they may not know how many they have. Now, what's the result of that? They may order it when they don't need it. They may not be able to access it when they need it for operational purposes. We're not talking about small sums of money; we're talking about significant sums of money here. With regard to financial management, it is a basic tenet of accountability. The Department of Defense is provided over $300 billion a year. That's taxpayer money. There needs to be accountability over the use of that money, and there is a fundamental problem at DOD with regard to that.'' He also went on to state something that I think needs to be reviewed, and that is with respect to the accounting system, itself, and how it is very difficult to be able to keep track of the equipment, and also that it is very difficult to be able to keep track of $1 out of every $3. He showed us an accounting schematic which was fairly incomprehensible, and he talked about how the Department of Defense could not match $22 billion worth of expenditures to the items they purchased. He talked about how the Navy had no financial information on $7.8 billion of inventory aboard ships and that it wrote up as lost $3 billion worth of in-transit inventory. He also mentioned that in May 2000 a GAO report found that the DOD had nearly $37 billion of equipment it didn't need. In March 2000, the DOD Inspectors General reported that, of $6.9 trillion in Pentagon accounting entries, $2.3 trillion were not supported by enough evidence to determine their validity. Now, sir, respectfully, that doesn't square. Those reports do not square with statements that suggest that the Department of Defense just needs more money to handle all the programs that it has. Mr. Lieberman. I've never made such a statement. I hope nothing I have said has been interpreted as saying all the Department needs is more money. The Comptroller General's particulars there draw heavily from our reports. And I do agree, in general, with the GAO testimony. In the list of the top 10 problems that I just ran down, I included, for example, not only financial management, but supply inventory management. When I talk about poor supply chain management, I'm talking about not knowing what we have where and not getting it to whoever needs it in an efficient manner. There has been a chronic problem for years in keeping track of the many millions of different types of parts and supplies that Defense uses. We're not talking about a small operation that only has a few hundred different types of inventory items; we're talking about many millions of just spare parts, many million different kinds of items. It is a tough problem, and Defense has a long way to go. You are absolutely right. For instance, inventory accuracy is a serious problem. Mr. Kucinich. Mr. Chairman, is that---- Mr. Shays. That's it. We have two---- Mr. Kucinich. OK. I just had one final comment, if I may. According to information staff has provided, it says that the Department of Defense has ignored the Inspectors General based on recommendations and completed recommendations, that your recommendations are ignored about 82 percent of the time. Mr. Lieberman. That's absolutely wrong. Mr. Kucinich. What percent of the time are they ignored? Mr. Lieberman. It's 4 percent. Mr. Kucinich. OK. So then if they are ignoring it only 4 percent of the time, how do you end up with not being able to keep track of $1 out of every $3? That's my question. Thank you, Mr. Chairman. Mr. Shays. The answer to the question is that some are bigger than others. Some are much bigger. Mr. Lieberman. That's certainly part of it. And also the Department agrees to do things that everyone agrees will take a while to get done. There are not instant fixes to a lot of these problems. Mr. Shays. So, in other words, some are totally ignored and others are attempted to be dealt with, but---- Mr. Lieberman. Let me clarify exactly---- Mr. Shays. No. I don't want---- Mr. Lieberman. The 96 percent means they agree with our recommendation. Mr. Shays. OK. Mr. Lieberman. And agree to try to implement it. Some of those are implemented immediately because they are easy. Others take years because the recommendation may be, for example---- Mr. Shays. Let me---- Mr. Lieberman [continuing]. We need a whole new system. Mr. Kucinich. Mr. Chairman, I just have, for the record, some analyses of financial management recommendations and acquisition and security concerned recommendations that were made, and which ones were followed and which ones weren't. Thank you, Mr. Chairman. Mr. Shays. Yes. And the bottom line is their financial management is worse than bad, and you would acknowledge that. And it is pretty deplorable that we, as a Congress, haven't demanded that they make better progress, and I know that you have been eager to see that happen. I'm just going to quickly mention that you did a report on the blood supply and pointed out that next year over 50 percent of the blood supply will be over 20 years old and we don't allow blood over 10 years old in the commercial marketplace, so we obviously have a double standard there. The other concern I would just say to you is that, given this committee's staff when we were a different committee did a great deal on the safety of the blood supply. If we're going back 20 years some of that could be infected blood supply. I'd just raise a point of concern to you. Just one last question to you, Mr. Friedman. Why is DOE doing chemical biological defense research? Mr. Friedman. Well, it primarily is part of the non- proliferation efforts that are within the Department's mission. It is also doing a great deal of work under work for other programs for the Department of Defense and other Federal agencies. Mr. Shays. So are you saying it's a Federal mandate, or they just began---- Mr. Friedman. No, I wouldn't say it is a Federal mandate. What I'm saying is that the Department's laboratories--the Department of Energy, Mr. Chairman, does about $6 billion---- Mr. Shays. Let me be more blunt. Mr. Friedman. Yes? Mr. Shays. Are they being asked to do it in part so we keep these labs operating? I mean, is this somewhat of a make-work effort? Mr. Friedman. The total amount of money being expended in this area in biological select agents, as I understand it, is about $7 million a year or $8 million a year. It is an insignificant amount of the $1 billion a year budgets of the large defense labs, so I don't think that's the case. Mr. Shays. OK. Well, Mr. Friedman, it is nice to have you here. You are kind of a new Inspector General to this committee and I appreciate your being here. Mr. Friedman. Thank you very much. Mr. Shays. I know you have other committees to report, as well. Mr. Lieberman, always good to have you back. We appreciate the work that both you and your staff do. Thank you. Mr. Lieberman. Thank you. Mr. Shays. Our next panel is comprised of three Inspectors General: Richard Griffin, Department of Veterans Affairs; Ms. Roberta Gross, National Aeronautics and Space Administration [NASA]; and Mr. Richard Skinner, Federal Emergency Management Agency [FEMA]. If you'd come and remain standing we'll swear you in. If you'd raise your right hands. [Witnesses sworn.] Mr. Shays. Note for the record all three of our witnesses have responded in the affirmative. It is very nice to have you here. I think it worked well to have summaries of your testimony. At least the first two panelists did it quite well. So I guess, Mr. Griffin, we'll start with you. STATEMENTS OF RICHARD J. GRIFFIN, INSPECTOR GENERAL, DEPARTMENT OF VETERANS AFFAIRS; ROBERTA L. GROSS, INSPECTOR GENERAL, NATIONAL AERONAUTICS AND SPACE ADMINISTRATION; AND RICHARD L. SKINNER, DEPUTY INSPECTOR GENERAL, FEDERAL EMERGENCY MANAGEMENT AGENCY Mr. Griffin. Mr. Chairman and members of the subcommittee-- -- Mr. Shays. Let me just interrupt to say I have a meeting with the Speaker, so I am going to go out for a little bit and come back. Mr. Kucinich I will have working the hearing, and then I'm going to get back in time, I think, to ask some questions, as well. But please don't be offended if I leave for a little bit. Thank you. Mr. Griffin. Mr. Chairman and members of the subcommittee, I am pleased to be here today to discuss major performance and management challenges facing the Department of Veterans Affairs and to highlight the contributions of the Office of Inspector General in combating crime, waste, fraud, and abuse in the Department. Last November I responded to Chairman Burton's request for the Office of Inspector General views on the top 10 most serious management problems in the Department. Today I will discuss and briefly highlight recent activities of my office, focusing on four of these issues: quality health care, claims processing, inappropriate benefit payments, and VA consolidated financial statements. Monitoring the quality of health care continues to be a top priority for my organization. To monitor the quality of VA's evolving health care delivery system, we developed combined assessment program reviews in 1999. A CAP review combines the skills and abilities of our major components to provide collaborative assessments of medical facilities. CAP review findings provide facility managers recommendations to improve the quality and delivery of care. In fiscal year 2000, we completed 18 medical center reviews. Some of the CAP findings include inadequate staffing in nursing and pharmacy, lack of secure medication storage, lengthy waiting times, and patient safety issues. There is a direct correlation between quality of health care and patient safety. All of these issues contribute to increased patient risk. Unfortunately, we have investigated incidents where health care providers have violated their sacred trust to care for our veterans. One specific case was the successful investigation and prosecution of Dr. Michael Swango for the murder of three veterans. Swango was hired by the State University of New York and worked as a resident in the Northport VAMC. Following a long and complex investigation, Swango was charged with three murders. He subsequently pled guilty and was sentenced to three life terms without the possibility of parole. While successful criminal prosecutions are critically important, they reflect only one aspect of our mission. The strategic focus of our proactive health care reviews is to identify both best practices and vulnerabilities and to make recommendations for change to prevent incidents from occurring. A second issue is claims processing. VBA continues to struggle with timeliness, accuracy, and quality of claims processing, particularly in the compensation and pension program. VBA faces high workload backlogs, unacceptable claims form processing times, and a high error rate. Now, if we recognize that VBA's backlog was impacted by legislation mandating the duty to assist, the presumptive rating for diabetes, and an increase in the number of disabilities claimed by each veteran, which increases the time to adjudicate claims. With the pressure to improve timeliness and reduce the backlog of claims, the potential is great for overlooking or ignoring appropriate internal controls; however, the purpose of these controls is to reduce the incidents of waste, fraud, and abuse. We've worked closely with VBA to identify internal control vulnerabilities. Based on our findings, we have launched an initiative to do reviews of all the VBA regional offices on a cyclical basis. A third issue involves the need for VBA to take a more active and aggressive role to identify inappropriate benefits. OIG audits and investigations have identified situations indicating that the appropriateness of compensation and pension payments is not always adequately addressed. For example, we have identified $61 million in over-payments to VA beneficiaries who were receiving dual compensation for compensation and training and drill pay as reservists; $170 million to incarcerated veterans whose benefits have not been cut; and to date $3.9 million in benefits that have been paid to deceased beneficiaries. On a final note, we recently issued our report on the VA consolidated financial statements for fiscal year 2000. For the second consecutive year, the VA has received an unqualified opinion on the consolidated statement. This year's report, however, continues to identify information technology security controls as a material weakness and adds integrated financial management system and control issues as a new material weakness. Mr. Chairman, this concludes my statement. I will be pleased to respond to any questions you or any other Member may have. Mr. Shays. Thank you. [The prepared statement of Mr. Griffin follows:] [GRAPHIC] [TIFF OMITTED] T7881.046 [GRAPHIC] [TIFF OMITTED] T7881.047 [GRAPHIC] [TIFF OMITTED] T7881.048 [GRAPHIC] [TIFF OMITTED] T7881.049 [GRAPHIC] [TIFF OMITTED] T7881.050 Mr. Shays. Ms. Gross. Ms. Gross. Good morning. Thank you for the opportunity to be able to comment on the management challenges facing NASA. Our audits, investigations, and inspections cover the full range of NASA activities, and that covers exciting, unique programs like the international space station, to the more mundane but important areas of fiscal control and procurement, and, likewise, the key challenges to NASA's well-being range from very unique challenges to get low-cost launch vehicles so that we can explore space and make it common, like flying across the country, to more common, everyday tasks that need to be attended to--again, fiscal management and procurement. Today I am going to discuss some of these key management challenges. The first one I am going to start with is safety. The NASA administrator correctly established safety as the agency's No. 1 value. NASA programs work in a very hostile environment of space--high-speed technology, cutting-edge environments. And in those high-risk environments, safety does need to be a No. 1 concern. Many of you probably remember what happened after the ``Challenger'' incident. NASA basically shut down operations for 2 years while it re-examined itself. Safety has to be a priority. Since 90 percent of NASA's dollars, or approximately 90 percent of NASA's dollars, go to the contracting community, we put a lot of attention, both from audits, reviews, and investigations, on the contractor community. One of the things we found was that NASA was being very proactive in starting affirmative programs for its future contracts, but did not go back and examine earlier contracts, which are very large, consolidated contracts going from multi years and multi million dollars to make sure those contracts had appropriate safety clauses and oversight by our safety personnel. For example, when we looked at a number of contracts at Kennedy Space Station and Marshall, we found something like 60 percent of those contracts did not have required safety provisions in them. Now, initially NASA had not concurred with going back and looking at the contracts. They said, ``We'll look to future contracts.'' And the NASA administrator, who set safety as the No. 1 priority, correctly said, ``We're going to look at those contracts and prioritize those.'' In terms of our Office of Criminal Investigations, we prioritize safety, also. We look at contracts and we look at quality assurance issues that have to do with product substitution and false certifications, and we work with other agencies on those, and U.S. attorneys and the Department of Justice also prioritized those safety implications. Where NASA is at risk because of safety, we vigorously pursue those, as well as the Department of Justice. The second priority challenge for NASA is information technology security. It has been a priority for my office. I was the first Inspector General to have the computer crimes unit. We also have a very aggressive audit program, as well as inspection group. It is also a congressional priority--that is, we just recently have enacted the Government Information Security Reform Act, whereby there's a lot of prioritization put on OMB, heads of agencies, and CIOs, as well as Inspectors General to prioritize IT security. One place where we see it doesn't seem to be such a priority at all times is at NASA, and so we continuously have placed that as a high risk material weakness. There's often a lot of no-cost, low-cost management techniques that NASA could use and does not use to help protect its critical infrastructure, as well as its information techniques. We have found major problems in fragmented responsibilities. There's 10 NASA centers. There's 10 NASA CIOs. They don't report to the agency CIO. So you have people doing things without accountability. We also have a lack of basic controls to protect mission- critical information systems, and we have many, many audits on that. We have problems in hiring and training employees with specialized IT skills, including missing background checks when we do hire people to make sure that, in fact, No. 1, they are Americans, and, No. 2, if they are not, that they have had a background check. We find weaknesses in very basic physical security controls--that is, just the environments. Are doors closed? Are locks implemented? Are passwords locked? That's No. 2. No. 3 challenge is our international agreements. Knowledge and space have no boundaries, and they both continually expand, and that's what is exciting about working at NASA. And international agreements--NASA has something like 3,500 international agreements--bring a lot of capacity and a lot of opportunities for NASA, but it also brings some risks in all of how it does business. For example, if you have critical paths, like with the international space station, and you are relying on international partners, that can create some problems. We did have cost overruns and we had delays because of issues associated with Russia and its internal politics and its ability to have funding for some of the commitments that they made. We also have found in both our audits and reviews that we have a lot of foreign visitors, and that is important for NASA. NASA is a civilian space agency. It has both a national and international mission. We work with universities. We work with international companies. On the other hand, we also have a lot of interesting technology that needs to be protected, and the NASA administrator has responsibilities under the Space Act to make sure of protecting national security interests. Some of our audits have found that we can do better in foreign visitors and the security of that and making consistent policies. We can do better on our export control program. To NASA's credit, they have stood up to the plate when we've made these recommendations and pointed these out. One area of interest, I think, to the committee is we had looked at funding of some space research. NASA had funded a lot of Russian space research in order to give some employment to some of these scientists that were no longer working under the state. We don't want them working for other countries doing things that could be hurtful to our own national security. One of the projects that was identified was funding for researchers associated with labs called Bioprepret. They used to do the biochemical warfare research for Russia. While the State Department is aware of this--we informed them of that, and one of the things they recommended is that NASA take vigilance on how we watch to see that that research is not being used in a dual manner, and we found that, in fact, we didn't put enough internal controls in there. NASA then has concurred that they will be much more vigilant when they give grants to foreign countries, particularly those that may not have always been aligned with our interests. Another big issue for NASA, of course, is launch vehicles. Probably most people's memory of NASA is the space shuttle going up in a launch, one of the most dramatic views, I think, that we can see on television. It got reinforced, I think, by John Glenn's historic flight. I think that made Ohio very proud, I'm sure. Indeed, we renamed the center after Glenn. It is now, instead of Lewis Center, the Glenn Center. But one of the problems for NASA is that the space shuttle is very expensive because it is a human rated system. It is also very old. I mean, previous comments have been about old systems in the military. It is well over 25 years, and we are projecting it to go for another 10 to 12 to 15 years. We need to have cheaper, more accessible access to space, and that's a major problem for NASA and for the commercial launch industry. We've had difficulties in some of the technologies applied for experimental launch vehicles, and that's a major problem for NASA--how it does its procurement and its oversight on launch vehicles. Finally, in terms of program project management, one of the things I think that is important and is a key project management indicator is whether we have an independent cost assessment capability. If you don't have somebody you can look to as the managers, not always look to the IG or GAO or Congress, you have got to have an independent estimation and assessment capability to tell you whether or not you are being realistic in your cost projection, in your milestones, whether you are meeting your milestones, and whether or not you need to reevaluate whether you need to de-spoke or shut down a project. That's a major concern. We've done a number of reviews, but we don't think that NASA has created truly an independent cost assessment capability, and that's a major concern, from our perspective. I thank you for the opportunity and would welcome any questions. Mr. Shays. Thank you. Thank you, Ms. Gross. [The prepared statement of Ms. Gross follows:] [GRAPHIC] [TIFF OMITTED] T7881.051 [GRAPHIC] [TIFF OMITTED] T7881.052 [GRAPHIC] [TIFF OMITTED] T7881.053 [GRAPHIC] [TIFF OMITTED] T7881.054 [GRAPHIC] [TIFF OMITTED] T7881.055 [GRAPHIC] [TIFF OMITTED] T7881.056 [GRAPHIC] [TIFF OMITTED] T7881.057 [GRAPHIC] [TIFF OMITTED] T7881.058 [GRAPHIC] [TIFF OMITTED] T7881.059 [GRAPHIC] [TIFF OMITTED] T7881.060 [GRAPHIC] [TIFF OMITTED] T7881.061 [GRAPHIC] [TIFF OMITTED] T7881.062 [GRAPHIC] [TIFF OMITTED] T7881.063 [GRAPHIC] [TIFF OMITTED] T7881.064 [GRAPHIC] [TIFF OMITTED] T7881.065 [GRAPHIC] [TIFF OMITTED] T7881.066 [GRAPHIC] [TIFF OMITTED] T7881.067 [GRAPHIC] [TIFF OMITTED] T7881.068 Mr. Shays. Mr. Skinner. Mr. Skinner. Thank you. Good morning. Mr. Shays. Good morning. Mr. Skinner. I've provided this subcommittee with our written statement for inclusion in the record. I will summarize it briefly now. Mr. Shays. Thank you. Mr. Skinner. Just 8 years ago, Congress actually introduced legislation to abolish FEMA, due, in a large part, to its poor performance after Hurricane Hugo and Hurricane Andrew. Today, FEMA is being called a model of Government success. I don't think anyone could deny that FEMA has made a remarkable turn- around. With all its success, however, FEMA is not free of problems. Earlier this month, FEMA's financial statement received a clean opinion from our office. What our report doesn't show, however, is that FEMA still does not have the capability or procedures in place to track its financial status on a routine basis. FEMA needs to work on keeping track of its appropriations on a regular basis, not just once a year. Furthermore, FEMA is not providing the oversight that is needed to ensure that billions of dollars in grant funds that it awards each year are being adequately safeguarded; consequently, our audits continue to find millions of dollars each year that are being misused or wasted. In the information technology arena, FEMA will be very hard-pressed to pursue its e-government agenda in the future and provide adequate security over its cyber-based assets. Currently, FEMA is very limited, has very limited resources, both staffing and funding, to invest in new initiatives and new improvements and new requirements. Also, as with most Federal agencies, FEMA is having a difficult time measuring and reporting on its performance, as required by the Government Performance and Results Act. Our ongoing audit in this area is revealing that FEMA management may not be using the GPRA process as a tool to make decisions, and FEMA staff may not be receiving the support and direction they need from top management to implement the GPRA. Now, regarding some program issues, the disaster response and recovery program has been and continues to be the cornerstone of FEMA's operations. Improvements in FEMA's public image can be directly attributed to the success of disaster response and recovery system. With all of its accolades, however, FEMA's disaster assistance program is constantly being challenged. The number of federally declared disasters has reached a record high over the past 10 years, making it critical that FEMA find ways to reduce costs, manage its disaster work force, ensure integrity of its programs, and improve the delivery of services. Also, Presidential Decision Directive 39 designates FEMA as the lead Federal agency for consequence management in domestic terrorism events. In recent reports and testimony, GAO has reported that domestic consequence management exercises were not well developed, and terrorism preparedness training programs are sometimes duplicative and not well coordinated among the various Federal agencies, including FEMA, with those agencies with the terrorism preparedness responsibilities. With regards to FEMA's preparedness overall responsibilities, FEMA still does not include all the data that is needed, in our opinion, to fairly evaluate the capabilities of the States to respond to any particular type disaster, manmade or natural. Specifically, they do not--FEMA's assessments don't include local governments and all the applicable State agencies that would be involved in a Federal/State/local response. They do not identify State disaster assistance programs, and they do not assess State and local government response capabilities to handle disasters without Federal intervention. In other words, FEMA doesn't always know when it is time to go in. In our opinion, these elements are important in order to take a true picture of a State's capability in their ability to respond to disasters. In the mitigation arena, FEMA's success depends almost entirely on the commitment of State and local communities to embrace mitigation as doing--as a way of doing business, not just waiting for a disaster and not just as an afterthought to a disaster. The recently enacted Mitigation Disaster Act of 2000 offers the potential to make mitigation a sustained effort, but its success still is dependent on non-Federal resources. FEMA's largest mitigation programs, the hazard mitigation program and the national flood insurance program--over the past 10 years FEMA has awarded over $2.6 billion into the hazard mitigation grant program. A major component of that program is buy-outs, which is aimed at removing homes located in repetitive flood hazard areas. Last month, the OIG issued a report that highlighted significant problems with the manner in which FEMA is implementing that program. Given the significant role of buy-out in FEMA's mitigation program, it is critical that the program be effectively executed and addresses national mitigation priorities. Concerning flood insurance, only about 4.3 million of the 9 million structures in special flood hazard areas throughout the country have flood coverage, and 40 percent of structures that are in the flood program are still subsidized by taxpayer dollars. Furthermore, of the estimated 200 million in repetitive losses each year--that is, those policyholders who file claims again and again, year in, year out--about 96 percent of them are subsidized structures. Finally, it should be pointed out approximately 50 percent of FEMA's 100,000 flood maps are 10 years old. Due to the importance of current flood maps to emergency managers at all levels of government, including FEMA's mitigation initiatives, it is important that FEMA find ways and means to update its maps in a more-timely fashion. Mr. Chairman, this concludes my prepared statement. I've tried to limit my remarks to those critical areas of greatest concern to the OIG. You can be sure that our office will continue to place particular emphasis on those issues. Again, I appreciate your time and attention and welcome any questions that you might have. Mr. Kucinich [assuming Chair]. I thank you very much. [The prepared statement of Mr. Skinner follows:] [GRAPHIC] [TIFF OMITTED] T7881.069 [GRAPHIC] [TIFF OMITTED] T7881.070 [GRAPHIC] [TIFF OMITTED] T7881.071 [GRAPHIC] [TIFF OMITTED] T7881.072 [GRAPHIC] [TIFF OMITTED] T7881.073 [GRAPHIC] [TIFF OMITTED] T7881.074 [GRAPHIC] [TIFF OMITTED] T7881.075 [GRAPHIC] [TIFF OMITTED] T7881.076 [GRAPHIC] [TIFF OMITTED] T7881.077 [GRAPHIC] [TIFF OMITTED] T7881.078 [GRAPHIC] [TIFF OMITTED] T7881.079 [GRAPHIC] [TIFF OMITTED] T7881.080 [GRAPHIC] [TIFF OMITTED] T7881.081 Mr. Kucinich. Mr. Shays has asked me to continue to move the proceedings along here, so I want to introduce Mr. Clay, who is also a member of our committee, and go into the questions phase. Mr. Griffin, what are the most significant open OIG recommendations that have not yet been addressed within your purview? Mr. Griffin. Well, off the top of my head I would say that our audit on incarcerated veterans, which I alluded to in my testimony, which represents over-payments in the amount of about $170 million. Unfortunately, we're the subject of a 1986 audit that was not properly implemented. We did the work again in 1998 to come up with the current dollar value of payments that continue to be made. To this date, there hasn't been action taken on those. We have another audit that had addressed the need for quality standards in nursing homes that veterans are placed in, which is 2 or 3 years old at this point and there has yet to be a set of quality standards. Mr. Kucinich. Do you want to comment further on the combined assessment program? Mr. Griffin. Well, the combine assessment program is something that we initiated as a proactive project to get out to these medical centers in VHA to try to do a quality control check prior to an incident occurring. As I alluded to, we had a case involving a murder up at the Northport VAMC. It doesn't do any good to learn about these things after the fact, so we wanted to get to these facilities, identify problems, share with the medical center directors those problems that have been identified at the other facilities in the system, and try and get the proper fix in place before an incident might occur at their facility. Mr. Kucinich. OK. I would like to now move to Ms. Gross. Thank you very much for being here. What are the most significant open OIG recommendations that have not been addressed at NASA? Ms. Gross. What we find oftentimes is that what NASA does is they will concur and agree with the recommendations. What is the problem is the lag time between saying yes and actually doing the implementation. We have more of a problem of what we call ``dispositioning.'' We keep them open until we actually get proof that they are actually implementing the recommendations. There would be things, like in the area of communications security. There have been a number of inspections that we have done. Communications security has to do with both the uplink or command control to destroy a vehicle if it is on a bad path or something like that. We want to make sure that either the commands are--if appropriate, should be encrypted, and also that you have some mechanism to make sure that the commands that it receives are authentic. That took about 3 years of talking and talking with the agency, despite the fact that safety was its No. 1 priority and that included assets. I think that probably the biggest area of non-concurrence has been on the pricing policy for the shuttle, and commercial uses and DOD uses. NASA basically fundamentally disagrees with our interpretation of the law. They think that you don't need to have a specific pricing policy; that you can do it case by case. In some sense they are correct in the sense that if you read down the statute it says that you can put in incentives, but that doesn't mean that you can't sort of display what the basis of your incentives are. This is an area where we really had a total nonconcurrence on our audit, on their pricing policy. We think, particularly if you are ever going to have a commercial space policy, the private sector would want to know basically so they can plan and help negotiate. That doesn't mean you can't put in incentives, but you really do need a pricing policy if you want to encourage a commercial vehicle. Mr. Kucinich. Thank you. Ms. Gross. Policy. Not vehicle, policy. Mr. Kucinich. Do you have any comments on the faster, better, cheaper philosophy that has formed a basis of some missions? Ms. Gross. Yes. We recently gave the agency an audit. NASA, as a result of two Mars mission failures, NASA went to re- evaluate its faster, better, cheaper philosophy and is looking to see if that, in fact, contributed in some ways to these mission failures. We did an audit to try to examine what is faster, better, cheaper and whether or not the agency has an understanding of it, and, if not, does that contribute to mission problems. It is a philosophy, but nobody was able to exactly define what it means. I think that was also echoed in one of the independent reports that NASA commissioned on the Mars failures. We also made recommendations that if that's going to be your philosophy, basically it means don't have long-term missions, do shorter-term missions with more focus so that you don't have a catastrophic failure that eats up 10 years of research, and also to have an infusion of technology. All of that is very, very good, but you need to have a definition so people know what does that mean in terms of project management, what does that mean in terms of human capital, what does that mean in terms of communication. So we made recommendations, as well as people in the private sector did. Particularly I'd want to point out the human capital issue. One of the problems that was highlighted was at the jet propulsion lab. They didn't--we had so many missions we may not have mature project managers on them. You know, when you only had one 10-year, multi-billion-dollar project, you had a project manager that was on it from the beginning. That's a human capital issue that NASA needs to address, particularly in the light of the current freezes that are going on. We have a Government-wide freeze on 14s and 15s and SESes at a time when NASA has been downsizing, and so it has to be an evaluation. Are you going to make it to be a disrespect to the Government that nobody gets promotions, that nobody values their 14s and 15s and SESes, when, in fact, we have a problem with program managers. That was a safety issue. Mr. Kucinich. Are you saying, then, that the downsizing could be counterproductive to NASA's mission? Ms. Gross. Downsizing can be if it is not done in the right priorities, if it is not also done with watching your projects, and if it is also done when you have--unless you are also allowed to have promotions and recruitments at a level commensurate with the complexity of your projects. If you have a hold, basically, on 14s and 15s and SESes-- and that's a Government-wide hold until there is more reevaluation. Meanwhile, projects are going on, money is being spent. These are projects that have occurred before and are continuing to go on. We need project managers. Mr. Kucinich. Thank you. Thank you very much. I'd like to turn the question to Mr. Skinner. Could you indicate what are the most significant open OIG recommendations that FEMA has not addressed? Mr. Skinner. Right now I would have to say it is their attitude toward their financial management systems. I believe FEMA is in a stage of denial. For the last 9 years, we have continually and repeatedly reported that the financial management system is not producing reliable data, timely data, and data that the project managers can use to operate and project their expenditures and run their programs. The people in the Office of Financial Management within FEMA has made improvements over the years, but they've reached a plateau, and I think they are intent to operate without making any additional improvements, and that is going to present a problem for us down the road. Mr. Kucinich. Thank you. As a followup to that--and if you said this, I apologize if I didn't hear you--what steps should FEMA take to improve financial management? Mr. Skinner. First they have to recognize they have a problem. That's the difficult problem we are facing. Mr. Kucinich. This is a 10-step program. [Laughter.] Mr. Skinner. And so we are going to start using different techniques and approaches to demonstrate and recruit the project managers and to demonstrate to them that the systems that they do have in place are going to get--are fraught with problems. They can produce a financial statement once a year, but beyond that it is not much real value. Mr. Kucinich. OK. Thank you. The questions that I have just asked were at the request of Mr. Shays, who is in a meeting with the Speaker. Mr. Weldon is here to Chair the meeting, and I'm grateful for that. Mr. Weldon [assuming Chair]. And I believe I am going to yield to you so you can ask your questions. Mr. Kucinich. Right. And then we'll get to Mr. Clay. Thank you very much. We all work together here. Of course, one of the things that Mr. Weldon and I worked closely together on is issues relating to NASA. We are both co- chairs of the Aerospace Caucus. And I just had a few questions that relate to NASA. In your prepared remarks, Ms. Gross, you say, ``The pressure is rising for Government agencies to outsource activities currently performed by civil servants.'' What kind of activities are you speaking about where the pressure is being made to outsource those activities? Ms. Gross. Well, one large project that NASA was engaged in--and I think it is probably across the Government--is in your information systems, your desktops, your laptops, the whole management of those systems. People do that to save money and consolidate contracts. The issue that we have on that is who is controlling your data. Who are the employees that they are hiring? Have they done their security checks? Mr. Kucinich. Security issues. Ms. Gross. Yes. Mr. Kucinich. Yes. Ms. Gross. Absolutely. When you have a criminal intrusion and we go to--it is no longer at NASA. It is at a different site, because that's where they are managing the operation. All of the sudden, if it is on your site you're not trespassing, but you may have to--it is harder to get onto a site that is not your own. Mr. Kucinich. Have there been criminal intrusions in trying to interfere with launches? Ms. Gross. We don't have any direct evidence of that. You can have, by accident, by--we've had actually a youth who was doing an intrusion. I believe it was in Marshall. He was doing a denial of service of a computer that secondarily had a support to a computer that was communicating with a computer that was talking to astronauts during the MIR docking. Now, what it did because it was a denial of service, it just interfered with it. The communication eventually went through. We also had backup. This is just to illustrate that you can have unintended consequences because of the interdependencies of computers. Mr. Kucinich. In your remarks you talk about concern about the use of space shuttles to launch payrolls that do not require the shuttle's unique capabilities. Ms. Gross. Yes. Mr. Kucinich. What do you mean? Ms. Gross. By statute, by congressional legislation, NASA is supposed to be using expendable launch vehicles to encourage the commercial launch industry, unless it needs to use the unique capabilities of the shuttle. The shuttle is a very expensive way to launch payloads because you have manned space and you have to have all the safety precautions. So unless you need to have a manned space or you need to make sure, because of the security or the timing, by law you are not supposed to be using the shuttle. You're supposed to use the commercial. And there are times when NASA said something might be a secondary--a very undefined term, but it may be a secondary payload, and that's fine, it can just go along. But if, in fact, they are not defining the term, they may not be carrying out congressional legislation to use commercial launches. Mr. Kucinich. Thank you. And then if you could provide this committee, with the permission of the chair, some definition of the Government's involvement of assignment of technology rights to industry partners with respect to, you know, what the interests of what the Government might be. Ms. Gross. Yes. Mr. Kucinich. I know in your report you have some statement there. Ms. Gross. Yes. Mr. Kucinich. It might be helpful to the committee---- Ms. Gross. OK. Mr. Kucinich [continuing]. To be able to get some definition of that, which programs you were talking about. I have one final question, and that is for Mr. Skinner. Is the Government involved in any kind of--are you beginning to interact with any Government policy with respect to global climate change? Mr. Skinner. No, sir, I'm not aware that we are involved in that. Certainly the OIG is not aware of it or not involved. Mr. Kucinich. In other words, any possible effects of global climate change, you're not really involved? Mr. Skinner. Not to my knowledge, sir. Mr. Kucinich. OK. Thank you. I yield back to Dr. Weldon, and I guess Mr. Clay at some point. Mr. Weldon. Yes. I just had a couple of questions. Mr. Griffin, the Department of Veterans Affairs' budget for health expenditures was increased, I think, $1.6 billion in fiscal year 2000 and $1.4 billion, or in that range. It's about $3 billion over 2 years, which represents a sizable percentage increase for that agency. I realize they had been flat for many years and there were a lot of needs. From your position as Inspector General, have you seen that their ability to properly utilize all those additional funds is proceeding as the taxpayers would want to see? Has that placed a lot of stress on the Department of Veterans Affairs in terms of properly managing that kind of a huge influx of new money? Mr. Griffin. I would say that in recent years, as you know, they have switched their focus from inpatient care to outpatient care, and in that regard they have established some 600 outpatient clinics that supplement the 172 medical centers that previously existed around the country. I think those clinics have been very well utilized by veterans in the outlying areas who previously would have had to travel great distances to go to a VA medical center, but I'm not confident that the systems are in place to properly allocate money to the areas that might necessary have the greatest demand. I say that based on an audit that we did. It has been probably 18 months since we issued this audit report, but the Veterans Health Administration created a decision support system which was supposed to capture incidents of patient care and it was supposed to be the basis for their knowing where the demand is, what type of health care problems are we dealing with throughout the system, and then allow them to allocate their money accordingly. What our audit showed was half of the facilities roughly had adopted the DSS methodology, the other half didn't embrace it, weren't made to embrace it by the administration, and, as a result, you've got a system that was not properly implemented, and it made the results--the partial results that were obtained to be without value. So I think the VHA could show impressive increases in the number of veterans served, but I'm not sure that there is a well-conceived plan for every dollar that they have been given in those increments that you've---- Mr. Weldon. Was your budget given an incremental increase to allow you to properly monitor the influx of those funds as part of that whole package, your staffing? Mr. Griffin. No. I can say unequivocally that's not the case. In 1989---- Mr. Weldon. Well, let me just followup with that to ask you, do you feel like the Office of Inspector General is adequately provided for the resources to monitor those new---- Mr. Griffin. No. Mr. Weldon [continuing]. Enterprises that the Veterans Administration is engaged in? Mr. Griffin. I don't feel that we are adequately budgeted. What I was going to mention is that in 1989, when the Department achieved Cabinet-level status, Congress passed a bill which created a statutory floor for the OIG. That floor was 417 FTE. We have not been at the statutory floor in 10 years. Mr. Weldon. Where are you now? Mr. Griffin. At 365. In 1989, when that law was passed, VA's budget was slightly under $30 billion, and at that time the OIG organization had about 375 FTE. Today the VA's budget is slightly over $50 billion and we have 10 less FTE. There are 600 additional health care facilities out there that need oversight. Frankly, it is obvious that there has not been a proportionate growth compared to what has occurred in the Department. I think you pay for that in the end. Final analysis. Mr. Weldon. Thank you very much. Your testimony has been very helpful to me. My time has expired. Maybe we can get into this further, but I'd like to yield to the gentleman from Missouri, Mr. Clay, for questions. Mr. Clay. Doctor, if I may, I'll forego an opening statement and submit it for the record, if that's OK. Mr. Weldon. Without objection. Mr. Clay. I'd like to first ask Mr. Griffin about procedures that you mentioned in your testimony. You mentioned that procedures to terminate benefits when veterans die is not working correctly. Did I understand you correctly that one problem is that VA thinks veterans have died when they have not died? Is that correct? Mr. Griffin. That is part of the problem. What is supposed to happen is there is supposed to be a data match performed by VBA with the Social Security Administration. Social Security Administration is the keeper of the death records, if you will, for the Federal Government. They have an even greater number of payees that they have to keep track of. The problem is that there have been some problems with accuracy in the Social Security data base. Social Security has another data base, if I may, that is supposed to track incarcerated payees, which they use for purposes of suspending supplemental income payments. The Department needs to match against that data base also because we know that there are a number of incarcerated veterans who also are to have their benefits reduced when they are incarcerated, and there hasn't been the type of precision in both of those matches that would serve the taxpayers' interests. Mr. Clay. OK. So Social Security Administration incorrectly reports a death to you, or---- Mr. Griffin. Deaths get reported to them by people all around the country. There's no Federal agency that goes out and, you know, personally picks up a death certificate every time somebody in this country dies, so you are dependent upon that information being sent to Social Security. What we have experienced is that the matching agreements have existed, but they haven't always been done, so we started doing some of that work ourselves with our investigators, working with individual regional offices in VBA, trying to get death certificates locally. It is a very labor-intensive proposition, but it is just that activity during the last 18 months that has identified $9.5 million in over-payments just in the cities we have been able to work in so far. Mr. Clay. I guess your computers could talk to Social Security and they could probably talk to the different States that compile the death certificates, correct? Mr. Griffin. Well, I think, for purposes of efficiency, rather than have 15 different Federal departments getting MOUs with 50 different States, it was established that the repository for that information would be Social Security because they have the largest pool of payees. Mr. Clay. I see. All right. Thank you. Ms. Gross, you mentioned that the Boeing Corp. had severely under-estimated its cost estimates for the international space station. I think you said that their estimate has grown by $708 million over the course of 2 years. We seem to have a similar problem at DOD with weapons systems acquisition. Do you feel that NASA leadership is playing an insufficient oversight role in this respect? Ms. Gross. I think so. I think that one of the problems that we pointed out in the audit that we had issued last year-- and actually the audit was at the request of Dan Golden, the administrator of NASA--they found that the GNA rates have gone up so high, he wanted to know why was that. And, in looking at just that, he looked at---- Mr. Weldon. Excuse me. The what rates? Ms. Gross. It's the overhead rates, basically. And it was as a result of the consolidation of McDonnell-Douglas, Boeing, and we found that NASA absorbed a large percentage of that consolidation as opposed to the private sector and DOD, and partially that was because NASA wasn't aggressive about watching that and partially because DOD had a very favorable statute that said they get a two-to-one advantage of the consolidation. But what we also found was, during that period of time, Boeing's prices were going up and schedule was going down, and the program people were aware of that but didn't communicate with the contracting officials and, nevertheless, Boeing got a fee award and they got to have something like--I believe it was $16 million. And then NASA said, ``Oh, wait a minute. They are over budget. We take back that award.'' How they ever got that award when the program officials were aware that they were over budget and beyond schedule shows some inefficiencies in the program oversight. We also think another deficiency in the program oversight that probably is going to come to fore in the recent issue on the overrun--which nobody quite has a handle on. I think Dr. Weldon is probably going to be grappling with this in another hearing in another setting--is what is the overrun. It goes anywhere from $4 billion to multi hundreds of millions, and nobody has a sense of what is this overrun that is about to be announced and looked at. Mr. Weldon. If the gentleman would just yield for a second on that issue. Mr. Clay. Sure. Mr. Weldon. Not meaning to be contentious with you, where were you in all this picture? Ms. Gross. I think we---- Mr. Weldon. Were you---- Ms. Gross. Yes. Mr. Weldon [continuing]. Throwing up red flags? Was that a problem? Do you have the resources to monitor this program properly? It has been a shock---- Ms. Gross. No. Mr. Weldon [continuing]. To all of us in the Congress to hear this kind of a discussion. Ms. Gross. I think I would---- Mr. Weldon. Were you aware that this was on the horizon? Ms. Gross. Not to the extent that it was. But let me say where I was. I was in front of your committee last year is where I was, and gave testimony that, on the very audit that we just talked about, and specifically stated to the committee that there was an overrun, that NASA procurement officials nevertheless gave a fee award, that we didn't believe that NASA was applying techniques like earned value management, which would measure how much you are spending with how much you are accomplishing, and we made a recommendation, and that, again--I testified to that--that they would have an independent assessment team evaluate the next year. We did the evaluation in 1999 to 2000. NASA needed to do its own evaluation from an independent source. They had the Shabro group look at it. If you recall, because I believe Shabro also testified before your committee, probably at the same time I was, Shabro had said, ``It's going to be much, much more, much, much more than NASA was already projecting.'' They were doing it as an independent cost assessment. We recommend NASA has to have an independent cost assessment group be able to tell its managers--that is, Dan Golden, Rothenburg, the Program Management Councils--when these kind of overruns are happening. What happened is they concurred about having an independent assessment and it didn't happen. So we made very, very strong recommendations because we saw a problem, and what we did is say, you know, ``We are currently following up on it, but no, I don't have the staff to followup on it every year.'' But NASA has got to manage its programs. That's what its responsibility is to do in order to have internal controls. It shouldn't be always responding reactively to the Inspector General's office or to Congress. It has to have its own capacity. And that was a recommendation we met--we also said. But, in terms of the flags, the flags were right up there in terms of Shabro's estimate was much, much closer than NASA's, and that was testified before your committee. I also testified before your committee that there were problems. I was there. Mr. Weldon. Thank you for that accommodation. Sorry to step on your time. Mr. Clay. I yield back the balance. Ms. Gross. I appreciate the question. Mr. Weldon. I'm sure we are going to be hearing more about this issue in the months ahead. Ms. Gross. Yes. Mr. Weldon. Before we adjourn this section of today's hearings, I just had a few more questions for Mr. Skinner. What steps has FEMA taken to prepare for its role as the lead agency for consequence management in domestic terrorist events? I think you were getting at a little of this earlier. Mr. Skinner. Yes. Mr. Weldon. If you could elaborate on that in a little more detail for me, please. Mr. Skinner. Fortunately, FEMA had a jump start because of its role in preparedness and disaster response and recovery for all types of disasters, and that would include terrorist-type acts. Just last year we--FEMA has hired or brought on board John McCall to be our chief of terrorist activities. Under his direction and still with a small staff and still growing they have developed a strategic plan. They have defined what FEMA's roles and responsibilities will be with regard to training, exercising, grants, and assistance to States and locals. They are now beginning--for a couple of years we stumbled because it wasn't real clear where the programming was going to go. Was it going to be under DOD? Was it going to be under Justice? Was it going to be under FBI? We really didn't know who we had to start coordinating with. Now that has been defined and clear lines of responsibility have been set up, there's still some policy issues whether it should be in Justice, but that's another issue altogether. FEMA now has someone that they can work with, sit down with, and start coordinating with. GAO over time has--over the last 2 or 3 years has been very critical of the lack of coordination at the Federal level, people stumbling on one another with regards to delivery of training programs and that type of thing. That is now starting to clear up. I think FEMA has made tremendous progress here. I don't view it as one of the--it is a problem. It is a challenge. It is something it's going to have to stay on top of. But, as far as consequence management, FEMA is, I think, headed in the right direction. Mr. Weldon. Has the scope of what your agency is going to be doing been properly defined yet? Mr. Skinner. Yes. It is going to be consequence management. It is going to be after the fact, and we're going to be involved in working with State and local governments and others and getting them prepared. The Federal Government--if an incident occurs, the Federal Government is going to be the last people there because of our mere location. We have to get the locals and the States prepared to respond--the local fire departments, the local police, get them the right equipment, get them the right training, get them an understanding of what they have to do until Federal assistance can arrive, and generally that can be anywhere from 4 to 10 hours later. Mr. Weldon. And is it going to be FEMA or another agency that will be training local governments in dealing with nuclear, chemical, biological---- Mr. Skinner. It is going to be a variety of people. FEMA will be, I think, more involved in just the response mechanisms. The Department of Justice will have a training role; the police departments, as far as protecting a crime scene, for example; I believe other Federal agencies may have an involvement in training. HHS may have a--be involved in training the locals and States to recognize what type of chemical they may be dealing with, and that type of thing, so it is going to be a variety of people that will be providing the services. Ours will be how do we develop a command and control operation to respond to the consequence of what happened. Mr. Weldon. Well, I want to thank each of our witnesses. The hearing is in recess until 1, when we have the third panel coming in. [Whereupon, at 11:30 a.m., the subcommittee was recessed, to reconvene at 1 p.m. the same day.] [Additional information submitted for the hearing record follows:] [GRAPHIC] [TIFF OMITTED] T7881.082 [GRAPHIC] [TIFF OMITTED] T7881.083 [GRAPHIC] [TIFF OMITTED] T7881.084 [GRAPHIC] [TIFF OMITTED] T7881.085 [GRAPHIC] [TIFF OMITTED] T7881.086 VULNERABILITIES TO WASTE, FRAUD AND ABUSE: INSPECTORS GENERAL VIEWS ON NATIONAL SECURITY, INTERNATIONAL RELATIONS, AND TRADE PROGRAMS ---------- THURSDAY, MARCH 15, 2001 House of Representatives, Subcommittee on National Security, Veterans Affairs and International Relations, Committee on Government Reform, Washington, DC. The subcommittee met, pursuant to notice, at 1 p.m., in room 2247, Rayburn House Office Building, Hon. Christopher Shays (chairman of the subcommittee) presiding. Present: Representatives Shays, Putnam, Platts, Otter, and Kucinich. Staff present: Lawrence J. Halloran, staff director and counsel; Kristine McElroy and Thomas Costa, professional staff members; Alex Moore, fellow; Jason M. Chung, clerk; David Rapallo, minority counsel; and Earley Green, minority assistant clerk. Mr. Shays. The Government Reform Subcommittee on National Security, Veterans Affairs and International Relations will come to order. This is a continuation of our hearing on Vulnerabilities to Waste, Fraud, and Abuse: Inspectors General Views on National Security, International Relations, and Trade Programs. We have one panel this afternoon. It is technically a new hearing, but we have one panel this afternoon of four people. I will introduce them. We had very eloquent statements by the Members this morning, so we won't put you through that again. Mr. Kucinich, do you have anything you would like to say? Mr. Kucinich. No, thank you, Mr. Chairman. Mr. Shays. We have Ambassador Anne M. Sigmund. She is the Acting Inspector General of the Department of State. We have Mr. Everett L. Mosley who is Inspector General for the U.S. Agency for International Development. We have Mr. Charles D. Smith, Inspector General with the Peace Corps. We have another Acting Inspector General, Mr. Dev Jagadesan, for the U.S. International Trade Commission. We will have you give your statements and then we will have some questions. I would now ask you to stand so we can swear you in. [Witnesses sworn.] Mr. Shays. I will note for the record that all have responded in the affirmative. Ambassador, you may proceed. STATEMENTS OF AMBASSADOR ANNE M. SIGMUND, ACTING INSPECTOR GENERAL, DEPARTMENT OF STATE; EVERETT L. MOSLEY, INSPECTOR GENERAL, U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT; CHARLES D. SMITH, INSPECTOR GENERAL, PEACE CORPS; AND DEV JAGADESAN, ACTING INSPECTOR GENERAL, U.S. INTERNATIONAL TRADE COMMISSION Ambassador Sigmund. Thank you, Mr. Chairman. Distinguished members of this subcommittee, thank you for the opportunity to discuss the major management issues confronting the Department of State. However you chose to define these challenges, in reality they can be distilled to three things: people, security, and technology. Their successful resolution requires sustained commitment on the part of senior managers, strategic planning and adequate resources. State is making real progress in meeting some of these challenges. I would just note that Secretary Powell, in his testimony on the President's fiscal year 2002 budget for the Department of State identified these issues as his priorities. In the past the Department has been criticized for a reluctance to change. Today, the Department is aggressively re-examining itself with a view to finding new ways to do its job better. Let me take a moment to highlight a few of the Department's management vulnerabilities. Protecting our people, our buildings and information are formidable challenges. A number of our facilities are falling down around our ears. Many need security upgrades to make them safer. In the wake of the 1998 bombings in Nairobi and Dar es Salaam, the Department has moved rapidly to take advantage of the Emergency Supplemental Appropriation to improve security for our staff and buildings. At that time it was important to move swiftly to deal with the immediate threat of global terrorism. In OIG's view, the Department now has an opportunity to re-examine these programs and to tailor them to the specific security requirements of individual countries. The Department is developing an ambitious construction plan for replacing sub-standard embassies and renovating new ones. Senior managers must monitor these projects carefully if the mistakes of the past are to be avoided. While OIG does not have the resources to evaluate each project with the same level of scrutiny, we are in close consultation with the Department to focus our efforts where they can do the most good. The Department's information systems are antiquated. This makes them even more susceptible to penetration attempts. States financial systems, for example, may be vulnerable to cyber-base disruptions and have inadequate internal access controls. States needs the connectivity Internet provides, but must, at the same time, protect sensitive information. OIG plans to consult closely with the Department and the Congress on how best to address this challenge over the next few years. Financial management remains a significant problem for the Department. For the last 4 years, OIG has given the Department's yearly financial statements a clean opinion. This year State even filed its financial by the required March 1 deadline. Nevertheless, there are significant deficiencies to be dealt with. For example, problems related to the administration of Foreign Assistance Programs. The Department is keenly aware of these problems and is working with us to deal with them. OIG will be tracking the Department's progress in addressing these questions. Another important management challenge is Chief of Mission authority. As the President's representative, the Ambassador is responsible for the direction, coordination and oversight of policy and programs for his country. Whether the issue is intelligence operations, foreign assistance or law enforcement activity, including narcotics, the buck stops at the Ambassador's desk. In a growing number of our embassies around the world, State operations are dwarfed by the aggregate of new U.S. Government players in the international arena. Yet, the Ambassador has responsibility for coordinating and directing it all. OIG believes that we need to find more effective ways to empower our Ambassadors so that they can do their jobs. With respect to strategic planning, the Department has made some progress. However, OIG believes that the Department needs to develop overall priorities for its strategic goals and to devise a better process for linking resources with these priorities. Recruitment, retention, and professional training for Department Foreign Service and Civil Service employees are critical issues. The Department's Foreign Service is significantly short of the numbers needed to do the job. While the Department is beginning to develop the work force planning needed, it has a long way to go in this area. These human resource questions directly affect the Department's ability to carry out its goals. Finally, we are also OIG for the Broadcasting Board of Governors. As with the Department, BBG's efforts to plan strategically fall short of what is required. In the post- consolidation period, BBG and the Department are working hard to develop and define their new relationship. But agreement has still not been reached on several key issues. OIG strongly believes that it is in the interest of those organizations to find solutions to these problems and to resolve the remaining operational differences as quickly as possible. Mr. Chairman and members of the subcommittee, thank you for your time. I will be happy to answer your questions at the appropriate time. Mr. Shays. Thank you. Let me just ask you. How do you become an ambassador as an Inspector General? Can all these guys become Ambassadors, too, or do they have to work in State to get that opportunity? Ambassador Sigmund. I was an ambassador before I became Acting Inspector General. Mr. Shays. So, being State Department Inspector General does not make you an ambassador? Ambassador Sigmund. No, it doesn't carry with it. No, it doesn't. 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I have entered my full statement for the record, but I would like to give you a very brief description of what OIG considers the two most important challenges facing the U.S. Agency for International Development and actions taken to address these challenges. The top management challenge that USAID currently faces is improving its financial management systems so that they can provide accurate and timely information with which to manage. As you know, that is right a series of legislative initiatives since the 1990's beginning with the CFO Act, the Government Management Reform Act and the Federal Financial Information Act, the Federal Government is supposed to produce and audit financial statements each year. Unfortunately, USAID cannot currently meet these requirements. Reliable, timely information has not been something that USAID is able to produce at this time. USAID managers have therefore established programs where they can implement their systems and devise systems that will produce this type of information. In the past 3 years, USAID has made considerable progress toward resolving these problems. USAID has dedicated resources toward additional improvements. As a result, financial management procedures are no longer considered a serious management challenge. However, USAID still faces the following management challenges: Implementing an integrated financial management system; reconciling financial data; reporting accounts receivables; and implementing new procedures for direct loans. USAID's goal is to implement an entire suite of integrated financial management and mixed financial systems in accordance with requirements by the end of fiscal year 2005. To attain this goal, USAID established the Office of Financial Systems Integration to plan for and acquire USAID's financial systems. This office, under the direction of the Chief Financial Officer, is also preparing an overall plan to modernize USAID's legacy systems as components of its integrated financial system. USAID is in the process of implementing an integrated financial management system using commercial off-the-shelf software that will comply with Federal financial management systems requirements. Because USAID's integrated system will include legacy system information, USAID will need to convert and move data from its existing systems to the new core financial management system. This new system is being implemented in several phases. The first phase, development of an integrated financial management core system, called PHOENIX, began December 15, 2000. The second phase will concentrate on integrating various sub- systems that will feed procurement and financial information into the PHOENIX system. USAID projections estimate that this phase will be completed by fiscal year 2001. During the third phase, USAID will develop a secure interface to allow the transfer of data from overseas missions to Washington, DC. System security will be enhanced through the use of risk assessments, technology upgrades, expanded training and data encryption. This work is scheduled for completion by the end of fiscal year 2002. The final phase will enable the capability of an integrated cost accounting function into the PHOENIX financial system. This phase is estimated for completion by fiscal year 2003. The OIG had identified several concerns with the PHOENIX implementation before its scheduled implementation on October 1, 2000. These included: Compressed and limited software testing of functional requirements and a decision not to begin operation in a parallel mode; delays in migrating data from the old to the new system; an incomplete and untested contingency plan. Such plans would allow the system to continue operation in the event of serious problems; deferral of some system functionality; uneven attendance at user participation training; and no process to document showstoppers and the final decision to implement the system. Showstoppers are critical problems that prevent proper functioning of the system. The OID worked very closely with USAID management on these concerns and recommended that USAID thoroughly test PHOENIX and resolve any operational problems. To address these concerns, USAID delayed the deployment, took action to conduct more testing, increased user participation and designed a project tool to assess the operational readiness of PHOENIX. The OIG continues to monitor USAID's progress in implementing PHOENIX. Human capital management is also a major challenge facing USAID. Continued staff reductions and limited hiring can greatly affect USAID's capability to operate effectively. According to institutions fiscal year 1999 Accountability Report, USAID staffing levels have declined by 38 percent over the last 10 years. In fiscal year 2000, USAID's total work force attrition was 225, compared with projected attrition of 180. Like all public and private industry, USAID is faced with a maturing work force. USAID's current figures show that the average age of its work force is about 48. This is a particularly acute problem for USAID because about 50 percent of the staff is Foreign Service. The Foreign Service officers are eligible for retirement at age 50 with 20 years of service versus eligibility of Civil Service staff at age 55 with 30 years of service. USAID currently has about 100 authorized but unfilled positions. Many of these unfilled positions are in critical high-turnover areas such as information management, financial management, and procurement. According to its fiscal year 1999 Accountability Report, USAID has developed new and innovative training courses stressing management, procurement operations and technical skills. In addition, it has delivered the framework for a new course in leadership and program operations. Through these courses, USAID plans to target certain key personnel categories in its effort to address its human capital capabilities. Accordingly, USAID was conducting training and workshops to train staff in strategic planning activities, information implementing, performance monitoring and evaluation, and acquisition planning. We have begun an audit of USAID's staff training and development activities to determine whether USAID provides its employees with sufficient training to accomplish the agency's mission. The scope of this audit includes USAID's training activities conducted during fiscal years 1999 and 2000. The audit is reviewing controls over the establishment of core competencies, using those competencies to identify training needs and evaluating the contribution of staff training and development activities. We will also evaluate the strategy that USAID has designed to deal with the rapid loss of its most important asset, human capital. Thank you. [The prepared statement of Mr. Mosley follows:] [GRAPHIC] [TIFF OMITTED] T7881.107 [GRAPHIC] [TIFF OMITTED] T7881.108 [GRAPHIC] [TIFF OMITTED] T7881.109 [GRAPHIC] [TIFF OMITTED] T7881.110 [GRAPHIC] [TIFF OMITTED] T7881.111 [GRAPHIC] [TIFF OMITTED] T7881.112 [GRAPHIC] [TIFF OMITTED] T7881.113 [GRAPHIC] [TIFF OMITTED] T7881.114 [GRAPHIC] [TIFF OMITTED] T7881.115 [GRAPHIC] [TIFF OMITTED] T7881.116 [GRAPHIC] [TIFF OMITTED] T7881.117 [GRAPHIC] [TIFF OMITTED] T7881.118 [GRAPHIC] [TIFF OMITTED] T7881.119 [GRAPHIC] [TIFF OMITTED] T7881.120 [GRAPHIC] [TIFF OMITTED] T7881.121 [GRAPHIC] [TIFF OMITTED] T7881.122 [GRAPHIC] [TIFF OMITTED] T7881.123 [GRAPHIC] [TIFF OMITTED] T7881.124 [GRAPHIC] [TIFF OMITTED] T7881.125 [GRAPHIC] [TIFF OMITTED] T7881.126 [GRAPHIC] [TIFF OMITTED] T7881.127 Mr. Shays. Thank you very much, Mr. Mosely. Now, we will call on Mr. Charles Smith, Inspector General with the Peace Corps. Welcome to the committee. Mr. Smith. Thank you, Mr. Chairman and members of the subcommittee. I appreciate the opportunity to appear before you today. I am pleased to report that the Peace Corps is in good health. Today, there are 7,800 Peace Corps volunteers and trainees in 76 countries. Most volunteers serve 2-year tours. Their average age is 29; 11 percent are over 50; 14 percent are minorities; 61 percent are female and 39 percent are male. The newest program is the Crisis Corps. 380 former volunteers have served as Crisis Corps volunteers for up to 6 months in 26 countries. Their projects principally focus on natural disasters, refugees, and HIV-AIDS. Soon they will be in Bosnia and Herzegovina working on small business and agribusiness and inter-ethnic reconciliation for youth. The Peace Corps conducts programs with former volunteers in the United States as well. Peace Corps fellows in the Paul Coverdell World Wise Schools Program help introduce children around the Nation to many Peace Corps countries. One exciting project brings this home. It is the Paul Coverdell World Wise Schools Water in Africa Project. In this interactive Web site designed for classroom use, volunteers in Africa tell how water is important to them and their African communities. It is located at www.peacecorps.gov/wws/water/ Africa. We direct major attention to overseas posts because that is where problems affecting volunteers and their work can be most pronounced. While the agency's decentralization limits the potential dollar cost of fraud, it also increases opportunities for carelessness and failure to adhere to agency rules and standards. Our auditors focus on rule compliance, administrative procedures and the role of managerial and oversight systems. Our evaluators focus on volunteers themselves, their training, jobs, living conditions, safety and security and staff support. Our investigators examine post safety and security, investigate allegations of fraud and abuse. Although fortunately infrequent, they also work on cases of assault, rape and murder of volunteers. Three very important developments will modernize the Peace Corps' communications and financial controls. They will greatly improve our ability to examine the agency's activities. First, 3 years ago the Peace Corps established in headquarters the International Financial Office, taking over many of the functions previously carried out by Embassy Financial Officers. Second, a year ago the Peace Corps began migrating to a standard personal computer network system through a contract with a private firm. It has completed domestic migration and will begin overseas installation this year with completion in fiscal year 2004. Our work in this area will include implementing the requirements of the Government Information Security Reform Act. Third, by the end of this fiscal year, the Peace Corps will implement a new financial management system. It will modernize our core accounting system and will link the overseas posts with the headquarters International Financial Office through our personal computer network system. We find that the Peace Corps submits better detailed Government Performance and Results Act plans each year. Goal one merges health and safety and security. We have urged that they be presented as separate distinct goals in the GPRA. Health on the one hand, and safety and security on the other. We are especially interested in the Peace Corps' changing gender profile. In the agency's first decade, approximately two out of three volunteers were male. Today the reverse is true. Almost two-thirds are female. Volunteers are assigned to countries where girls are not equally educated. Women are accorded few rights. American women may be harassed and possibly endangered. This suggests that the agency should explicitly recognize that female volunteers are subjected to special and increased risks. Through the Secure Embassy and Counter-Terrorism Act of 1999, Congress directed that all government employees in overseas missions be co-located within the Embassy Compound. The Peace Corps believes co-location will compromise separation from the day-to-day conduct and concerns of foreign policy. This, they contend, would seriously jeopardize the safety of all volunteers because they would be identified as part of the American foreign policy for intelligence functions. The act includes a waiver provision and the Peace Corps is discussing this matter with the State Department in order to achieve the waivers necessary for proper Peace Corps function. I bring this to your attention as a high priority of the Peace Corps and to the safety and security measures that are part of the OIG's concerns. In closing, I would like to report that 2 weeks ago the Peace Corps celebrated 40 years of service. President Bush issued a proclamation urging all Americans to honor the Peace Corps's 40th anniversary on March 1, 2001. He described Peace Corps volunteers as exemplifying the great and longstanding American tradition of voluntary service. He spoke of their dramatic and far-reaching effect around the world. His proclamation continued, Since its inception, more than 161,000 have served as Peace Corps volunteers in 134 countries. Peace Corps volunteers have not only helped to fill immediate and direct human needs, but also have helped promote sustainable long-term development in agriculture, business, education, urban development, health care and the environment. In many countries of the world there exists an intense hunger for peace, hope and opportunity, for genuine social and economic development that is rooted in respect for human rights and a belief in human potential. Recognizing the dignity and worth of all peoples and determined to help individuals help themselves, Peace Corps volunteers serve as our nation's emissaries of hope and good will. Accordingly, their generous efforts have helped to foster mutual understanding and respect between the people of the United States and the citizens of other countries. Thank you, Mr. Chairman and members of the subcommittee for the opportunity to testify today. We look forward to working with you and the subcommittee. I will be pleased to answer any questions you have. Mr. Shays. Thank you, Mr. Smith. 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Mr. Chairman and members of the subcommittee, thank you for the opportunity to testify today to discuss the major management and performance challenges facing the International Trade Commission. A brief introduction of the agency is needed for background purposes. The ITC is an independent, quasi-judicial, Federal agency with a wide range of trade-related mandates. The ITC has six commissioners appointed by the President and confirmed by the Senate. In fiscal year 2001, the agency had a $48.1 million appropriation. Approximately 73 percent of the ITC's budget is for personnel, 12 percent for space rental, 8 percent for contract services and 7 percent for other support. The agency does not expend any of its funds for grants or other non-operating expenses. The fiscal year 2001 staffing plan consists of 390.5 permanent positions and 11 term positions. The agency rents one building at 500 E Street, SW. The major management challenges currently facing the ITC are: Human capital management, performance management, information resources management and improving business processes. In regard to human capital management, the agency's work force demographics are in line with the rest of the Federal Government. Thus, in the near future the ITC will need to replace the knowledge and skills of a large percentage of its work force. For example, in calendar year 2006, 31 percent of the ITC's current non-supervisory employees and 50 percent of the ITC's current supervisory employees will be eligible to retire. On the positive side of this trend, this presents a significant opportunity for management reform in the next few years. For example, this affords the ITC a choice not to replace some retiring supervisors as a part of any management reform efforts. Possibilities for reform include moving more toward using multi-disciplinary teams instead of vertical management structures and more direct alignment of its organizational structure with its strategic operations. The second management challenge is to go beyond performance-based management as a goal and toward performance based management as an actual day-to-day management culture that is interwoven into all aspects of its operations. There appears to be more recognition on the part of ITC management that if properly implemented performance management can contribute to a more effective, more results-oriented agency. The ITC has moved from GPRA being a paperwork exercise to fully embracing the concepts of performance-based management in certain areas such as performance budget. Clearly the ITC is improving the quality of its performance management as it learns from its previous efforts. Performance management presents a challenge to the ITC because of the agency's quasi-judicial functions, which do not readily fit into the GPRA mold. Information resource management is a major challenge for the ITC because of the rapid evolution of IT and the significant cost of IT. IT solutions bring about new opportunities as well as new security issues. In many areas, the agency has been able to leverage IT opportunities. The challenge is to adequately define its future IT requirements and to effectively manage the acquisition of hardware and software to meet those requirements. Recently the ITC has begun to implement some management reform in this area. In line with an OIG audit recommendation, the agency has agreed to establish a Chief Information Officer position that will elevate the priority and attention given to IT. Most importantly, the CIO may be able to further improve the management of the agency's limited IT resources as well as improve business processes with the proper application of IT. Improving its business process also presents a major management challenge for the ITC. Current business processes are still largely paper-centric in regards to receiving public filings and dissemination of information inside and outside of the agency. For example, the ITC currently does not accept electronic filings. However, the agency is working to add this service, which is an important part of its GPEA plan. Additionally, while ITC reports are published on its Web site, the ITC continues to expend significant resources to print and distribute hard copies of its reports. While some of these paper-centric processes such as electronic filing require additional investments to improve, a significant amount of paperwork reduction could be achieved without any additional investment. The challenge here is to critically self-evaluate ITC's business processes to improve them in light of advances in IT instead of merely applying IT to existing business processes. We note that the ITC, if benchmarked against other Federal agencies would be an upper echelon agency in terms of efficiency of its business processes, however, we maintain the appropriate benchmark should be the private industry which provides a higher standard to achieve in improving ITC's business processes. Once again, thank you for the opportunity to testify this morning. Mr. Chairman, that concludes my oral statement. Mr. Otter [assuming Chair]. Thank you, Mr. Jagadesan. [The prepared statement of Mr. Jagadesan follows:] [GRAPHIC] [TIFF OMITTED] T7881.148 [GRAPHIC] [TIFF OMITTED] T7881.149 [GRAPHIC] [TIFF OMITTED] T7881.150 [GRAPHIC] [TIFF OMITTED] T7881.151 [GRAPHIC] [TIFF OMITTED] T7881.152 [GRAPHIC] [TIFF OMITTED] T7881.153 [GRAPHIC] [TIFF OMITTED] T7881.154 [GRAPHIC] [TIFF OMITTED] T7881.155 Mr. Otter. The importance of this panel coming before the subcommittee this afternoon, I think, is demonstrated a great deal by the testimony that they have just given. Being a participant in that world theater, I have been to all 42 countries as a businessman, but also as a politician because as Lt. Governor of Idaho, I led many trade delegations. But I spent most of my time working in the field in an effort to build business in foreign countries. So, I am getting off the hook right now. Here comes our chairman. Well, I am still at the bottom of the food chain here. Anyway, I just wanted to say that I as a participant, both as a businessman in the world, and my company was the one who supplied MacDonald's all over the world. I can tell you how important it was when I went to work for the company that supplied french fries to MacDonald's, how important our image was around the world. The State Department is very important from that standpoint and how that country feels about us and how we feel about that country. The first one we put in was in Canada. That was a drop-dead success. The last one I remember participating in in the open house was next door to the Kremlin, which we didn't think you would ever see, the largest symbol of capitalism, the Golden Arches, casting a shadow on the wall of the Kremlin. So, that was very important. USAID, Mr. Mosley, brings that image to the ground with the development, with the seeking of opportunities, fulfilling peoples' dreams in these foreign countries, sometimes through the eyes of experts from the United States. It is terribly important. I work with farmers in order to get through USAID, to get them to build farming communities and eventually processing plants so that we could utilize their renewable resources for the business that we wanted to build in those countries. Certainly, the Peace Corps continues to offer, not only on an academic level, but I think equally important, on a level that makes a community of the world for us from many different aspects. Some of the programs that the Peace Corps has taken on, I think, Mr. Smith, have done us proud and done us well in the world. Of course, finally, Mr. Jagadesan, your organization has continued to operate on a very important level simply from the standpoint that it fills out the need that is required around the world. So, with that, I would probably turn my attention, Ms. Sigmund, to the image that we want around the world. One of the images that I want around the world is that I don't necessarily want to be the toughest kid on the block, although most people would suggest my nickname, ``Butch,'' would suggest that. But I do know that we have to be strong and act with that strength to confirm the values that we have and the values that we built. I don't want to be part of the huddled masses. I don't want to be afraid to walk the streets of these foreign countries where we have an opportunity to engage, not only in keeping the peace, but also in expanding market horizons and value horizons. So, tell me a little bit more, if you would, about how not only brick and mortar FE and I know brick and mortar and fences and all that are important FE but it seems to me that the image and the attitude is equally important. If we build the right image and the right attitude, it seems to me, maybe the brick and mortar isn't as necessary as we may think it is. Ambassador Sigmund. I agree with you, Congressman. One of the challenges for the State Department and its embassies overseas is to meet the new needs of Americans working and traveling overseas. Embassies become advisors, consultants, sources of protection and safeguard for Americans who are trying to pursue a variety of interests overseas. I think image is terribly important and with the consolidation of---- Mr. Otter. Excuse me. I apologize. Ambassador Sigmund. No, that is all right. Am I too loud or not loud enough? Mr. Otter. No. I was trying to find out if I am done. I don't know all the rules here yet. Mr. Shays [resuming Chair]. Let me just say, when we have two or three Members we just go on 10 minutes or so. We are not as strict unless we have more Members. So, you are doing fine. Mr. Otter. Thank you. Ambassador Sigmund. Image is very important. With the consolidation of USIA with the State Department there has been a recognition that public diplomacy which can contribute to a positive image for the United States overseas can advance our interests and our foreign policy goals is going to be more carefully grafted to the development of policy and its implementation. I think one of the things that is detrimental to our embassy overseas is the often shabby, dilapidated state of our embassies. Not only are they eyesores in many cases, but they are not safe places to work. The Department has recognized this and is developing a construction plan that will address some of these issues. But it is going to require sustained commitment on the part of the Department and it is going to require a partnership with the OIG to identify problem areas before they become costly mistakes. Mr. Otter. Mr. Mosley, I am very aware of many of the good things that USAID has done mostly in a physical sense, the construction, if you will, the building of programs and those sort of things. I served under President Reagan for 17 months as sort of an ambassador-at-large at the U.S. Task Force on International Private Enterprise. Resulting from that, we brought to Congress a report called the Andres Report because it was chaired by Dwayne Andres of Archer, Daniels Midland. I brought the agricultural aspect, I felt, coming from Idaho, to that. I found an alarming thing, a thing that sort of alarmed me. USAID was looked on more as a universal or an international, I guess I should say, ``welfare agency'' as much as it was looked on in some of the countries and invited in as a welfare agency rather than as one that was there to really establish not only the brick and mortar of private enterprise, but more importantly the concepts, the idealism of private enterprise, of market discipline and those kinds of things. I know that the Inspector General, when the Inspector General looks at things, it is easy to assess the value and the effectiveness of brick and mortar. It is a little more difficult the more esoteric, but the esoteric in this case, and especially your case, is a lot more important. I would like to have an expression of how you assess that, the more esoteric, the image of whether we are there for welfare purposes. Let me speak directly to a couple of instances. When I was in Turkey, in an operation just South of Izmir, USAID was very, very effective, because the Turks wanted free enterprise. When I was in Manila, I saw just the opposite. They were sort of there as a welfare agency rather than an agency that was going to leave a foundation, not only of concrete, but also of a belief that the marketplace should be the ruler. Mr. Mosley. You are absolutely right, Congressman. USAID has to be more than just a welfare agency. I think the agency has embraced that fully over the last several years. The agency is working toward what is considered to be sustainable development, whereas you go into a country and not only do you help them out of a situation that they are in, but you help to provide, where they have the technical abilities, to work and sustain themselves once the U.S. Agency for International Development has moved on to some other countries. Hopefully, there will be something called graduation by these countries. The image of the U.S. Government is never a problem as long as people understand that the Agency for International Development is a part of the U.S. Government. I think they are doing a lot of things these days. For example, in some of the micro-enterprise programs where they help people start businesses, including small businesses, help them manage those businesses and move on and they grow to graduate from the need to have AID programs. In addition to that, the Office of the Inspector General is involved in that same process. We work with a lot of the supreme audit institutions around the world and those are comparable to the General Accounting Office in the United States. The agency provides funds to those supreme audit institutions so they can go to training, they can learn what the requirements are. We provide OIG the technical support to help them learn the standards and learn how to audit the dollars that come from not only the U.S. Agency for International Development, but all the U.S. Government agencies as well as other donors into their countries, help them account for those dollars and be able to report and assure that the funds went to accomplish what their intended purposes were. That, we consider, to be sustainable development. Mr. Otter. Thank you, Mr. Mosley. I would agree. I would like to recognize the presence of Congressman Platts, who just arrived. My time is up and so I will turn it over to the ranking member, Mr. Kucinich. Mr. Kucinich. Thank you very much, Congressman Otter and thank you, Mr. Shays, and members of the committee. First of all, I want to welcome all the Inspectors General to his hearing. I look forward to working with each and every one of you in my capacity as the ranking Democrat. I am looking at the prepared statements here. There are a couple of questions that I have beginning with Mr. Mosley. On page 2 of your prepared statement you talk reports identified approximately $87 million in questioned costs or funds which could be put to better use. Would you be able to provide this committee, with the permission of the Chair, with that information in terms of what you are talking about in terms of those costs? Mr. Mosley. Yes, sir. I certainly could. Mr. Kucinich. With respect to page 20 of your very comprehensive statement where you speak of accountability in the international environment, which I think is a principle that has to apply across the board to government everywhere, and that, of course, is the nature of this committee, you speak of the serious management challenge and its vulnerability to fraud and corruption. You illustrate it by speaking about this publication by Transparency International. In it you cite that there are 36 countries in this report that have been getting assistance who have a rather low rating in terms of issues relating to fraud and corruption. Could you provide a list of those countries and also, with the permission of the Chair, if you have such a list available, and I imagine you do, of what the major challenges are in those countries? Mr. Mosley. Yes, sir. I could certainly provide that. In addition to that, if you would like, we have established what we call a fraud awareness program where we are in those countries. We assess the vulnerabilities at an early point, when AID goes in to start a program operation. Then we give them intelligence in terms of contractors or others who have had problems in the past. We provide our Fraud Awareness training courses to the government officials, to the AID officials, the contractors and grantees so that they know what things to look for where there might be problems and we make sure they are advised of how they can advise us when there are problems and we can then followup to determine where there is a need for an investigation. I could also provide you a copy of our Fraud Awareness Program that we put together. Mr. Kucinich. Thank you. This question would be for Mr. Jagadesan. You mentioned in your background material that was provided to this committee with respect to the description of the powers of the ITC, its broad investigative powers on matters of trade and its adjudicative role in making determinations with respect to unfair trade practices. I am new to this subcommittee, so I wonder if you have any kind of publication where you have listed or you have a flow chart available of the unfair trade practices that are currently under investigation country by country. Mr. Jagadesan. I am confident I could provide that to the committee. Mr. Kucinich. I am particularly interested in what is going on with respect to the dumping of steel. I come from a district, Mr. Chairman, that is being decimated by steel that is being dumped. It is costing us thousands of jobs. This is in violation of the trade laws. Notwithstanding whether an administration asks for an action under Section 201 of the 1974 Trade Act, I would like to know what you have in the pipeline with respect to active, if you can do that. Because most of these are generated, I think, by public process. Am I correct? Mr. Jagadesan. Yes. Mr. Kucinich. I would appreciate it if you could provide that information. Mr. Jagadesan. Sure. Mr. Kucinich. That is it. Thank you, Mr. Chairman. Mr. Otter. I would ask that the reports or lists that were requested by the ranking member, that you would supply him FE you meant that for the permanent record for the committee? Mr. Kucinich. I would like to have a chance to look at them, with permission of the Chair, of course. I am not working unilaterally on anything. I think it would be valuable for the committee to receive it. Mr. Otter. I would request that it be made part of the permanent record of the committee. Mr. Shays. Thank you, Mr. Otter. Actually, it is probably fitting that you have control of the floor right now because I have to confess I have a blatant conflict of interest when it comes to Mr. Smith, being a former Peace Corps volunteer and given that my wife works in the World Wise School Program. So, I have this deep affection for the Peace Corps and it is hard for me to imagine the Peace Corps could do anything wrong, that they would even need an Inspector General. I was fascinated by your testimony, I wasn't here, but your written testimony that the mix of male to female was 60-40 and now it is the other way around with 60 percent of the volunteers being women. I would say at first pass, and I don't mean this facetiously in any way, but based on my experience that some of the best volunteers were women. I am in awe of the women who could be in some of the most difficult places in the world and do so well. In fact, I almost have a standard policy that if a Peace Corps volunteer, female, comes and is looking for a job, I hire her because I know that she would be extraordinarily competent. But it does raise some interesting questions as it relates to the kinds of countries we are going into. I wonder if you could just speak to that. A number of the countries we are going into do not always treat women with the same equality that they would treat men. I am wondering if that is something you are looking into and I am wondering if that is something the women know about before they join the Peace Corps. Mr. Smith. First, I would draw to your attention that this proportion between men and women is tending more and more toward more women. This is what we see on college campuses today. Mr. Shays. Do you mean just in terms of the number of people who go to college? Mr. Smith. Yes. I think it is like 55-45 now in colleges. Again, it is growing the direction of more women. I think that is reflected in the Peace Corps. I expect that the Peace Corps, will it is 61 percent now, over the next few years we will be moving up toward 70 percent. At that point it does seem to me that Peace Corps management should be asking, first one question. The question is: What would I do differently if the Peace Corps were all female? Is there anything that I would change in the way it operates. I think the answer would be yes. I think that there would be very explicit changes made, perhaps, in the medical services. They would look much more closely and explicitly at the security questions and the safety questions facing women. The countries that the Peace Corps is in, there are many countries where it is difficult for women. They are out in villages and so forth and they are harassed. Many of these issues, of course, come through our office. So, it is highlighted more from the point of view that we bring to it. Also, the Peace Corps, as part of its training, has training for women on how to deal with these cultural aspects of working in countries that are quite different from ours. They deal with questions of dress and demeanor, of where volunteers live, whether they live with families, for example, or alone. So, there are many things that they really are looking at. I think it needs to be looked at even more. Mr. Shays. Now, I am sorry to deal with something I am more personally involved in, but let me deal with this first. We love the State Department interaction, but we didn't want to be part of the State Department. When we lived in a village, when we spoke their language, we didn't want them to feel that we were an extension of the government, though we were proud as can be to be Americans there. Congress has legislated that during times of crisis, Ambassador, we need to bring people into the embassy or into a safe haven. Do we have that same requirement for Peace Corps volunteers? Ambassador Sigmund. The State Department understands that the Peace Corps is unique and that its ability to function effectively often requires a certain amount of psychological and physical distance from the Chancery and the people working therein. The coordination between the Peace Corps Director and the Ambassador is always very close. The safety of the volunteers is paramount. Mr. Shays. Do you technically need a waiver, though, to ignore the mandate of Congress? Ambassador Sigmund. I am not sure. Mr. Smith. With respect to the new building program, the Anti-terrorism Law? It is my understanding there needs to be an explicit waiver. Mr. Shays. You see, if you were in Congress, you would have asked if the gentle lady would yield. Mr. Smith. Excuse me, Ambassador. Mr. Shays. I would never interrupt an ambassador. Why don't you finish, Mr. Smith? I am just having fun. Ambassador Sigmund. I am sorry, Mr. Chairman, I am not as familiar as I should be with this. Mr. Shays. I am not that familiar either. It was just raised and so I guess it is something we need to look at. But your point has been that the State Department has traditionally been very conscious of the distinctions of that. What I am hearing from your testimony, Mr. Smith, your written testimony, is that the possibility of needing some kind of waiver to make sure it is fairly clear that there should be a little more discretion there. Is that correct? Mr. Smith. Yes, and that these waivers should be looked at. But, granted, I would think in all cases, and perhaps placing some review on the Peace Corps as to how they are handling the security requirements they face. But, it would be very dangerous in the Peace Corps to have volunteers coming in and out of the embassy and being watched by the intelligence services of the host countries, that they will be identified there. Mr. Shays. Are you a former Peace Corps volunteer? Mr. Smith. I am, yes, sir. Mr. Shays. You speak like one. Mr. Jagadesan, let me ask you a question. You are a new party to our oversight. We wanted very much to have that oversight because we realize that trade is very much involved. We are getting involved in chemical and biological agents and with biological agents, we have to look at what businesses are doing. We have trade agreements between countries. There is a whole host of issues that relate to our committee. So, it is delightful to have the commission be a part. You are a fairly small entity. How many basic employees are we talking about with your total jurisdiction? Mr. Jagadesan. Our fiscal year 2001 staffing plan has 390.5 permanent positions. But I think we are at somewhere in the 360's of permanent employees on board. Mr. Shays. What I meant was your total oversight for the commission. Mr. Jagadesan. Currently, I think it is about 360. Mr. Shays. OK. So, it is fairly small. Mr. Jagadesan. Yes, we are small. Mr. Shays. So, your office is about how large? Mr. Jagadesan. Three point five staff, but actually three on board. Mr. Shays. How many years have you been doing this? Mr. Jagadesan. I have been counsel for about 3\1/2\ years. I have been in the Acting Inspector General for about 2 years. Mr. Shays. OK, so you have had some history here. Where would be the area where you have had the biggest disagreement with the commission where they are the least receptive to your suggestions and your recommendations and your findings? I am going to ask each of you that question, but you get it first. Mr. Jagadesan. To be honest, we have not had very significant disagreements. Where we have, we have been able to come to FE I wouldn't say ``compromise'' FE but come to an understanding. Mr. Shays. Would you give me an example? Mr. Jagadesan. One of our most recent recommendations was that the commission should establish an office of CIF. Mr. Shays. Did you say CFO? Mr. Jagadesan. CIF, Chief Information Officer. Mr. Shays. OK. Mr. Jagadesan. There were significant discussion amongst the Commissioners and the office directors on whether that was a good recommendation. Ultimately, they have decided that it is a good recommendation and they intend to implement it. Mr. Shays. When do they intend to do that? Mr. Jagadesan. Well, right now, sir, they have decided that the most appropriate level would be a Senior Executive Service position. For the agency to obtain a Senior Executive Service position that is allocated by OPM, they have sought the approval to have an additional position. Mr. Shays. When would they do that? Mr. Jagadesan. My understanding of it is that it has been sent to OPM for approval. Mr. Shays. OK. When did you end up with this dialog? When did you first make the recommendation? Mr. Jagadesan. Probably about a year ago. Mr. Shays. Maybe a little longer than a year ago, probably; right? Mr. Jagadesan. It is not in the recommendation that is over a year old yet. It is not in that category. Mr. Shays. Mr. Chairman, if you don't mind, if I could just go through each of them and then we will go back. Mr. Otter. The gentleman has the floor. Mr. Shays. Mr. Smith, what would be the biggest area where you have made recommendations and haven't had a receptive audience? Mr. Smith. I would point to two areas. One is when we have made recommendations about the weaknesses in the actual programs, what volunteers do. We have had some resistance from the management staff. Mr. Shays. I am not clear. Where you had what? I am sorry. Mr. Smith. When we have made recommendations about the work of volunteers, we have found volunteers, in our view, inadequately employed. Mr. Shays. OK. So, there have been occasions where you have seen a volunteer and you are saying, listen, they are there but they are not being fully utilized. Mr. Smith. Exactly. Mr. Shays. I know from my own experience that we saw that happening. We almost became an instrument for the government to say they had seven volunteers here. Sometimes they didn't want to move them from one district because they didn't want to offend the country. That kind of thing still happens? Mr. Smith. Sure it does. We have had some resistance from the management to change that. The other area is that when we have found on a few occasions that, in our judgment, the posts were not prepared to receive new trainees and we have recommended that they not send a training group, which would be, let us say, 30 trainees going into a country. We have had some difficulty in their accepting that. Mr. Shays. Well, I could say that problem has been there for years. You answered my next question. Mr. Mosley. Mr. Mosely. Well, Mr. Chairman, I think probably the most significant area where we have had disagreement is our involvement in the establishment of the financial management system. Their first attempt at setting up an integrated financial management system was call the New Management System. We tried to be involved very early. We were first resisted and they did not want to provide us information in terms of systems documentation. Their reaction was, ``We are not ready for review.'' We were trying to explain, ``We need to review now and let you know the things you should be aware of before you make mistakes.'' They basically did not listen to us. That system was a failure. It received a lot of attention up here in Congress and they were severely criticized. With the current system that they are implementing FE basically, their response was that they didn't think that we were qualified to give them recommendations in a technology area FE we were able to show them that we could do those reviews and provide solid information, that we did have the expertise on staff to provide that information. With the current system they are implementing they work with us very closely. As I have indicated, they even backed off of their initial implementation date for the PHOENIX system. Mr. Shays. I have gone almost 15 minutes, so let me just quickly inquire of Ambassador Sigmund. Ambassador Sigmund. Let me first say that the OIG's relationship with the Department, I would characterize it as critical constructive rather than contentious. The Department's record of implementing our recommendations is a good one. Where the Department hasn't implemented those recommendations tends to be areas where there is a lack of adequate resources. That being said, I would have to say that our biggest frustration has been with the Department's slowness to understand the importance of strategic planning. The Department has been traditionally reactive. The need to develop plans for long-term construction, the need to develop work force plans, the Department has been slow to understand the importance of these issues. Mr. Shays. I know the gentleman has to leave. Do you have any questions before you have to go? Mr. Otter. I just have one for Mr. Mosley. Let us go back to my statement relative to sometimes I felt like philosophically we were exporting more welfare than we were true business principles under USAID. Is there anything in your investigations and oversight that would tell you that we do have a major problem there and that we should correct that? Then, how should we do that? Mr. Mosely. I can't say that we have anything right now which would indicate that. I think the programs the agency has moved toward, Democracy in Government, is trying to help the people in those foreign countries try to set up democracies and improve their operations so that they are sustainable. I think that has changed tremendously over the years. So, we do not have anything to indicate that is a problem at this time. Mr. Otter. I see. I have one followup with that, you know, USAID, through the World Bank and many other organizations and then within their own budget generally supplies capital that can become available for startup entrepreneurs. What is the rate of success under USAID? Mr. Mosely. The rate of success in those programs is very high. I can't give you a percentage, but based on our audit work, they normally make loans to groups and those groups monitor themselves and each other. There is embarrassment if they fail. Their rate has been very high in terms of success. There have been very few failures. Mr. Otter. Is there an area of the world that has a higher rate of failure? Mr. Mosely. I can't answer that at this time, sir. I could find out and let you know. Mr. Otter. That is all I have, Mr. Chairman. Mr. Shays. Thank you very much. I appreciate your help today. Mr. Otter. Well, you are quite welcome. Mr. Shays. I think I have about ten more minutes of questions. Ms. Sigmund, let me just say this. I am very impressed with the young State Department employees that we have. I think I actually applied and didn't get accepted. I applied to CIA and the State Department and I didn't make the grade. Ambassador Sigmund. It was our loss, sir. Mr. Shays. You mentioned unfilled positions. You didn't say ``unfilled positions.'' You actually just said you had a shortage of staff. Is that because we don't create the positions, we aren't funding the positions or we can't hire for positions that are out there? Ambassador Sigmund. In the mid-1990's, for budgetary reasons, the State Department stopped hiring young officers. Mr. Shays. Even though they had the slots, but they didn't have the dollars. Ambassador Sigmund. They have what are called the ``FTEs'' but they didn't have the dollars. They chose to deal with reduced levels by not hiring. That clearly has been a mistake and it has had an impact on a number of our operations overseas. Mr. Shays. Give me an example of a negative impact. Ambassador Sigmund. Well, an impact on our consular operations, for example. Traditionally, young officers or new officers come in and their first assignment is with consular services. A number of our positions have gone unfilled overseas because we have not had the officers to put in those positions. The Department understands its mistake, however. In the last year or two the Department has aggressively started recruiting and is trying to develop the kind of work force planning it needs to ensure that doesn't happen again. Mr. Shays. But there has been talk, there was a suggestion made, and I don't know who made the suggestion, so I don't want to attribute that, that in some countries we combine and have regional offices or at least regional administrative offices. Is that something you have given thought to? Ambassador Sigmund. We have given thought to it. In fact, as a result of some of our work, regional consular positions have been established. One most recently is for African posts where in fact there is a shortage of consular offices to staff sections in those embassies. Clearly, looking at how we might use regional administrative capabilities is something that the Department needs to consider and in fact has begun to consider. For example, administrative services for the new independent states is provided on a regional basis out of Germany. I think we are going to be seeing more and more serious study of just what might be handled regionally in order to free up space and positions in individual bys. Mr. Shays. Let me just ask these questions because they are questions that particularly staff and I want to make sure are on the record. Is the State Department exercising proper management controls over funds Congress has allocated for embassy upgrades? Ambassador Sigmund. Yes. Their record has been very good. We have looked into that issue. Mr. Shays. How do you think the U.S. overseas presence should be restructured to address security operational and foreign policy interests? Ambassador Sigmund. Well, I think one thing that needs to be done is to increase the Chief of Missions authority to direct and define what agencies will be working and operating within his country. He is charged by the President, as his representative, to provide oversight and policy direction. He has the responsibility. He needs the authority to run the operations and agencies. Mr. Shays. We have visited a number of embassies. At first I was surprised by the number of different operations we had. When we spoke to the employees, not in the State Department but in the State Department domain, about utilizing facilities they felt their first allegiance was to FE if they were Commerce, the Secretary of Commerce. They did acknowledge that the Ambassador has tremendous oversight, but their first response was to their long-term employer. Are there opportunities that exist to reduce overseas staffing at some posts to reduce costs and security vulnerabilities or is that just simply not possible, not likely? Ambassador Sigmund. Clearly, I think, because it is a security issues as well as a resource issue, the size of our overseas missions needs to be examined. The work done in that area is only very preliminary. Frankly, it is a challenge to get other agencies working in the international arena to work with the State Department to right size our embassy. Mr. Shays. Mr. Mosley, we covered most of the issues that we wanted to ask about. I may come back on something separate. But let me to go Peace Corps and just ask this question. How does the 5-year rule affect the agency and the Office of Inspector General? The 5-year, I think, is unique to the Peace Corps. You work for 5 years and then you are out. Mr. Smith. Yes, the 5-year rule sets a 5-year limit on employment. Mr. Shays. You can come back 5 years later, right? But you can't work continuously for more than that? Mr. Smith. That is right. You can't extend it every 5 years. There are exemptions to that. You can get a 1-year, additional 1 year or an additional 2\1/2\ years. It is a maximum of 8\1/2\, but that 2\1/2\ year extension is very limited. What it does to the Office of Inspector General is that it makes it difficult to develop the expertise that you need that you get over time with familiarity with the operations of an agency. Mr. Shays. You come under that. You are not under the Inspector General? Mr. Smith. The Inspector General Act in Section 8(d) provides for the designated Federal entity, OIGs, that the personnel policies and rules that the agencies where they work apply to them. It was in response to the fact that Title V didn't apply to all of the new agencies being brought in by the 1988 Amendments to the Inspector General Act. So, for us, we have a 5-year limit. If I want to extend someone beyond that for 1 year or 2\1/2\ years, I need to go to the Director of the agency and ask. So, my independence is limited in that respect. Mr. Shays. But you could utilize, you can find very competent employees from other offices who can move in, who have had experience. They just wouldn't have had experience in the Peace Corps. Mr. Smith. From other Peace Corps offices? Mr. Shays. No. Mr. Smith. From Inspector General offices? Mr. Shays. Yes. Mr. Smith. Sure, sure. They just wouldn't have the Peace Corps knowledge, but they would have the IG knowledge. Mr. Shays. Right. Mr. Jagadesan, let me ask you this question: What is the current state of ITC's information technology systems? What must ITC do to modernize these systems and what are the costs and benefits of such modernization? Mr. Jagadesan. I would report that the current state is very good, but I think we are at a point in the commission's history where we can do some significant improvements that would affect and improve the agency dramatically. The issue that is going to be an impediment to this is going to be funding. In a broader sense it is funding how smaller agencies are funded in general. What I mean by that is, if you look at our appropriations over the last several years, they are pretty much in line with the pay raise. So, for us to embark on a significant IT project, and significant for our level is probably a $1 to $2 million project, when we come up and ask for that in Appropriation, it looks as though we are asking for a significant increase in our appropriations. It essentially makes its way to the chopping block pretty quick. But, a $1 million investment in an agency of our size can go a long way in improving our IT infrastructure. When you look at the way our budget is broken out, the bulk of our expenses are tied up in personnel and rent. So, our discretionary funds are very limited and our ability, even if implementing all OIG recommendations, we are not going to squeeze a lot of dollars out of there for some of these big ticket items. When I say ``big ticket items,'' I mean like electronic filing before the agency and things like that, which are really very important because some of the other agencies we deal with are going to be accepting electronic filing. If we are not on a par with that, for instance, an attorney who is filing with the Patent and Trademark Office is going to file his application electronically. The same supporting documentation may be forced to come to us on paper, which is really a backward step in the process. For instance, when we are appealing our cases to the Court of International Trade, we are going to be required, because of the way the administrators of the courts are, to file electronically. We may have received those supporting documents on paper in the first place. So, projects like that have significant price tags. For us to fund projects like that is going to be crucial in the future I would hope we have some creative solutions in the Congress to help us with that. Mr. Shays. Are the IGs invited to make presentations before the Appropriations Committee when the agencies go? Are you ever invited before Appropriations? Mr. Mosely. Most of the times we do not. I happen to be testifying before a subcommittee of House Appropriations next week on the hurricane mix activities and the use of the supplemental, but normally not for our budgets. Mr. Shays. That is interesting. I would think that would be of tremendous importance to the appropriators to have you all testify. But as a general rule the testimony you all are giving me is that you don't. Mr. Mosely, I would like to know what AID has done to address its recruiting and retention problems. Mr. Mosely. Basically, they have implemented a new program where they are trying to hire a lot more people. They call it the new entry program. They are trying to hire people who are not necessarily at the entry level, people with some experience and various skills. They are hiring people at this point. They put them through an extensive training program. Then they even send them to the field at some point on a temporary basis. That is what they are working on most of all. Then, from a Civil Service standpoint, they are going through the normal Civil Service rules when they are trying to hire. But it gets very difficult now to hire people specifically in the areas of the information technology and some of the financial management areas. That is just a difficulty that everybody is facing. It takes time. Mr. Shays. You could almost have a boilerplate for all IGs. You print it in your document. We just give it out to all IGs and they can all print it as something that is not unique to any agency. Mr. Mosely. That is correct. Mr. Shays. I am going to close with my specific question with you, Ambassador, and just ask you the same basic question. I realize I asked you the question if you have a problem. But I don't know how you are solving the problem. Ambassador Sigmund. In fact, we are more aggressively recruiting. We are also looking at retention and Director- General Grossman has instituted some real improvements in making Foreign Service more attractive. Mr. Shays. But you have up and out. You can be out real quick if you have not moved up in a certain period. It is somewhat like the military, I guess. I met some employees in their early 50's who are no longer working for the Department and yet they are very capable people. Ambassador Sigmund. That is true. OIG hasn't looked at that. I am a Foreign Service Officer, so I guess I would have to say that personally I understand, if not always sympathize, with the up and out approach. It has served DOD and, I think, the State Department well in testing officers for both management and policy skills for the Senior Foreign Service. Mr. Shays. But think about it. We all can think of somebody who is ideal for that position, but not necessarily ideal for the position above. Yet, you lose them. Ambassador Sigmund. I think that the time has come for us to re-examine all of those sacred cows and shibboleths. Mr. Shays. That is something you can examine; correct? Ambassador Sigmund. We can examine it, yes. Mr. Shays. Let me just ask you, is there a question that you had stayed up all night preparing for that we didn't ask that you wish we had asked? Then ask yourself the question and then answer it. I am being, obviously, a little more facetious than I need to be. Is there a question that I should put on the record that you need to answer? We are going to close up, so I am just going to give you the opportunity to respond to any particular question that you really think we should have asked and you wanted on the record. I am asking that of all of you. Do you want to start? Ambassador Sigmund. You could have asked if we have sufficient to do our job. Mr. Shays. Do you have sufficient resources to do your job? Ambassador Sigmund. No, Mr. Chairman, we don't. The Department is about to embark on a very ambitious embassy construction project. We will be giving it close scrutiny, particularly the major building projects such as Beijing. The problem is that our ability to provide oversight for those projects is very limited. The other area where we are in as much disarray as the Department itself is in the area of information technology. We are dealing with the same problem of antiquated, antediluvian information systems that make our work very difficult. Mr. Shays. Thank you. Is there any question you wanted on the table, Mr. Mosley? Mr. Mosely. Mr. Chairman, I would just like to agree with my distinguished colleague from the Department of State. We do not have sufficient resources to do all the things that we really do need to do. I think the one thing that I would like to emphasize, and this is not necessarily the question, but we have in the Office of Inspector General at AID, we have embarked on a vigorous program of proactive activities rather than the traditional audit and investigative work at the end of projects. That has taken a lot of our resources. Yet, we still have to do our traditional work. So, we certainly could use some additional resources to do that. Mr. Shays. So, the traditional work gets done, but there are lost opportunities in some other areas. Mr. Mosely. There are lost opportunities simply because we involved early on with the programs that the agency is doing and trying to give them input for corrective action before the money is out the door. Mr. Shays. Mr. Smith, I realize I said that we don't need an IG because the Peace Corps does everything perfectly. But what I realize is that your job is not a gotcha, so you can always make an agency more efficient. What question should I have asked you? Mr. Smith. The same. There is always a resource issue. In our case we have a total staff of 15. Mr. Shays. Fifteen out of how many employees? Mr. Smith. We have a total of 15 staff in the IG's office. Mr. Shays. You are talking about how many, 7,000 plus? Mr. Smith. 7,000 volunteers in 76 countries. Mr. Shays. Yes, when you think about that, you clearly can't be out there. Mr. Smith. It is very difficult. When I started working in the IGs office, the goal was to visit every country in some fashion every 3 years. We now aim every 5 years because we just don't have the staff to do that. Mr. Shays. And once you are there, you don't have much time to spend, obviously. Mr. Smith. That is the other issue. Mr. Shays. You only have 15 employees? Mr. Smith. Fifteen employees. I have tried to hire people at mid and late career levels because we don't have the time to train people. When you have a 5-year period, you really can't spend that time. So, we have an excellent staff, but they are spread very thinly. The impact, I think, affects our ability to examine larger issues that affect the agency as a whole, particularly headquarters issues. Mr. Shays. It could have tremendous pay-back. Mr. Smith. I think so. Mr. Jagadesan. When we are fully staffed, I think our resources are right for the size of our agency. However, if you encourage Mr. Smith to take our most seasoned people, we would be in trouble. Mr. Shays. Thank you. I am going to conclude. I would just point out that in the back of the room we had students from, I think, Monroe, Stamford, New Canaan and Fairfield participating in the Congress Youth Leadership Council Program. They stayed and listened to a great deal of this, which surprised me. Some students come in and out. This is the kind of technical conversation isn't always interesting, though the work you are doing is fascinating. I thank you all for being here. Please stay in touch. You are our right arms. You are very important to the agencies and you are very important to the work of this committee. We enjoy the good working relationship we have with all of you. Thank you for what you do and for what your staff does as well. With that, I thank our recorders. We will hit the gavel and end this hearing. [Whereupon, at 2:25 p.m., the subcommittee was adjourned, to reconvene at the call of the Chair.] [The prepared statements of Hon. Bernard Sanders, Hon. Wm. 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