▶ 0:12:07Test two. >> testing. Testing. Testing. One. Two. Three.
▶ 0:12:54Testing one. Two. Three.
▶ 0:15:58>> sylvia garcia.
▶ 0:16:36>> testing one. Two. Three. Testing one. Two. Three. Nothing. Testing one two. 345. Six. Seven. Eight nine. Thank you. Testing 123456789.
▶ 0:16:59Thank you.
▶ 0:18:15>> the subcommittee on government operations will come to order, and I'd like to welcome everyone. Without objection, the chair may declare a recess at any time. And I recognize myself for the purpose of making an opening statement. The first opening statement I'd like to make is I'm sorry for the delay. Are also stenographers needed to be able to hear what we are saying today? And so we're rather new in this room and learning how to work with the equipment. So welcome to today's hearing.
▶ 0:18:44Uh, this is a hearing on an update of the department of war's progress towards achieving a clean audit and the new audit approach, which they're going to speak about in great specificity today. As you know, the department of war is statutorily mandated to achieve a clean audit opinion by december 31st, 2028.
▶ 0:19:09In september of 2024, we developed a scorecard to track the department of war's progress towards achieving that clean audit opinion. With each iteration of the scorecard, the results remain the same, and that is that the department of war was making progress, and we are thankful for that, but not enough to move the needle to meet the statutory goal.
▶ 0:19:36So progress has been made, but not enough, meaning that full financial transparency and accountability is not yet present. Financial transparency and audit. Uh, auditability or core principles of good government.
▶ 0:19:55And as each of us will hear today, something that the department of war really does want, it will help them achieve their mission, not just meet the merits of the law. Department of war is responsible for nearly half of the federal government's discretionary spending. So it's especially important that they demonstrate financial transparency, accountability, and to meet the standards of this subcommittee, the committee on the law.
▶ 0:20:24With that said, the audit isn't just a financial exercise. There are real positive operational impacts that can be realized once sound financial management practices are in place.
▶ 0:20:39And yesterday, in extensive meetings that I held with each of our witnesses today, uh, I was told that an audit that we understand and knowing where we have and we will get it, is it directly in front of them and they're showing measurable progress to achieve that. Last year, we heard that the marine corps from the marine corps about how they achieved their success.
▶ 0:21:08As a matter of fact, the marine corps did pass the audit, achieving a clean audit opinion for a third time demonstrates that at least, and we commend them. But achieving this for a third time, uh, means that they have learned valuable lessons.
▶ 0:21:25They have learned not only how to do that, but they have given their colleagues in the department of war, uh, the, the operational excellence that's that they should be achieving across the board.
▶ 0:21:40So, uh, kudos to the united states marine corps, but I think the department of war has caught on, including, uh, our young secretary of, of war, pete hegseth, who, uh, is, uh, very excited about demonstrating to his management team the leadership of the, uh, of the department's, uh, as well as the men and women that serve in the department of war.
▶ 0:22:08Our military and excitement that he holds very dear to that achievement. In march of 2026, the department of war unveiled a new, refined audit approach aimed at achieving a clean opinion by december 2028. So just two months ago, as a result of not re scrapping but relooking at the the ability to get there and how they would do that has been defined.
▶ 0:22:37And today Mr. harker will talk about that in specifics, because he enunciated his desire and belief that we will achieve this. The approach will use similar hands on strategy to provide success for the marine corps. I was pleased to see the leadership commitment of the department of war from the very top, all the way down to the men and women who serve. Understand why a clean audit is important in the advantages that will serve them.
▶ 0:23:07I think this shows that the department is taking seriously what Mr. mfume and I for a number of years have talked about through hearings, through opportunities of discussions. And I'm pleased to see that today will be a public announcement of how important this progress is. And I'm encouraged. I'm encouraged to not only know that we're going to get there, but that the men and women of the department feel like it's in their best interest.
▶ 0:23:35The goal shouldn't be just to achieve an audit, clean audit by 2028. It should be to implement strong financial management, the understanding of the needs of not just the department of war, but where materiel is, where assets are, and how they can be counted on, uh, to help the joint chiefs in their effort, and particularly at this time of conflict.
▶ 0:24:04So I'm looking forward to hearing today, uh, public discussion. Uh, I appreciate each of our four witnesses for being here. And I will tell you what I told them. And that is I want them to come and, uh, gladly offer their feedback, their support to help this subcommittee, both, both Mr. mfume and I want this to happen, but more than want it to happen.
▶ 0:24:29We believe that you see firsthand the advantages that will be accrued to the department of war. And the secretary of war. So with that said, I'd like to yield to the distinguished gentleman from maryland. My dear friend Mr. mfume, and the gentleman is recognized. >> thank you very much, chairman sessions. Thank you for your continued leadership on this.
▶ 0:24:56We've tried to do this in a very bipartisan way, deliberately. Um, and thank you for your patience. In fact, you may be more patient than, than I am. Um, but I will try to let some of that roll off on me. Good. Good afternoon everyone. The guest who are here, the witnesses. We appreciate your time, your effort, your energy.
▶ 0:25:18Um, I think you may have gleaned from the chairman's statement that we've been at this for some time and that many people across this nation can't really put their arms around it because of not the enormity, but the inability to come up with a, a audit. I'm going to talk a little bit at some point about the history of all this, and then I will yield back. Um. Mr.
▶ 0:25:42Busby, we're looking forward to hearing your plans on how the army can finally achieve a complete and clean audit. Mr. harker, we're happy that the department of defense was willing to send someone to testify for this checkpoint in our ongoing work, and it has been ongoing for a while. Last april, we held the third in a series of hearings to address financial accountability in the department of defense.
▶ 0:26:11And we're back today to continue that conversation, particularly in light of the department's continued inability. I want to stress that word again, inability to pass a department wide audit. Uh, I think it's past time that we really saw some progress toward accountability and transparency that's demonstrable and measurable, demonstrable and measurable.
▶ 0:26:38Because what we've gotten up to this point has really been, quite frankly, a lot of promises, uh, about good attempts to do just that. And we haven't really gotten very far. Give me an example. For years, the department of defense has tried and failed to complete a clean department wide audit. Now, that's a standard that every other large agency meets and that they meet regularly.
▶ 0:27:05Congress historically should know first mandated this basic requirement in 1993. I was a very, very young man at that time, sitting here, uh, trying to understand and get my hand around what the problem was 1993.
▶ 0:27:23But the department, as some of you may know, could not even attempt to perform an audit until 2018, which I find to be absolutely amazing.
▶ 0:27:37And so from 1993 to 20 18 to 2026, for me, it's being right where I started at in 1993 as a young member of the congress, trying to figure out and how to ask myself, how do we get our arms around this massive, massive agency? Um, I want to make sure everyone also knows that we really do mean it when we talk about a financial audit.
▶ 0:28:05This is not just a two word phrase that gets thrown out. And my real fear here is that eventually members of the american public are going to start asking, if not demanding, that there be an explanation for them as to why this particular agency, this department, cannot do that after all these many, many, many years.
▶ 0:28:29I mentioned the years because if this were any other agency, I think the congress, in a very bipartisan manner, would be ready to bring about real change. I think, because it is dod and because we understand and know that our nation's strength depends on the pentagon and how we assist the pentagon and all of the branches and military service, that there's been a reluctance
▶ 0:28:59Just to jump into this head on and to start making real demands or passing legislation that would bring demands with it. So a clean audit does not mean and should not be interpreted to mean, that we are judging the merits of dod's spending. We are not doing that. We simply want to know what dod currently owns and where is it, and what's the current value.
▶ 0:29:28And more importantly, we want to know that dod knows that as time has come to defend this nation and its interests, as it often does come around in cycles based on what's happening in the world, uh, that it is important to have accountability for those assets. And the dod.
▶ 0:29:46Again, I hate to be deliberately redundant, but I have to say it has again, failed to clear even a simple bar like that, telling us what you own, where it is, what's the current value? And I don't want to imply in any way whatsoever that this is an easy task. I mean, it's clearly not something that's so demonstrable. You can go out tomorrow and get it done.
▶ 0:30:13This is a huge, huge task because dod has a balance sheet of over $4 trillion in assets spread across the entire globe. The department of defense is one of the world's largest and most complex organizations. The pentagon has continued with enormous scale, antiquated systems and dangerous environments, all while at the same time maintaining operational security.
▶ 0:30:38It's not an excuse to be careless with taxpayers dollars. It's a recognition that there is so much going on that there's got to be a defining starting point and some real demonstrable, again, effort to show that step a, b, and c is taking place. Now. We've sat through so many of these hearings, and we've heard so much about what is in practice and what's being done.
▶ 0:31:10But what we never hear are endpoints, you know, members of the agencies will say, congressman, we're doing this. We're doing that. We just implemented this. We're trying that. We know this works. So we're going to do that. We're going to make sure we're cross talking with other agencies. Yeah.
▶ 0:31:27But in the three, four years or so that we've been at this, I've not seen an end point that has been talked about yet where something has been achieved that moves the needle. A couple of other quick things. Um, I thought the biden-harris administration committed to working toward the legal mandate to produce a clean department audit.
▶ 0:31:50Former secretary lloyd austin, before this committee and other committees focused on sustainable resolutions to achieve the goal and to ensure the accountability that we all want well into the future. The initiative helped, uh, the marine corps adopt a two year audit approach, which was, as you heard from the chairman, very successful. And I've said over and over again, what makes the marine corps so different from the other branches in being able to get an audit done?
▶ 0:32:21And I have surmised on my own repeatedly that there from on high, there was a clear directive, a, to get this done, b to do it the right way and to c get it behind us. And so I imagine, even though I don't know this, that the commandant of the marine corps said, look, this is what I want to have done. This is what we have to do for our nation. This is what congress has mandated since 1993. Find a way to get it done.
▶ 0:32:53And they did. Uh, they did. And they're the only branch that has done that to this point. So, um, I'm proud of the work that this committee has done in trying to put guidelines, guardrails, and flashlights up so that we can all see in the dark. But this is really not moving, not moving the ball forward.
▶ 0:33:17I even suspect that many of us may not even be around years later, when in fact, uh, we're all called home or somewhere else. And that many of our successors will be sitting here asking the same questions like we're doing with many of those that came before us, the, uh, president has already proposed a eye popping increase in the overall budget
▶ 0:33:48For the upcoming fiscal year. It's a lot of lot of money. And that will bring the already well funded agency to an eye popping $1.5 trillion in defense spending for fy 27. In all good conscience. I can't vote for that, knowing we've gone seven straight years without an audit.
▶ 0:34:12And in good conscience, we owe the men and women in uniform a better system that we than what we have now. That's. We ought to just admit that we owe them. And it's not because any of you sitting here fail to do your job. I'm just saying that this has gone on and on and on. So if you hear the frustration in the angst in my voice, it's only because, uh, none of us are getting any younger.
▶ 0:34:41And this problem should not haunt the strongest, the wealthiest, the most powerful, the most influential nation on the face of the earth, the united states, the way it does haunt us, we can do it if we really believe we can do it. And, Mr. chairman, I yield back. >> I want to thank the gentleman for his comments.
▶ 0:35:02Uh, it is my hope that today will offer both you and I some refreshing outlook of the work that is taking place, of the challenge that the department of war has accepted, uh, and leadership changes that have brought forth top to bottom, uh, inclusion of accepting the effort. I would add to the gentleman's comments that he very graciously spoke of.
▶ 0:35:31It's also the law, and this is the guiding point, that it's not a congressional mandate. It's not something that just these guys in congress want. It's the law. And they recognize how important this will be to them, the efficiency.
▶ 0:35:52But now, at the time where we are, it also means that the joint chiefs have at their fingertips factual data, information that will allow them to move forward. Uh, without objection, I would like to advise congressman walkinshaw of virginia is to be waved on to the subcommittee for the purposes of questioning witnesses at today's hearing today, I am pleased to acknowledge that we will have
▶ 0:36:22Four witnesses before us. These four witnesses, Mr. thomas harker harker serves as the deputy chief financial officer for the department of war. In his role, he is responsible for improving and sustaining the department of war's financial policy systems audit and reporting.
▶ 0:36:41And I must and I must admit, he believes this is an important undertaking for him as a result of his commitment as an american citizen and working for the department, which was very important for me to hear. Thank you. Mr. ryan. Buzbee serves as deputy assistant secretary of the army for financial operations. In his role, he's responsible for oversight and integration of the army's financial operations. Mr.
▶ 0:37:09Brett mansfield is the deputy inspector general for audit. Prior to his role, he served as the senior advisor to the inspector general, advising on matters affecting the mission and operations of the department of the office of inspector general. Uh, Mr. ali khan is the director in the financial management and assurance team at the government accounting office. Since 2009.
▶ 0:37:36He's focused his work on financial management and audit, audit readiness at the department of defense, and he is a regular visitor. As a result of this important role that he plays to this subcommittee. I want to thank each of you for. Thank you very much. Pursuant to committee rule nine g. I would ask that the witnesses now rise and raise their right hand to accept the oath of witnesses.
▶ 0:38:05Do you solemnly swear or affirm that the testimony you're about to give is the truth, the whole truth, and nothing but the truth, so help you god? Let the record reflect the witnesses each answered in the affirmative. Thank you very much. You may now take a seat. Gentlemen.
▶ 0:38:22I covered with you yesterday not just the rules of engagement here today, but the need to make sure that each of you, as professionals, providing testimony before the subcommittee, complete not only your sentence, but your thoughts, that I want to make sure that we understand clearly from you without any way that we have to guess of the things you're trying to tell us, the information we need.
▶ 0:38:46Because, as you've heard from the distinguished ranking member, we need to have the confidence that you get it and that we understand that. So, uh, I would just remind the witnesses that they have, uh, generally speaking, clock in front of them that will give them some operating guidelines and would now ask that we recognize Mr. harker for his time. The gentleman is now recognized.
▶ 0:39:19>> chairman sessions ranking member mfume and distinguished members. I appreciate the opportunity to testify about the department of war plan to get a clean opinion on the fy 2028 agency wide financial statement audit. Thank you for the opportunity to appear before you today. I've been in this job for six months and have been fixing federal financial audit problems for more than 20 years, starting at dhs.
▶ 0:39:44When I was on active duty in the coast guard and dhs underwent their first ten audits before getting a clean opinion. I've also audited financial statements while working at a large public accounting firm, and have led efforts that resolved audit issues at multiple cabinet agencies. Getting a clean opinion for the department of war isn't just my job, it's something I'm passionate about. So much so that I came out of a comfortable quasi retirement to take this job.
▶ 0:40:12The leadership tone at the top of the department is unprecedented, with the secretary and deputy secretary both making it clear that passing an audit is a condition of employment for departmental leaders. They have both issued written guidance on the audit, and if you haven't seen the secretary's recent video, I highly recommend it. We are finally being honest with ourselves. The department's financial reporting has lagged behind every major, every other major federal agency.
▶ 0:40:42We are fixing that using the authority provided in secretary haig's recent memo standing up joint task force audit jtf audit is a unified team of service members, civilians and private sector experts led by the undersecretary of war comptroller. The mission is clear work with the services and defense agencies to execute the corrective actions required to get a clean opinion on the fy 28 financial statements.
▶ 0:41:12Elevating bureaucratic barriers to senior leadership for immediate action, the jtf will provide a common operating picture to sequa and other senior leaders that will provide them with visibility not previously seen in the audit space and enable them to take action when things stall.
▶ 0:41:30One of my favorite bosses, admiral thad allen, said transparency breeds self-correcting behavior and the knowledge that their performance is being seen and judged by the secretary will motivate military and civilian leaders to ensure that they have full accountability for their assets. In addition to stand up of jtf audit, we are partnering with the oig as they hire an independent public accounting firm to perform the consolidated audit.
▶ 0:41:58We are also ending the inefficient process of dozens of disjointed standalone audits and focusing our remediation efforts on getting a clean opinion on the agency wide financial statements, just like every other cfo act agency, we're using a hybrid strategy where we rely on internal controls where they exist, maximize the use of artificial intelligence and automation wherever we can, and have the auditors perform substantive testing where they must.
▶ 0:42:28Much work has been done in putting internal controls in place across the department's processes over many years, but the proliferation of legacy systems and the decentralized nature of funds execution means that it would take too much time for us to be able to rely solely on controls. Fortunately, the advent of ai and automation and the funds we received in the reconciliation bill allow us to use those tools to compensate for our antiquated and disconnected systems. Where we can't use ai or automation.
▶ 0:42:59We will have to rely on a great deal of substantive testing, similar to what the marine corps did, so that the auditors can get statistically valid information that would allow us to adjust our financial statements and get a clean opinion. In addition, we are focusing our efforts on the line items and processes that have a major impact on our ability to get a clean opinion, accountability for our assets, accurate accounting for our liabilities, revenues, expenses, and working to clear the material weaknesses and nfrs that matter.
▶ 0:43:29The entire department of war will be under audit, and we will present our financial statements at the consolidated agency wide level as required by law. In addition, the marine corps, navy and air force will continue standalone audits as they either have clean opinions or are close to attaining them in. The best path forward for the department is to continue their efforts. I want to recognize the leaders and teams who have already set the standard for excellence.
▶ 0:43:55The marine corps became the first military service to achieve a clean audit opinion and a sustained one for three consecutive years. Many other defense agencies have also achieved clean opinions, starting with the army corps of engineers over 20 years ago. These teams are the vanguard, and we expect every branch to match their urgency and commitment to financial discipline. Our next milestones are clear. A clean opinion on the fy 26 navy working capital fund.
▶ 0:44:20That's this year, a clean opinion on the entire fiscal year 27 defense working capital fund and a clean opinion on the fy 28 agency wide audit. These are ambitious targets, but we are determined to provide the american taxpayer with the highest standards of fiscal accountability and to assure the department's financial foundation is strong.
▶ 0:44:40Achieving a clean audit opinion will enable us to use the information gained in the process to improve the efficiency and effectiveness of our operations, eliminate additional legacy financial systems, and improve the quality of information available to operational leaders in the department. Thank you, and I look forward to your questions. >> Mr. walker. Thank you very much. Mr. bisbee. You're now recognized.
▶ 0:45:08>> chairman sessions, ranking member mfume and distinguished members. Thank you for the opportunity to to to speak today on the army's role and plan to support the department's consolidated financial statement audit. The army remains committed to strengthening accountability, transparency and stewardship of taxpayer resources while advancing audit ability and improving financial accountability across the department.
▶ 0:45:35Army leadership is fully aligned with the department's enterprise audit strategy and continues to prioritize remediation efforts focused on improving financial data reliability, strengthening internal controls, and supporting operational readiness.
▶ 0:45:50Through this integrated approach, army will help drive measurable progress and help sustain or help achieve and sustain a clean, audit wide opinion to support the department wide audit, army has identified the highest risk process areas, imbalances, material to the consolidated financial statements, and developed remediation plans focused on improving the financial accuracy and internal controls for these areas.
▶ 0:46:20The army utilizes both internal testing and independent validation to assess the accuracy and completeness of financial information and identify areas requiring additional information to strengthen accountability. Army leadership identified metrics and governance processes to track progress across major remediation areas.
▶ 0:46:42The outcomes of these metrics and governance processes will be shared regularly with the office of the secretary of war, comptroller and the jtf audit to support enterprise wide oversight and consistency and audit remediation efforts. These actions improve visibility into the enterprise risk and ensure that army is held accountable to achieving the department's goals. While financial statement audits prioritize areas based on materiality and enterprise risk.
▶ 0:47:12At a point in time, the army's oversight and internal control activities extend across the entire army each and every day. Remediation efforts are focused on balances material to the department wide consolidated financial statement audit. While the army continues to maintain a comprehensive list of internal controls, army wide monitoring activities, and independent oversight across the army. These activities include supply discipline programs, risk management, and internal control programs.
▶ 0:47:41A continuous monitoring program, command directed reviews, and independent oversight conducted by the united states army audit agency and the department of war office of the inspector general. These efforts drive process improvements across the army and strengthen the army's ability to identify risks, reduce improper payments, and improve accountability. These improvements directly support the army and the joint chiefs priorities.
▶ 0:48:08Operational readiness and effectiveness our audit remediation efforts are tested every day as we support global operations. Years of focused remediation efforts resulted in army ammunition inventories passing audit testing this past year at a at a rate exceeding 99%. While work remains. These results demonstrate progress and reinforce the value of disciplined, enterprise wide remediation efforts.
▶ 0:48:36For nearly a decade, the army underwent a standalone financial statement audit that provided actionable findings helped us strengthen our internal controls and focus remediation efforts on the department's highest risk areas. As the department's audit effort has matured, the office, the army, and the office of the secretary of war identified opportunities to further align component audit activities within a consolidated framework.
▶ 0:49:05The department's financial operations and business processes are highly interconnected, making a more integrated approach critical to improving consistency in the application of audit standards, reducing duplicative efforts and better aligning remediation activities to balances and process material to the consolidated department wide financial statements.
▶ 0:49:26This transition does not reduce oversight or accountability, but instead improves department wide alignment and prioritization for the department of war's highest risk areas. The most material items remain the most material items in this consolidated approach allows the army, in coordination with the department of war, to focus our efforts on addressing the items that matter most and deliver results for the american taxpayer.
▶ 0:49:52Since undergoing our first full financial statement audit in fiscal year 18, the army has made measurable progress in strengthening financial accountability and auditability. The army has remediated more than ten material weaknesses. This includes closing the material weakness related to fund balance with treasury or the army's checkbook. These improvements demonstrate increased accountability and visibility into the single largest item on the army general fund balance sheet, representing 50% of the balance.
▶ 0:50:24In addition to fund balance with treasury, the army working capital fund also closed material weaknesses related to property, demonstrating improved ability to accurately account for army assets and maintain visibility to where they are located. We are confident in our ability to do the work necessary to achieve a working capital fund. Clean audit opinion in 27 and a consolidated general fund clean opinion in 28, and are excited to support the department wide approach.
▶ 0:50:51As I've highlighted today, the army remains committed to transparency, accountability, and continuous improvement as we work with congress, the office of the secretary of war and our independent auditors to support continued progress towards the department wide clean audit opinions. Thank you for the opportunity to share the army's perspective today. >> Mr. thank you very much, miss mansfield. We're delighted that you're with us. Gentleman's recognized.
▶ 0:51:20>> chairman, sessions ranking member and members of the subcommittee. Thank you for the opportunity to discuss the department's fiscal year 25 audit results and key changes planned for future audits. Your oversight is essential to strengthening federal financial management and ensuring accountability of taxpayer resources. In december of 25, the office of inspector general issued a disclaimer of opinion on the department's fiscal year 25 agency wide financial statements.
▶ 0:51:44As in prior years, we issued a disclaimer because the department could not provide sufficient reliable evidence to show its statements were fairly presented. While the opinion was the same as prior years, the department made measurable progress in 2025, material weaknesses decreased from 28 to 26, and auditors issued 427 fewer notices of findings and recommendations across the department than they have in prior years. Remediation efforts are taking hold.
▶ 0:52:12The department closed a long standing material weakness related to security assistance accounts, expanded its use of automation tools to detect and correct errors, and modernize controls across more than 30 systems. These positive outcomes are important, the department, but the department continues to face three major obstacles management, responsibility for, and accountability of more than $4.7 trillion in assets.
▶ 0:52:41Information technology weaknesses, including hundreds of aging and non-compliant systems in accounting weaknesses such as unsupported adjustments over 850 billion in the last two quarters of fiscal 25 fiscal year 25. I want to emphasize at this time an important distinction that is often misunderstood department of war management, not the office of inspector general, is responsible for complete, accurate and reliable financial statements.
▶ 0:53:07The office of inspector general, as the independent auditor evaluates whether the information presented by the department meets accounting standards and is supported by sufficient evidence, this separation of duties reflects a cornerstone of federal audit practice. Management owns the data. The auditors evaluate the data when information is missing or unreliable, auditors cannot fix it. We can, however, report it and make recommendations to management on how to address those issues.
▶ 0:53:34The department's fiscal year 26 audit is currently underway, and it reflects a shift to a substantive testing approach. Instead of relying on internal controls, many of which remain ineffective, as highlighted by Mr. harker, auditors are directly testing transactions, balances and supporting documentation. This requires more site visits, more document production on the part of department, and more coordination between auditors and across the department.
▶ 0:54:01But it also provides a path to validating account balances while material internal control weaknesses persist. The department also established the joint task force audit to direct corrective actions and focus remediation on issues that drive the agency wide opinion, such as accounting assets and intergovernmental transactions. The oig will be providing an advisory role to to the task force.
▶ 0:54:23Looking ahead to fiscal year 27, the department will implement one of the most significant changes in its financial reporting structure since the fall audits began in 2027, the number of reporting entities will drop from 22 to 7, focusing the department's efforts on the big rocks. Also, in fiscal year 27, the office of inspector general plans to transition the group auditor role to an independent public accounting firm.
▶ 0:54:48This change mirrors other large federal audits and will capitalize on industry best practices from across the private sector. Under this model, the independence of the audit function remains intact. The oig remains responsible for ensuring the department undergoes an audit and retains responsibility for overseeing the audit by monitoring the ipa's work. These changes do not impact the fundamental requirement. The department must produce reliable, supportable financial information.
▶ 0:55:16Substantive testing can validate balances, but it cannot replace strong internal controls, which remain essential for long term audit ability and reliable, reliable information for which which is needed for operational decisions. I apologize. The department's financial management weaknesses are significant. However, fiscal year 25 showed progress and the changes underway. Now focusing remediation on big rocks and consolidating reporting entities are meaningful.
▶ 0:55:43The oig remains fully committed to providing independent oversight and ensuring that the department, congress, and ultimately the american public receive reliable information on which to base decisions affecting national defense and the stewardship of taxpayer funds. Thank you for the opportunity to appear before you today. I look forward to your questions. >> Mr. thank you very much, Mr. khan. You're now recognized.
▶ 0:56:10>> chairman, ranking member mfume and members of the subcommittee. Thank you for the opportunity to discuss the department of defense's financial management, auditability and its new approach to achieving a clean opinion. Dod is the only major federal agency that has never been able to receive a clean audit opinion on its financial statements. A clean audit opinion is when auditors find that the statements are presented fairly and consistent with accounting principles.
▶ 0:56:38Over the next couple of years, dod plans to take a top down approach focused on validating accounting balances. This is a significant departure from its current decentralized bottom up approach from the component level it used since 2018. This new approach will not be focused on improving internal controls and instead will focus more on bookkeeping.
▶ 0:56:59This will mean less emphasis on making the kind of improvements that we expect to see from a more typical financial audit, even if under the new approach, dod achieves a clean audit opinion.
▶ 0:57:12By the end of 2028, the department's financial management will likely still be on the high risk list, and the department will still need to turn its attention back towards improving systems, internal controls and business processes and operations throughout the department. After 2028, dod has not reported any estimates of how this approach one is fully outlined will affect the level of resources needed. Based on what we know so far.
▶ 0:57:41This new audit approach has many opportunity costs and risks. It prioritizes account balances over addressing internal controls, which provide them a foundation for future audits. This might postpone duties, ability to improve to achieve improvements to operations, and enhancements to operational readiness.
▶ 0:58:02It likely will be labor and resource intensive, which could affect sustainability, and it may result in limited progress for addressing fraud risk, which is particularly important given fiscal year 27 budget request. They may also be benefits. Under this new approach, the clean opinion would be a major milestone that can give the department an important starting point for future audit efforts.
▶ 0:58:29It would also be a major victory for the department's financial management workforce, which has been seeking to achieve this goal for many years. A clean opinion would provide greater level of accountability over the department's use of its resources, even if it's a point in time opinion that reflects a booking approach to the audit over improvements to internal controls.
▶ 0:58:53Finally, dods new approach could benefit the department by establishing lessons learned that otherwise might not have been available under the current approach. We don't have enough information about the department's new approach to say if the department will be able to achieve a clean opinion by the end of 2028. However, it will require significant efforts and resources. In addition, that opinion will only be a first step, although a very important one.
▶ 0:59:21After that time, the department will need to refocus on addressing material weaknesses that can sustain this opinion and continue to improve its financial management and operations. We also haven't addressed assessed dod's new approach to determine if it's more or less likely to be successful than its prior approach.
▶ 0:59:42But given dod's slow pace in addressing its key material weaknesses, I can say that the prior approach did not seem likely to meet the 2028 goal. I will be happy to answer any questions that you may have. Thank you. >> Mr. khan. Thank you very much. Distinguished gentleman. The ranking member, Mr. mfume was required to go to have votes in another committee, and so I know that he will return. We would now like to move.
▶ 1:00:10Instead of my opening questions, we will move to miss norton. Gentlewoman is recognized for five minutes. >> thank you. Since last august, national guard troops from the district of columbia and states have been deployed in D.C. Mr. harker, to date, how much has this deployment cost the federal government?
▶ 1:00:44>> ma'am, I don't work in the budget area for the department. I do the accounting and financial systems piece, so I would hesitate to give you numbers that might be inaccurate, but I will take that for the record, and we will get you a response to that question within the end of before the end of this week, if that's okay. >> thank you, Mr. harker. What is the average daily cost this year of this deployment, ma'am?
▶ 1:01:10>> again, I'll have to take that one for the record, but I will talk to our budget people and make sure we get you an answer before the end of this week. >> thank you. The president's militarization of the streets of D.C. violates D.C. s right to self-government is based on a lie that is un-american, authoritarian, ineffective, unlawful, unnecessary, wasteful, and unfair to the members of the national guard and their families.
▶ 1:01:38Congress should pass my D.C. national guard home rule act, which would give the D.C. mayor control over the D.C. national guard in the same manner that governors of the states and territories control their national guards. In addition, congress should pass a bill to prohibit a governor from deploying the national guard to another state or territory or D.C.
▶ 1:02:07Without consent of the chief executive of that jurisdiction. For over two decades, the government accountability office has maintained a high risk list to identify critical government programs most vulnerable to wall street. Worst frayed fraud and abuse, the government accountability office added.
▶ 1:02:39The department of defense financial management to that list in 1995, and it has remained there ever since. Yet the trump administration has proposed a 42% increase in defense spending in one and one half trillion. That is trillion dollars. Mr.
▶ 1:03:03Mansfield, as an inspector general, do you think the answer to reducing the risk of race, fraud and abuse to increase the department of defense and budget by 42%? >> is an inspector general? Remember the secretary of community?
▶ 1:03:25What I would say is anytime there is an influx of cash or funds into any organization, uh, the likelihood of increased risk of fraud, waste and abuse, uh, coincides with that. So there's a one for one or I'm not sure it's one for one, but there's definitely a positive relationship between an influx of funds and the increased risks. >> thank you.
▶ 1:03:45The pentagon has not proven that it can pass an audit, nor has it managed to address its decades long risk, uh, of waste, fraud and abuse. The department of defense's high risk challenges are complicated.
▶ 1:04:04The department needs skilled, seasoned, focused and committed public service to address them, not a deficit spiking injection of taxpayer dollars, especially as many americans struggle to make ends meet and meet. And I yield back. >> gentleman, yields back your time. Uh, we now recognize the distinguished gentleman from alabama, chairman palmer. Gentleman is recognized. >> thank you, Mr. chairman. Mr.
▶ 1:04:35Harker, the pentagon failed its eighth annual audit announced in december of last year for fiscal year 25, confirming that it it remains the only major federal agency never to pass one. Uh, it's not a marginal error or one one off failure, but a consistent structural problem. When asked to account for fiscal year 23 share of nearly 4 trillion in assets, 18 of 29 pentagon components cannot do so.
▶ 1:05:05So what drastic changes have the services integrated to ensure that by 2027, the department of war, as both the capabilities and the political will to successfully track its expenditures and assets in a satisfactory, measurable way for both the executive and legislative branches, Mr. harker. >> so the department is focused on getting a clean opinion, and we anticipate getting one on the fy 28 statements.
▶ 1:05:36>> how long have you been focused on getting a clean audit? >> pardon me. >> sir, how long have you been focused on getting a clean audit? >> a lot of the groundwork has been laid over the last ten, 15, 20 years. >> question how many years have you been focused on getting a clean audit? >> the cfo act of 1990 is the one that required us to. >> you've never had one. >> the. The entire department has not. No, sir. But we are working towards it. >> yeah, but that's what you've been doing for 26 years. 36 years. If it's 1990, it's 36 years and you haven't had one.
▶ 1:06:07>> we have increased the number of components that have clean opinions. And we had the marine corps get a clean opinion three years ago. The navy is going to get a clean opinion on their working capital fund this year, and we anticipate getting a clean one on the entire working capital fund in 27. And the department wide on 28. >> Mr. khan, the department of war financial management has remained on the government accountability office high risk list for 28 years.
▶ 1:06:31Um, in your view, what are the root causes and why this has remained a perpetual pain point for the department? And how can congress step in to help clear those, those bottlenecks? Because obviously, after 36 years of working toward a clean audit, we we still don't have one from the department of war, from the pentagon. So. >> well, thank you for that question. I think in part one can recognize the size and complexity of the department.
▶ 1:07:03Uh, and along with that, uh, they have large and complex systems as well. Many of them were set up for logistics as opposed to financial management. Uh, the department has been remediating them, but somewhat slowly. Uh, the new systems that they have implemented are not compliant either. So that is one of the major impediment to reaching auditability and also remaining on the high risk list. >> yeah.
▶ 1:07:27One of the things that concerns me about the ability to manage the finances of the pentagon, the department of war overall is the concern. That's often has been expressed to me that whenever congress appropriates money or for a defense platform or systems, whatever, they're so concerned that the next congress might not follow through that they. They generally start projects before they're ready for. The design is right. Uh, Mr.
▶ 1:07:56Mansfield, um, david schweikert had legislation directing the secretary of war to use artificial intelligence technology to audit the pentagon's financial statements. The legislation was ultimately included in the 2025, um, defense appropriations authorization act. Have any of those provisions aimed at modernizing auditing capabilities, improving asset tracking, proving to be helpful? Department of war? >> uh, the short answer is yes, sir.
▶ 1:08:24What I would say is there's a combination of efforts ongoing, uh, both from an audit perspective, using the tools that the department has in terms of, uh, using ai and other large language models to do data matching between, say, transactions, receipt information, uh, to identify where there are areas where you can match that data. You don't have to do as much testing. And then when you find where there's things that don't match, that's where you can focus the audit efforts.
▶ 1:08:50So it allows a more targeted approach from an audit perspective, it enables the department to have more confidence in its information and responding to inquiries from auditors. >> so do you think utilization of ai will get us to a clean audit? >> uh, by itself? No, sir. It is an it is a tool that will be very useful and it is useful, but it is not the solution or end all to to the conundrum in front of us. >> Mr. harker, when can we anticipate a clean audit? >> sir, we will get a clean audit.
▶ 1:09:20Opinion on the fy 28 agency wide financial statements. >> and if you don't, uh, what do we do then? >> pardon me, sir, if we don't. >> if you don't, I mean, we've been hearing this for 36 years, so I want I want you to be able to get the resources you need. I want you to be able to get a clean audit. But I really think it this committee ought to be tired of holding hearings about the fact that the pentagon, the department of war, can't produce a clean audit that.
▶ 1:09:49I mean, do we need to bring in some other accountants? I mean, what tell us what we need to do. And I think we'd be willing to do it. Uh, Mr. chairman, I yield back. >> gentleman yields back his time. Uh, the witnesses, uh, I'm asking to please stay. We will be, uh, moving to the capitol for votes.
▶ 1:10:11There are five votes that are necessary, and I would anticipate that the total time would be about 45 more minutes until we were returned. But the answer for members is ten minutes after the last vote. We will form back up here in the committee, and I will open it back up. So until that time, the committee is now in recess.
▶ 2:21:06Um, look, I mean, this is a hearing we have every year, um, sometimes multiple times a year. Congress requires that major agencies pass an audit. The department of defense is the only major agency to have never achieved a clean audit. In fact, the department of defense has failed its audit. All eight attempts. I, to be honest, don't have faith that the ninth is going to be the one. I hope it is, but I don't really have much faith in it.
▶ 2:21:30We're here again because the current process is fatally flawed and undermining congress's ability to conduct proper oversight and ultimately determining the department of defense own mission to protect the american people. Mr. khan, what what can we, as members of the oversight committee do to ensure the department of defense complies with with the law? >> oversight hearings such as this are a very important mechanism for continuing to have an oversight.
▶ 2:21:57To send the message to the department that this is an important area, uh, that you're focused on, um, how their progress is, um, folding. Um, so I think that's, this is a very important mechanism. >> I mean, it is important, but like I said, we have a ton of these, right? We're, we, we'll hear from you all get important information doing the oversight. But the point of us doing the oversight is to get information and then do something with it.
▶ 2:22:26I mean, what I don't know, do you have any thoughts or recommendations on things we should do? Should we be incorporating penalties? Should we be segmenting parts off of the like what, what do you think needs to happen? Or if you have any thoughts on this? >> I mean, one of the oversight tools that we have developed for the committee is the scorecard. We've done that for three years. So it shows you what the progress has been, where there has been some sort of regression.
▶ 2:22:49So I think that's an important element to keep in front of you, just to see where the progress is, and then to ask questions of why progress is not more quicker than what the case has been. And if there's any regression, what can be done to improve those things? >> yeah. Thank you, I appreciate it. And I think, you know, the things you're describing are important to give us the information that we need to answer the questions that we have. But the next question for us as legislators is what do we do about it?
▶ 2:23:16Do we keep hoping and praying it gets better this time next year when we have the same exact hearing and we're probably in the same exact place? Um, you know, people we don't know where the department of defense is sending our taxpayer dollars. And I think this illegal war going on in iran, I want to use that as an example real quick. Two weeks ago, when asked about the current cost of the war, the illegal war in iran, the acting dod comptroller told the house armed services committee that the cost had reached $25 billion.
▶ 2:23:44Then yesterday, the pentagon comptroller said $29 billion. And then we have news reports that have found that internal dod estimates were even higher than that. Uh, Mr. harker, is the dod unable or unwilling to provide congress with with actual truthful information. >> good afternoon, sir. Um, I don't work in the budget area. However, my understanding is that the information provided by Mr. hearst of $25 billion was the accurate information at that time.
▶ 2:24:14I haven't heard anything or seen anything that indicates the cost has gone up in the subsequent time since then. But there are daily costs, as you would imagine. Uh, so I don't know anything more than, um, on the budget side, what he said to the 25 billion was accurate at that point in time, sir. >> okay. Well, we have we've gotten different numbers from different people, and I think we ought to have a hearing on this, maybe with the appropriate people who can talk to us about the spending going on, um, as it relates to this illegal war going on in iran.
▶ 2:24:44Um, a recent washington post report found that iranian retaliation had damaged more military assets in the region than either president trump or secretary hegseth had reported. Currently, there's no engineers on the ground that can assess the damage. At this point. I ask unanimous consent to enter into the record. A may 7th, 2026 washington post article entitled iran has hit far more U.S. military assets than reported, satellite images show. >> if that objection. >> Mr. can't.
▶ 2:25:08Without a proper clean audit, can the dod even be fully sure about the total cost of the parts or inventory that might be lying around the rubble, um, of those destroyed assets? >> um, if the, if if the defense department has functioning internal controls and the underlying processes and systems are working, then they should be able to produce numbers to be able to tell what the cost of operations are.
▶ 2:25:36>> yeah, a lot of, a lot of ifs for an agency that has not been able to pass a clean audit. And now secretary hegseth has the audacity to ask us for 200 billion more dollars, and then the president is asking us this year to give the department of defense $1.5 trillion. I have a crazy idea. No more blank checks for an agency that is not able to pass a clean audit. After years of failed audits, waste and reckless spending. No more blank checks for the department of defense.
▶ 2:26:03We should hold them to the same standard that we hold everybody else. We say we want more resources for housing and health care. The president says, no, we're going to cut housing and health care, to give tax cuts to the billionaires and mega corporations. And then he turns around and says, oh, and also, I want $1.5 trillion to give to an agency that's not able to pass an audit. The real question for us is congress is, are we going to do something about it, or are we going to continue to give the agency a blank check, which I think gives it an incentive to continue this reckless behavior?
▶ 2:26:34Thank you, I yield back. >> thank you. And now I'd like to yield five minutes to, uh, miss fox. Thank. >> thank you, Mr. chairman. And I thank our witnesses for being here. And I apologize that I had to be away. Um. But, um, I appreciate you all coming. I have a quick question. Um, for. Well, it's not a quick question, but I'd like a quick answer.
▶ 2:27:01Uh, for each one of you, the fiscal year 2025 ndaa is enacted, contains provisions requiring the secretaries of each of the services to, quote, encourage, to the greatest extent practicable, the use of technology that uses artificial intelligence or machine learning for the purpose of facilitating audits of the financial statements of the department of defense. End quote. To what extent?
▶ 2:27:27And please keep your comments very short. Have each of the services complied with this provision. Start with Mr. harker and go down the line. >> yes, ma'am. We have currently received $350 million in the reconciliation bill. For that, we've obligated 48% of it.
▶ 2:27:50We plan on obligating the remaining funds this year for not just defense, but also all of the services under one umbrella, so we can get the best value for those funds. >> thank you, Mr. buzbee. >> yes. So I'd say we've pretty robustly incorporated, you know, technology and ai into, uh, enhancing and accelerating the audit. You know, we have tools that do data anomaly detection so that it'll help us prioritize what items we need to look at.
▶ 2:28:19And we built a number of fraud detection tools that are, are monitoring, uh, certain classes of payments throughout their process to see what's at risk. >> Mr. mansfield. >> yes, ma'am.
▶ 2:28:32I would say that, uh, uh, similar to the army, the navy and the air force have taken similar steps to implement large language models in ai for processes to link together transactions with source documentation, which enables the auditors, which is the role that we play as the oig, to target our oversight efforts on those areas where there are mismatches to make sure we're getting to the best, uh, use of our resources. >> Mr. cohen. >> um.
▶ 2:28:58>> we are aware of the department using artificial intelligence and newer technology, but we have not evaluated that. >> thank you. Uh, Mr. harker, Mr. busby, earlier this year, the association of government accountants recognized process mining or process intelligence as a new category of technology.
▶ 2:29:17As I understand it, this technology can read all transaction data directly out of an agency's financial contracting and logistics systems, and can show how a process actually ran, as well as where it deviated from the standard process. While most auditors rely on statistical sampling due to the sheer amount of sheer amount of data available, process mining could help automate this task and allow every transaction to be analyzed.
▶ 2:29:46Is the department familiar with this kind of process intelligence, and is it being applied anywhere inside the audit audit remediation effort today, Mr. harker. >> yes, ma'am. We are equipped with technology from a number of different sources that allow us to do that. Uh, our main one is edavanna. It's an advanced analytics.
▶ 2:30:07It's a system where we pull all of the data from every financial management system, logistics system, and hr system, and we're able to apply analytics, ai process mining to the entire population. That's given us great insight. That's been very helpful as we move forward with the audit. It's going to be one of the key things that gets us across the finish line on the fy 28 audit, getting us a clean opinion. >> thank you, Mr. buzbee. >> same, same. We use savannah as well. >> okay. Uh, follow up.
▶ 2:30:34It's also my understanding that process intelligence can be applied to accounting journal entries so that all entries can be reviewed and suspicious ones can be flagged for auditors to review. Is the department doing this already? And if not, why not? >> yes, ma'am. We have a significant effort going around this so that we can go in and trace the problems that caused the journal vouchers back to their original system of origin.
▶ 2:31:05And so that uses our advantage technology, our process mining, our business intelligence to go in and identify is the initial error in an army system, a navy system, an air force system. Uh, if so, which system? And what can we do to clean up the errors in those systems so that we have better access to data for our lead decision makers? >> thank you, Mr. buzbee. Anything different? >> no, we follow the same process. >> okay. Um, Mr.
▶ 2:31:30Khan, what indicators will we have to suggest that the department of war is on the right path to receiving a clean audit opinion? >> um, thank you for that question, congresswoman. The department has set out some goals over the next few years. And the first of these goals is that the department of the navy working capital fund to reach an opinion by the end of this fiscal year. So that will be an early indication of successes.
▶ 2:32:00Uh, the next goal is that the department wide working capital fund reaches an opinion by the end of fiscal year 27. So those are two major indicators which will tell us how this approach is progressing. >> thank you, Mr. chairman. I yield back. >> thank you, doctor fox. And I now yield five minutes to the gentleman from maryland. Mr. mfume. >> thank you very much. Mr. acting ranking member, I appreciate it.
▶ 2:32:28My thanks to all of you who had to sort of endure our absence for a vote series. I want to if I might go back to you, Mr. harker. I listened intently to your your opening comments, and I heard something that I've heard quite often about existing hurdles and that that's the legacy systems and the inheritance of those systems and how that has traditionally or at least certainly recently slowed down
▶ 2:32:59The process of evolution, getting us to where we want to be. Um, how do we get rid of them? I mean, I've been hearing about legacy systems for 5 or 6 years, and it would seem to me after a while, you throw something out and replace it with something. Am I correct about that? >> yes, sir. One of the biggest challenges we have with a lot of our legacy systems is that they're all interconnected in ways to where it's almost impossible to just pull one out. It's like pulling one piece of cooked spaghetti out.
▶ 2:33:28They stick to each other and it causes problems. We're using ai and automation to go in and identify exactly where those problems are and how we can pull those things out so that we can modernize our systems. The director of dfas and I spent a good bit of time yesterday focusing on this. His staff, my staff were all looking at how can we get rid of those legacy systems. >> and how many of those systems do you estimate might be operational right now?
▶ 2:33:54>> right now, we've got 86 financial systems that are part of our key core financial business systems that are tied to the audit. Uh, our goal is to get that down to less than ten so that we actually have one general ledger, uh, one entitlement system, one system for each major process that's going to take time. Uh, we have to be able to make sure we don't do any harm by getting rid of those systems. But it is strongly important for all of us to get out of the legacy system, sir. >> so this is a.
▶ 2:34:25>> surgical approach, I take it? Yes. Working with the ai, it seems to me that artificial intelligence should be able to let you know if you are working in one particular area, how it interacts with another one, and whether that's negative and should be shut down or whether it's positive it should be amplified. Is that the way you're approaching this? >> yes, sir.
▶ 2:34:44Our approach is to use ai to piece together the information that's missing from the various systems, fill the holes in our data, and give us insight into how we can pull those other systems out without causing any harm to the overall financial corpus. >> and did I also hear and was it a part of your your testimony that you expect the completion of the audit agency wide audit by 2028? Did I miss here on that? >> yes, sir.
▶ 2:35:10We anticipate getting a clean opinion on the navy working capital fund this year, the overall working capital fund next year, and then a clean opinion on the agency wide statements in fy 28. >> and when will you know between now and then, if your goal, your target, is not going to be met in 2028? >> I think the first indication you should be looking for is our fy 26 navy working capital fund. They're on track to get a clean opinion this year. Uh, that opinion will be out by february of next year.
▶ 2:35:37If they miss that, then we're in danger of making the 28 date. But that's the next big cycle where you'll have independent verification that the things we're doing are on track, sir. >> okay. And Mr. mansfield and Mr. khan, it's good to see both of you. I didn't have much to say early on because I was trying to rush through and get out of here. But you've been before this committee, both of you, now, several times. So you know the kind of angst that we always demonstrate, uh, when we realize we're not where we're supposed to be with respect to these audits. Um, Mr.
▶ 2:36:06Khan, I want to go back to you because there is a three year report card that was established that measures that I'm assuming that report card will also indicate if, as Mr. harker is moving toward this goal of 2028 agency wide, that you would get some indication from that that would be something that would go off and say that you're not going to make it or you are going to make it. And if so, can you tell us how that works? >> the, uh, thank you for that question, congressman.
▶ 2:36:34The scorecard is, um, looking at some different measures than what the current approach is going to be undertaking. The measures we have on the scorecard is more granular. It's looking at the processes and internal controls, uh, and fixing the material weaknesses and the individual findings. Whereas the current approach is, like I said in my opening statement, is more top down.
▶ 2:36:58So those results would not necessarily be captured in those in this particular format of the scorecard. >> so do both of those approaches. >> at the end of the day complement one another, or are they, uh, negatively affecting one another? >> they, they, they complement one other. But it's important to recognize that the, the financial statements should be reflecting what the underlying records are.
▶ 2:37:25And, uh, one of the concern is that the current approach may not really reflect what is in the underlying financial system, because if the adjustments are made to the financial statement itself, just the numbers, the bookkeeping of it, then it may not be necessarily reflective of what the underlying records are.
▶ 2:37:47>> okay, my time is expired, but I just want to call your attention to the fact that after I huddle with the chairman, we probably will be doing this dance again in about six months just to be able to figure out where we are on that continuum and whether or not something new or different should be implemented, I yield back. >> thank you, Mr. mfume. And, um, I'll now yield five minutes, uh, to myself to ask you guys a few questions.
▶ 2:38:15Thank you all for being here and for taking the time to to talk with us. It's always really helpful. Um, Mr. khan, I'll start with you. Um, can you explain just in layman's terms, what exactly it means when an agency is unable to pass an audit? >> that, um, its underlying systems, uh, the internal controls are not functioning as intended.
▶ 2:38:42And therefore the numbers, the information it's producing, it's not reliable, not reliable. Uh, consequently, the financial statements which are produced through those numbers, they are going to be, uh, auditable. And the auditor is going to give a disclaimer of opinion. >> got it. And in your opinion, what are the major reasons the department of war can't pass an audit? >> uh, there are three major buckets, uh, which, um, are causing.
▶ 2:39:11One of them really goes down to the process and system. If the processes and systems are not operating, then it's going to be very difficult to pull those numbers together to aggregate them to a financial statement. Uh, the other one is just pure accounting. Um, to get your hands around accounting. Some of this is rather complex to get that done. And then finally there is the element of getting enough trained people to pull all this information together so that you can have, uh, this done on an annual basis.
▶ 2:39:43>> mhm. Okay. Is there a role in the fact that the department of war can't account for all of its property? Is that part of this issue as well? >> uh, yes. That is part of the issue. The existence, completeness, and valuation of the property. >> could you help explain that? >> um, because I mean, property is part of the duties assets, uh, the financial statement required those assets to be reported on the financial statements.
▶ 2:40:09And if the assets, uh, the valuation, the is unknown, then that will be detrimental to what can be reported in the financial statements. If your methodology does not ensure that you have a complete count of those assets, then again, that will be a deficiency in the numbers that are reported in the financial statements. >> and what do you think congress could do to help alleviate some of those challenges?
▶ 2:40:38>> um, like I said earlier on, uh, I think the most meaningful way is to continue to have these oversight hearings so that you can, uh, it sends a message that you all are interested in the results of the financial statement audits. It's very important for the defense of this country. So I think that sends a very strong message to the people in the defense department to make sure that they are taking this seriously, which they are.
▶ 2:41:05And they have, uh, progressed a lot over the prior several years. And if you continue to have these oversight hearings, they'll continue to show positive results. >> is there anything we could do outside of of showing interest that that might expedite this process to the point where we can pass an audit in the near future, in your opinion? >> um, I mean, I mean, you can, you can pass legislation, uh, to, to encourage them to, uh, go in that direction.
▶ 2:41:34And congress has done that before. So that's another avenue for the committee to follow. >> okay. >> got it. Um, and in your opinion, what are some of the potential risks posed by giving the department of war such a large budgetary increase in the wake of their inability to pass an audit? >> the the lack of internal controls is of concern.
▶ 2:42:00Um, I mean, some examples that come before us is when the covid funding many when funding went out, it went out through conduits which didn't have adequate controls. Consequently, we saw the results of that. The money was going to places where it wasn't intended for.
▶ 2:42:21If, like we know, the internal controls of the department are very weak, if it's flush of money, then it's of concern that the money may not be going to the right places. Uh, along with that, uh, fraud risk management was added to the high risk list because of weak internal controls. There's a heightened risk that there's going to be a there's a greater likelihood of fraud happening.
▶ 2:42:49So that in conjunction between the lack of internal controls and the heightened risk of fraud, risk management, I think, is something to be watched carefully and managed. Uh, when additional money is being given to the department. >> got it. Thank. Thank you, Mr. khan. And with that, I'll yield back the remainder of my time. Um, and we will move on to, uh, the gentleman from virginia, Mr. walkinshaw, for five minutes. >> thank you, Mr. chairman. And thank you all for being here. Um, Mr.
▶ 2:43:18Khan, you referred and we've had some conversation around the scorecard, which I think is on page 28 of, uh, your testimony. And I understand that the the comptroller, the department assert that the scorecard reflects legacy processes and not the current priorities that I think I can understand why the department would would not want folks to pay attention to the scorecard because it ain't great. There are eight categories, four branches.
▶ 2:43:46It looks like there are increases in the scores from fy 24 to 25 and one, two, three, four five scores went up. The other 27 were were stagnant or maybe declined. I'm not sure some significant ones. Nfr closure. So notice of findings and recommendations from oig, army f, navy f, air force f, marine corps f systems.
▶ 2:44:12Compliance with financial management requirements. That's just in whether you're in compliance. I, I, if I'm understanding correctly with the existing requirements, statutory regulatory policy, army f, navy f, air force f, marine corps f um, and then when I, in reading your testimony and your discussion of the dod's revised approach, the lack of sufficiently detailed roadmaps,
▶ 2:44:43Limits, transparency and accountability, the revised approach will result in the preparation and audit of fewer standalone financial statements, potentially risk limiting accountability and transparency. I'm trying to understand jay's concern.
▶ 2:44:58Is it that this revised approach will make it less likely that the department can achieve a clean audit, or that perhaps it accelerates accomplishing a clean audit on paper? But there will be transparency and potential improvements in savings to the taxpayers, perhaps lost in the process that otherwise could have been achieved.
▶ 2:45:25>> it's, um, that the opinion may be achieved without having, um, a really robust look at the underlying processes, which are important for operational efficiencies to make sure that the department is, uh, financial management is functioning the way it should function, rather than just looking at what the financial statement numbers are.
▶ 2:45:50Uh, so that's the major concern that the internal controls, which are put into an environment like the defense department, the check and balances that they will not necessarily be looked at and neglect, uh, over their time period. >> okay. I just want to state for the record, I have serious concerns about that. I'm not interested in a clean audit for the sake of a clean audit.
▶ 2:46:13The point here is to get a clean audit so we know the taxpayers are getting the best value for their money, and I'm certainly going to be watching that closely. Mr. mansfield, I read, um, your all's report, the financial statement audit explained report. And I gotta say I enjoyed it, given the title, not the kind of report you would you would typically enjoy, but I think you all did a good job of making it easy to understand and read. But you did outline as obstacle number two, information technology.
▶ 2:46:46And you you noted the outdated, redundant, non-compliant federal accounting systems, outdated it systems, uh, not compliant with the federal financial management improvement act of 1996, 1996, um, 297 major financial management systems. And I guess I'm just a little bit concerned that we haven't had a lot of conversation. Uh, Mr. harker, Mr.
▶ 2:47:14Busby, from you all on that fundamental challenge that we have, financial management systems that are way out of date, out of compliance. And if we have a I don't see how you can have a clean audit that's truly a clean audit without addressing that issue. Either of you want to speak to that?
▶ 2:47:36>> yes, I agree 100% that we need to get rid of a lot of these legacy financial systems, and we're working to do so, um, using the ai and automation to help fill in the gaps in data is helping us move forward with identifying which systems can be eliminated and how quickly. Um, but in addition, there's efforts going on. When I was the cfo of the navy a while back, we consolidated our general ledger systems.
▶ 2:48:02We went from nine general ledger systems down to one that took about eight years, but it was a systemic elimination of legacy systems, moving all the data into the one general ledger that the navy operates today. The navy is in the process of modernizing that system. In doing so, they're pulling in, uh, requirements from other legacy systems so that all of it will be done in that one general ledger system.
▶ 2:48:27You'll have payments, you'll have disbursements, you'll have, uh, movement of funds, you'll have all of the accounting stuff for payments receivables, fund balance with treasury reconciliations in one system. At that point, the navy will no longer need to touch all of those other systems. And that's the only way we're going to be able to eliminate all of them. So that effort there is huge. And I encourage you to take a look at what the navy's doing, because that answers a lot of your questions, sir. >> thank you, Mr. chairman. I yield back. >> gentleman yields back his time. Thank you very much.
▶ 2:48:58Gentlemen. Uh, is recognized for five minutes. Mr. jack, it's good to see you. >> thank you very much. >> Mr. time to be with us today. >> thank you very much, Mr. chairman. Uh, my question to Mr. harker. I, um, I understand that the new audit approach will not focus on addressing material weaknesses or auditor recommendations as such. What do you expect to be the department's biggest hurdle to achieve a clean opinion by 2028?
▶ 2:49:27>> so every notice of finding and recommendation, every material weakness has multiple conditions, some of which are more important to fix than others. Our goal is to clean the ones that are the biggest barriers to getting that clean opinion and focus. All of our efforts on getting the clean opinion, and I understand. >> correct me if I'm wrong, the marine corps was the first and only service to achieve a clean, unmodified audit opinion. Is that correct? >> yes, sir. That's correct. They've had three in a row.
▶ 2:49:53>> and could you, given that success, walk us through why the marines are so well positioned with respect to that initiative and what lessons we can learn, and perhaps other branches can learn from their success? >> sir, the key factor for the marine corps was the commandant of the marine corps issued a two page letter directing all the marines to do what it took to get a clean opinion. Once that was issued, it went from where I was working with the marines and they were saying, yes, this is this is nice, but it's not important to the commandant to. Now the commandant says, do this.
▶ 2:50:22I was cfo of the navy at the time, the department of the navy, the navy and marine corps, and it was amazing how quickly they got in line. They put in the effort to go out, count things, provide the right accounting for them, uh, modernize systems where they could, uh, do substantive test work where they couldn't. Uh, that model has been moved to where now the navy is doing that. Their vice chief of naval operations issued similar guidance to the navy. Uh, they're moving forward. They're going to get a clean opinion on their working capital fund audit this year.
▶ 2:50:54And you see the same thing happening in the air force, where they're both hoping to get clean opinions in 27. So there's been a lot of progress inside the department based on the lessons learned by the united states marine corps. >> yeah, that is a follow up to my next question. But imagining if the model were scaled across the entire department of war, do you believe it would remain viable across each branch? And could you walk me through some of the nuances within each branch as it relates to that model? >> yes, sir. Absolutely.
▶ 2:51:18I think the, um, guidance from secretary hegseth standing up joint task force audit is the taking the guidance that the commandant gave and moving it to a higher level. He's dedicated a general officer plus 20 plus other military personnel to work alongside the accountants on my staff and the support contractors we get who have technical expertise that we may not have to go out and solve all these problems.
▶ 2:51:41We're deploying those teams out to the army, the air force, the navy, the defense agencies to go after the specific problems that are causing us audit challenges. We're including a data analytics core from the others on my staff on that, we're including, uh, folks who have specializations and configuring systems and in looking at how to replace systems. And so it's, it's an effort. That's the entire department. Uh, the task force is reporting their results every two weeks.
▶ 2:52:09And that gets out to all the senior leaders, goes up through the comptroller, gets to the secretary, gets the chairman, uh, provides the way ahead and identifies the barriers where we need help removing them. If there's things that I can't resolve, I go to my boss. He engages with all the other four stars, whether they're in uniform or in civilian, you know, political appointees. And we go after that and we knock those barriers down so that we can move forward as quickly as possible to get this clean opinion.
▶ 2:52:37>> and how are you utilizing new technology, new emerging technology to help expedite these audits, make sure they're perfect. Um, welcome thoughts over the last few years, how it's evolved and how it's approached, uh, what you do. >> yes, sir. We appreciate the funds that were given to us and the one big beautiful bill act. It's $350 million, 150 to eliminate legacy systems, 200 towards advent of ai and automation. Uh, we've obligated a significant portion of that. Uh, we're putting in place tools using ai that are helping to fill data gaps.
▶ 2:53:06We're putting in automation that allows us to use robotic tools inside the computer systems to go pull data that supports the audit testing. And we're using the funding on legacy system decommissionings to go after specific, uh, problems that are in our current systems, either to make an improvement to that system so it works better, or to take that system offline and have other things that can replace it. >> and to affirm that funding came through the one big beautiful bill act. Yes, sir. And I just I'll close, Mr. chairman, by just noting.
▶ 2:53:37That's just another example of which there are many where the one big, beautiful bill act is really helping move the country forward. It's something that the american people wanted when they voted for donald trump. And house republicans would be the majority in 2024. And I think that funding is illustrative of the overall approach to ensure that we spend money more efficiently and likewise govern in a way that is befitting of what the american people wanted back in 2024. So with that, Mr. chairman, I applaud you for convening this hearing, and I yield back the balance of my time.
▶ 2:54:07>> gentleman yields back his time. Thank you very much. I believe everyone on this side has had an opportunity to engage our witnesses. I apologize for being late. I had another committee where we had work that had to be accomplished. Uh, thank you for being here today. This is, uh, has brought about a great deal of information that you've received about the reality of where people perceive we actually are on this issue. Uh, I could call it pessimism.
▶ 2:54:34I could call it, um, a reminder to you of, of past performances. You're still getting credit for. Uh, I want to turn for just a minute and ask two questions. Uh, Mr.
▶ 2:54:51Harker, you alluded to and talked about doing away with legacy systems and replacing them some $350 million that was given under one big, beautiful bill that would allow you to get closer to this effort of complying with the law. Uh, tell me about those. Are they systems that will take five months to fix, ten months to fix, two years to fix.
▶ 2:55:19They're going to come online. They're going to help be your saving grace to help you in this year and next year and to comply with the law. Tell me about that. Those that that time frame and the availability of these new systems to aid that effort. >> yes, sir. >> so getting from nine general ledgers to one for the navy, it took just under eight years, and it took a good deal of money.
▶ 2:55:47But they're now operating at a savings because they no longer have to support the other eight legacy systems. The default, the defense financial accounting service, dfas, has done a similar effort where they've tried to reduce the number of different systems that perform the same function. For example, they'll have systems that will be disbursing systems. They'll have systems that'll do entitlements, that'll do payment management, that type of thing.
▶ 2:56:09And so they've systemically been reducing the number of systems by migrating people from one to another and getting all of the work down to for disbursing, they only have two. One that's unclassified, one that's classified for payment management. They've got it down to four, uh, for fund balance with treasury reconciliation, they're down to two.
▶ 2:56:28So this is significant improvements when you consider they had six, seven, eight, nine systems, all of which were written in cobol or fortran or legacy accounting systems that were highly challenging to maintain because you just don't have folks who code in those languages. I learned fortran when I was a freshman in college many, many years ago, but there's not a lot of people out there learning it today. Uh, so for it's for us, it's a systemic effort. The services are each doing their bit dfas is looking at what they can do.
▶ 2:56:54The biggest challenge for dfas right now is getting a, um, getting a hold of their data so that they don't lose the data, getting it into one repository. So they're looking at, can they put that data into our system? And then if so, that would expedite their movement towards elimination of legacy systems. >> okay. Does that mean history of data or current data. >> both sir. There's a history of data that's required.
▶ 2:57:22For example, when they pay service members. We need to keep that data so that we can refer back and say, no service member, you're complaining about this. You did get that payment on november 17th. Uh, but for other a lot of them, it's the current year data so that you have a way of making sure that you're not going to be missing something or pulling a system away. That's going to cause a break in the flow of data across our various systems. >> all right. I'm still wanting to get a little bit closer, tighter on this, sir.
▶ 2:57:51What brought me to the question was the view that you made about the eight years to go from one system to another and diminishing those systems and refurbishing or bringing others online? My question is, you're now working with that 350 million. Is that an eight year process or are you because you've told us you your testimony before this subcommittee is you're going to make the clean audit? Yes, sir.
▶ 2:58:22You don't have eight years. >> no, sir. >> we are going to make a clean audit opinion in the system state that we currently have, plus the decommissionings that we can accomplish over the course of the next two years. The decommissionings are ongoing. There are systems that were decommissioned last year. There's more that we have planned for this year. Um, that's work that's being done in conjunction between the controller organization, the services, and then the cao organization, both at the department level as well as in the services.
▶ 2:58:52So there's a defense business council that goes after that. And they had a meeting earlier this week where the newly confirmed cao, the deputy controller, and a lot of the leadership were all digging into what's it going to take for us to turn these systems off? The information we gathered by turning off other systems gives us more insight into what it takes to do this so we can explain opinion.
▶ 2:59:16We're still going to have some legacy systems, but we'll have a lot more information that will allow us to focus resources on decommissioning additional systems, which will make the audit cheaper, faster, and add more value to the warfighter because we'll be able to give them better data more quickly so they can have informed decision makers. >> well, I'm for it.
▶ 2:59:34Yesterday I had a conversation with all four of you that focused on, uh, a viewpoint that I have may be shared by others, but it's certainly one that I'm interested in and that is that today we have the need in the conflict that we're engaged in to make sure that the joint chiefs and decision makers as commanders, frontline commanders, especially, but also those back at the pentagon who need to have confidence in
▶ 3:00:06The numbers that they're looking at, of systems, of databases of actual, uh, not stockpiles, but the things that are actually available, uh, to the joint chiefs. I hope that I, we have not done anything in here, but rather would a, in that ability for you to prioritize those avenues that provide critical mission support so that you could count
▶ 3:00:37On them in your work? Do you think that we have asked you to do anything where we are getting in the way of mission critical objectives, by you moving forward to this date of a clean audit? >> yes, sir. Absolutely. I've seen it happen at the navy when I was cfo.
▶ 3:00:58>> the question is, do you think we are getting in your way or being a hindrance in you performing the duties of providing the necessary, uh, information to the secretary, to the joint chiefs? Are we doing anything by pushing clean audit, clean audit, clean audit, which you've heard here today? >> yes. No, I do not believe you are getting in our way. You are holding us accountable for compliance with the law and compliance with standards. Um, an audit determines is management doing their job.
▶ 3:01:28And for many years we've been making improvements in that, but we are not there yet. We need to do better. We will do better. We'll have the opinion by 28. And that will enable us to provide better information to commanders. As we've been going through this progress. The push that you've been giving us, the emphasis has helped us to help to hold us accountable, to improve our data quality. Uh, we've seen data quality improvements on the logistics side.
▶ 3:01:53We've seen data quality improvements on the accountability for munitions side, um, the guidance, the feedback we've gotten from the committee has been outstanding in helping us move forward in making those significant improvements that impact operations. >> yeah. Mr.
▶ 3:02:08Mansfield, uh, I'm not sure if you're aware, but there have been several discussions that have taken place between, uh, department of war and this staff, this oversight staff that essentially went along the line of we've still got things that we'd like to move forward in the audit and take to zero or to, to decommission things or to get them off our books.
▶ 3:02:35That seemingly, uh, made sense to me. I am not a cpa, but when you've got buildings, uh, circumstances that are more than 100 years old, you may be using it, but that the value is hugely diminished. I, I want you to know that in the coming weeks, we're going to revisit that issue. And I'm interested in you and Mr.
▶ 3:03:03Khan being in those discussions. I, I am not a cpa, but I want to make sure that when we get down to this, that we're fair to the dowi think that they're asking reasonable questions. They're making sure that when we look at data, they're looking at the same data. But I would want you to know that I think that these are honest questions that they're seeking our opinion on. Have they sought your opinion on these types of matters?
▶ 3:03:37>> uh, so first off, I welcome the opportunity to engage in those conversations. I think that would be a great dialog for us to continue. Yes, we have had conversations along those lines with the department. Uh, I know that, uh, Mr. harker and others have engaged also with the federal accounting standards board or the face or the body that sets standards and expectations for how financial records are maintained. Uh, the role of the oig is to, you know, ensure that the department's meeting those expectations. We don't set them.
▶ 3:04:04Um, but we're happy to be a part of the conversation. >> that's correct. But you're in that conversation and aware of these discussions. Mr. khan, uh, do you believe that you have offered any opinion related to these types of things where they have come back and said, we believe we're doing this, but we believe it might be permissible to gain acceptance, at least from congress, I'm sure from from all of us that are involved about taking these matters to
▶ 3:04:36Where they would fall off the report or diminish their, uh, value, right. >> I mean, these are ongoing conversations. Um, we've had discussions with the department going back in the 2015 2016 time frame regarding sensitive activities and equipment. So the recent conversation, we are aware of what the department is looking for. And, uh, the right forum for that is to have a discussion with the federal accounting standards board. They are a consultative body.
▶ 3:05:07They are going to be happy to engage with the department to understand what their needs are, and they can suggest different ways to structure particular standards. Uh, and I think, uh, Mr. harker and the board is going to be meeting and engaging with them in those conversations, but to your questions will be very happy to engage with you and with whomever to have those conversations so we can offer our perspective as well. >> thank you very much. Mr. harker.
▶ 3:05:34Do you believe that this committee staff needs to be a part of those decisions, or do you believe that we would look at a recommendation that would come from this group of people? Uh, I'm trying to get closer to making sure we're not getting in your way also, of achieving the things that we need from the time frame perspectives. >> yes, sir. You're not getting in our way. Um, we've been working with Mr. khan, Mr.
▶ 3:06:01Mansfield, their staffs on how to integrate our efforts with the advice we get from them, whether it's formal advice via an nfr material weakness, audit, communication, or conversations that we have during our monthly or more frequent meetings, I would invite you and your staff to come look at what we get set up with the joint task force audit, start looking at some of those biweekly reports that are going to be going up to the secretary, the deputy secretary.
▶ 3:06:29Uh, we're in the process of building that out, but by the time we come back in six months or so, we should be able to give you a history of these are the reports. These are the issues that were raised. Here's how we remove those barriers. And it'll be something that you'll be able to assess. Are we managing this and monitoring it on a regular, ongoing basis? I think that would give you good information, and your interest would also help us with making the changes the department needs to make. >> thank you very much. Uh, we will both both Mr.
▶ 3:06:56Mfume and I, uh, would choose to do that. And it's always better to be invited. And so thank you for the kind invitation. I don't think we'll wait six months. I think we will want to come back and provide feedback, uh, reinforcing the work that you're doing. Uh, I want to thank all four of you for being here, and I'd now like to ask if there is a second round of any member that is interested in that, miss walkinshaw. Mr.
▶ 3:07:28Mayor. Okay. Um. I'm engaged in this and found your energy. All four of you, yesterday. Uh. Very important. I think that the perspective. I did not hear different answers. I did not hear different differences that that of opinion. I did not hear someone say they can't. I heard them say they can.
▶ 3:07:54I heard you, each of you say if we continue down this path. But the greatest thing I heard was we are working together that the leadership at the department has the desire. And you feel like that following, I guess, what we've talked about the marine corps top to bottom, uh, viewpoint of the, of making this work, uh, is something that is happening right now at the pentagon. So Mr.
▶ 3:08:21Mfume and I would want to come over and make sure we reinforce that, uh, I don't think any of your colleagues really want to come and go through what you did today, but I think the next time it would offer you a chance, um, perhaps to tell stories of success, perhaps give you opportunities for you to say how the secretary, uh, of the navy felt like that his
▶ 3:08:52Decision making was enhanced with data and information that the secretary of the air force, perhaps his joint chiefs, would be able to say they felt more confident in the questions that they asked were backed up, uh, with reality. And that is really what the data supported, what is in is available to them. So I really want to thank you. But I, I would say that probably Mr.
▶ 3:09:19Mfume, uh, would, would come over as, as early as june. So we'll find out. So I, I want to thank you all. I want to allow the distinguished gentleman from maryland, uh, his opportunity to close. But my close is going to be. And we're going to see you in june. So I want to thank each of you, Mr. mfume. >> thank you very much, Mr. chairman. My thanks to all of you. Again, like I said before, Mr. mansfield. Mr. khan, good to see both of you again.
▶ 3:09:46Um, june might be a little premature because chairman doesn't have a campaign. I do, and an election on the 23rd of june. So to the extent that I can do that and be here or be there with you, I will. But I want to thank you again for following up. Uh, one of the things we've tried to do with this process is to follow up and follow up and follow up, and I would hope then, Mr.
▶ 3:10:10Khan, you could juxtapose the, uh, report card against some of the information that we get. Then to help us better understand where we are on this continuum. That's it for me, Mr. chairman. I yield back on behalf of my members who have been here and participated. We thank you for the opportunity. >> Mr.
▶ 3:10:31May I apologize for not staying up with the calendar as well as you have, and it would be perhaps we would entertain a july then. Uh, but I prefer not to wait six months. I think that it would be insincere on our point to part, to, uh, to leave it all to you when we're all trying to get it done together. So I want to thank the gentleman. Uh, miss walkinshaw, I want to thank you for taking time once again to come and do this.
▶ 3:10:58Uh, so with that, and without objection, all members have five legislative days within which to submit materials and additional written questions for witnesses, which will be forwarded to the witnesses if there's no further business. Without objection, subcommittee stands adjourned.