Floor Statement of U.S. Senator Chuck Grassley

Tuesday, July 5, 2011

Click here for the video. Prepared remarks are below.

Mr. President, I come to the floor today to set the record straight on a report I issued on June 6^th.

This report evaluated audits produced by the Department of Defense (DOD) Office of the Inspector General in fiscal year 2010.

I call it a Report Card because that is exactly what it is.

Each of the 113 unclassified reports published in fiscal year 2010 was reviewed, evaluated and graded in five categories. After each report was graded individually, all the scores for each report in each category were added up and averaged to create a composite score for all 113 reports.

Although 15 top quality audits were highlighted in the Report Card, the overall score awarded was a D minus. That's low, I know. Maybe the score should be a little higher. I don't know for sure.

Clearly, none reflected any of the reforms that Inspector General Heddell put in place in December 2010 - as all were published well in advance of that date.

My oversight staff read these reports as educated consumers. We expect these audits to provide leverage in the monumental day-to-day DOD oversight task. We want them to provide assurance that the Defense Department is spending the taxpayers' money wisely.

Some did that but most did not.

This Senator from Iowa is sure of one thing: The audits, which are the subject of my Report Card, are not somehow exempt from oversight and public scrutiny. They, too, need to be put under the public microscope - especially when they cost almost a million dollars apiece to produce.

So that's exactly what we did with the Report Card - put them in the public spotlight. And I will keep them there until I see sustained improvement.

As the report states and as I explained on in my speech on June 6th, this grading system was subjective and imperfect.  However, as subjective and inexact as it may be, I believe it provided a reasonable or rough measure of audit quality.

Following my speech, Defense Department Inspector General Heddell pounced on my report. He expressed strong opposition to the low score. He complained that it did not adequately reflect $4.2 billion in "achieved monetary benefits" identified in fiscal year 2010 audits.

To address IG Heddell's concerns, my staff asked the Audit Office to prepare an information paper that links the $4.2 billion in savings to the audit where those savings were reported. That information was provided to me on June 20^th. I call it a "cross-walk." It takes me to the exact page in each report where the savings were discussed.

This document lists $4.4 billion in "identified potential monetary benefits" and "collections" of $4.2 billion.

After reviewing the "cross-walk," I have concluded that IG Heddell had a legitimate gripe about the Report Card. He is right. It should have included a section that addressed potential savings. So I will address those issues now, focusing on four reports that contained almost all of the $4.2 billion in savings listed in the "collections" column.

In grading these reports, we did not give sufficient credit for potential savings and efficiencies. They were a casualty of the grading system - for one simple reason. If the exact dollar amounts of alleged fraud and waste were not verified using primary source accounting records, they did not pop up on my oversight radar screen.

My staff is attempting to work with the Audit Office to develop a mutually agreed upon set of standards for grading audits. The purpose of these discussions would be to create a grading process that would accurately capture the true quality of all reports, including policy reviews that uncover real savings and efficiencies.

From the beginning, I have been very critical of the Audit Office for producing far too many policy reviews and far too few hard-core contract and payment audits.

For the most part, the policy audits have no measurable monetary impact whatsoever. However, I have learned recently that at least a few are important for other reasons. I am told that some of these reports are of real value in the work of the Armed Services Committee.

Contract and payment audits are also very important. They go right to the heart of the IG's core mission: To root out and deter fraud, waste and theft. If done right, they too can produce big pay offs. Those audits earned top scores in the Report Card.

Mr. President, I am not saying that the Audit Office should do nothing but contract and payment audits. What I am saying is this: The current mix of audits creates a huge imbalance in favor of policy reviews. A better balance needs to be established.

That said, Mr. President, I have an admission to make to my colleagues. I finally found a policy audit that I like.

This report is entitled Recapitalization and Acquisition of Light Tactical Wheeled Vehicles, number 2010-039, dated January 29, 2020. It identified potential savings of $3.84 billion. That's 90% of the savings uncovered in FY 2010 audits.

Now, in my Report Card, I gave this audit a low grade. This audit failed to connect the dots on the money trail and verify dollar amounts using primary source contract and payment records. Plus it took 16 months to complete.  When you add the four to six months of planning that often precedes the audit start date, you are probably looking at two years to complete this audit. That's far too long.

But this report had other important qualities that were overlooked. It uncovered gross violations of applicable procurement regulations, including use of a sole-source contracting arrangement. It also determined that the proposed vehicle might duplicate the capabilities of existing vehicles.

In the midst of this audit, for reasons that remain unclear, the project manager decided to stop the program "and put the $3.84 billion in funding to better use in FY 2010-2013." This language suggests that all the money was reallocated within Army accounts for other purposes. Clearly, the audit may have helped to stop $3.84 billion in potential waste. That's excellent, but this does not constitute savings in the classical sense -- as all the money was shifted to other Army projects. Waste could  happen there, too.

Using a modified grading system to reflect the good qualities of this audit, it would have earned a higher score were it not for an excessively long completion time. In this particular case, however, the impact of the audit was apparently felt while the audit was still in progress. So the timeliness rule may not apply here and probably should be set aside.

There are three other audits containing savings and efficiencies that I wish to discuss today.

The next one is entitled Implementation of the Predator/Sky Warrior Acquisition Decision Memorandum, number 2010-082, dated September 10, 2010.

The purpose of this audit was to determine whether the Air Force and the Army had complied with DOD directives and law to combine the Predator and Sky Warrior drone programs. The Defense Department estimated that $400 million could be saved by merging these two programs.

While the audit was in progress, DOD pulled the rug out from under the auditors. A new directive was issued, stating that the two programs did not have to be combined. To counter this move, the auditors recommended administrative action against those who failed to comply with the original directive. The DOD non-concurred and tossed the auditors a bone. DOD wiggled out of harm's way by offering to do a meaningless "lessons learned" exercise.  In the end, the auditors caved in, agreeing that the DOD plan was "responsive" and backed off.

Despite what appears to be an unsuccessful outcome, the Office of the Inspector General still claims that this audit produced $60 million in savings.  The audit itself indicates that the $60 million was, in fact, "reprogrammed to meet higher priority operations." That means it was reallocated to other DOD accounts - and not saved.

Since this audit was all about an opportunity to save $400 million - and DOD balked, maybe these so-called savings might be better characterized as lost savings.

In my Report Card, this audit earned low scores - mainly because it failed to verify actual costs of the two drone contracts, using primary source accounting records. And it failed to assess the validity of DOD's estimated savings of $400 million.

I am not convinced this audit deserves a higher score - especially since it took 22.5 months to complete, and the recommendations - though initially tough -- were watered down at the end.

The next report claimed $242 million in potential savings.

This one is entitled "Deferred Maintenance and Carryover on the Army Abrams Tank," number 2010-043, dated March 2, 2010.

This report concluded that contrary to Army claims, depot maintenance on M-1 tanks was not deferred in fiscal year 2008. All planned overhauls were, in fact, completed, but a large sum of money was left-over. The Army requested and received a formal, written waiver to "carryover" $346 million in un-needed and un-used fiscal year 2008 M-1 maintenance funds for use in 2009 and beyond. The reason given was inadequate capacity at the Lima, Ohio tank plant. Without the waiver, this money would have been cancelled and lost. The report concluded that Army documents contained "inaccurate and misleading" information and may have caused a violation of the Anti-Deficiency Act. It recommended that the waiver be recinded and $275 million in FY 2008 money be cancelled, reprogrammed or reduced.

The Army appeared to agree with the recommendation to disclose the $275 million carryover to Congress, but non-concurred with other recommendations.

This report does not point to any real savings.

This report probably deserves higher scores except for timeliness and strength of recommendations.

It was untimely, taking 22 months to complete.

In addition, there were unresolved issues about the waiver document. Did the official, who signed the waiver, know that document may have allegedly contained false and misleading information? Was he questioned about its truthfulness? If so, the report should have recommended that he be held accountable.

The last of four reports uncovered $2.2 million in purported savings, but this one appears to be  more about helping the Army spend - not save - money.

It is entitled "Controls Over Unliquidated Obligations for Department of the Army Contracts," number 2010-073, dated July 19, 2010.

This report deserves high scores for hitting most of the dots on the money trail, including verification of exact dollar amounts using primary source accounting records. Such nitty gritty accounting work is highly commendable.

Unfortunately, the objective of this audit appears to be questionable. The report finds that sloppy Army accounting work "could increase the risk that funds are unavailable for other needs because funds available for de-obligation are not identified in a timely manner." Now what does that really mean?

It means that the money in question is no longer needed and is at risk of being "lost" because it is about to expire.

Having un-needed money lying around in the Pentagon is almost always a recipe for more waste. In the Pentagon, there is no such thing as un-needed money. Every dollar has a mission.

This report is all about managing money to make sure that every cent is spent before it expires. Avoiding the loss of appropriations is the primary responsibility of the Army Comptroller or Chief Financial Officer - not the IG.

In this scenario, the IG's primary focus should be to ensure that "lost" appropriations are not used illegally - or that un-needed monies are not wasted by being shifted to another questionable project.  Money that is not needed should be reported to Congress and returned to the Treasury.

Although this audit deserves high scores in several categories, its long completion time - 16 months - and questionable focus lowers its overall score.

To summarize, Mr. President, there are two main problems with these four reports on savings and collections: 1) None was timely; and 2) Reported savings are unverified and elusive.

First, these four reports took an average of 19 months to complete. Two took a total of 45 months or almost four years to finish. And that does not include the four to six months it takes - I am told -- to get each audit rolling. As I have said on other occasions, the power of top quality audit work is greatly weakened by stale information.

Second, these four audits supposedly produced $4.2 billion in collected savings. But all of that money appears to have been shifted to other DOD accounts and spent. To the best of my knowledge, not one cent was really saved or re-deposited in the taxpayer's bank account.

Only in the government could you spend all the money and still claim savings.

What we are really talking about here are lost savings that grew out of waste that was thankfully discovered and avoided. And waste that is avoided surely has monetary benefits.

For some reason, auditors in the Office of the Inspector General show a great reluctance to use the word waste in their reports. That word rarely - if ever - appears in their audits. At the same time, auditors seem overly eager to tout savings and efficiencies. Now, why would that be? Could it be that their superiors in the Pentagon take a dim view of the word waste?

Savings may be nothing more that the flip-side of waste. Auditors detect and verify potential waste and then convert it to potential savings by proposing remedies to eliminate the waste. Maybe the auditors need to start calling it what it is - call it waste, and then talk about savings.

I yield the floor.