Chairman CONRAD. Let me just say that if we could send a message to the Administration through you, it is really very important not only to this Committee, which must make judgments on budgets very quickly-we have a requirement to be done April 1st, and you can see that we are up against an incredibly tight timeframe. It also has very significant impact on the appropriators, and the discussions that are going on right now between budgeteers and appropriators with respect to division of funds, that is a critically important piece, and we need to know quickly what the Administration will be asking for.

Mr. WOLFOWITZ. We will certainly convey that, and we have the same interest you do, because if we don't have a clear idea pretty soon of when we are going to run out of money, we are going to have to start affecting the way we operate, and that is painful. Chairman CONRAD. All right. Senator Grassley?

Senator GRASSLEY. I am going to use my time just to make a statement, Mr. Chairman.

First of all, I want to compliment Secretary Rumsfeld for a really revolutionary attitude within the Department of Defense. And I don't want you to think I am getting soft when I compliment a Secretary of Defense. But he said this on September 10th last year: "Every dollar we spend was entrusted to us by a taxpayer who earned it by creating something of value with sweat and skill. A cashier in Chicago, a waitress in San Francisco, an average American family worker works an entire year to generate $6,000 in taxes. Here"-meaning at the Pentagon-"we spend many times that amount every hour by duplication and by inattention. That's wrong. It's wrong because national defense depends on the public trust, and trust in turn hinges on a respect for the hard-working people of America and the tax dollars they earn. We need to protect them and their efforts."

I think 9/11 wiped out any lingering doubts that any of us had about the intentions of terrorists. It is crystal clear that they want to kill Americans, and as many as possible. And I don't doubt for a second that they will strike again and that we have to be prepared for it. We must not allow American citizens to live with constant fear that moment of terror will come again. This is a threat to our way of life. As Americans, we cannot accept that. The terrorist threats must be eliminated.

I think President Bush is doing everything possible to restore and maintain our security at home and abroad. And I know that the war on terrorism is not going to be cheap. I accept that. Right now we have no choice. So I don't want to quibble with you and your budget, particularly on the details of them, because for winning the war you have to have all of our support.

But I would like to take some time to warn about some of the things that Secretary Rumsfeld has alluded to, and that is about waste, and I am going to skip two or three pages about some history of my involvement with it because I don't think that is important right now. So I want to give kind of a warning, Mr. Secretary: Find a way to control waste. Unfortunately, you have a major obstacle to overcome before you can get a handle on waste. You can't begin to control waste until you know what things cost, and you will never get a handle on costs until your books of account are in

order. Every shred of evidence that I have examined over the years tells me that the books at the Department of Defense are in shambles.

The gentleman sitting beside you, your chief financial officer, I think knows exactly what I am talking about. The best barometer on the quality of bookkeeping at the Pentagon are the annual audits or the financial statements. The results are dismal because of over $150 billion in financial transactions for which there is no supporting documentation. Criminals could be tapping into your pipeline and you would never know it.

During Secretary Rumsfeld's nomination hearing last year before the Senate Armed Services Committee, he was grilled by our colleague here, Senator Byrd, about the very same problem. As a result of that exchange, Senator Byrd and I cosponsored a financial management oversight initiative. It was enacted at Section 1009 of this fiscal year's defense authorization bill. Having accurate financial information at your fingertips is a key to controlling waste, and right now I don't think that the Department as it. You need to get it, and Senator Byrd and I and others want to help you get there. Mr. Secretary, obviously you and your colleagues have your work cut out for you. For starters, I think you need to get an IĠ in place, an inspector general in place. With the Pentagon money spigot being wide open now to win the warm on terrorism-we accept that I think there should be a new IG operating at a high state of alert. A 3-year oversight investigation of the IG's office tells me that it is not ready today. That office has serious management problems. The new IG would need to clean house.

In sum, Mr. Secretary, I am asking you to control waste, clean up the books, get a handle on costs, and please don't fritter away this golden opportunity to rebuild the armed forces. Waste is a constant danger at the Pentagon. Secretary Rumsfeld said that in that statement I read from. When we send military personnel into harm's way, I want to be confident that they have what they need to get the job done, and if you allow waste to spin out of control, the troops will be the first ones to suffer.

Thank you. And I would like to put a longer statement in the record.

Chairman CONRAD. Certainly that will be done.

Senator GRASSLEY. Thank you.

[The prepared statement of Senator Grassley follows:]

THE PREPARED STATEMENT OF SENATOR CHUCK GRASSLEY

Mr. Secretary, the 9/11 attack wiped out any lingering doubts I had about the intentions of the terrorists. Their intentions are now crystal clear: Kill as many Americans as possible. And I don't doubt for a second that they will strike again when they think the time is right. We must not allow American citizens to live with constant fear that moment will come again. This is a threat to our way of life. As Americans, we cannot accept that. The terrorist threat must be eliminated.

I think President Bush is doing everything possible to restore and maintain our security at home and abroad. I know the war on terrorism will not come cheap. I accept that. Right now, we have no choice. So I won't sit here today and quibble with the details of your budget. You have my support.

But I want to warn you about waste. Big budgets breed waste, and the Pentagon has a world-class reputation for waste and mismanagement. Waste is lurking out there in the shadows-just waiting for you to open the money spigot. If you fail to keep a lid on waste, support for the Bush defense buildup will evaporate quickly.

The troops in the field will end up on the short end of the stick. And the Senator from Iowa will be on your back.

Mr. Chairman, a little piece of local history might help everyone in this room understand where I am coming from. Back in the early 1980's at the height of the cold war, President Reagan launched a massive military military buildup that was fiercely debated in the Senate. Mr. Chairman, I want the witnesses to understand that this was a defining experience for me. It still shapes my thinking on defense. I was convinced-almost from day one-that President Reagan's defense Secretary "Cap" Weinberger [Cap the Ladle] was bent on throwing huge sums of money at problems better solved by structural reform and some real leadership. So I did what could to stop it.

As a conservative Republican, this was not easy to do. But I did it because it was right. And I ll do it again if I have to. I offered an amendment to freeze the defense budget. That was on the fiscal year 1986 budget resolution. My amendment was adopted on May 2, 1985.

That act alone threw a monkey wrench into the last big plan to ramp up the defense budget. But more than anything else, it was the spare parts honor stories in the early 1980's-the $750 pair of pliers, the $750 toilet seat, and the $7,000 coffee pot-that changed my thinking on defense forever. The spare parts horror stories were a turning point. They convinced me that the Pentagon's defense buildup was a colossal taxpayer rip-off. They undermined the credibility of the planned defense buildup and turned me into a defense reformer. They drove me to watchdogging, digging into waste, fraud and abuse at the Pentagon. And I am still at it today, and I will be at it again tomorrow.

So, that is my warning to you, Mr. Secretary: Find a way to control waste. Unfortunately, you have a major obstacle to overcome before you can get a handle on waste. You can't begin to control waste until you know what things cost. And you will never get a handle on costs until your books of account are in order. Every shred of evidence I have examined over the years tells me your books are in a shambles. Your Chief Financial Officer-Mr. Zakheim-who is sitting next to you knows exactly what I am talking about.

The best barometer on the quality of bookkeeping at the Pentagon are the annual audits of your financial statements. The results are dismal because of over $150 billion in financial transactions for which there is no supporting documentation. Criminals could be tapping into your money pipe, and you would never know it.

During Secretary Rumsfeld's nomination hearing last year, he was grilled by Senator Byrd about the very same problem. As a result of that exchange, Senator Byrd and I co-sponsored a financial management oversight initiative. It was enacted as Section 1009 of the fiscal year 2002 defense authorization bill. Having accurate financial information at your fingertips is a key to controlling waste, and right now you don t have it. You need to get it, and Senator Byrd and I want to help you get there.

Mr. Secretary, you have your work cut out for you. For starters, you will need a junkyard dog. You need to get your IG nominee in place. With the Pentagon's money spigot wide open, I want the new IG operating at a high state of alert. A 3-year oversight investigation of the IG's office tells me that it is not ready today. That office has serious management problems. The new IG will need to clean house. In sum, Mr. Secretary, I am asking you to control waste. Clean up the books and get a handle on costs. Please don't fritter away this golden opportunity to re-build the Armed Forces. Waste is a constant danger in the Pentagon. When we send military personnel into harm's way, I want to be confident that they have what they need to get the job done. If you allow waste to spin out of control, the troops will be the first ones to suffer. And I will be on your back.

Question?

With the Pentagon money spigot wide open, how will you control waste? What exactly will you do?

Mr. WOLFOWITZ. Senator Grassley, if I could make three points very quickly, and I know Dr. Zakheim has some things to add. First of all, we feel as strongly about waste after September 11th as we did when the Secretary made that statement on September 10th. And he has repeatedly emphasized to people that the spigot isn't open, that now that we are fighting a war, waste is even more costly. I believe that it is a responsibility that lies with the Congress as well as with the Administration, and I can't help but register my unhappiness that the BRAC was delayed another 2 years.

We are now spending some $4 billion to $5 billion in enhanced security for bases some 20 percent of which we don't need anymore. We need to do our work. We need cooperation from the Congress. Second, if I could appeal-because you are absolutely right about the IG. Now finally, I think our nominee has cleared both the Committees that have to review him, and we would appreciate speedy confirmation.

Finally, on the very important point about financial management which you raised just now, and which I know Senator Byrd raised at length with the Secretary in his confirmation hearings, we have taken that message very seriously. I think we have invested money and time in trying to work at that problem. It is still pretty awful, but there is a lot of improvement, and I might ask Dr. Zakheim to hopefully talk more about the improvement, please, Dov.

Mr. ZAKHEIM. OK, sure. Senator, and Senator Byrd, I assured you both that this was going to be as high a priority for me as just getting a budget out the door, which has tended to be the way some of my predecessors looked at financial management as somehow second-order priority.

We have done a number of things. I shook up my front office for starters. I have a new acting deputy chief financial officer. But more important than that, we have made some significant changes already in terms of how we are approaching the problem, both in the short term and in the long term.

For instance, in the short term, we have set up new training courses for dealing with reconciliation with the Treasury books. There are people that actually know how to do this sort of thing, which many of them didn't. We are encouraging the Society of Military Comptrollers to get more people for training. Our people aren't as well trained as they should be, and we have certain limitations from OPM as to how we set up professional requirements for people that, quite frankly, I feel hamstrung, but within those limitations we are doing quite a bit more.

We went to the Defense Contract Accounting Office, DCAA, our auditors, in effect, have another part of my office that had never talked to the Financial and Accounting Service, and yet they were able to increase the level of competence of their people and I got them talking to each other, and DFAS has picked up on some of their changes.

The standards for accounting, for years the Department of Defense resisted accounting for major end items. I did a complete 180 and instructed my staff to agree with the Federal Accounting Standards Board that we should indeed have valuation for major end items which then would show up on the balance sheets, and they will for the first time. This was a reversal of 10 years of absolute stonewalling by the Defense Department. I came in from business. I couldn't understand how you couldn't value assets.

We have established, as I promised we would, a Business Practice Implementation Board, all people from the outside, from banking, from business, to come in and tell us what we are doing wrong, what we should be doing better. I have the Comptroller General of the General Accounting Office as ex officio on that board. I invited him. I have the Comptroller of OMB ex officio on that board.

We are reaching out to the folks who have criticized the Department for years and said to them, OK, we are making the change, help us do it. Help be part of the solution, not part of the problem. I would also add that on acquisition

Chairman CONRAD. Let me, if I could just ask that-we have got three Senators left, and you guys want to be out of here by 12:30. Senator GRASSLEY. I thank you all very much, and thank you, Mr. Chairman.

Chairman CONRAD. I thank the Senator for his excellent questions. The Senator from Iowa has been very dedicated to try to make certain that there is not waste and that we straighten up the financial management, and we recognize his contributions.

Senator Murray.

Senator MURRAY. Thank you, Mr. Chairman.

Mr. Secretary, I believe that our fight against terrorism and homeland defense are inextricably linked, and to me one of the most obvious examples of this linkage is the question that is pending before the Department of Defense right now regarding the deployment of National Guard personnel to assist with security missions along our Northern and Southern borders.

As you probably know, late last year Attorney General Ashcroft announced that the Federal Government would send the National Guard to our borders to supplement agents from the INS and Customs. In my home State, this news was met with an enormous relief because it had a serious impact on our borders with the lack of personnel. It has had an impact on our communities, their economies and families, and we were relieved to hear that.

But since that announcement, the Federal Government has made very little progress toward actually deploying these National Guard personnel, and I understand the legal and organizational challenges when we are attempting to determine how to best deploy National Guard assets. But I want you to know that every day spent negotiating the fine print of an MOU is another day of gridlock and economic hardship for border communities across our country, but particularly in Whatcom County in my home State.

Now, I know that the Department of Defense is very close to having in place MOUS with the Department of Justice. I think there is some work to be done with the Department of Treasury. But my question to you today is: Will you authorize the immediate training of National Guard personnel for the upcoming border missions? We want to do everything we can to speed the deployment, and it seems to me that if we begin the training immediately, that will be one way to get this moving quickly. Can you authorize that?

Mr. WOLFOWITZ. Senator Murray, I don't know whether we can authorize it absent the memorandum of agreement. But I agree with you that those should get done and done quickly, and I, in fact, spoke with people just yesterday about my frustration that it is taking so long.

I will look into the question of whether we could start the training in advance of the MOA's. That would make a lot of sense if we can speed up the process.

Senator MURRAY. I would really appreciate it, and if you have the authority to waive them, if you can do that and move this along, we would greatly appreciate it. It is needed. If you don't, if