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We think that additional funding of about $15 million
per year would give us a program that would reduce
and eventually eliminate the backlog at our Marine
Corps Logistics Bases at Albany and Barstow.

If additional funding in not forthcoming, how much larger do you feel the Marine Corps depot maintenance backlog can get before it becomes critical?

We don't think that the backlog should get any
larger. If it continues to grow beyond the level
indicated in FY 1991 we can anticipate negative
effects on our readiness and sustainability.

On page 8 of your prepared statement, you mention
the development of a support establishment master
plan as a comprehensive method of trying to
prioritize activities, functions and services to
support the training and readiness of the Fleet
Marine Forces. I would assume that one of the key
features of such a plan involve the maintenance of
real property. Yet on the next page, I see that
real property maintenance funding remains level while
BMAR grows by 50 percent.
How is the support
establishment master plan expected to succeed if
these funding trends continue?

With the austere funding that we will be
experiencing, the supporting establishment master
plan will be one of the essential tools to identify
and ensure that the most urgent projects that have
impact on Fleet Marine Force operations are
executed.

If unfunded requirements force you to look at deferring more real property maintenance over the next two years, how large does the BMAR backlog have to grow before becoming critical?

In order to absorb the large reductions to O&MMC in
FY90, MRP has been cut to what we consider a minimal
operational level. We do not anticipate making
further reductions to MRP over the next two years.
In the long term additional funding will have to be
applied to MRP in order to stabilize and reduce the
backlog. To insure MRP is not used to meet other
unfunded requirements at the base level, CMC has set
a Maintenance Target for each installation. At the
HQMC level we prioritize all major MRP projects,
placing an emphasis on operational, training,
maintenance, and utility requirements. We insure
the most important projects are funded, deferring
only those which can be delayed for the short term
without irreversible damage to the facility.

If Congress were to decide to provide additional funding for the FY 1990 Marine Corps O&M request, what priority unfunded requirements would you seek to address?

We would address Fleet Marine Force operations
and training, equipment maintenance and base
operations to include maintenance of real property.

DOD INVESTIGATORS AND SERVICE AUDITORS

HOUSE OF REPRESENTATIVES,
COMMITTEE ON ARMED SERVICES,

READINESS SUBCOMMITTEE,

Washington, DC, Wednesday, March 8, 1989.

The subcommittee met, pursuant to notice, at 9:30 a.m., room 2216, Rayburn House Office Building, Washington, D.C., Hon. Earl Hutto (chairman of the subcommittee) presiding.

STATEMENT OF HON. EARL HUTTO, A REPRESENTATIVE FROM FLORIDA, CHAIRMAN, READINESS SUBCOMMITTEE

Mr. HUTTO. The Subcommittee on Readiness will please come to order.

Today, the subcommittee will begin a series of hearings on the Roles and Effectiveness of Auditors and Investigators within the Department of Defense. This is a continuation of hearings that began several years ago and is an indication of congressional interest in developing and maintaining audits and investigative organizations within DOD.

Congress continues to support these organizations and would authorize over $500 million for their operating costs during 1990. While congressional support has never been stronger, there is a growing dissatisfaction on the part of some that the focus of many of the audits is too limited and not directed at high-level procurement problems.

One bill has already been introduced to create an independent inspector general outside the Department of Defense. At the same time, a number of business leaders have complained that there is too much auditing going on and the number of audit organizations should be scaled back.

There are presently over 22,000 persons involved with audit, investigation and inspections within DOD. In addition, the General Accounting Office devotes almost half of its resources to defense issues. There seems to be adequate resources in this area, but perhaps there needs to be a better way to organize and control them. So, we want to welcome the Hon. June Gibbs Brown accompanied by the Deputy Inspector General, Mr. Derek Vander Schaaf, but first, I would like to turn to my colleague, the ranking member of the subcommittee, Mr. Kasich.

Mr. KASICH. Thank you, Mr. Chairman.

I will just put my statement in the record.
Mr. HUTTO. All right. Without objection.

(741)

PREPARED STATEMENT OF HON. JOHN R. KAsich, RankingG MINORITY MEMBER, READINESS SUBCOMMITTEE

Thank you, Mr. Chairman. I would like to welcome our panel of witnesses, Ms. Brown and Mr. Vander Schaaf from the DOD Inspector General's Office, Mr. Reed from DCAA, and Mr. Shaffer from the Navy. I would also like to take this opportunity to express my appreciation to the men and women who perform the audit functions for the Department of Defense and the services. No audit organization anywhere else either in the Government or the private sector-has the complexity and scope of the defense audit mission. We in Congress are dependent on their good judgment.

Last year this subcommittee held a series of hearings on contractor inventory systems, and both the DCAA and representatives from the DOD IG were of enormous help to us. I hope today's witnesses will be able to give us a better understanding of the significant savings that proper auditing can achieve, and in particular, I hope they have specific suggestions as to how the defense audit function can be made more efficient.

Thank you, Mr. Chairman.

Mr. HUTTO. Mr. Martin, do you have an opening statement?
Mr. MARTIN. No, Mr. Chairman.

Mr. HUTTO. All right. If you would please come forward, we are delighted to have you with us. Ms. Brown, you may begin and proceed as you see fit.

BY:

DEREK

STATEMENT OF HON. JUNE GIBBS BROWN, INSPECTOR GENERAL,
DEPARTMENT OF DEFENSE; ACCOMPANIED
VANDER SCHAAF, DEPUTY INSPECTOR GENERAL
Ms. BROWN. Thank you, Mr. Chairman.

It is a real privilege to be before this subcommittee, which has such a longstanding interest in the work that we have been doing. I have Mr. Derek Vander Schaaf, my Deputy, with me.

I would like to just summarize my statement if I might. I, as each statutory IG, have responsibilities for conducting and supervising audits and investigations; for promoting efforts to prevent fraud, waste, and abuse in DOD operations; for reviewing legislation and regulations that affect the department; and keeping the agency head, as well as the Congress, informed of our activities.

DOD has some unique responsibilities and provisions in the IG Act: One of those provisions gives the Secretary authority to stop certain activities, whether audit, investigation, or the issuance of subpoenas, for specific reasons, i.e., the National Security. Those powers have never been exercised in the Department of Defense. Another unique DOD provision is that we have only responsibility for 5 percent of the resources that are devoted to these oversight activities. The other 95 percent are with DCAA and with the service entities, both the audit and investigative organizations.

We do, however, provide policy and oversight of those organizations. There are ten DOD audit organizations and three criminal investigative organizations. In that capacity, we issue directives, manuals, standards, etc. and we provide vigorous oversight reviews. We have made sixty-eight reviews to date over the other entities within the Department.

You asked for information about recent reviews of the Naval Audit Service. We have been looking at the corrective actions taken as a result of both our review and that of the GAO.

The report will be issued in July, and we feel that there are some substantial changes in the way the Naval Audit Service has been operating, and we feel that there have been improvements.

For instance, the potential monetary benefits in 1988 were $954 million. That is contrasted with $6 million reported in 1985. This is a result of their doing broader reviews.

They have also taken a number of other corrective actions that we feel have resolved the major problems that this committee has been concerned about.

We also have a criminal investigative oversight office, and it has responsibility for the Naval Investigative Service, Air Force Office of Special Investigations, the Army Criminal Investigative Division, and the Defense Criminal Investigative Service (DCIS) of my office. Most of the military investigative organizations have a different emphasis than DCIS. They look at things like narcotics violations, theft, arson, murder and other activities on the bases. In addition to that, of course, they do some of the procurement fraud-type investigations that DCIS does.

We closely coordinate with them, do many joint investigations, and we perform oversight reviews of their operations. We also provide fraud awareness training under this policy and oversight function, and coordinate the issuance of IG subpoenas. Twenty-four hundred have been issued to date, and 679 were issued in fiscal year 1988 alone.

It has proven to be a very effective tool for us getting our jobs done. However, I feel that we could do significantly better if we also had testimonial subpoena authority. That is a definite lack in our capabilities.

This office also coordinates the voluntary disclosure program. So far, we have had a 123 matters entered into the voluntary disclosure program by sixty-nine contractors. There has been almost $56 million voluntarily returned to the Government. There have been two convictions of contractors, nine of individuals, and another indictment of an individual pending trial.

So this, too, has proven to be a very effective program. However, right now, we are trying to more clearly define what constitutes cooperation between the contractor making the disclosure and the Government. It is an open issue, and we are trying to resolve that with the Department of Justice.

There has been a slowdown in the number of disclosures pending this resolution and I feel it is absolutely necessary to resolve that matter in order to continue with this program.

DOD is also unique in having the audit follow-up function. Our audit follow-up office prescribes the policy and oversees the tracking of the 80,000 reports issued annually in DOD. It is now about the largest and most complex program in the Government.

We are also unique in the fact that we provide audit coordination. With over 11,000 auditors, plus over 2,000 staff-years devoted by GAO to audit in DOD, that coordination is a significant challenge.

DOD's audit operations that are outside of the Office of the Inspector General have had significant results. 19,000 internal audit reports have been issued with $14.2 billion in potential monetary

benefits. Seven point seven billion dollars have already been achieved thus far.

We have 442,000 contract audit reports issued with over $50 billion in savings. I know that the DCAA will be talking to you later, and I will leave the rest of that reporting to them.

Our own audit staff is the largest component in the Office of Inspector General. We focus mainly on multi-service and cost-cutting issues with over 60 percent of our effort in the acquisition area.

Over 1,200 reports have been issued so far with potential monetary benefits of $8 billion. Four billion have been realized. Over 5,000 recommendations have been carried out. They have created numerous changes to the acquisition regulations and policies, functional realignments, and recoveries of over-payments to contractors.

We also have an organization known as Inspections. This is the traditional IG function in the military. The DLA IG Office was transferred into the Defense IG Office when it was created, and it has been refocused to cover all defense agencies and DOD components that do not have military IG coverage. Our inspectors conduct both organizational and functional reviews.

I do not have the authority to prescribe the policy for the military Inspector General organizations, but we do spend a good deal of time coordinating our efforts.

Another function in my office is the Hotline, and it is a highlyvisible one. We opened 1,400 cases in 1988 and received about a thousand calls and letters a month on the Hotline.

Our special inquiries function specializes in non-criminal-types of investigations. About 25 percent of the 300 that were opened in the last year were due to congressional inquiries and requests.

We have the Defense Criminal Investigative Service (DCIS) as part of my office. DCIS is the premiere organization, in my opinion, in the procurement fraud investigative area. In 1988, which was our most successful year, we had 319 indictments, 299 convictions, $207.5 million recovered, 135 contractor suspensions, and 319 debarments.

The Military Investigative Organizations also are working in the economic crime area; and in that area alone, they have had 439 indictments, 380 convictions, $238 million in recoveries, and 297 contractor suspensions with 360 debarments.

Congress, I believe, was very wise when they determined that the IG will also have the responsibility for prevention, and we spent a good deal of our priority time on that. We find most Government contractors are honest just as most Government employees are, and they are trying to do the right thing. So, it is critical that we provide them with the proper information so that they know exactly where they stand.

We have both fraud and ethics awareness training and provide many publications to accomplish this. The latest one, which I provided to the committee members, is a handbook on ethics. It was just published in January and over 17,000 copies have been distributed so far.

My last item, you asked for information on the IG resources. The President's budget includes for 1990, 1,531 civilian personnel and 1,501 of those are funded at $95.8 million. For 1991, we also have

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