Statement of The Honorable Linda M. Springer
Controller, Office of Federal Financial Management
Office of Management and Budget
Select Committee on Homeland Security
United States House of Representatives
October 8, 2003
Thank you, Mr. Chairman, for the opportunity to appear
before you today to testify on accounting and financial controls system
at the Department of Homeland Security (DHS).
As you know, the enactment of the Homeland Security Act
of 2002 (P.L. 107-296) represents an historic moment of almost unprecedented
action by the Federal Government to fundamentally transform how the nation
will protect itself from terrorism. Rarely in our countrys past
has such a large and complex reorganization of government entities occurred
with such a singular and urgent purpose.
The government is undertaking a unique effort to transform
a distinct group of agencies with multiple missions, values, and cultures
into a strong and effective cabinet department. This unique opportunity
comes with many challenges, including those related to the new departments
stewardship obligation to use tax dollars appropriately and to ensure
accountability to the President, the Congress, and the American people.
However, with great challenge comes great opportunityboth the opportunity
to reengineer and develop seamless systems and processes that support
day-to-day operations and the opportunity to provide analysis and insight
about the financial implications of program decisions that will ultimately
assist this Administration, the Congress, and other decision-makers in
evaluating the value and cost of federal programs.
Overview of DHS Financial Management
The creation of the Department of Homeland Security marks
one of the largest and most complex mergers ever undertaken by the Federal
Government. As with any merger, some of the new Departments efforts
must focus on the most immediate challenges. Other efforts, however, by
their nature will take several years to successfully develop and implement.
For instance, cost control and asset management, coupled with the need
to successfully blend individuals from departments and agencies with different
cultures, values, and missions, are critical to its effectiveness and
efficiency. In the face of the many challenges involved with its creation,
DHS has demonstrated a strong commitment to financial excellence and should
be recognized for its efforts during the past year. Although the creation
of DHS began just seven months ago, it is off to a good start with regard
to its financial management.
DHS has shown commitment to preparing audited financial
statements in its first year of existence to demonstrate accountability
to the Congress and the American people, even though the Accountability
of Tax Dollars Act of 2002 allows the Department to request a waiver from
this requirement. This commitment, coupled with the preparation of quarterly
financial statements, shows the Departments determination to be
fiscally responsible from its inception, accounting for all transferred
assets, liabilities, and operations. DHS goal is to obtain an unqualified
(clean) opinion for fiscal year 2003 and, if events permit, to issue its
performance and accountability report on an accelerated timeframe.
An early challenge DHS must overcome is to obtain a clean
audit opinion on its financial statements, which will demonstrate tangible
evidence of its efforts to create a premier financial management organization.
Reaching that goal, however, will require a cooperative effort among the
22 entities that were transferred to the Department mid-year.
Many issues have been raised regarding the proper accounting
treatment of the new Departments financial activity and its presentation
in the financial statements that must be addressed. OMB has worked, and
continues to work, with DHS to resolve these issues in a timely manner.
Undoubtedly, new issues will surface, but we look forward to working with
DHS to address them together.
DHS must also begin to address the longstanding weaknesses
inherited from its components, such as weak financial accounting and reporting
processes, inadequate information technology (IT) systems functionality
and security controls, ineffective real and personal property processes,
and insufficient internal controls over duties and taxes. The Department
has inventoried these weaknesses and developed corrective action plans,
although these weaknesses are not yet resolved.
DHS has already taken steps to integrate the diverse financial
and performance information systems. It has identified the financial management
systems to which the smaller component agencies may migrate beginning
October 1. However, this step is just the first of many in a long process
to streamline the Departments systems. The Chief Financial Officer
(CFO) must also identify the Departments IT assets and then, in
conjunction with each program, determine what IT assets are needed to
meet mission requirements. The CFO must work with the Chief Information
Officer (CIO) to identify a financial management system or systems to
meet user needs, whether it be commercial-off-the-shelf, internally developed,
or a hybrid of the two.
Establishing Sound Financial Management
and Business Processes
The push to create a citizen-centered, results-oriented
government has been exacerbated by the demands on available resources.
It is necessary for financial managers to provide its management, this
Administration, the Congress and other decision-makers with quality, timely
information and analysis that better informs about the financial implications
of program decisions and the impact of those decisions on agency performance
goals and objectives.
It is the responsibility of DHS management to put a process
in place that sets performance measures consistent with its strategies,
as well as sets goals for achieving its missions and objectives. OMBs
PART assessment supplements the Departments performance reviews
in the context of the budget process. In addition, DHS management must
hold the agency fully accountable in order to attain sound financial management.
OMB, along with the Office of the Inspector General (OIG), has the role
of overseeing this process. OMB looks forward to continuing to work with
the Department to ensure that DHS works to achieve sound financial management
OMB believes that DHS must focus its attention on four
top leadership drives the transformation to a single agency, single
Creating the financial organization that adds value and supports the
Establishing seamless financial systems and businesses processes
Providing meaningful information to decision-makers by routinely generating
reliable cost and performance information analysis
Ensuring Top Leadership. Leadership
is critical to establishing sound financial management within the Department.
The merger of 22 disparate entities into a single financial organization
must begin with a clear vision of performance and expectations that is
communicated throughout the organization at all levels. To be successful,
DHS top leadership must make attaining that vision a priority,
and the message must be reinforced in both words and actions.
Creating the Financial Organization.
A premier financial organization must recognize that it exists to
provide quality, timely and relevant information about the financial implications
of program decisions and the impact of those decisions on agency performance
goals and objectives. To accomplish this purpose, leading financial organizations
must serve their customers both internally and externally, aligning their
mission and organizational structure to better support the entitys
mission and objectives. DHS should take all necessary steps toward creating
a financial team that supports the overall missions, goals, and objectives
of the Department.
Seamless Financial Systems and Business Processes.
Building a premier financial organization will also require DHS to establish
seamless financial systems and business processes to enable it to successfully
fulfill its mission and achieve its goals and objectives. At the earliest
opportunity, DHS must determine the essential system and process infrastructure
that it requires throughout the organization. This infrastructure must
also be flexible enough to support information needs at the detailed program
Providing Meaningful Information.
In seeking to create a premier financial organization, DHS must also pursue
means that will permit it to routinely generate reliable cost and performance
information analysis. Such analytics combined with other value-added activities
will support the agencys mission and goals. This capability is
a requirement for getting to green on the Improved Financial
Performance initiative of the Presidents Management Agenda,
and it gets to the heart of first-class financial management.
The creation of DHS provides an opportunity to reengineer
much of the management reporting formats produced by its components to
meet the needs of its users. As DHS looks to develop a new strategic plan
that will outline its goals and objectives, its financial organization
should design reporting formats that are aligned to measure performance
in executing its strategy.
H.R. 2886, Department of
Homeland Security Financial
OMB has high expectations of solid financial management
practices for this new Department, especially in light of its unique role
and function within the Federal Government. To that end, OMB appreciates
your consideration of H.R. 2886, the Department of Homeland Security
Financial Accountability Act, and we look forward to discussing
several issues of this legislation with you.
Fiscal Year 2003 Financial Reporting and Audit.
The original version of H.R. 2886 contained a provision that lifted the
requirement of DHS to prepare and submit audited financial statements
for any fiscal year before fiscal year 2004. However, much work has been
done, and continues to be done, toward the completion of the fiscal year
2003 financial statement process at DHS. Thus, OMB is pleased that the
amended H.R. 2886 does not include this provision, and we commend DHS
for its recognition of the value that is provided in this initial year
by preparing and undergoing an audit of financial statements.
Internal Control Audit Opinion.
The amended H.R. 2886 contains a requirement for DHS to include
in each performance and accountability report an audit opinion of the
Department's internal controls over its financial reporting, beginning
with its fiscal year 2005 report. Additionally, the amended H.R. 2886
would also require that a study regarding the potential costs and benefits
of requiring this audit opinion be jointly performed and submitted by
the CFO Council (CFOC) and the Presidents Council on Integrity
and Efficiency (PCIE), as well as analyzed by the Comptroller General
of the General Accounting Office (GAO).
The Administration acknowledges that obtaining an audit
opinion on internal control is a potentially useful, yet very significant,
undertaking. While we agree that an opinion level internal control audit
could have merit, a review of this magnitude will require the allocation
of additional resources and sufficient time to coordinate among agency
Chief Financial Officers, Inspectors General, and independent public auditors.
Additionally, this provision, if enacted, has the potential of imposing
a more stringent requirement on DHS than other Federal departments and
It is our understanding that this internal control audit
opinion requirement is partly intended to hold Federal agencies to the
same standards for financial accountability as the private sector. At
the present time, however, no other sectors are required to obtain an
audit opinion on internal control. While SEC registrants will be subjected
in the future to such a requirement under Section 404 of the Sarbanes-Oxley
Act (enacted July 2002), the effective date has been delayed as a result
of public comments. This deferral recognized several different concerns,
which would also apply to federal agencies.
OMB is pleased that the amended version of H.R. 2886 includes
a provision requiring a cost-benefit study. However, we are concerned
that the internal control audit opinion requirement for DHS would take
effect with the fiscal year 2005 report, despite any potential determinations
by the joint CFOC/PCIE study and the subsequent GAO analysis that such
a requirement is not beneficial. Thus, OMB supports delaying the requirement
of an internal control audit opinion until after the results of the cost-benefit
study can be carefully analyzed.
Applying the CFO Act to DHS.
It is OMBs position that the substantive provisions of the CFO
Act should apply to the new Department of Homeland Security as they do
every other major Department and agency of the Federal Government. However,
the CFO Act specifies an organizational structure direct reporting
of the CFO to the agency head that is inconsistent with the structure
Congress endorsed when it passed the Homeland Security Act of 2002. The
Homeland Security Act enacted the Presidents proposal to consolidate
management responsibilities at the new Department under the Under Secretary
for Management. The Administration believes that with a strong and competent
leader in the position of Under Secretary for Management, sound management
policies and practices receive maximum standing within the agency.
I hope we can work together to apply the substantive provisions
of the CFO Act to the new Department of Homeland Security, while remaining
faithful to the Presidents original proposal to create the new
Department, as well as the Homeland Security Act of 2002.
OMB believes that DHS, in its short life, has demonstrated
a commitment to sound financial management. Similar to the Committee,
OMB has a strong interest in preventing potential waste, fraud, and abuse
at DHS and at all federal agencies, and we look forward to working with
the Department to ensure that its accounting and financial controls system
are as effective and efficient as possible.
Thank you, Mr. Chairman. I look forward to answering your