[Senate Report 112-230]
[From the U.S. Government Publishing Office]
Calendar No. 535
112th Congress Report
2d Session SENATE 112-230
_______________________________________________________________________
DHS AUDIT REQUIREMENT TARGET (DART)
ACT OF 2012
__________
R E P O R T
of the
COMMITTEE ON HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
to accompany
S. 1998
TO OBTAIN AN UNQUALIFIED AUDIT OPINION, AND IMPROVE FINANCIAL
ACCOUNTABILITY AND MANAGEMENT AT THE DEPARTMENT OF HOMELAND SECURITY
November 2, 2012.--Ordered to be printed
Filed, under authority of the order of the Senate of September 22
(legislative day, September 21), 2012
_____
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2012
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana RON JOHNSON, Wisconsin
CLAIRE McCASKILL, Missouri ROB PORTMAN, Ohio
JON TESTER, Montana RAND PAUL, Kentucky
MARK BEGICH, Alaska JERRY MORAN, Kansas
Michael L. Alexander, Staff Director
Beth M. Grossman, Deputy Staff Director and Chief Counsel
Carly A. Covieo, Professional Staff Member
Nicholas A. Rossi, Minority Staff Director
Mark B. LeDuc, Minority General Counsel
J. Kathryn French, Minority Deputy Staff Director
Patrick J. Bailey, Minority Associate Counsel
William H. Wright, Minority Staff Director, Subcommittee on Federal
Financial Management, Government Information, Federal Services, and
International Security
Steven E. Hutchinson, Minority Counsel, Subcommittee on Federal
Financial Management, Government Information, Federal Services, and
International Security
Trina Driessnack Tyrer, Chief Clerk
C O N T E N T S
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Page
I. Purpose and Summary.............................................1
II. Background and Need for the Legislation.........................1
III. Legislative History.............................................3
IV. Section-by-Section Analysis of the Bill, as Reported............4
V. Evaluation of Regulatory Impact.................................4
VI. Congressional Budget Office Cost Estimate.......................5
VII. Changes to Existing Law Made by the Bill, as Reported...........5
Calendar No. 535
112th Congress
SENATE
Report
2d Session 112-230
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DHS AUDIT REQUIREMENT TARGET (DART) ACT OF 2012
_______
November 2, 2012.--Ordered to be printed
Filed, under authority of the order of the Senate September 22
(legislative day, September 21), 2012
_______
Mr. Lieberman, from the Committee on Homeland Security and Governmental
Affairs, submitted the following
R E P O R T
[To accompany S. 1998]
The Committee on Homeland Security and Governmental
Affairs, to which was referred the bill (S. 1998) to obtain an
unqualified audit opinion, and improve financial accountability
and management at the Department of Homeland Security, having
considered the same, reports favorably thereon with an
amendment in the nature of a substitute and recommends that the
bill do pass.
I. PURPOSE AND SUMMARY
Since its inception almost ten years ago, the Department of
Homeland Security (DHS or the Department) has been unable to
obtain a so-called clean or unqualified audit of its financial
statements--that is, a finding by an objective reviewer that
the Department's finances are in conformity with generally
accepted accounting standards. S. 1998 seeks to remedy that
situation by directing the Department to take the steps
necessary to obtain a clean audit by the end of fiscal year
2013. So that Congress can monitor and oversee DHS's efforts in
this area, the bill also requires DHS to provide Congress with
specific details on its plans to achieve a clean audit, through
eliminating material weaknesses in its internal financial
controls and by modernizing its financial management systems.
II. BACKGROUND AND NEED FOR THE LEGISLATION
As the Government Accountability Office (GAO) has observed,
``the federal government has a responsibility to have timely,
reliable and comprehensive financial information enabling it to
make decisions which impact on the lives of its citizens.''\1\
To ensure that agencies have that information, Congress, in the
Government Management Reform Act of 1994, required executive
branch agencies to submit to annual audits, performed in
accordance with generally accepted government auditing
standards by the agency's inspector general or an independent
external auditor.\2\ The Department of Homeland Security is
required to submit an annual audit pursuant to a 2002 amendment
requiring each ``covered executive agency'' to submit annual
audits.\3\
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\1\GAO/AFMD-12.19.4 page 1 September 19, 1991.
\2\Sec. 31 U.S.C. 3515.
\3\Sec. 31 U.S.C. 3515(f)(1).
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The Department of Homeland Security currently is one of
only two major federal agencies to have failed to obtain an
unqualified or clean audit on its full set of consolidated
financial statements during the past decade.
DHS is making progress on improving its financial
management. Last year (for its FY 2011 statements), for
example, DHS for the first time achieved a qualified audit
opinion on its balance sheet and statement of custodial
activity (two of the five financial statements), a step above
the ``disclaimer'' it had previously consistently received. A
qualified audit opinion means that, except for the issues to
which the qualification relates, the audited financial
statements present fairly, in all material respects, the
financial position, results of operations, and cash flows of
the entity in conformity with generally accepted accounting
principles.\4\ A disclaimer of opinion, in contrast, states
that the auditor does not express an opinion on the financial
statements at all.\5\
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\4\GAO-12-365T page 9 March 1, 2012. ``Continued Progress Made
Improving and Integrating Management Areas, but More Work Remains.''
\5\ibid
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DHS has stated that it can achieve an unqualified opinion
on all of its financial statements by the end of fiscal year
2013. GAO, however, has observed that although DHS intends to
obtain a clean audit by the end of 2013, ``there is no clear
plan for how auditability will be achieved.''\6\
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\6\ibid
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Much of DHS's inability to receive a clean audit is due to
its problems in implementing an integrated financial management
system. Twice since 2003, DHS has tried and failed to implement
an agency-wide financial management system, at the cost of
millions of dollars to taxpayers.
The first effort, known as the Electronically Managing
Enterprise Resources for Government Effectiveness and
Efficiency (eMerge2) project, began in January 2004 and was
expected to integrate financial management systems across the
Department and address existing financial management
weaknesses. However, DHS officials ended the eMerge2 project in
December 2005, acknowledging that eMerge2 failed, despite an
estimated cost of $52 million. The second effort, begun by DHS
in 2007, was called the Transformation and Systems
Consolidation (TASC) program and was significantly delayed by
bid protests and related litigation. In May 2011, DHS ended
this program as well.
After reviewing the situation, GAO reported that it is not
clear whether DHS' current approach to financial system
modernization will ensure that: (1) components' financial
management systems can generate reliable useful timely
information for day-to-day decision making; (2) the Department
has the ability to comprehensively view financial information
across DHS; and (3) DHS complies with related federal
requirements.\7\
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\7\GAO-12-365T page 12 March 1, 2012. ``Continued Progress Made
Improving and Integrating Management Areas, but More Work Remains.''
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DHS must do more to get its financial house in order, and
this bill seeks to ensure it will do so. It directs the
Department to do what is needed to obtain a clean audit by FY
2013, and, so that Congress can make sure that the Department
is taking those steps, it requires the Department to provide
Congress with the Department's specific plans for achieving
better financial management.
III. LEGISLATIVE HISTORY
On December 15, 2011, S. 1998 was introduced by Senators
Brown (Massachusetts), Carper and Johnson (Wisconsin) and
referred to the Senate Committee on Homeland Security and
Governmental Affairs. The Committee considered the bill at an
April 25, 2012, business meeting.
Senators Brown, Carper, and Johnson offered a substitute
amendment recognizing the recent specific progress DHS made
prior to the business meeting by receiving a qualified opinion
on its FY 2011 financial statements. The substitute retains the
requirement for the Department to meet its goals of achieving a
clean audit. Due to the Department's successful effort to
obtain a qualified opinion of its financial statements, the
original requirement in subsection 2(b)(1) that DHS ensure that
its balance sheet and statement of custodial activity be ready
in a timely manner to obtain a qualified or unqualified opinion
is no longer relevant, and the substitute struck that
provision. The substitute also deleted subsection 2(b)(2) of
the introduced version, which similarly required DHS to take
the necessary steps to ensure that the full set of consolidated
financial statements be prepared in a timely manner in order to
obtain a qualified opinion. The substitute also changed the
date by which the bill requires DHS to prepare the full set of
consolidated financial statements from the end of FY 2016 to
the end of FY 2013. The substitute changed the date in Section
2(c) requiring DHS's Chief Financial Officer (CFO) to submit
the report to Congress, from 270 days after enactment to
November 15, 2013 and every year thereafter, in order to bring
it in line with the date required in Section 2(b). The
substitute amended Section 2(c) by further delineating the
contents of the report required to be submitted by the DHS CFO.
The substitute adds a requirement to the report that DHS
include a plan addressing how the DHS will eliminate material
weaknesses and significant deficiencies in internal controls
over financial reporting and makes other minor technical
changes. Lastly, the substitute deletes subsection (d) of the
introduced bill, which required a GAO report on DHS efforts to
modernize their financial systems.
The Committee adopted the substitute by a voice vote.
Members present for the vote were Senators Lieberman, Levin,
Akaka, Carper, McCaskill, Begich, Collins, Coburn, Brown and
Johnson. The Committee voted to report the bill, again by voice
vote. Members present for the vote on the bill were Senators
Lieberman, Levin, Akaka, Carper, McCaskill, Begich, Collins,
Coburn, Brown and Johnson.
IV. SECTION-BY-SECTION ANALYSIS OF THE BILL, AS REPORTED
Section 1. Short title
Section 1 designates the name of the act as the ``The DHS
Audit Requirement Target Act of 2012.''
Section 2. Improving financial accountability and management
Section 2(a) provides the definitions in the bill.
Section 2(b) requires that the Secretary prepare and have
ready for submission all the relevant documents related to DHS'
full set of financial statements by the end of fiscal year
2013. The purpose of this preparation is to increase the
probability that DHS will obtain an unqualified opinion on its
full set of consolidated financial statements for fiscal year
2013 and each year thereafter.
Section 2(c) orders DHS to report to Congress on the
progress of meeting the audit requirements in Section 2(b). The
report shall be included in the agency's annual financial
report. The report shall include a plan:
(1) to obtain an unqualified opinion on the full set
of financial statements, which shall discuss plans and
resources needed to meet the deadlines under subsection
(b);
(2) that addresses how the Department will eliminate
material weaknesses and significant deficiencies in
internal controls over financial reporting and provides
deadlines for the elimination of such weaknesses and
deficiencies; and
(3) to modernize the financial management systems of
the Department, including timelines, goals,
alternatives, and costs of the plan, which shall
include consideration of alternative approaches,
including modernizing the existing financial management
systems and associated financial controls of the
Department and establishing new financial management
systems and associated financial controls.
V. EVALUATION OF REGULATORY IMPACT
Pursuant to the requirement of paragraph 11(b)(1) of rule
XXVI of the Standing Rules of the Senate, the Committee has
considered the regulatory impact of this bill and has
determined that the bill will have no regulatory impact within
the meaning of the Rules. The Committee agrees with CBO's
statement that the bill contains no intergovernmental or
private-sector mandates as defined in the Unfunded Mandates
Reform Act and would impose no costs on state, local or tribal
governments.
VI. CONGRESSIONAL BUDGET OFFICE COST ESTIMATE
U.S. Congress,
Congressional Budget Office,
Washington, DC, May 3, 2012.
Hon. Joseph I. Lieberman,
Chairman, Committee on Homeland Security and Governmental Affairs, U.S.
Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 1998, the DHS Audit
Requirement Target Act of 2012.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Mark
Grabowicz.
Sincerely,
Douglas W. Elmendorf.
Enclosure.
S. 1998--DHS Audit Requirement Target Act of 2012
CBO estimates that implementing S. 1998 would have no
significant cost to the federal government. Enacting the
legislation would not affect direct spending or revenues;
therefore, pay-as-you-go procedures do not apply.
S. 1998 would direct the Department of Homeland Security
(DHS) to improve financial management, internal controls, and
documentation so that financial statements for fiscal year 2013
and subsequent years are prepared for auditing. The bill's
requirements are similar to those in current law and to the
department's plans to improve financial reporting, so CBO
estimates that implementing S. 1998 would not significantly
affect DHS spending.
S. 1998 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act and
would not affect the budgets of state, local, or tribal
governments.
The CBO staff contact for this estimate is Mark Grabowicz.
The estimate was approved by Theresa Gullo, Deputy Assistant
Director for Budget Analysis.
VII. CHANGES TO EXISTING LAW MADE BY THE BILL, AS REPORTED
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, there are no changes in existing
law made by S. 1998 as reported.