Senator Chuck Grassley, R-Iowa
Speech on Senate floor, February 11, 2009
Mr. President, I come to the floor to talk about the nomination of Mr. Bill Lynn to be Deputy Secretary of Defense.
I thought I’d seen the last of Mr. Lynn when President George W. Bush first took office. I was dead wrong.
So I had to send my staff out to where the Senate buries old skeletons. It is the Records Center out in Maryland’s scenic countryside about 20 miles from the Capitol. There they dug up the remains of what I came to know about Mr. Lynn some ten years ago.
A little word of advice to my colleagues; archive all of your materials. I have found that political nominees, good and bad, come back like Australian boomerangs. Some take longer than others to return, but eventually you’ll see them again.
Mr. Lynn is currently employed as a Senior Vice President of Government Operations at a major Department of Defense (DOD) contractor – Raytheon. Until June 2008, Mr. Lynn was registered as Raytheon’s principal lobbyist to the DOD.
I have serious questions about this nomination.
My first area of concern is that Mr. Lynn does not appear to meet President Obama’s strict new ethical standards for Executive Branch appointees. Those standards were laid down in an Executive Order signed on January 21, 2009.
I think it is important for me say to what ethics means to me. Everyone has different ideas as to what ethics represent. This is a complex issue, and I don’t want there be any confusion about this word or principle.
The Merriam-Webster Dictionary defines the word - ethic – 1. “as the discipline dealing with what is good and bad with moral duty and obligation.”
This definition is very clear. But I want to go a step further to say, that to me, ethics are a very uncomplicated principle of life. Simply put, when faced with tough choices or decisions, we must always do what is true and correct.
Throughout the presidential campaign, then Senator Obama repeatedly promised to close the revolving door and change the political culture in Washington. This was one of his top priorities. Consistent with those promises, within 24 hours of being sworn in, he signed the Executive Order that set new ethical standards in stone.
Under the “Revolving Door Ban” sections of those rules, Mr. Lynn should be barred from serving as Deputy Secretary of Defense until July 2011.
At his recent press conference, President Obama again stated, “Everyone will acknowledge that we have set up the highest standards ever for lobbyists not working in the administration.”
I don’t see how Mr. Lynn fits the new starndard.
I understand Mr. Lynn has been given a special waiver by this Administration to further “the public interest.” He is also not the only nominee to get a waiver.
President Obama, will you ever draw the line on your ethics waivers?
According to a letter I have received from OMB Director Peter Orszag on February 3, 2009, Mr. Lynn’s waiver was based on “exigent circumstances relating to national security.” Director Orszag stated Mr. Lynn is uniquely qualified for this position and is urgently needed to serve on the President’s national security team.
Mr. Orszag was responding to my letter of January 29, 2009. [Hold up letters (#1 & 2)]
Mr. President, I ask unanimous consent to place this letter and the other related correspondence in the Record.
I must note that Mr. Lynn’s former colleague at Senator Kennedy’s office and current White House Counsel, Mr. Gregory Craig, signed off the ethics waiver.
I also clearly understand that President Obama’s picks for these key positions should be respected, but he is applying double-standards to his nominees.
Mr. Lynn has informed me that he would be divesting his financial stakes in Raytheon in the next 90-days. He also said he would not engage in any Raytheon related decisions for
one-year at DOD unless he receives a special waiver.
Regrettably, for Mr. Lynn, and for the American taxpayers, getting rid of conflicts of interest is not as easy at is sounds. The Raytheon Corporation has hundreds of potential contracts and programs with the DOD. As such, I think the Office of Government Ethics will have to set up a full-time department just to handle Mr. Lynn’s conflicts of interest Raytheon waivers.
On the other hand, I believe the best leaders lead by example. Say what you mean. Mean what you say.
For that reason, I challenge Mr. Lynn to take control of this ethical debate and demonstrate true leadership on this issue by sticking to the principles set forth by President Obama’s Executive Order on Ethic Commitments by Executive Branch Personnel.
Special waivers and exemptions undermine the basic principles of good government. Changing the rules as you go along tends to foster a basic sense of distrust of the government in all Americans.
Why make rules if you know you are going to break them?
How can gutting the ethical heart of the new ethics rules be in the public interest when those very same rules were created in the first place to protect the public interest?
Even the “best-qualified” nominee with the “highest recommendations” should recognize when serving in his or her post would not be in the “public interest.”
I believe the American people expect nominees to be true and honest. Given his chosen career path, Mr. Lynn should know he does not comply with the spirit or intent of the Executive Order on ethics.
If he is seriously devoted to serving his country and this President, Mr. Lynn should consider withdrawing his nomination and ask to be reconsidered in two years. This country will always need good leaders who lead by example.
By doing this, he would set the standard of excellence for all other nominees to follow. It would restore integrity and credibility to President Obama’s new ethic rules.
As it stands now, unfortunately, the Lynn nomination is now rolling down the low road at high speed.
By setting the new rules aside for the first top-level appointee to come down the pike, the Obama administration appears to embrace the very same culture President Obama promised to change.
Now, none of us know for sure whether Mr. Lynn’s nomination is truly in the public interest.
We can only hope it is.
My second area of concern pertains to Mr. Lynn’s financial management record at the Pentagon.
Mr. Lynn served as the Chief Financial Officer (CFO) at the Defense Department from November 1997 through 2000.
I first came to know Mr. Lynn in 1998 after he was appointed CFO. Between June 1997 and July 1998, I conducted an in-depth investigation of internal financial controls at the Defense Department. I was testing DOD internal controls.
I reviewed about 200 financial transactions from a Pentagon office where fraud had occurred. We examined purchase orders, contracts, invoices, delivery verifications or receipts, and finally payments. We even checked to see if “remit” addresses were correct. In short, we looked at the whole ball of wax.
The results of this investigation were presented in a report in September 1998 The report concluded that internal controls at DOD were weak or non-existent. The Government Accountability Office (GAO) [then called the General Accounting Office] concurred with my assessment.
Our investigation found that not one of the accounts payable files examined was 100 percent up to snuff. I was alarmed to find they all had either minor or major accounting deficiencies. If the DOD had followed standard accounting practices, none of the bills should have been paid. Unfortunately, all went out the payment door.
The most glaring and persistent shortcoming observed was the near total absence of valid receiving reports in the accounts examined at the Defense Finance and Accounting Service (DFAS) center in Denver, Colorado.
A receiving report is one of the most important internal control devices. They provide written verification that the goods and services billed on an invoice were received and matched with what was ordered.
In all the files examined, we found only 6 out of 200 genuine receiving reports or DD-250 forms. The rest of the files contained none. Of the 6 receiving reports found, all were either invalid or incorrect.
We also noticed gaping holes in another key control mechanism: “remit” addresses. A remit address is important because it is at the end of the money trail - where the money goes. The review found zero control over remit addresses.
A total of 286 technicians in the Denver center had authority to alter remit addresses and were doing it. This was a violation of another basic internal control principal - separation of duties. A person responsible for paying bills should never be allowed to change a remit address.
On September 23, 1998, I met with Mr. Lynn to discuss the findings of my investigation. I provided him with a draft of the report. I asked him to review it and provide comments.
In his response dated September 28, 1998, Mr. Lynn did not challenge the findings. [Hold up letter (#4)]
In this letter, Mr. Lynn appeared to agree with all my findings and recommendations – 100 percent.
He said he was “very troubled” by every one of the control weaknesses cited in the report. Mr. Lynn further stated, “There are unacceptable weaknesses in our internal control programs.” He promised me that he would be taking aggressive corrective action to improve and tighten controls.
He concluded by saying: “I want you to know that I place the highest priority on ensuring that we have the best possible protections against fraud and wrongful payments.”
I also shared my concerns with Secretary of Defense Bill Cohen in a letter dated October 5, 1998.
In his response on November 16, 1998, Secretary Cohen offered identical assurances. [Hold up letters (#5 & #6)]
While Secretary Cohen and CFO Lynn were assuring me - over and over again - that they were taking steps to tighten internal controls, they were already quietly moving in the opposite direction. They were busy pushing other policies to weaken and undermine internal financial controls.
In 1998, when Mr. Lynn was CFO, “Pay and Chase” was the Pentagon lingo used to describe the DOD vendor payment process. With “Pay and Chase,” the Pentagon paid bills under $2,500 first and then worried about chasing down receipts later. Sometimes receipts were found; sometimes not; and nobody seemed to care either way.
This is how DOD ended up with billions of dollars in unmatched disbursements - another big control problem with which CFO Lynn was thoroughly familiar.
“Pay and Chase” accurately characterized the core DFAS problem that I witnessed during my review of internal controls in 1997-1998. I saw “Pay and Chase” up close and personal.
“Pay and Chase” was unofficial policy. It was actively practiced but not authorized by any government regulations or laws.
As I understand it, “Pay and Chase” was supposed to end in October 1997 when the DOD General Counsel determined that it was illegal. But it didn’t.
Secretary Cohen wanted to legalize “Pay and Chase” and make it the law of the land.
On February 2, 1998, when Mr. Lynn was CFO, Secretary Cohen asked the Senate for legal authority to pay bills without receipts - with no dollar limit. This proposal was embodied in Section 401 of the Defense Reform Initiative (DRI). It was touted as a measure to “streamline” DOD payments.
Fortunately, the Congress rejected this absurd and misguided legislative proposal.
I discussed Secretary Cohen’s “Pay and Chase” proposal in great detail in a speech on the floor on May 5, 1998 [pages S4247-4250]. I placed Secretary Cohen’s request in the Record at that time.
So, what was Mr. Lynn’s position on Section 401 of Secretary Cohen’s Defense Reform Initiative? I asked him this question on February 5, 2009. This is what he said: He could not “recall” taking a position on it but agreed it was wrong “to pay bills without a receipt.”
This seems like a real cop-out. I responded to him this way: “In February 1998, you had been CFO for several months. This issue fell directly under your purview. How could you possibly avoid taking a position on an issue the Secretary of Defense was urging the Senate to adopt?
Today, as the Chief DOD Lobbyist for Raytheon, Mr. Lynn says it was wrong. As the DOD CFO back in 1998, why didn’t Mr. Lynn know it was wrong and speak up about it?
My records appear to indicate that “Pay and Chase” continued as the unofficial policy through 1998 and eventually evolved into or merged with another more troublesome policy known as “Straight Pay.” This policy was more dangerous. The “Straight Pay” policy had a much higher dollar threshold than the old “Pay and Chase” plan. Believe it or not, it was a whopping half-million dollars.
“Straight Pay” was Mr. Lynn’s baby. This policy was personally approved by Mr. Lynn in a memorandum on December 17, 1998 and re-authorized in another memo on March 9, 1999 and possibly again later on. [Hold up memo (#7)]
On January 19, 1999, I addressed a letter to Mr. Lynn, expressing grave concern about “Straight Pay,” and requesting verification of certain facts surrounding this policy. [Hold up letter (#8)]
The facts in question were provided to me anonymously by a DFAS employee. I wanted Mr. Lynn to check them out for me.
Prior to the implementation of “Straight Pay,” the DFAS center at Columbus, Ohio, had a pre-validation policy that required that all disbursements over $2,500.00 be matched with obligations or contracts prior to payment. When an invoice was submitted to the center for payment, a DFAS technician searched the database for supporting obligations and receipts.
If supporting documentation could not be found, a red warning flag was supposedly run up the pole. Accounting due diligence was needed to confirm if this particular invoice was valid, a duplicate, or fraudulent payment. In theory, these red flags had to be resolved. In practice, that did not always happen.
Mr. Lynn’s “Straight Pay” policy raised the pre-validation threshold by $497,500.00 to $500,000.00. This allowed the DFAS technicians to make payments up to $500,000.00 dollars without a valid obligation. This is the key: DFAS could make payments up to $500,000.00 even if they couldn’t find the money to cover the bill.
To cover these payments, technicians were ordered to create a bogus account known as Negative Un-liquidated Obligation or a “NULO” [pronounced New-Low]. Bills were then paid from these bogus NULO accounts which carried negative balances.
Mr. Lynn’s policy gave DFAS accountants up to six months to link the payments to valid supporting obligations in the accounting records.
If valid supporting documentation could not be found in that time frame, then the center was authorized to cover the payment with other available funds with no further investigation. This is how billions in DOD unmatched disbursements were born.
Mr. Lynn’s policies created a superfund site for toxic DOD payments.
In my January 19, 1999 letter to Mr. Lynn, I drew some comparisons between “Straight Pay” and the case of Air Force Staff Sergeant (SSGT) Robert L. Miller, Jr.
I think Mr. Lynn and others in the Pentagon at the time remember the Miller case all too well. I examined that case - and several others just like it - in great detail at a hearing before my Judiciary Subcommittee on Oversight on September 28, 1998.
As Chief of Vendor Pay at a DFAS center, then Staff SGT Miller had pursued his own unlawful version of “Straight Pay.” Miller had full access to the Integrated Accounts Payable System. As such, Miller was able to manipulate DOD systems to create obligations and invoices - where none existed - and generate nearly a $1,000,000.00 in allegedly fraudulent payments to his mother and girlfriend.
Miller was not apprehended because internal controls at DFAS were effective. He was caught because a co-worker blew the whistle on him. She was one of Miller’s subordinates, who had allegedly been sexually harassed by him.
At that time, I told Mr. Lynn that his “Straight Pay” policy appeared to authorize DFAS accountants to do essentially what SSGT Miller did - create false bookkeeping entries to cover large payments in the absence of valid obligations.
DFAS and Miller obviously had different goals, but there was common denominator - manipulation of the accounting system - to make payments that should not be made.
DFAS payment policies practiced on Mr. Lynn’s watch left the barn door wide open to fraud and outright theft of the taxpayers’ money.
The GAO, which provided excellent support all the way through my investigation, fully agreed with my assessment.
There was another disturbing facet of the Miller case that I took up with Mr. Lynn.
On October 19, 1995, the date that SSGT Miller became Chief of Vendor Pay at the DFAS Dayton center - a position considered far above his rank, he was already under investigation in connection with:
- The alleged disappearance of government checks at Castle Air Force Base; and
- Allegedly directing at least 8 fraudulent checks valued at $50,769.00 to his mother.
On October 26, 1995, just one week after SSGT Miller became Chief of Vendor Pay at Dayton, an investigating officer at Castle AFB made this recommendation about Miller: “Management should not place SSGT Miller in a position where he is entrusted with funds again.”
After this report was issued, Miller should have been removed from his new position at Dayton immediately. But it took two years – until June 1997 when Miller was arrested for allegedly stealing $1,000,000.00.
The whole Miller story is just unbelievable.
In view of his problems at Castle AFB, why did DFAS place him in charge of Vendor Pay at Dayton?
Why did DFAS keep him there after an official report indicated that he could not be trusted with money?
This makes as much sense as hiring a bank robber to be a bank teller.
On September 18, 1998, I wrote another letter to Mr. Lynn. [hold up letter (#9).] I asked him these two questions:
1) “Who at Dayton had knowledge of the Castle AFB report on Miller?
2) “Who in DFAS management was responsible for totally ignoring this very dangerous red warning flag?”
I ended my letter to Mr. Lynn this way: “Bill, the responsible person or persons in your organization need to be held accountable for ignoring obvious and repeated warning signals about SSGT Miller’s trustworthiness and giving him unrestricted access to your department’s money vault.”
I asked for answers to these two questions by September 23, 1998. None ever arrived - as far as I know.
When I didn’t get a prompt response to my January 19th letter to Mr. Lynn on “Straight Pay,” I raised those same issues with Secretary Cohen. I did that at a hearing before the Budget Committee on March 2, 1999.
This is what Secretary Cohen said to me: “There is no authorized procedure called straight pay. The process described is not correct and is not authorized.”
These answers just did not square with the evidence.
Then on March 9th came further explanation from CFO Lynn. He said essentially the same thing with a slightly different twist:
Although he admitted to raising the pre-validation threshold to $500,000.00, he stated: “The Straight Pay policy you refer to in your letter is not used at our Columbus Center... Straight Pay, as reported to you, does not exist at the Columbus Center.”
When Mr. Lynn raised the pre-validation threshold so high, he was definitely into very dangerous territroy. [Hold up letter (#10)]
I felt like both Secretary Cohen and CFO Lynn were trying to convince me that Straight Pay did not exist. Their statements appeared to be misleading and inaccurate.
Just because I didn’t explain the policy exactly right did not mean that the policy did not exist. Everything that was coming over the “transom” at night was telling me that I was on the right track.
I responded to the denials this way: If your statements are “indeed accurate - and “Straight Pay” doesn’t exist, then why do I have official DFAS documents establishing “Straight Pay Procedures? Are these documents fake?” [Hold up letter -(#11)]
I later discovered another DFAS document dated March 8, 1999, which states: “Due to concerns over the use of the term ‘straight pay’ and its connotation, we must delete all references to ‘straight pay’ from the policy....” [Hold up documents (#12)]
I say to my colleagues: Is the March 8, 1999 date on this document a coincidence? Or was this a bureaucratic tactic to suppress, bury and re-name the policy to conform with high-level rhetoric in early March? Was this a response to my inquiry?
Not getting the straight story from the Pentagon, I brought the issue of “Straight Pay” to the attention of Senator Inhofe, who was Chairman of the Readiness Subcommittee on Armed Services. My letter to Senator Inhofe was dated April 8, 1999. [Hold up letter (#13)]
I told my friend from Oklahoma that I considered “Straight Pay” to be “a very dangerous and misguided policy that might violate the law.” I told him about the Miller case.
I urged Senator Inhofe to ask Secretary Cohen and CFO Lynn five questions on “Straight Pay” at an upcoming hearing.
Mr. Lynn attempted to clarify the DOD position on Straight Pay in a letter to me dated June 18, 1999. [Hold up letter (#14)]
In his follow-up letter, Mr. Lynn backed away from his assertion that “Straight Pay” did not exist. While he never used the term “Straight Pay,” he did not try to disassociate himself from the policy. With one exception, his description of the policy was generally accurate - though somewhat incomplete.
I raised essentially the same questions with Mr. Lynn in a recent letter dated January 29, 2009. Regrettably, he provided essentially the same answers in a letter dated February 3, 2009. [Hold up letters - #15 & #16]
Mr. Lynn continues to defend “Straight Pay.” He said it was necessary to “ensure that contractors were paid on time.” That’s the streamlining effect that former Secretary Cohen argued for in his failed February 1998 attempt to legalize Pay and Chase.
Mr. Lynn still wants us to believe that Straight Pay was a safe policy. He maintains that DFAS always made a three-way match with invoice, receiving report and contract before paying a bill. My oversight investigation showed that DFAS rarely - if ever - achieved this goal. This was DFAS theory not practice.
I exchanged follow-up Q&A’s on these matters with Mr. Lynn on February 5 thru 9, 2009. [Hold up letters (#1)].
As Chief Financial Officer at one of our biggest departments, Mr. Lynn signed the memo authorizing the “Straight Pay” policy. It was his policy.
I believe that this policy developed under Mr. Lynn’s leadership was dangerous, misguided and irresponsible. It demonstrated a lack of sound business judgment. And it may have been inconsistent with various provisions of law.
“Straight Pay” left the taxpayers’ hard earned money vulnerable to fraud and theft.
I was not alone in this assessment. At my Subcommittee hearing on September 28, 1998, the GAO witnesses said essentially the same thing: DFAS payment policies in 1998 - on Mr. Lynn’s watch - left the door wide open to fraud.
For all these reasons, I have to say that Mr. Lynn - as CFO - did not do everything humanly possible to protect the taxpayers interests. When he pushed the “Straight Pay” policy and went silent on Pay and Case, he did not act in the public interest.
As CFO, Mr. Lynn was also supposed to do his part to develop an integrated finance and accounting system that would allow DOD to produce a financial statement that could earn a “clean” audit opinion.
I know this is a massive and complex undertaking. But Mr. Lynn could have gotten the ball rolling in the right direction.
I can guarantee one thing. “Straight Pay” was not conducive to the creation of an integrated accounting system.
One of the first steps in that process is to link obligations to disbursements. “Straight Pay” truncated that link and undermined integration.
Although he claims to have launched several important reform initiatives, there appears to be little or no measurable progress towards that goal on his watch. In fact, his payment policies probably had the opposite effect.
The department’s books of account were a mess when Mr. Lynn became CFO. They were a mess when he left. And they remain a mess today with no fix in sight.
Congress passed the CFO Act of 1990 in an attempt to fix the problems in the accounting of government finances. Eighteen years after this legislation, the DOD as a whole has yet to earn a “clean” audit.
Mr. Lynn should not be the only person held accountable for poor accounting at the DOD.
He is one of many individuals, in a long line of DOD CFOs and comptrollers who for whatever reason were unsuccessful in solving the financial missteps of Defense Department.
Mr. Hamre, his predecessor, used to say: “Fixing this problem was like changing a tire on a car going 100 MPH.”
Mr. President, I have shared some of my sentiments on Mr. Lynn’s performance as CFO as well as on his current ethical issues. I hope these insights are helpful to my colleagues.
If confirmed, we hope he will do everything possible to protect our national security. We hope he will protect the taxpayers’ hard earned money and make sure it’s spent wisely and according to law. We hope he will usher in a new era of financial accountability at the DOD.
At this point, we simply don’t know what Mr. Lynn will do. I don’t own a crystal ball. That’s all in the future. That’s an unknown.
But we do know something about what he did in the past as the DOD CFO. As CFO, he advocated very questionable accounting practices that were not in the public interest.
I urge my colleagues to weigh those considerations in reaching a decision on how to vote on the Lynn nomination.
Lastly, I want take a moment to thank the Senate Armed Services Committee leadership and staff for their patience on this issue. I appreciate the time that Chairman Levin has given me to discuss this nomination.
Mr. President, I yield the floor.
