BEFORE THE

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON EDUCATION AND

THE WORKFORCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

HEARING HELD IN WASHINGTON, DC, APRIL 4, 2000

Printed for the use of the Committee on Education

and the Workforce

WRITTEN OPENING STATEMENT OF CHAIRMAN PETE HOEKSTRA, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE *

OPENING STATEMENT OF RANKING MEMBER TIM ROEMER, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE *

STATEMENT OF LUISE S. JORDAN, INSPECTOR GENERAL, CORPORATION FOR NATIONAL AND COMMUNITY SERVICE, WASHINGTON, D.C. *

STATEMENT OF KARYN L. MOLNAR, PARTNER, KPMG, LLP, WASHINGTON, D.C. *

STATEMENT OF BOB ROGERS, FORMER CHAIRMAN OF THE BOARD, CORPORATION FOR NATIONAL AND COMMUNITY SERVICE, WASHINGTON, D.C. *

APPENDIX A - WRITTEN OPENING STATEMENT OF CHAIRMAN PETE HOEKSTRA, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE *

APPENDIX B - WRITTEN STATEMENT OF LUISE S. JORDAN, INSPECTOR GENERAL, CORPORATION FOR NATIONAL AND COMMUNITY SERVICE, WASHINGTON, D.C. *

APPENDIX C - WRITTEN STATEMENT OF KARYN L. MOLNAR, PARTNER, KPMG, LLP, WASHINGTON, D.C. *

APPENDIX D - WRITTEN STATEMENT OF BOB ROGERS, FORMER CHAIRMAN OF THE BOARD, CORPORATION FOR NATIONAL AND COMMUNITY SERVICE, WASHINGTON, D.C. *

Table of Indexes *

The Subcommittee met, pursuant to call, at 2 p.m., in Room 2175, Rayburn House Office Building, Hon. Peter Hoekstra, Chairman of the Subcommittee, presiding.

Present: Representatives Hoekstra, Schaffer, Roemer, Scott, and Kind.

Staff Present: Peter Warren, Professional Staff Member; Jonathan DeWitte, Staff Assistant; Cindy Von Gogh, Information Technology Manager; Deborah Samantar, Office Manager; Cheryl Johnson, Minority Counsel/Education and Oversight; and Marshall Grigsby, Senior Legislative Associate/Education.

Chairman Hoekstra. A quorum being present, the Subcommittee on Oversight and Investigations will come to order.

We are holding this hearing today to hear testimony on the fiscal year 1999 audit of the Corporation for National Service. Under Committee Rule 12(b), opening statements are limited to the Chairman and Ranking Minority Member of the Subcommittee. This will allow us to hear from our witnesses sooner and to help Members keep to their schedules. Therefore, if other Members have statements they may be included in the hearing record.

With that, I ask unanimous consent for the hearing record to remain open for 14 days to allow for Members' statements and other documents referenced in the hearing to be submitted in the official hearing record. Without objection, so ordered.

As Mr. Roemer and I just said as we sat down, this is one hearing that we didn't want to be at again. If there is a theme for today's hearing it is best expressed perhaps by quoting Yogi Berra, "Deja vu all over again," and it is very disappointing. This is the sixth time this Subcommittee has convened to discuss the financial management for the Corporation of National Service. For the sixth time, we are confronted yet again with an entity that is not auditable.

A partner of the accounting film KPMG will inform us today that her firm could not express an opinion on two of three of the Corporation's fiscal year 1999 financial statements. She will also describe five material weaknesses found in the Corporation's internal controls.

I suppose I am as qualified as anyone to give a brief history on the Corporation. I voted for the program in 1993 when President Clinton in Congress created it. President Clinton at that time promised that, quote, "We are going to set up a national service corporation that will run more like a big venture capital outfit, not like a bureaucracy," end of quote. That is quite a promise.

It was quite an exciting promise for a freshman Congressman to hear in 1993, who came to be, in many ways, critical of the Washington establishment and was hoping this would set a new paradigm for Washington bureaucracies and Washington's effectiveness. The disappointing thing is that it is a promise that remains unfulfilled to this day. As a matter of fact it doesn't even come close to matching the model or the paradigm that I came from in the private sector.

For the first 3 years of the Corporation's existence, from 1994 to 1996, auditors did not even attempt to audit the Corporation because its finances were in such disarray. Instead, the Inspector General performed auditing assessments.

For fiscal year 1997, the Corporation submitted only its balance sheet for audit. In other words, there was still no attempt to get a full opinion.

For the past 2 years, fiscal years 1998 and 1999, KPMG has looked at the entirety of the Corporation's finances. The verdict: They still cannot offer an opinion on two out of the three financial statements.

To put this latest report in context it must be noted that this is the last audit report on the Corporation that will be issued during the Administration of President Clinton. When the President leaves office in January he will leave as part of his legacy a program that has never functioned in the manner that he said it would, like a private venture capital outfit.

It goes without saying that any private venture capital group can pass an audit. If it failed an audit, it would probably disband soon afterward. But every year the Corporation continues to receive annual appropriations of three-quarters of a billion dollars.

Why does the Corporation escape accountability? It is because it is really not a venture capital firm at all. It really is a government bureaucracy. It is no more accountable and perhaps a good deal less so than any other Federal program.

The Corporation's response to this latest audit report is almost as disturbing as the report itself. Signed by the CEO, Harris Wofford, it complains that the Officers have held the Corporation to a higher standard than that applied to other government entities. I doubt that this is true. Even if it were, though, that would not been inconsistent with the program's original promise. The President's promise is not the only empty one in the Corporation's brief history. This Subcommittee's hearing transcript contained a litany of failed promises delivered by corporation leaders.

I will offer just a few examples. This is what corporation leaders came to this Subcommittee and told us about their finances and where they were going to be. Mr. Rogers, we will start with you. I am sure you are as disappointed as I am because when you came here last time, you expected a full and clean audit for 1999. We are not there.

At our July 1997 hearing, Harris Wofford said the fiscal year 1998 audit was not in jeopardy. At that same July 1997 hearing, the then CFO said she expected the Corporation to have eliminated all of its material weaknesses by September of 1997. We are still not auditable. We still have five material weaknesses.

I understand that this audit suffered because the Corporation did not have a new accounting system in place until the tail end of fiscal year 1999, but I am also aware that Harris Wofford said in a September 1996 hearing that, quote, "We are committed to having a system in operation during 1998, and sooner if possible," end of quote. So forgive me if I have grown intolerant of the excuses offered as to why this Corporation could not pass an audit. Forgive me if I cannot go back to Americorps participants and to the American taxpayers and make excuses for why Congress continues to support a program that is not delivering on its promises.

I just want to quote a few statements out of this audit report, because I am sure that we are not going to hear them today. I talked to a member of the board; I have a letter from Harris Wofford. It says, "It is all about $10 million. Take a look at all of the progress we have made."

That is not what the audit report says.

Quote, on page 5, "A number of adjustments were identified and posted directly to net position accounts with no formal audit trail or supporting documentation to justify the decision to make these adjustments directly to net position."

Another quote, page 9, "The Corporation is not performing effective fund balance with treasury reconciliation procedures at the appropriation level on a monthly basis. Further, the current procedures are not effective for detecting the inappropriate use of Trust or gift funds for other than their intended purpose."

Page 10, "Based on consultation with legal counsel at the General Accounting Office, in some instances, depending on the wording in the specific grant agreements, this practice is in violation of restrictions on the period of availability of appropriations made to the Corporation in its appropriation laws." .

Page 11, "The membership roster confirmation process, a key control in ensuring the completeness and accuracy of the database, is currently ineffective." .

Page 13, "The Corporation is not in full compliance with appropriation laws related to the use of National and Community Service Act funds only during periods of availability."

You know, this wouldn't be bad if this were the first, but this is the sixth time we have gone through this.

I am looking forward to hearing the testimony. I will have some comments of my own as to what I think this means, but at this point I will yield to my Ranking Member, Mr. Roemer.

Mr. Roemer. Thank you, Mr. Chairman. I ask for unanimous consent to revise and extend.

Chairman Hoekstra. Without objection.

Mr. Roemer. Thank you, Mr. Chairman. Thank you for holding this hearing, and I thank the panel for being here this afternoon as well.

I have stated before and I will state this again, I believe oversight of the Corporation for National Service's financial management practice is a necessary part of our oversight responsibility. The purpose of this oversight hearing is not to question the merit of the Corporation's existence. They do some very important and wonderful things. Rather, our purpose today is to ensure that the Corporation continues to make progress in resolving all problems in its financial operations.

Has the Corporation made progress since our hearing nearly a year ago when we looked at the fiscal year 1998 audit? I believe the answer is yes. The Corporation has implemented a wide range of reforms to improve management. With the Chairman's help and myself writing some letters and making some phone calls, we now have a chief financial officer and a deputy chief financial officer.

Congratulations on your confirmation, Mr. Musick, and I look forward to working with you and I commend you for accepting the challenges ahead. The Corporation has successfully implemented a new "Momentum" financial management system and a web-based reporting system that allows for more accurate tracking of Americorps member enrollment and service hours reported.

Last September this Subcommittee dedicated a full hearing to an Americorps problem at one site in Indiana. I look forward to the testimony today about the outcome of the Terre Haute program and more detailed information on the significant improvements and record keeping within the National Trust.

Additionally, the fiscal year 1999 audit shows that the Corporation has maintained a clean opinion on the statement on financial position and reduced the number of material weaknesses in its financial systems from eight to five. I look forward to hearing what actions the Corporation is currently taking to make sure that the other five material weaknesses are corrected in this fiscal year. I hope that you can move quickly to resolve these problems and some of the other problems that have been pointed out in the audit.

I want to urge the CFO and his new management team to take all necessary steps to mitigate all material weaknesses identified in this audit. The efficient operation of the Corporation is vital to each and every one of us here in Congress.

The Corporation provides leadership, innovation, and valued service to our Nation. I know personally what these young volunteers have done in my home State of Indiana. Programs such as the ACE program at the University of Notre Dame with new teachers, a program that has helped the homeless in South Bend, an environmental program in Elkhart and other Indiana-based programs have been very beneficial and successful at the local level.

I know that my colleagues on both sides of the aisle have stories about tremendous contributions and successes in their districts, and I hope we don't forget about those successes as we look at some of the problems at the national level on oversight. So I look forward to today's testimony. I look forward to hopefully correcting these problems in the future, but I also want to reiterate that this is an oversight hearing on some of the financial accountability problems.

From my personal perspective, this is not going at the heart and soul of the merit of national service, which I think has been a tremendous success to this Nation, and I will continue to support the efforts to fund these programs in this Congress.

So thank you again for your time today, and hopefully we won't have many more of these hearings in the future.

Chairman Hoekstra. Thank you, Mr. Roemer. I agree, this is only taking a look at one aspect of the Corporation of National Service; this is not the heart of the issue. I voted for this program in 1993.

We have got a problem. You heard the bells. That means that we have a series of three votes. We have got a 15-minute vote, which is about halfway through, and then two 5-minute votes, which means it will be 30 to 35 minutes before we will be back. We will recess and start again as soon as we get two members back here after the third vote.

Mr. Roemer. Mr. Chairman, I have to say I am going to work on getting another Member back here as well. I will try to come back, but I have a conflicting hearing in the Intelligence Committee on an issue that is classified. It is an issue I have been very active and involved with. I may have to go up there for a while, but I hope to be back down within the next hour.

Chairman Hoekstra. Thank you. We will recess.

[Recess.]

Chairman Hoekstra. The Subcommittee will come back to order. We will hear from the witnesses.

Let me introduce the witnesses. We have Ms. Luise Jordan. Welcome back. Have you been to all six?

Ms. Jordan. Yes, sir.

Chairman Hoekstra. Luise is the Inspector General, Corporation for National Service.

We have Ms. Karen Molnar, who is a partner with KPMG. Welcome back. This is at least your second time?

Ms. Molnar. Third, I think.

Chairman Hoekstra. We have Mr. Bob Rogers, who is the Chairman of the Board for the Corporation for National Service. I notice this is your second time back. Welcome.

And we have Ms. Zenker and Mr. Musick, not testifying, but here to provide moral support or expertise on the status of the Corporation. You are all familiar with the lights, the 5 minutes and those types of things. Ms. Jordan, we will begin with you.

Ms. Jordan. Mr. Chairman, I appreciate the opportunity to testify on the results of the Corporation's fiscal year 1999 financial statements.

This year, as you have noted, OIG again engaged KPMG to perform the audit. Karen Molnar, the engagement partner, is here today to discuss their work in detail. KPMG was able to issue an unqualified opinion on the statements of financial positions. However, as was the case last year, they were unable to render an opinion on the statement of operations and changes in net position and the statement of cash flows.

As discussed in the audit report, material weaknesses have been reduced from eight to five. Two of those are now classified as reportable conditions; one has been corrected. These improvements and the Corporation's new accounting system, implemented in September 1999, indicate continued progress. However, as we are reporting, the Corporation has yet to fully correct all of its financial management deficiencies.

The five areas cited as material weaknesses in fiscal year 1999 were first reported as material weaknesses in 1996. They include financial management and reporting, the Corporation's general control environment, grants management, net position reporting, and fund balance with treasury. The integrity of data in the National Service Trust in matters related to the Corporation's new accounting system controls and reports are cited as reportable conditions.

The Corporation has made it clear that it is dissatisfied with the results of the audit. The CEO's response disagrees with nearly all of the audit findings and the auditors' opinion. The Corporation argues that a $10.5 million unlocated and unexplained difference is immaterial. However, the auditor's independent opinion is a matter of professional judgment and must objectively consider all aspects of the work performed. The opinion was KPMG's to render; OIG concurs with their decision.

The CEO further asserts that the auditors' report has an unwarranted negative cast and cites a list of the Corporation's accomplishments over the past 18 months. Again, I agree that the Corporation has made progress. However, many of these achievements cited in the CEO's response occurred in recent months after the close of fiscal year 1999, the period covered by our audit. Notwithstanding these and other disagreements, I believe that the Corporation has improved its financial management.

It is important to recall the extent of the problems that the Corporation has had to overcome. Over the past several years, our audit reports have classified numerous deficiencies into broad areas of material weaknesses that encompassed most of the critical aspects of the Corporation's financial management. We also reported that the Corporation's legacy system could not produce reliable financial information. Given the pervasiveness of these deficiencies, it is not surprising that the Corporation has not corrected all of its material weaknesses. What we disagree upon is the extent of the progress.

Management asserts that material weaknesses in the Corporation's general control environment, financial reporting, and procurement have been corrected. The audit results do not support this, nor does OIG's other audit work. However, now that the Corporation has a new accounting system, and additional financial management staff, continued improvements are probable. It is future audits that will reveal the effectiveness of these new resources, the achievements that have been made in the recent months, and future corrective actions.

Chairman Hoekstra. Thank you. Ms. Molnar.

Ms. Molnar. Mr. Chairman, Members of the Subcommittee, I am pleased to be here today to testify regarding KPMG's audit of the 1999 financial statements of the Corporation for National and Community Service.

Our audit of the Corporation's 1999 financial statements was conducted in accordance with generally acceptable government auditing standards. Those standards require that the audit be planned and performed to provide reasonable assurance that the financial statements are free of material misstatement.

Audit procedures are performed on a test basis to obtain evidence to support the amounts and disclosures in the financial statements. The nature, timing and extent of audit tests to be performed depend on how much reliance an auditor can place on the internal controls established by management.

If internal controls are effective, the amount of detail testing can be reduced. If they are not effective, extensive detail testing is required to become satisfied as to the fair presentation of the financial statement amounts.

Our assessment of the Corporation's internal control environment in place during fiscal year 1999 was based on the results of our 1997 and 1998 audits. That assessment indicated that we could not rely on internal controls to reduce the extent of audit tests for the 1999 audit. Therefore, we again planned and performed very extensive detailed tests of the 1999 financial statement account balances.

During 1999, the Corporation implemented a new general ledger system. The conversion of that financial data from the old to the new accounting system and the training of Corporation personnel in the use of the new system required a significant commitment of time and resources. The conversion was not completed until near the Corporation's fiscal year end. We believe the attention focused by the Corporation on implementing this system within a limited time frame also resulted in a shift of its priorities away from supervisory review of ongoing financial accounting activity.

Our detailed audit procedures identified certain accounting errors. The Corporation recorded all material adjustments that we proposed. After all adjustments were made to the 1999 financial statements, we were able to satisfy ourselves that the statement of financial position was materially correct. However, we were unable to satisfy ourselves as to the propriety of $10.5 million reported as an increase in unexpended appropriations.

As a result, our independent auditors' report, dated March 3, 2000, included an unqualified opinion on the statement of financial position and a disclaimer of opinion on related statements of operations and changes in net position and cash flows. This is a similar result to that included in our report on the Corporation's fiscal year 1998 financial statements.

Our review of the Corporation's internal controls over financial reporting revealed that significant progress had been made in addressing prior-year reportable conditions. Our evaluation of internal controls considered the extent of those improvements, which had a direct and material effect on the Corporation's financial operations during 1999. However, the new general ledger system was in use for less than 1 month in 1999. A new chief financial officer and other new financial management personnel did not assume their duties until after September 30, 1999; and other improvements in policies and procedures, which were in the development or pilot testing stage during 1999, did not become fully operational until fiscal year 2000.

The scope of our 1999 audit procedures did not include tests of the effectiveness of these enhancements to the internal control environment. As a consequence, our report on internal controls included seven reportable conditions, five of which we considered to be material weaknesses. These reportable conditions are discussed in detail in our report, along with our recommendations for improvement. All of these matters deserve management's attention.

However, in addition to the comments I have already made, I would like to emphasize the following: The Corporation implemented a process for self-assessment of management controls in fiscal year 1999 and surveyed selected members of its management team to obtain information to be used in preparing its annual report of management controls.

It plans to expand the process in fiscal year 2000. However, the control process continues to rely heavily on issues brought to the Corporation's attention by the Office of the Inspector General and independent auditors. This practice does not prevent or routinely detect matters during the year that could result in financial statement errors or instances of noncompliance of laws and regulations.

Additionally, the Corporation expends a majority of its funding for grant awards to State commissions and other not-for-profit organizations. The Corporation does not have the ability to effectively monitor grantee financial activity because the current system used to track grant awards is not integrated with the new ledger system, and it cannot produce reports which would be useful in monitoring grantee performance.

Additionally, a comprehensive risk-based approach for performing grantee site visits has not been implemented. Considering the size of grants, we believe making improvements in its grants management system should be a high priority for the Corporation.

In conclusion, we believe that the Corporation has made notable progress in achieving its goals of improved financial management. Although much is left to be done, with the concerted effort of the new financial management team and the successful operation of the new financial accounting system for a full year in fiscal year 2000, the Corporation should be well positioned to demonstrate continued progress in the future.

I would be happy to answer any questions that you have.

Chairman Hoekstra. Thank you. Mr. Rogers.

Mr. Rogers. Mr. Chairman, before I proceed, I just want to make sure that we are going to do everything that we can do to answer those questions that you had in your own opening remarks, along with those of Congressman Roemer, and any others that you might present to us. We hope that we can focus on where we are and where we are going as opposed to many of those broken promises in the past; because we don't think they have any merit.

Chairman Hoekstra. If I were you, that is what I would talk about as well.

Mr. Rogers. Okay. Thank you for this invitation to appear for a second time before the Subcommittee to discuss the Corporation for National Service. As you previously mentioned, I did serve as chairman of the board of directors of the Corporation. While I am not officially a member of the board at this time, Senate Majority Leader Trent Lott has recommended that I be reappointed and the President is sending my nomination to the Senate, as I understand, this very day.

The board of directors is responsible for the general oversight of the Corporation and its operations. It is required by statute to be bipartisan. Members of the board come from all walks of life in both private and public sectors. My background is in business management and accounting. Having served as Chief Financial Controls Officer and Chief Information Officer of Marion Laboratories in Kansas City, Missouri, now Aventis Pharmaceuticals, one of the largest and premier pharmaceutical companies in the world.

Currently, I am chairman emeritus of the Ewing Marion Kaufmann Foundation, which is one of the largest foundations in the Nation. Earlier in my career I was an auditor and management consultant on financial system development for Coopers and Lybrand. I continue to be a member of the American Institute of Certified Public Accountants, but I would be quick to add, I haven't audited anything for a long time.

The board of directors believes strongly in the work that the Corporation is doing to provide Americans of all ages opportunities to serve, to strengthen communities, to build the ethics of service and to support the inspired work of national and local not-for-profits.

Mr. Chairman, when I appeared before this Subcommittee last September I reported to you on the key management control issues that the Corporation was addressing to improve operations. I am pleased to report that these issues have been substantially resolved. The board believes that we now have the right people and the right systems in place to support the growth and further development of service programs consistent with the Corporation mission.

First, the Corporation's management team is much stronger. The Senate confirmed Mr. Musick in November of 1999. He promptly recruited and selected a deputy chief financial officer and a chief financial officer. In fact, the Deputy Chief Financial Officer is with us. He is Bill Anderson, who was the lead auditor on the IG staff.

Thank you, Luise.

With these leadership positions filled the Corporation has a sound financial management team in place.

Second, in 1999, the Corporation undertook a significant project to implement a new financial management system. The system implementation required that the data be converted from a nonstandard to a standard system, that the Corporation staff get trained on the new system, and that the project be completed prior to the year 2000. This new Momentum financial management system is fully operational and has vastly improved the Corporation's ability to monitor and account for its funds.

The transition, as was previously pointed out, was arduous, but it was completely successful and without interruption of the Corporation's primary mission of supporting service opportunities across the country.

Third, the management of the National Service Trust has been greatly enhanced by a Web-based reporting system and a new document imaging system.

Fourth, the Corporation has completed over 80 percent of the tasks contained in its action plan, a road map for management improvements that covers financial management, grants administration, procurement, and information technology. As you know, the Corporation reports every month to your Subcommittee and to others in Congress on our progress in meeting these goals. Our fiscal year 1999 audit states clearly that these accomplishments are making a difference. The Inspector General wrote that reducing the number of material weaknesses and implementing the new accounting system indicates that the Corporation continues to make progress toward producing auditable reports.

The board concurs with this assessment. However, even with these considerable accomplishments challenges do remain. The auditors gave an unqualified opinion on the statement of the financial position with disclaimers on the other two statements. The number of material weaknesses, as was reported, dropped from eight to five based on the management improvements put in place in 1999.

Ultimately, it is my understanding that management's inability to explain the $10.5 million increase in under spent Federal appropriations was the central factor in KPMG's decision to disclaim on the two statements. The auditors in their final report did agree with the Corporation that this unidentified amount is likely the result of one or more bookkeeping errors.

The audit also noted the difficulties that the Corporation experienced in converting from its old, severely flawed financial system to the new Momentum system. For 10 months of fiscal year 1999, the Corporation used the old system while the new one was brought online. The staff also experienced problems with the transfer of data from the old financial system to the new one.

Last September, I made it plain that the Corporation's goal was a clean opinion on all of its financial statements. I also noted that there can always be something that gets in the way of that. In the case of our fiscal year 1999 audit, the 10 months under the old system and the problems in converting to a new financial system clearly interfered with getting a clean opinion on all of our statements.

Although the goal of a clean audit was not reached, the board believes that the Corporation should be judged on the totality of its record and on a present-and-going-forward basis. In the past year, the Corporation converted to Momentum without disrupting basic operation, successfully installed a new image managing system in the Trust, pilot tested and brought to full scale its implementation the Web-based reporting system, and put in place solutions to ensure a smooth transition into the year 2000.

It is important to note the audit's report is a snapshot at a point in time, not a moving picture and does not adequately acknowledge these accomplishments nor is it intended to do so. But all of these accomplishments must be considered to get an accurate picture of the Corporation's current status.

Mr. Chairman, the progress that the Corporation has made and will continue to make is the result of both direction from the board and the hard work of the Corporation's management team. The board is pleased with management's commitment and accomplishments and will continue to closely monitor their activities to ensure that the Corporation achieves a goal of being the high-performing organization we all want.

Thank you very much.

Chairman Hoekstra. Thank you.

I am going to go to Mr. Schaffer. I just want you to think about a question that I am going to come back and ask. "The board is pleased with management's commitment and accomplishments." I am going to come back and ask you that question: Should I be pleased with management's commitment and accomplishments based on a record of 4 years of statements like that? I think you are going to need some time to answer that because that is an interesting statement to me.

Mr. Schaffer.

Mr. Schaffer. Thank you, Mr. Chairman.

Mr. Rogers, the Corporation has expressed its disagreement with the auditors' findings and submitted its 20-page response signed by Harris Wofford. It states that, quote, "We do not agree that the report accurately reflects the State of the Corporation systems or operations," end quote. And then, it goes on to dispute the disclaimers on the financial statement, as well as several of the material weaknesses.

My question for you is, do you share Mr. Wofford's assessment of the audit findings?

Mr. Rogers. What I would say, Congressman Schaffer is there has been a communication process that hasn't worked effectively in the process of resolving audit issues. I am really concerned about that.

I know in organizations that I have been involved with in the private sector, there is ample opportunity for the board, for management, to sit down with the auditors and address these issues well in advance of the report being issued so that there can be an opportunity to work out the different issues. I don't think that communication process took place effectively this year. We need a better process in the future to make sure that it does.

So I can't say that I share the opinion of management that the auditors opinion is wrong on some of those cases, but rather say that there needs to be a better communication to work out and resolve those issues.

Mr. Schaffer. So it is fair to say that you do not fully agree with Mr. Wofford's assessment?

Mr. Rogers. I don't agree that we should take a position against the opinion of Peat Marwick & Mitchell on the statements. They are a highly reputable firm, and I am not going to question their opinion.

I do question the ability to sit down and resolve audit issues to make sure that you have an opportunity to get a clean opinion before the report is issued.

Mr. Schaffer. Let me go to an example.

Mr. Wofford argued that the auditors should have been able to issue an opinion because they found a discrepancy of what he characterized as "only $10.5 million" and that, to quote him again, "The standard being applied to the Corporation appears to be exceptionally high."

Do you agree that the standard of fiscal responsibility being applied to the Corporation is too high?

Mr. Rogers. Again, it is very hard as a board member, not involved in day-to-day operations, to be able to say that. What I would say is, the $10 million number, by itself alone, I doubt that I would question personally whether that is a basis for disclaiming an opinion. They would have to associate something else with that $10 million number for that to be the cause for a disclaimer opinion, as opposed to some kind of qualified opinion, at least that would be my experience in the past that I have been involved with in the private sector.

Mr. Schaffer. So you agree with Mr. Wofford that the $10.5 million discrepancy here is not sufficient to warrant investigation.

Mr. Rogers. I agree that a $10.5 million discrepancy is not misleading to the reader of these financial statements.

Mr. Schaffer. I am sorry, could you repeat or clarify what you just stated.

Mr. Rogers. I agree that $10 million, by itself, is not a material misstatement of the statements, and therefore not misleading to any reader of the financial statement.

Mr. Schaffer. Do you agree that the unidentified balance of 10.5 million is not material to the financial statement?

Mr. Rogers. Standing by itself, yes, I agree with that.

Mr. Schaffer. At our hearing last September, you said, and I am quoting you now, "I personally expect we will have a full set of auditable financial statements for the year ending fiscal year 1999."

Why do you feel that your expectations were not fulfilled?

Mr. Rogers. Well, there is a whole bunch of things that add up to that, but the principal thing is the delay in conversion to the new management system.

We had 10 months for the Federal success, and that caused us significant problems in the conversion process. Had we been able to convert earlier, I think we would have had a different outcome. The timing thing is very important here.

Mr. Schaffer. When President Clinton created the Corporation, he said it would operate not like a government bureaucracy but like a private venture capital outfit. This is the last year of the Clinton Administration. Do you feel this program has yet to fulfill the President's promise?

Mr. Rogers. That is an interesting question, because I don't know how any organization that receives funding through appropriations can operate as a venture capital organization, because they are not set up to operate that way because of the oversight process.

The other thing is, there is a whole bunch of things that are required, to see that we comply with Federal laws that are very bureaucratic in nature; and that, in itself, again would not allow you to operate as a venture capital process.

Most of the work that we do as an organization in response to the IG is compliance in nature. So it is, do we comply with a particular law or procedure? So that is a very bureaucratic process.

Mr. Schaffer. I think it is reasonable to expect that the President of the United States would understand those realities of the bureaucracy in the government. Nonetheless, that did not dissuade him from his opinion that this would be run like a private venture capital outfit. Do you believe the President made that promise to the American people, and us and to the extent that we are American people?

Mr. Rogers. Well, again I can't speak for the President on that.

Mr. Schaffer. But as to whether the program has yet to fulfill the President's promise, do you think it has?

Mr. Rogers. The way that I would answer that is, no, because he wants it to be bigger. And getting it bigger and try to deal with some of the challenges at the same time is a very arduous task, as has already been pointed out.

Mr. Schaffer. That is a fair answer, thank you. The law establishing the Corporation states that the CEO is to forward all IG audit reports to the board for its review. Has the board, as a whole, reviewed this audit report?

Mr. Rogers. I didn't fully follow your question.

Mr. Schaffer. I was asking whether the board as a whole has reviewed this report.

Mr. Rogers. Not yet, it will in due course, but it hasn't yet.

Mr. Schaffer. When do you expect that will happen?

Mr. Rogers. At the next board meeting.

Mr. Schaffer. When is that?

Mr. Rogers. June 12.

One of the things that that raises for me, if I may, Congressman Schaffer, is to say that one of the things that we need to improve is the communication process between management and the auditors, I believe, is an audit committee of the board where the IG and the outside auditors actually meet with the board thought its audit committee, which could be an extension of the current management committee, to discuss and try to resolve these audit issues well in advance of the time that the report is released.

Again, that communication process has not been effective, in my judgment, in the past, so we need something like that to do it more effectively in the future.

Mr. Schaffer. Given your disagreement with Mr. Wofford's assessments of the audit findings, as well as the failure of the President to fulfill his promise, I want to ask a candid question; and hope that I receive a straightforward answer, as well, about the performance of Mr. Wofford.

Does the board feels that Harris Wofford is effectively carrying out his duties as CEO of the Corporation?

Mr. Rogers. I definitely believe that he is at this time. He has shown, I believe, outstanding leadership capabilities. He has a very clear and compelling vision of a preferred future for service to America that has pointed a lot of people to do things they otherwise might not have done, including the people that work in different service organizations across the country. I think he has outstanding integrity and those are two great characteristics of successful leaders. I think…

Mr. Schaffer. One of the reasons that I ask…

Mr. Rogers. I wasn't through, but go ahead.

Mr. Schaffer. One of the reasons that the Corporation failed its audit is that it did not implement its new accounting system until near the end of fiscal year 1999. What disturbs me is that Harris Wofford told this committee back in 1996 that the new system would be in place and in operation during 1998, if not sooner.

I guess my question is why do you think this system took so long to implement and why was Harris Wofford not aware of the potential holdup?

Mr. Rogers. What I was about to say as part of the previous comments that I was making is that one of the things the board has done in carrying out his role is taking a much more active role in setting priorities for development activities of the Corporation, and clearly this is one on which we have had a lot of discussion with Harris Wofford.

While, initially, he was so enthused about bringing new programs to bear, he began to understand clearly that it was extremely important to get these systems in place. Once we got his attention. and I say that is principally in the last 18 months, he has done an outstanding job of supporting it. I can tell you for sure it is his number one priority at this time, as well as the Board's.

Mr. Schaffer. Mr. Chairman, I apologize. The staff just told me that the green light I was looking at was broken, so I just kept asking questions as long as that green light was up there. My time expired a long time ago.

Chairman Hoekstra. Congratulations. If Harris finally recognized 18 months ago that this was a priority, that means that for only 2 years he was lying to this committee when he was saying this was his number one priority in catching your attention.

This is the problem. You saw the litany of promises that have been made by the Corporation to this Subcommittee.

Mr. Rogers. Are you asking for a response from me?

Chairman Hoekstra. You indicated you wanted to say something, yes.

Mr. Rogers. What I wanted to say is, one of the things that Harris has done tremendously is build bipartisan support for this program. It has been absolutely critical to the work of the program.

Chairman Hoekstra. I am talking about a very simple thing that we have asked for 4 years, a series of six hearings, and an honest assessment from the Corporation as to when they were going to take financial management seriously.

From the beginning, Harris has said, I am taking it seriously; it is my number one priority. Now you are telling us that only maybe 18 months ago you finally got his attention.

I just need to ask a couple of questions. Can you form an audit committee on the board without Congressional approval?

Mr. Rogers. Yes, we can form an audit committee of the board. The question is specifically about how it functions, I believe.

Chairman Hoekstra. You said that you needed one?

Mr. Rogers. I think we do in order to get the IG, the auditors, and management and the board together in conversation.

Chairman Hoekstra. When will that happen?

Mr. Rogers. It will happen this coming year.

Chairman Hoekstra. Why has it taken that long if you could do that without Congressional approval?

Mr. Rogers. Well, that is a good question. I don't know the answer to it. I wish we had done it sooner.

Chairman Hoekstra. A venture capital firm, do their books have to be audited on a quarterly and annual basis to report back to their investors?

Mr. Rogers. If it is a listed public corporation, yes.

Chairman Hoekstra. If their books weren't auditable, which is a bureaucratic function, my guess is they wouldn't get a lot of people investing in them no matter how much bipartisan support they got.

Mr. Rogers. I think the comparison to a venture capital firm is quite inappropriate.

Chairman Hoekstra. Let's make it a publicly held company that has revenues and expenses of $750 million annually.

Mr. Rogers. If you put it that way, if they inherited the antiquated system that this organization made, it probably would have taken them a good deal of time, maybe less because they don't have a constraint on resources that this organization does to get the job done.

Chairman Hoekstra. Well, when you put it that way, it would be rare. Normally, it would not take 6 years.

Mr. Rogers. I said it would not if they were willing to commit the resources that were necessary to get it done earlier.

Chairman Hoekstra. Which is what we have been told for years that they were willing to do.

Mr. Rogers. It is my understanding that the appropriation that has been the requested for program administration has come in at a smaller amount than was requested. We had some details on that, which I would not presume to be able to report to you, but Ms. Zenker can if you would like to have those.

Chairman Hoekstra. I would love to have the details where there have been requests from that group to this committee for additional resources to bring the Corporation's programs on stream, where Mr. Roemer and I in the past, Mrs. Mink and I we have only had one request which was to assist in the approval of getting a CFO as quickly as possible. And we wrote the letters and I don't know if we accelerated or facilitated that process.

Mr. Kind.

Mr. Kind. Thank you, Mr. Chairman. Mr. Chairman, for the record, I have to object to your characterization of Mr. Wofford's prior testimony or any representations that he has made to this committee. To accuse a person of such integrity and character of out-and-out lying to a Congressional Committee, I think steps across the boundary of any sense of decency and fairness.

This isn't the first time that this Committee has out-and-out attacked people's characters and their integrity. This occurred throughout the Teamsters investigation as well.

In fact, I remember one occasion when you attacked one person, who will remain nameless right now, of out-and-out criminal activity. We produced him that same afternoon and pleaded with the Chair to offer him a chance to respond to the attack on his integrity, and it was denied.

And now you have gone after Mr. Wofford when he is not even present to defend himself and answer any of these accusations. I think it is inappropriate and unbecoming of a Congressional committee or Chair to do that.

I happen to think that Mr. Wofford has been doing a great job with Americorps. It is a program that I certainly supported at its inception. I see the Americorps students and what they are contributing to the community back home in my Congressional district. I am proud of those efforts. It is win-win program. It is benefiting the students who are able to offer something back to the communities in which they are going to school.

The kids that they are working with are direct beneficiaries, and they like the programs, whether it is the early childhood literacy programs that I see these students involved with or the after-school programs with the Boys and Girls Clubs.

I just hope that even though this is an appropriate role of oversight for this committee to play in regards to the financial status of Americorps, we shouldn't use this as an opportunity of attacking people in charge of administering the program or the program itself. I think there has been a resounding acceptance of it and an appreciation throughout this country.

Ms. Jordan, let me ask you a question before all of my time has expired here. I am sorry I deviated from the line of questioning that I wanted to get into, but thinking now into the future and given where we have come from right now and in order to avoid similar types of hearings in the future with regards to the financial statement, the auditors, to my understanding, have given the Corporation a clean opinion on its balance sheet, one of several financial statements. However, on page 3 of the audit report, the auditors report that because of an unexplained increase in unexpended appropriations of roughly $10.5 million, the auditors were unable to render an opinion on two of the Corporation's financial statements and they could not extend their procedures to determine the extent to which this matter affected the financial statements.

I think it would be useful to note for the record what audit procedures could not be extended or performed, so we don't have to repeat this again for the next fiscal year. And could you please inform us, as best you can, what specifically were the auditors unable to do that required a disclaimer on the two other statements.

Ms. Jordan. Yes, sir. And perhaps you would allow Ms. Molnar to also answer that question. She has more detail.

Essentially, what we look for is evidence to support transactions. There was no evidence to support transactions. In addition, the audit, not all of the transactions, but certainly those that would in any way explain the $10.5 million difference.

In addition, in the conversion, more than $7.5 million of transactions were booked to or recorded initially in the net position accounts. That is usually never done, never done except in unusual circumstances, and usually with permission of other individuals, and an audit trail is left to explain why these types of transactions are done.

The other evidence is reviews of fluctuations in accounts and management's ability to give explanations. I will hand off to Ms. Molnar after this, but essentially, at a certain point, the Corporation said, we can't find it, you find it. That is not the auditor's role.

Ms. Molnar. Do you want me to elaborate?

Mr. Kind. Yes, could you, please?

Ms. Molnar. Essentially, what Ms. Jordan said is correct. The reason we couldn't extend our procedures is because we didn't know what it was that we were auditing. We had performed a lot of audit procedures throughout our audit and when we got the financial statements and saw this amount that was reflected as an addition to unexpended appropriations, we asked for an explanation and it could not be provided to us. We believe that it is a result of the conversion process.

The amount you need to understand is a net number. It may be one or more other amounts that are, net, bound to the number $10.5 million. It is likely the result of a bookkeeping error, but our procedures and the Corporation's research could not come up with support for the number. And there was really nothing else that we could figure out to do to try to determine what the amount was. And because we didn't know what the amount was, we didn't know where it belonged in the statement of operations or in the statement of cash flows, we couldn't form a conclusion as to whether those statements were fairly presented. We didn't know which account it belonged into.

If we knew what it was, we could have corrected it, or the Corporation could have corrected it; and then we probably would have issued an unqualified opinion. But because we don't know what it is and could not figure out any additional procedures to perform that would have given us the answer that we needed, we arrived at the conclusion that we needed to disclaim on those statements.

Mr. Kind. Thank you, Mr. Chairman.

Chairman Hoekstra. My characterization of Mr. Wofford as lying, I will retract that. Let me just, for the record, since you weren't here during our opening statement, characterize exactly, or from the record state, what Harris Wofford has stated to this Committee.

In 1996, March, my understanding was that a 2-year period would be a period that would be the normal goal for engineering a new financial management system, end of quote.

September 1996, CEO, Harris Wofford, quote, "The task of selecting and implementing a new corps accounting system is one of the most important accounting decisions the Corporation will make. We are committed to having a system in operation during 1998, and sooner if possible."

July 1997, "The auditability of the 1998 fiscal year, which you referred to, we do not think is in jeopardy. We are in shooting distance of auditability, we believe, for 1997."

Mr. Kind. Mr. Chairman, if the gentleman would yield, my point is this.

Chairman Hoekstra. Just a second. I am struggling with how for a period of 4 years, six hearings, we continue to get rosy pictures and rosy expectations of where the Corporation is going to be not 2 years out, not 3 years out, but we are just around the corner. It is 6 months away, and we are going to be there next year.

I just don't know how you hold the Corporation accountable after 4 years with those kinds of promises. If the member has some suggestions that we are not taking into account, I would be more than willing to listen to them.

Mr. Kind. Mr. Chairman, with all due respect, if you want to take Mr. Wofford on, fine. If you want to hold his feet to the fire, that is fine. There are legitimate questions that should be asked, and we should demand answers for. But let's not attack a person's integrity or character without giving him the basic decency of responding to us.

Let's call him before the committee. Let's ask him these questions instead of accusing him of bald-faced accusations that I don’t feel there are sufficient support for. That is the point I am trying to make.

Chairman Hoekstra. What we decided last fall, when we asked Mr. Rogers to come and testify, was that it was no longer productive to have Mr. Wofford come and testify before the committee because of the track record of the commitments and the statements that he had made to this committee which continued to be unfulfilled. I didn't want to put Harris in that position of one more time coming in front of this Committee and making commitments, which, on the face, we could no longer accept.

Mr. Tancredo.

Mr. Rogers. Mr. Chairman, could I make a comment adding onto this, or is that inappropriate?

Chairman Hoekstra. We are a small group today.

Mr. Rogers. Eighteen months ago, one of the things we had struggled with up to that time was finding qualified people to do the work. Eighteen months ago, Harris found the right people to do the work. He had a lot of encouragement from the board to do that. But many of the people that served in key positions prior to that time were not qualified to do what was expected. And that is why, even though you characterize it as broken promises, he never promised something he didn't think that he could deliver.

But he didn't have the right people to deliver it. He has the right people in place now to deliver it. That is the key difference.

Chairman Hoekstra. You came out of the private sector. My guess is that taking that excuse to a board of directors where a CEO would go to the board of directors and say, I thought I could audit my books, but I didn't have the right people, and I didn't know for 2 years, tell me how far that excuse would go.

Mr. Rogers. One of the things that you have to understand about the differences between the private sector and a government organization is the board doesn't have a lot of authority in this particular area. There were some Presidential appointments that were absolutely inappropriate under the circumstances.

Chairman Hoekstra. It would be the responsibility of the CEO of the Corporation to know whether he had the talent or did not have the talent to meet the commitments, which he was making, and the promises he was making to this Committee. I don't think that is unreasonable to expect from Mr. Wofford.

I think on occasion we said, you don't have to go this far. I am reading the record from when you were here. It is kind of like, are you sure you want to go there?

We have had people from the Corporation. I think back last fall you went into areas that you didn't need to go into and maybe you wished you hadn't gone there. We did not force Harris to make these statements or commitments; he made these all on his own. He should have been aware as to whether he had the talent pool to execute these agreements or whether he did not have the talent pool.

Mr. Rogers. Can I continue to respond? It is a very interesting discussion because is like a moving picture, as I said, which is taking place over the years. I described Harris as a strong leader because of his ability to build bipartisan support; his vision and so forth; that there is a difference between leadership and management, and you understand that. Together, they are better.

But when it comes to planning, controlling, organizing and so forth, Harris had not had a lot of experience doing that prior to coming to this position. The board was able to help him with a lot of that stuff. It took a while to get some of that done. We did work very closely with him to try to get those kinds of things accomplished to make sure he was getting the right people in the right place to get the job done. And he did it. He did it.

Chairman Hoekstra. He hasn't done it yet. We don't have a clean set of books and a clean audit trail.

I highlighted the quote in your testimony where you said, "An audit is a point of time, and it is not a moving picture." We have the moving picture. We have four. I don't know how many? How many attempted audits did we have, three or four?

Ms. Jordan. We had 1997, 1998, 1999, three plus one on the Trust Fund.

Chairman Hoekstra. So this is a moving picture. We are not taking a look at an audit for the first time; this is a moving picture. It is moving very slowly, so don't say we are just taking a look at one point in time.

I am sorry. We have looked at this for close to 36 months now, if not more. Don't try to tell us we are looking at this at a point in time.

We are looking at a moving picture over a period of time and over a period of time where we have run close to $3 billion through this agency; and now we are being asked to look at a single point in time for 1999, to take into consideration all that has happened since, in the last 3 or 4 months, and forget about everything that you have gone through in the 36 months.

I am sorry, but it is like "fool me once, twice, three times." I think we are on "fool me number 4" with some of the testimony and some of the promises. I'm sorry; it is now "show me that this is done," rather than accept the promises. I don't believe it. I am skeptical.

Mr. Tancredo.

Mr. Tancredo. Thank you, Mr. Chairman.

Mr. Rogers, I would like you to just refresh me a little bit upon your testimony with regard to the communications problems that you identified. You mentioned more than once that you felt either a lack thereof or a problem in accomplishing some amount of communication that you felt was responsible for a lot of the problems we are dealing with.

Could you elaborate just a little more about exactly what communication problems? With whom were they evident?

Mr. Rogers. First, there is a difference between a government organization and government-funded organization and a private one. In a private one, the auditors do report to the board and specifically to the audit committee of the board. And actually the audit committee is the one that selects the auditors for each year. That is a very deliberate role that the board, and that every board that I know of in the private sector has that kind of arrangement.

In the government arrangement, a member of management selects the auditors, "a member of management" is the IG, and then the reporting from the independent auditors is at the decision-making level is to the IG, who reports to management. I am saying that is a relationship and a process that isn't working as effectively as it should, given all of my experience in working with private sector organizations.

So I am saying what we need is a better way of making sure there is a really good audit resolution issue process in place up front so that KPMG or whoever the outside auditors are, the IG management and the board, are interactive in this discussion of resolving out the issues so you don't get a report from management that says we don't agree with the auditors, and you don't get a report from the independent auditors that might have been different if more time was invested in investigating. But the options that you have available in a government organization just don't permit that.

Mr. Tancredo. Do you think that the OIG provided inaccurate information?

Mr. Rogers. I did not say that.

Mr. Tancredo. Let me ask you was it accurate information?

Mr. Rogers. The OIG’s information?

Mr. Tancredo. The information that it provided to you?

Let me go back to some testimony that was provided, written testimony. The CEO's letter describes the communication, audit communication during the audit process, as too limited. Ignoring the fact that the Corporation's chief executive officer, chief operating officer, and chief financial officer received monthly OIG audit management reports, which provide information on the status of all ongoing OIG audit work, including financial statement audit, my question to you here is, I am trying to find out exactly what the problem is you have alluded to in terms of this convoluted communications process; and I want to know specifically if you are saying to me, this information provided you got this every month, correct?

Mr. Rogers. Specific dates, approximately every month, yes.

Mr. Tancredo. Her testimony was, that monthly OIG audit management reports were received every month; is that correct?

Mr. Rogers. I am actually holding up a copy of the report that is received, and it does describe very limited information, but it is information of substance I don't think that enables management and the IG to get engaged in a conversation that really gets at the heart of what the problem is and getting it resolved.

Mr. Tancredo. Ms. Jordan.

Ms. Jordan. May I respond to that? It is absolutely necessary for me to.

Not only are there monthly written status reports, but also there are monthly briefings by me personally to the top management of the Corporation. I need to clarify for Mr. Rogers that I am not considered a member of management. I am the independent Inspector General. Moreover, in those briefings in December and January, I reported to the Corporation that their failure to provide critical information for the auditors was resulting because we had a March 31 reporting deadline to a compression of the audit in essentially 5 to 6 weeks.

The audit was essentially performed in the last week of January, all of February, and the beginning of March. KPMG had to do everything in that compressed time period because we didn't have the information to spread it out.

Yes, it would be wonderful to have formal briefings, but we didn't have the luxury anymore to have big formal briefings. We did, in fact, have the normal monthly communication process where they were alerted and we discussed and they discussed the problem of this unexplained difference. We were all aware of what the differences are.

Moreover, the Corporation has an audit committee. The former COO and I established it as an initiative. That audit committee has failed to meet for 1 entire year.

Mr. Tancredo. For heaven's sake!

Ms. Jordan. One other point. The board has a management, budget and governance committee. I have twice provided them information from audit firms on establishing an audit committee of the board.

Last point: Procurement of the audit is done under Federal procurement standards. However, Corporation management has had one person who has participated in that selection. We have never closed the Corporation out of this election process. The audit is bid for a 3-year period. It is selected fairly. The audit contract provides for briefings by the auditor, KPMG, and before them by Arthur Andersen, to the board whenever the board is chosen. The board has never chosen to ask for a briefing by the auditors.

Mr. Tancredo. Mr. Chairman, I do not know. Believe me, I was going there, Ms. Jordan. I didn't have all of the information, but I was going to exactly the point you made especially about the briefings on December 21, and 27. What about the 17th of February?

Ms. Jordan. The date varies. I was correct in my testimony, according to my calendar and the briefing sheets, and we have one once a month.

Mr. Tancredo. Mr. Chairman, it is absolutely apparent here that those attempts to put up some sort of Potemkin village wall; that is the only way I can really describe your testimony, Mr. Rogers. I don't know how else to do this; and I hate to be as blunt as this, but I do not know any other way to characterize it.

You know what a Potemkin wall is? It is a wall that blocks what is going on behind it. It is made to look as though you have a very happy little village as you float down the Volga, but what is going on behind it is something quite ugly. That is the impression that I get from what you said and from what the response has been and from what I have read here. And it makes me, although I would certainly want to go the extra mile, understand exactly what the problems are so that we could help, if we can, or help you overcome them. You see how difficult you make it if we continue to sort of offer up a smoke screen?

Mr. Scott. Thank you, Mr. Chairman. We usually allow a little more time, but since the bells rang and this will probably be the last round, we need to comply with the time limits.

When I left the Virginia Senate a few years ago, Financial World Magazine ranked Virginia number one as the best financially managed State in the Union. So this kind of hearing is particularly disturbing to me.

Ms. Molnar, you are a partner with KPMG?

Ms. Molnar. Correct.

Mr. Scott. Do you audit other agencies, other than this one; do you have experience in that?

Ms. Molnar. Yes.

Mr. Scott. Is there anything unusual about this agency that makes it difficult for an audit to take place? Is the work they do or the nature of the way payments have to be made, is there anything unusual about this that would make it difficult to keep up with the money?

Ms. Molnar. No, I don't believe so.

Mr. Scott. 1993, when this new organization formed, did they start from scratch? I can imagine if you have an old agency where you have got inventories, several generations of accounting systems and whatnot, did they start from scratch when they formed in 1993?

Ms. Molnar. I believe that is not correct. They did inherit the former commission that was set up for volunteerism. I don't remember the name of it, but I do know that it was merged into the new corporation.

Mr. Scott. Did they start off with a new bank account, new balances, or did they try to carry over everything that had been inherited?

Ms. Molnar. I really can't speak to that directly. I was not involved at that time. I would assume that there was carryover of bank balances, appropriation balances, but a new appropriation was set up separately since that time.

Mr. Scott. Every appropriation was set up separately?

Ms. Molnar. As was required.

Mr. Scott. Tell me how this works. We appropriate a couple hundred million dollars from the Federal Government. What happens to the cash? Is a check written, is a deposit made, or something like that?

Ms. Molnar. No, the U.S. Treasury maintains it.

Mr. Scott. And the checks are written on the Treasury, just general treasury account? If the money leaves, or if you write a check what happens to it? What happens to the money?

Ms. Molnar. It is disbursed to whomever the check was written out to.

Mr. Scott. And so for every dollar that the agency purports to spend, you ought to have a paper trail for that expenditure?

Ms. Molnar. There should be supporting documentation for disbursements, correct.

Mr. Scott. You have the disbursement; you know that a disbursement was made. In the Treasury, a check is written and whether or not there is documentation would be the next question? But do you know the check was written?

Ms. Molnar. I don't know that I can say that for sure.

Mr. Scott. You said there is $10.5 million missing.

Ms. Molnar. No, sir, I did not say $10.5 million was missing.

Mr. Scott. Well, tell me what the word is? Let me get one thing out of the way. If somebody had stolen the money, would you know about it?

Ms. Molnar. I don't know that I would know about a small amount that may be missing, but the $10.5 million that we reported as an unidentified increase in unexpended appropriations does not represent money that is missing.

Mr. Scott. Does it represent any money that could have been stolen?

Ms. Molnar. No, sir. What we are talking about is an increase, not a decrease in the Corporation's assets.

Mr. Scott. Okay. So the Corporation has too much money?

Ms. Molnar. They may.

Mr. Scott. They have money in the bank account that they can't account for how they got it?

Ms. Molnar. This is not a matter of the bank account. This is a matter of the change from last year, the September 30, 1998, net position, the difference between their assets and their liabilities, and the 1999 amount of net position, which is the difference in this year's assets minus their liabilities.

Mr. Scott. The thing that confuses me is, you ought to have some checks written, whether or not there is documentation for the appropriateness of the check or not, or you have some deposits made. The check may have been written to somebody or to a credit card company and they don't know what it was for, but you ought to know that the check was written. That is why this is difficult for me to understand.

Ms. Molnar. I understand that you do not understand what the reason is, and that is actually the point of our disclaimer. The reason is that we do not know what the $10.5 million is. It does not have anything to do with checks that were written. We don't believe it has anything to do with the Corporation’s bank transactions.

Mr. Scott. Unfortunately, we are running out of time and I would like to ask Mr. Rogers one question.

I assume that you are aware that these accounting problems jeopardize your mission. Can you tell us what you have done since the last appropriation, which was $472 million? Can you tell me what the taxpayer got for that expenditure, which may be in jeopardy because of all of these accounting situations? How did the country benefit from that expenditure?

Mr. Rogers. The main thing is the furtherance of the mission of the Corporation in local communities around the country, so there is a lot of service being done that otherwise wasn't being done. That is the principal reason that I can say there is value added out in the communities.

And there is a lot of research to support that. We would be happy to make that research available that shows the value added of a dollar invested in the Corporation out in local communities.

Do we think we should be totally accountable and responsible? You bet we do. The board feels very strongly about that, and management feels very strongly about that. We think we are making very good progress on it, but we are just not totally there yet. We hope we are going to be there in the very near future. I know if I suggest that we might have a clean opinion next year that would be a mistake because there are things that can stand in the way of that.

It is again our goal to have a clean opinion, and it is our goal to have a much better base of financial systems to support further work.

Mr. Scott. Have you been appropriated enough money to pay for the people that are needed to get the job done?

Mr. Rogers. We have never received as much as we have requested from an appropriation point of view, in the history of the Corporation, to do this kind of work.

Chairman Hoekstra. Mr. Scott, I have a couple of questions that I want to ask.

Mr. Scott. This is a quick question.

Is your appropriation line item where you had the $472 million, is some of it set aside for administration so that that is the line that you want increased?

Mr. Rogers. We have requested an increase in it.

Chairman Hoekstra. Last week in the supplemental appropriations bill, one of the things in the audit report says there are questions about States' funding and the auditability of the States' commissions. We asked for $1 million for the IG to be moved over there. Do you agree with that effort?

Mr. Rogers. Yes. I think it would be very useful to help the State organizations in their work in oversight at the local level by increasing their administrative support.

Chairman Hoekstra. I am not talking about administrative support, but going in and making sure they are spending the money in compliance with the law and the rules and regulations.

Mr. Rogers. Then I am confused.

Chairman Hoekstra. We gave a million dollars that to the Inspector General to audit State commissions. Do you agree with that effort?

Mr. Rogers. I see. You are asking about agreeing with the IG.

Well, regarding the IG's appropriation I don't think that I am the right person to answer that. We have a standards program, a performance program that we are implementing in all of the State offices. We are out there looking at those operations as well.

Chairman Hoekstra. It was mentioned in the audit report as a concern that State commissioners are not spending in accordance with the rules and regulations and that there are weak controls. We are asking for more money for the IG to go after that.

I would hate to be here next year and say that the national is now clean, but now you have problems at the State level. Do you agree that the Corporation should receive increased funding this year?

Mr. Rogers. I do.

Chairman Hoekstra. Do you? You are going to put more money through that? Okay.

How can you ask for more money for an organization that can't keep its books? That is a rhetorical question.

I understand your commitment to the deep mission, but for 4 years we have funded it and I am glad you are pleased with management's commitments and accomplishments. Coming out of the private sector, 4 years of this kind of work by a CEO of a corporation, very clear to me. He is leaving. I am only disappointed that perhaps that request wasn't put in earlier, because we have put up and the American taxpayers have put up with 4 years of mismanagement. That is disappointing.

He may have a wonderful vision, but he never brought in a counterpart to actually operate this organization the way that it needed to be operated.

This is not brain surgery. Corporations all over America do the basics. The basics were never done and are still not being done at the Corporation. It is a huge disappointment to me and, I think, the American taxpayer. I am not pleased with his performance. I am very displeased with his performance and it is difficult in a political arena because we know there will be a new CEO of the Corporation for National Service. It is a time for that to occur. It needs new leadership.

Mr. Rogers. Mr. Chairman, I would respectfully disagree with you.

Chairman Hoekstra. I knew you would. I read your testimony. You disagree with it.

But I have put up with 4 years of people coming in here and making promises, and they have all been unfulfilled. I would not tolerate that in the private sector, and I don't know why I need to tolerate that here in Washington.

Mr. Rogers. The same thing you are looking for here is accountability or control over the money.

Chairman Hoekstra. I think if you are looking for accountability and control, the tone and the tenor would have been significantly different in your testimony. This is one that says we are okay, and we are on the way. This is not the testimony of a board or a chairman of the board that says we are disappointed in our performance for 3-1/2 years, we recognize the problem, we recognize we don't necessarily have all that much credibility with you, and we are doing the best that we can. This is a rosy picture of a pretty ugly picture.

Mr. Rogers. That is how you interpret it.

Chairman Hoekstra. That is. That is what I have read.

With that, the Subcommittee is adjourned. Thank you.

Whereupon, at 3:58 p.m., the Subcommittee was adjourned.