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Michael J. McCord, Under Secretary of Defense (Comptroller), Holds a Press Briefing on the Results of DOD FY 2022 Department-Wide Financial Statement Audit

CHRISTOPHER SHERWOOD, PUBLIC AFFAIRS SPECIALIST IN THE OFFICE OF THE ASSISTANT TO THE SECRETARY OF DEFENSE FOR PUBLIC AFFAIRS: Good afternoon everybody. Thank you for being here and to those who are on the phone as well. I'm Christopher Sherwood. I'll be moderating the press briefing and following discussion. The topic of today's briefing is the department's results of the FY '22, Full Financial Statement Audit. Our speaker is the Under Secretary of Defense Comptroller and Chief Financial Officer, Michael J. McCord. Our discussion is on the record, embargoed until you receive an email from me later this evening.

Once the Office of the Inspector General sends out agency wide results to the comptroller, I will send an email to you releasing the embargo. For this discussion we have 30 minutes, I will provide a final five minute warning before the end of the briefing. Please introduce yourselves and your organization and please limit your questions to one and one follow up, and with that it is my pleasure to introduce to you the Honorable Michael McCord. 

MICHAEL J. MCCORD, UNDER SECRETARY OF DEFENSE COMPTROLLER AND CHIEF FINANCIAL OFFICER: Thank you Chris. Good afternoon everyone. I am Mike McCord, the Under Secretary of Defense Comptroller and CFO at the Defense Department. We're here today because the department has completed our fifth annual consecutive financial audit of the full department that is. Every year, teams of independent public accountants known as IPAs, I'm assuming if you're sitting here you know what the term IPA, but Independent Public Account Audit our $3.5 trillion in assets.

Through 27 different stand alone audits of DOD components. The DOD -- DOD Inspector General then audit's the departments consolidated financial statements, of consolidating those 27 audits which include the military services, other DOD components such as defense agencies and several other smaller funds and entities throughout the department. This year the Marine Corps is undergoing a two year audit cycle that will be completed next year. So they're not really included in the audit results this time as they normally would. I can explain that issue if you're not familiar with that afterword.

So today I'm speaking about the 28th audit as I would think of it. The consolidation of the 27 smaller audits inside DOD done by independent firms. Before I share some results of this year’s audit, I want to start by recognizing our relatively new Deputy Chief Financial Officer Tom Steffens. Tom joined us at the end of May having served for many years as the CFO at the U.S. Army Corps of Engineers, and so we're glad to have him on the team. We want to leverage Tom's years of experience in getting on modified opinions at USACE and bring that here to the larger department. 

This afternoon I'm here to talk about the audit, but not here to speak for the auditors. The auditors are independent from DOD and I'm just here on behalf of the management team who are the clients or the subjects of the audit. The audit was carried out, as I said, by multiple audit firms, you know the names, of course Ernst and Young, KPMG, Kearney, firms like that, under the supervision and coordination of the Inspector General's Office. It has not been the IG's practice to make a press statement about the results, but that's up for them to decide what to say, when to say it about the results. We do expect that they will release these results today. They have not done so yet. I was just advised but we do expect that today. 

So again when I refer to the audit, that's my shorthand to talk about the, again, the IG taking the big picture of all the audits that were done by others and putting them together for a consolidated opinion. I've been meeting with the audit firms, these private sector audit firms over the last couple of weeks to get a preview of what they expected their results to be. So I don't have final written products from them, but they previewed what they found with myself and our team. So the insights from those discussions are really the primary source of my remarks today, but later today we will release, assuming that the IG completes their -- hands us their audit, the annual financial report of the department will include the IG's report and the DOD components will also release their reports today. 

So a lot of information should be out by the end of the day. These reports represent an enormous amount of work over the past year by the entire DOD financial management workforce. As well as members of DOD, other communities, logistics and personnel and so on that open their doors to the auditor visits and responded to requests for information. So the DOD, IG and the independent auditors and GAO are all partners in this effort. Of course, all of these actors are independent right, from us and from each other. The IG is separate from the GAO, separate from the independent firms and all -- again all independent from us. We do talk and we do share views and information. 

The results of the fifth annual DOD wide financial audit will be a disclaimer of opinion for DOD as a whole. This is the same as last year and, you know, not unexpected. We did expect this disclaimer but we will also sustain all of our prior year positive opinions, which cover approximately 39 percent of our assets. So think about these 27 different opinions of different sizes. Nine of them or about 1/3 of the number of audits but more like 40 percent of the assets are clean opinions and one is modified and the rest are-- are disclaimers. This is basically the same picture of last year. I can name you the -- the nine, if you're interested, but I think I'll leave that for the record in case you need it we can usually provide that. That will be on our written materials for sure that the nine entities which are the same as last year. 

Just to give an example, that's for the 28th consecutive unmodified opinion for the military retirement fund, which is really one of the hugest funds that we have or hugest entities that we have in the department. Twenty-third consecutive clean opinion for DFAS, 15th consecutive for the Army Corps of Engineers. So we have these pockets of success that we need to build on. We also received a qualified opinion on the Medicare eligible retiree healthcare fund, and then we got a disclaimer on the consolidated financial statement, as I said as a whole, same as last year. We have three metrics that I think lend themselves to counting, none of which tell the whole story but all of which are objective and, you know, understandable.

One is how many opinions were clean opinions or modified opinions or disclaimers, as I said that number did not change from last year. The second thing that you can measure easily is how do -- how many notices did the auditors write up those who notice -- known as notices of finding recommendations or NFRs. These number in the hundreds of not the thousands when you look across all 27 audits. As of November 4th, the auditors had validated, we had closed about 458 of those from last year out of the 3,300 from last year we expect that total will increase as the numbers get wrapped up. Also the auditors had issued 1,742 new NFRs of which about 243 were brand new and the other 1,500 were reissued or recurring. So the second thing, again, the big picture did -- did the Army general if passed an audit or not pass an audit. 

The smallest level that's easily accountable is individual write-ups of hundreds of things that the auditors said go look at this. So the third category is in between, is what we call material weaknesses, which are categories of the findings that if there's a pattern within that -- within the findings that -- there's a whole subject area that you need to work on, that's called a material weakness and that's sort of the third thing we measure. Again, we stayed -- we stayed basically steady there, the IG found 28 of these across the department. They had basically a plus three and a minus three netting out to the same number overall of material weaknesses across DOD. So again, you know, not the progress I would have hoped for, we had hoped to get one or two of those knocked off in the win column. 

But at the end of the day, what the results came it was not all of them made it. Our investments in things like IT also are paying off, in addition to, I guess really there's a fourth thing I can say that we -- that are easily countable. In addition to the opinions of an entity like TRANSCOM or defense agency, there's also processes that are common across the department with a bit of a tongue twister of a name statements on standards of attestation engagements. These are called SSAAT examinations, and we have 37 systems that were done by eight different providers that are subject to these examinations. The number of these opinions, unmodified opinions decreased by one actually from last year. The number of qualified opinions moving up from the lowest category moved up, so again sort of a mixed bag there.

So these are the business processes we use across the department, so if you examine this process that is used across multiple components once that it passes, then you don't have to have every single person using the same process pass that. So that's, again, another countable standard that we use to assess our progress. The best examples of these processes and some of the most important to me are the ones that are separate but similar, the ones that we use for military pay and civilian pay. Both of these processes received unmodified opinions again this year. I highlight these because although we have a lot of work to do, the one thing that we have to make sure we do first is taking care of people in line with the secretary's priorities. So not making mistakes on Milpay and Civpay are a high priority to us.

When you then add that the clean processes for paying people, on top of the unmodified opinion on the military retirement fund, which is about 36 percent of our assets, in a qualified opinion on the retire -- on the military retiree healthcare fund, you have this, kind of, concentration of -- of higher performance on us on the pay and benefits side which is important. We are still challenged with evaluation and existence of inventory equipment, real property assets. This is probably going to be the long pole in the tent for us. My offices continue to partner with the Office of the Under Secretary of Defense for Acquisition and Sustainment to address government property in the hands -- in the possession of contractors. The joint strike fighter, with some of you familiar with, is probably the biggest issue there, as well as on reconciling inventory accounts, evaluating our assets.

We are committed to working with A&S and other-- and the services of course to work on these. So that's a real high level on the financial statement audits. We expect the military departments will have some materials put out today for you also. Each of them has more than one as -- if you follow this. The Navy has two plus the Marine Corps is really a third. The Army has two plus the Corps of Engineers. The Air Force has two. So within the 27, each of the military departments has at least two of those. One for their general fund, one for their working capital funds, you should expect to see those today. Each of them will highlight where they have made progress in closing a weakness or downgrading one. The Navy, for example, downgraded their environmental liabilities which is a very major part of their overall liabilities. 

Two other components each downgraded, one material weakness. I would prefer to see more progress, of course, but we are peeling off the layers and making, you know, as we get sort to the harder things, the progress is getting harder as well. I would say each year the auditor findings and recommendations to us increase in complexity and in terms of degree of difficulty, with much of the lower hanging fruit having been picked. So as we move forward, we have to continue to focus on leadership and collaboration across DOD to solve these more difficult challenges, because we all have this role to play in support of the strategy and the support of our DOD strategic management plan. The deputy secretary has made clear that we are going to, if anything, try harder on the audit if we need to.

She wants to see progress, the secretary wants to see progress, we all want to see progress, and the services are working this, again, each of them have their own stories about their efforts that are paying off in different ways with their own areas of focus. The Navy has done a good job on improving inventory accuracy for example, in their Naval systems command. Accuracy of inventory is very important for both cost avoidance of not ordering things you already have and for mission support making sure that we have what we need, where we need it for the warfighter. The Navy also has decommissioned 11 legacy systems this year and deployed, I think, 176 robotic process automations and we'll talk about some of that today. So called bots are allowing us to reprioritize labor hours to other things.

So even if you haven't yet got to the point where you've got -- turned a disclaimer into a clean opinion. If you are going faster, that is still progress. That is the harder category. I talked about things that are easy to count, going faster is countable saving labor hours is countable to a degree, but until you get the flip the results, it might be hard to see the -- the value. But as you can get the auditor, the information faster, you improve your chances of passing and you also allow, again, free up people to do analysis instead of crunching. So that's an area of real progress for us is in the employment of these robotic operations. As of this June, we had 559 bots deployed across DOD, 54 percent of those were sort of aligning to processes relative to the audit.

You know many bots, of course, are off in other areas of DOD doing other things. They're not just for us, 17 percent of these directly supported our efforts. The Army -- the Army's made progress on this, on the first attempt one of their bots successfully pulled 96 percent of samples in one day. Something that would normally take five or 10 days, so again this kind of speed doesn't -- hasn't yet flipped the needle or moved the needle in terms of moving an opinion but its one of the things that we believe is going to help us. The Air Force has done -- made some progress in terms of doing their validation. They've again, with this same sort of automatic processes have sped up a validation from three months to seven days. Something that used to take three months, now done in seven days this year. Inventory site visits for one visit just for example, Lakenheath Mildenhall and at Ramstein to over in USAFE. 

One hundred ninety-six thousand line items were counted by auditors with 99 percent accuracy. Something that would have taken much longer, more difficult to do without these -- these new processes. Last thing I'm going to say, before I take questions. Let me wrap by emphasizing the importance of audits to our long-term efforts to modernize DOD. We're all committed to this effort, each component with a disclaimer has had a process, has with milestones to downgrade their material weaknesses. Any deviation from these plans is going to require sign-off from up above, so that we can be -- have visibility on the things that are causing us to be problems or barriers rather than just, we don't want things to slide to the right just because we're not requiring people to come back and report on their schedules. We're also making -- making progress on metrics and dashboards, probably a number of you have heard the phrase Advana in different context. Operation -- in operational support over the last year or two, the same is true on the audit side that having these kind of common sight pictures of data is one of the areas where we're making progress. 

So again, I want to thank you all for coming today. We have a press release and a fact sheet that I think are going to go out with the financial report. You should get material, the IG will include their report in our financial report and post that today. And again, the IG will decide for themselves whether they're going to say anything further, but I'm happy to answer any questions at this time.

MR. SHERWOOD: Thank you sir. We'll start on the phones. We'll start with Tara Copp, AP.

Q: Hi. Thank you for doing this. I wanted to ask if you were overall disappointed that the Pentagon hasn't been able to achieve a clean sheet yet. I know that sometimes when you're brought up before Congress, members often ask, you know, when are you going to get there. My question is, when do you think the Pentagon will be able to get there or do you think that it’s such a complex organization that maybe they'll never be a clean review?

MR. MCCORD: I'm certainly not going to make a prediction that goes out to eternity. I would say and I think this is, kind of, what I said last year. That when I see a major building block of the entire department flip from a disclaimer or -- or a modified opinion, even to a unmodified opinion say, you know, an Army, Navy, Air Force, something that size. Then I think that that's the point that we should be really having a conversation about how close are. But when none of the really big blocks, other the retirement fund are there, or when not enough are there I think we are not at that point yet. So I certainly would not say that we'll never get there, I am disappointed that we didn't show more progress this year. I was not thinking that we would go from nine unmodified opinions last year to 27 in one year. So that didn't necessarily surprise me, but I was hoping for more progress than I saw.

MR. SHERWOOD: All right, and in the room. Mike Stone.

Q: Mike Stone from Reuters, thanks. So based on your conversations with independent auditors, just cleaning up some language, last year the language was there were expected to be nine unmodified, should we use that same language. Because all these things have finally gone through the "Plinko" of -- of being --

MR. MCCORD: That is correct. In particular, there I think within the nine, there are -- there is at least one. There's either one or two that may not complete until next month, which would have to be acceptable, of course, to the IG. That -- and I think one of them is the IG. So yes, expected is the correct term.

Q: OK. So to my real question which is, well I'm going to come -- the cost went up five percent, 4.78 percent. So, can you talk about why the cost went up, a number of site visits went down by a few hundred number of virtual visits went down by a few hundred. So can you explain that? 

MR. MCCORD: Well, right now, with inflation, we're seeing the cost of a number of things go up. I don't know specifically if on these contracts that is the -- that is the assertion of the IPAs billing to the customer, as to why it went up. We did see, I would say, a normalization -- not normalization but -- but a rebalancing of the virtual versus the -- the in person to what I think might look like the more new normal, but I don't have any specific information as to whether -- what the billing is associated with that is.

Q: My final question, thank you for indulging me. The audit survey's major weapon systems Avenger and Hawk are major weapon systems that counts, to make sure that the tanks are there and stuff like that. Did the audit count those systems which are being sent to Ukraine, does the audit facilitate weapon shipments to Ukraine? 

MR. MCCORD: I would say the processes that you go through to be in a position to do your audit and facilitate that. I know -- the Army reports to me that there have not been issues of say, if we -- if the Ukrainians ask for them we'd agree to give 1,000 of Hawk or something else that we go and file, we don't have 1,000. That has not been the issue. I think where we have, with respect to the transfers, the issues are probably what you would expect right, is if we have this 1,000 sitting over here. Are they all serviceable and then what's the impact on their readiness to give them these things? So those are the primary (inaudible) that we have not had any cases come to my attention where we thought we had something and then -- you know our records, and then find out in reality that we don't have them.

So that has not come up so far to my knowledge. I would ask you to check, you know, double check with the Army and then specifically as to whether they're counted in the audit that should depend on whether they were transferred before or after, you know, the snapshot that the auditors took as to whether they're still on our books. But, yes, I would say that the process, over many years of this should be helping us make sure that we don't have the kind of problems that -- of having something on our record that doesn't exist in reality or having big discrepancies.

MR. SHERWOOD: All right. We're going to go back to the phones. We'll go to Tony Capacio, Bloomberg.

Q: Hi. So, in layman's language did the Pentagon, once again, flunk its audit? You recall that when first came out, the Pentagon flunked the audit. Was this -- is this an F or a D-, D+? Simplistically how would you grade it?

MR. MCCORD: I would say that we failed to get an A and remember that getting an unqualified opinion is a higher standard, it is not standard of perfection. But we talk about material weaknesses in particular, material is basically a 99.9 percent standard. I mean, that's not probably absolutely true everywhere, but it means you are 99 percent accurate and so one percent, being one percent wrong of -- as the secretary likes to say, one percent of a big number is a big number. We have very big numbers here at DOD, so we can have numbers that may look big that are still quite accurate. I would not say that we've flunked. The process is important for us to do and it is making us get better. It is not making us get better as fast as we want. 

Q: Can I ask you a Ukraine follow up there? So what you're saying, if I'm hearing you right. That even if these persistent issues with inventory visibility that you say the Navy's done a good job with, these do not filter down to the level of 155 shells and GMLRS and Javelins, that the Army doesn't have good visibility into its crucial munitions. There's no correlation there. Is that correct?

MR. MCCORD: Right. I'm saying that having checked with the Army just in the last couple days, to get my facts right. First of all, I have not heard in any Ukrainian meeting that we -- that we thought we had something, we promised it, or we were about to promise it then find out that we didn't have them or they didn't work. There are some stockpiles that we've had to look at for testing because they're older than some of the other stockpiles, but in terms of having records be out of whack where we don't know what we have, that has not come up. If I could take one second to just, kind of, touch on the Ukraine thing a little bit, and this is a point I made to our whole FM community at our big annual conference in Atlanta earlier this year, is to me the Ukraine thing is actually a very teachable moment for us on the audit. 

Because we are not used to, as the United States, you know, we've not been in a conflict with a peer competitor, a kinetic conflict as the Ukrainians are with the Russians. And, so we've not been in a position where we've got only a few days of some critical munition left. Right? But we are now supporting a partner who is and so when they appeal to us for help and say, I've got a weeks worth left of something, this is hypothetical. I don't want to use an exact example but when we've got a weeks worth left of something, when can you get me more? I mean that's a, to me, a really great example of why it matters to get this sort of thing right, of counting inventory, knowing where it is and knowing when it is. 

Because when that request comes to us, the secretary in turn doesn't ask us, well about how many do we have? About when do we think they can get there? He wants to know exactly how many we have and exactly when TRANSCOM's going to get them there, and TRANSCOM, by the way, does an incredible job of being on time from the day the secretary approves something, to the day its on an airplane is only a day. I mean, it's getting right over there, but again this is something that now I've asked our people to imagine that was our folks, our men and women in uniform who are up against it in a way that we're not used to, being -- having only a couple days of. This is why it matters. I'm not saying that insight is going to flip everything to a clean audit overnight, but I think it is an important thing for us to message across DOD and I've tried to do that in my -- in my talks with people who work here. Think about putting our people in that position, having that kind of dependence, you know, on need to know where it is, what it is? Is it serviceable and can you get it there real quickly? 

Q: Thank you.

MR. SHERWOOD: Travis Tritten.

Q: You said that this auditing is getting harder after you've gotten all the low hanging fruit and that doesn't sound like a situation that's going to improve. So should we be, like, expecting this type of very small incremental progress in years going forward, future years?

MR. MCCORD: Well I will say that I have been back now for two years and when I left before, we were not -- we were doing the 27 pieces. We weren't doing the whole thing right. So I've been here for two of the whole consolidation look and I've seen somewhat modest progress both times. So it would be hard for me to say based on my two data points being back that I would expect that the ramp is going to go up like this. I do expect it to go up. We are seeing people invest in systems and analytics and things like that I think are going to pay off, but at the same time it’s fair to say that we have some challenges. In particular on putting a value on inventory, and that it’s still a pretty big hill for us to climb. 

And so, you know, the way that audits work is -- is if there's a, you know, there's all these areas. And so the Army, for example, to pass an audit for the Army general fund has to get everything right. It's not like you get, you know, four B's and a D and say I got four B's. You got a D. Right? Because -- so I think of valuing properties probably the hardest thing for us to do. I would say systems are probably the most important thing for us to do, reducing the number of systems, getting the right controls on systems. That's kind of been one of my priorities and that's one of the secretary’s three priorities. There are areas where I think that real progress is going to come in the next two years, but having it being across the board. It has to be across the board for these opinions to flip over and that I think is going to be hard.

Q: Just a follow up. You know, for the average service member, or the average veteran taxpayer, why should they care about this? Why does it matter if the DOD gets a clean audit?

MR. MCCORD: Well, I think many people feel that its -- that it does improve taxpayers or veterans or service members confidence if they would see that, or if they see more clean opinions than we have now. I will say it is not the only way, it's not the only type of accounting that we do, for example, the Congress gives us money to build 20 airplanes. The financial audit is not the only way or even the primary way that we would be able to tell Congress or a taxpayer we actually bought 20 airplanes. But that money -- right, there's plenty of eyes on that from the committees and the contractors and everybody else. Right? So there's budgetary accounting and it’s connecting those obligation to our records that turns -- that is an audit issue. Similarly it is not, as I'm sure you're aware, the only way that we detect fraud. 

There's DCAA and there's service investigators. There's plenty of different ways that you can look for fraud but the audit is helpful to that. So it does matter but it is not the be all, end all and I -- I probably have said this before, but again not to undervalue the audit, but in fairness, an audit -- passing an audit doesn't tell you that you spent the money wisely. It shows that you can match the records of the obligations in a financial system to the contracts but that might be for a plane that didn't work right, or for a plane that was not effective in combat. So there's a lot of things you're trying to get right here at DOD and the audit is an important part of that, but it is not -- it would not by itself mean that everything we bought worked as intended, had the effects we intended in the real world or even that we paid a smart price for it. Those are all additional tasks that this whole team has.

Q: All right. Thank you. 

MR. SHERWOOD: We'll go back to the phones. Tony Bertuca, Inside Defense.

Q: Thank you very much for talking to us. You mentioned earlier in your opening remarks that this is an area of concern for the deputy secretary and that she's pushing everyone to try harder. What would it take to do better? What is trying harder look like? 

MR. MCCORD: Well, part -- part of that falls with, in terms, of the amount of oversight, the frequency of oversight. The depth of conversation, if you will, between senior leader and our COO, Secretary Hicks. So part of it is management attention in other words, making sure that leaders of services, leaders of defense agencies understand that this is something that is expected of them because that's, again, sort of related to my answer to Travis. So much is expected of people. Right? So that -- you have to keep reminding them of this because the leaders I talk to, it is not unusual for me to run into a four star who can tell me what they're doing on the audit and that they get it. That has to disseminate all the way down to several hundred thousand people per military department. That's hard to do. The other thing I'd say though it's again, even just having -- having the deputy secretary, for example, make clear that it's something that is important to her and is going to be, you know, coming up and being reviewed and having accountability for it. 

Is think about all of the things that we ask people to do? So not to single out anyone but to take an example, if you're in our Acquisition and Sustainment community, you are supposed to be looking after the issues in our industrial base, whether we're keeping pace with other nations on something like hypersonics. At the same time on some given days, we have been the contracting, you know, vehicle for the entire government on -- in this whole COVID era, why we've been going all that contracting for HSS. So that, on some days, that's more important thing you're supposed to be doing is getting those vaccines ordered, getting the PPE ordered.

But then on other days now, as for example this week, Under Secretary LaPlante is in Brussels because our most -- the other most important thing he's doing is trying to, you know, is make sure that we're working with our allies and partners to get the Ukrainians what they need, what can we source, what can different other countries source. How can we work with them? So, that's just emblematic of there's so many important things you tell people do that you have to make sure that this competes for attention and that's one thing that I think the deputy's doing a good job of.  

Q: And a quick clarification on these bots. It sounds like then this is, is this the first time you've used this for the consolidated financial audit and is this going to get expanded? Is this something that might help the rate of progress?
  
MR. MCCORD: No and yes. No, they -- that they are not -- this is not the first time but this is something that you're going to see as people know how to use them and see how they're useful, you will see more of. I will say that, you know, fortunately all the work is not done by people my age, because I probably wouldn't know how to even do one right. And so, there has to be -- one of the issues I -- some people, if you were in the room some people are smiling at that remark, but with this whole advent of data analytics and platforms, it does require some reskilling or upskilling of the workforce that we have because I wasn't raised with -- none of the senior people in this department were raised using bots. Right? That's just the reality, so we need to get a workforce in, and have some of the workforce know how to do these things and have people understand how they're used so they can be in collaboration with the management on how to make them more useful.

But I think its -- I think its undeniable trend that we see here at DOD, that the kind of use of automation and -- in better, more widely dispersed and transparent analytics where he can see what I can see, and I can see what he can see, there's a culture I don't know that's unique to DOD but I've certainly seen it here. Like guarding your information is a habit with a lot of people because, you know, you want to be able to explain what you're doing in your program, your own way. And one of the things the deputy's been pushing with the expansion of Advana which was lifted out of our organization where it was born and moved up to the deputy secretary level so it would benefit the entire department is to have this more culture of everybody can see all the data, which is not necessarily natural to everybody. So in terms, I talked about reskilling in terms of, you know, of technical abilities on things that maybe we didn't grow up using such as a bot, but also there's sort of a cultural issue that has to be overcome, I think of -- of sharing information and not -- and not being, you know, defensive about people seeing where your -- where your flaws are. 

MR. SHERWOOD: We have time for just a few more questions. Let's go over to Joe Gould, Defense News. 

Q: Thanks so much for doing this. Just kind of on the flip side of the bot question. I have two questions, but on the flip side of the bot question. Are those bots what's replacing what you're calling these audit -- audit relevant legacy systems? What are those? And also I caught that DLA completed 100 percent physical inventory. Is that the first time or has that happened in previous audits? Thanks.

MR. MCCORD: On the first question, I would say, as a not technical person, no but related. I mean, to really, what's -- to -- replacing a legacy system what we have seen so far and what I expect will continue is to see and to need is to replace a legacy system with a better system. That's the example of something called the Defense Agencies and this is the DAI system that the Marine Corps moved to, DFAS has moved to. So a system with the right capabilities. A bot I would regard as more of a several tiers down, you know, mechanical tool to help you but if you had an old -- an old, old system with a bunch of new bots. I don't think you would get there. I think you do need the system and this is something certainly that if you ever get a chance to talk to the Comptroller General Mr. Dodaro.

He has opined to me and to the deputy secretary that system consolidation is his number one. His number one, he thinks that you can't get there if you have too many systems that are -- that were not built, you know, with audit in mind which is still, we have -- and that's a process that's takes a while to overcome that. Right? And the Marine Corps has done a good example of having probably the biggest organization I can think of in DOD has flipped over from one business system to a new system inside of a year. Now we have to wait really until next year to see how much it paid off, but they took the leap, which is easier for them to do. They're a little smaller obviously than Army, Navy, Air Force, but they've been, kind of, a pathfinder for us on a couple fronts and this is a good example of being able to take the leap of -- of ditching your old system and getting a new one. So bots are helpful but a different thing, and I'm sorry Joe repeat your second question. 

Q: It was about DLA completing 100 percent physical inventory? Is that the first time or has that happened in previous audits?

MR. MCCORD: My -- in my recollection, it's the first time but if -- if that is not correct than we will get you -- we will send you a correction for the record, but I believe that is a first for them.

MR. SHERWOOD: OK. Thank you sir, and thank you everyone on the phone and in the room. I appreciate your time. Sir, do you have any closing comments?

MR. MCCORD: No. Sorry. 

MR. SHERWOOD: All right. Thank you everybody. I appreciate your time. That concludes our briefing. Thank you.