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Michael J. McCord, Under Secretary of Defense (Comptroller), Holds a Press Briefing on the Results of DOD FY 2023 Department-Wide Financial Statement Audit

STAFF: Okay, good afternoon, everybody. Thank you for being here and to those on the phone as well.

I'm Christopher Sherwood, I'll be moderating the press briefing and follow-on discussion. The topic of today's briefing is the department's results of the F.Y. '23 full financial statement audit. Our speaker is the Undersecretary 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 releasing the embargo. The Office of the Inspector General sends out the agency-wide results to the Comptroller. Once that happens, I will send an email to you releasing the embargo.

For this discussion, we have 30 minutes, and I will provide a five minute warning before that -- end of the time that we have. Please introduce yourselves and your organization and please limit your questions to one and one follow-up.

With that, it is my pleasure to introduce the Honorable Michael McCord.


MICHAEL MCCORD: Good afternoon. My name's Mike McCord and I serve as the Undersecretary of Defense, Comptroller, and CFO at the Department of Defense.

We're here today because we've completed our Fiscal Year '23 agency financial report and the IG, the Inspector General, has completed their financial statement audits of our $3.8 trillion in assets and $4 trillion in liabilities.

Here at DOD, we have an enormous responsibility entrusted to us by the taxpayer to defend the nation while being good stewards of their tax dollars. My team and I take this responsibility and mission seriously, both when we formulate the budget as well as in our financial reporting, which is today's subject.

That's why I'm here to talk to you about the progress we've made on this front and discuss our efforts underway to continue to keep that progress moving.

At the outset, I want to highlight that while we still have much to -- work to do, our work on the audit over the last few years has yielded significant benefits to the department. Our efforts to track, coordinate, and quickly deliver security assistance to our allies and partners in Ukraine and now Israel is closely related to the work across the DOD enterprise on audit readiness.

One of the foundational aspects of auditing property holdings is known as existence and completeness. That is knowing where your assets are. Our work on that has helped contribute to our ability to provide this assistance to our partners and oversight of the funds of the assets on the back end.

When Hamas launched its brutal attacks on Israel on the 7th, we knew precisely what assistance and materiel we had on hand, where it was, and how to get it to the Israelis quickly, because we'd been already doing that with Ukraine. This was all aided though by the work that is done by not just my team but by people across the department who are responsible for assets.

Now, let's get into some details. The DOD audit's comprised of 29 standalone audits of the military departments, different defense agencies, such as DLA and other components, and then there's a consolidated audit, which is what we're here to talk about today. So that makes 30 -- 29 pieces and then the 30th is the entirety.

That audit -- these audits are conducted by a mix of independent public accounting firms that we call IPAs, private sector entities -- that is -- and by the DOD IG, who also does some of the auditing. Today, I'm speaking about the overall DOD audit that represents the sum of the 29 parts. But to be clear, as in the past, I'm not speaking for the auditors. The auditors are independent from us and I'm just here representing the management side.

Generally, it's not been the IG's practice to do a press event on this day when they release their findings but that's up to them. In coordination with the IG's final report later today, I'll authorize the public release of our annual financial report for Fiscal '23, and at that point, each DOD component is also expected to release their reports.

So these reports represent an enormous amount of work over the past year by the entire DOD FM workforce, as well as many other communities, both military and civilian, that respond to auditor questions and for -- on-site visits, requests for information or documentation. These could be logisticians, personnel folks, all sorts of folks across DOD.

The results of the sixth annual DOD-wide audit will again be a disclaimer of opinion, which means the auditors could not collect enough information to give us an audit opinion. That was not unexpected. If even one large component of DOD, such as a military department, doesn't have an unmodified or clean opinion, it's mathematically impossible for the entire department to have one. So given where we are, this was not a surprise.

For the components undergoing standalone financial audit statements -- these are the 29 things I talked about -- seven received an unmodified opinion and the Medicare-Eligible Retiree Health Care Fund received a qualified opinion, which is a -- the next step down of favorable opinion, the other kind of favorable opinion.

The results of three of these audits, three of the 29, are not known yet, the Marine Corps being the one of these unknown audits or incomplete audits because the auditors agreed to give the Marine Corps an extension to mid-February.

All other DOD components undergoing standalone audits besides these -- besides these ones that I've named received disclaimers, and this is the same as last year.

Let me make some additional comments about the Marine Corps audit cause that's been a big interest of ours. Some of you may know we're very focused on, as a test case for the department and the larger services, such as the Army, Navy, Air Force, the Marines got an extension to mid-February, and the auditors agreed to this because this is a first time audit for them in a new ERP, or Enterprise Resource Planning, system.

Whatever the results of that audit may be when we get them -- and again, that might be into February -- I want to commend the Marine Corps and in particular Eric Smith for their leadership and effort on this. General Smith really believes in this effort, getting it done, getting it right.

He's been a forceful advocate for the audits during his four years as the ACMC, has frequently spoken to me about them. And I want to join everyone here at DOD in wishing him a full recovery and hope to see him back in the building soon.

To summarize, go back to the entire picture here, favorable opinions cover about 50 percent of DOD assets, and -- and then there's -- the other 50 percent is not unaccounted for. We have control of our assets but too many of our financial management systems, such as our property systems of records, still cannot meet auditing standards, which is not the same as not knowing anything. And we are working hard to accelerate the retirement of these older systems and bring more of our asset records up to the accounting standards that we need to.

Audit opinions are an easy to understand metric but there are others that are also useful in showing how this team has been working and where we are making progress or not.

One of the other things that we track -- and you've heard this before if you -- if you've covered this before -- are known as notices of funding and recommendations, or NFRs. These are specific things that an auditor looks at and says you need to work on that.

Our auditors have validated that we closed hundreds of these from last year but they've also given us a new batch to focus on. These are the building blocks of what gets you to -- to your audit opinion overall, which is that big, you know, sort of pass-fail thing that you're familiar with.

As of a couple days ago, the start this week, the auditors have validated that we closed 490 findings from last year, and that total will keep changing over the next couple of days until that gets finalized. The auditors so far have issued 2,500 new NFRs , some of which are new and some of which have been reissued or recurring. So there is still a lot of work to do.

One step up, if you think about the entire audit per se, the Navy, up here and an individual NFR here, the in-between is a material weakness. That's a category of findings that the -- where the auditors see a pattern of things or a subject matter area that you need to work on that's a material weakness. We took a major step forward this year in resolving Fund Balance with Treasury as a material weakness because we would -- and this was one of Secretary Austin's three priority efforts that we -- he had written in a memo to all of the -- all the services to guide what he wanted us to focus on this year. Fund Balance with Treasury, universe of transactions, and access controls. 

One of the three priorities, on Fund Balance with Treasury we saw that the only Army Working Capital Fund, the Navy's General Fund, and the Air Force General Fund all downgraded that material weakness this year. So to put that in context, that's about $400 billion that we have brought up to auditing standards because of that progress.

So this shows us that we like to think that -- that when we name a priority and then actually make sure that we -- people concentrate on that priority, we can actually move the needle and make some progress and have an impact. That's what we saw in Fund Balance with Treasury this year.

The Navy also downgraded another category, material weakness known as Oversight and Monitoring, on both their General Fund and their Working Capital Fund. We also got two done across other components.

That said, all the three military departments, despite what I just said about making progress on a big priority on Fund balance with Treasury, all three military departments, Army, Navy, Air Force, still got Disclaimers of Opinion for their entirety.

The Army Corps of Engineers received its 16th consecutive unmodified opinion as well. So the operates -- these audits operate on a large scale, but the improvements and changes we're making every day because of these audits are helping us out.

We try and look at this progress across a couple of areas. And this -- this will be, I think, similar to what you saw on last year's finance report, the impact on workforce modernization, business operations, quality, decision-makings, reliability, and public confidence.

Workforce modernization, probably the big story for us, continues to be saving time through Robotic Process Automations, or RPAs, also known as bots. This allows our team to focus more in analytics and more value-added tasks. So we've saved an enormous amount of labor hours in the Navy and the Air Force, close to 600,000 hours combined this year, hundreds of more saved at DLA and other -- and other DoD entities. This allows us to try and address NFRs more quickly.

And -again, I have a number of facts here, I'm not going to read them all to you, about the number of -- of bots deployed and the number of labor hours that we have saved. But, again, it's substantial.

On business operations, a good example here is the Marine Corps has reduced unsupported transactions from 2.2 billion to less than 500,000 in less than a year. This is one of the reasons that we're optimistic about what we're going to finally see when their -- when their opinion is done.

DLA has also made progress on their warehouse side. They are saving money by -- by deploying a new warehouse management system. So there -- there is examples beneath the pass/fail aspect of this of where we've seen progress, but we know that there's more to do.

Data quality efforts are also helping us, data analytics are helping us. We have -- the Navy in particular has reviewed a lot of un-liquidated obligations and validated them and found some funds available to de-obligate because of the progress that we've made here.

Retiring legacy systems is something that we have heard, and probably you are aware, that we've heard from Government Accountability Office, GAO. That's a fundamental view of the Comptroller General, that we have to get rid of some of these older systems. We got rid of -- we retired 10 systems last year, two of which were accounting systems used by multiple components. To date, the Navy's decommissioned 11 systems and brought that into their ERP.

While the primary burden on DOD financial management team is in my office and then in the Army, Navy, Air Force, the other entities being audited -- we -- we recognize that management is first and foremost responsible for this but we -- we do have a couple of points where we want to just remind that Congress and our industry partners can also help us.

First, I would say it's vital that Congress break this cycle that we have been stuck in for a long time of lengthy CRs, or Continuing Resolutions, year after year. New problem -- timely confirmation of our military and civilian leadership, particularly on the military side. We also need Congress's help to allow us to divest costly legacy systems and we need their support of our financial transformation efforts, which they've been giving us.

Congress, I want to be clear, has been an advocate of our audit efforts and has supported those audit efforts. We just need that to continue. Where we really need help is on -- is on the appropriations side. Under the FRA, the Fiscal Responsibility Act, as I'm sure you're very aware, failure to pass our budget or any of the 12 funding bills is going to trigger a sequester later on.

So I'm glad that we appear to be on track to get a CR before the last minute, as opposed to seven weeks ago, and spare our people the turmoil of a shutdown and spare the taxpayers that kind of dysfunction, but this will be our 14th year now pretty much guaranteed of lengthy CRs out of the last 15, and we've got to do better than that. And CRs, to be clear, are also an inefficient way to use taxpayer dollars. They're not as bad as shutdowns but they're hardly the gold standard.

On the defense industry partner side, they can help us by getting -- bringing the property and their possession into audit compliance. This is something we particularly worked on for the Joint Strike Fighter and had a lot of collaboration with our acquisition, A&S, partners on that.

So there are many cases where, for good reasons, the contractors have the property but we need to have better work -- working with them on getting that on the records for the auditors to be able to see in a timely way.

At the outset, I said that scrutiny of our financial statements is important as ever. I'll just say that we remain a trusted institution and we recognize that we have the obligation and -- to do everything to maintain that trust. We've made a lot of progress to date. I'll look forward to our continued improvement on this -- efforts.

I want to thank you all for coming today and your continued interest in results of our audits. We have provided a press release and a fact sheet that Chris would -- that Chris will have, and I think has gotten to you.

We'll also have additional details and items I'm speaking on. You should get all of that material today. The IG has given us their information. We have to meld it in with ours and get that out. We believe that's all going to happen today.

And with that, I'm happy to answer any questions.

STAFF: Thank you, sir. We'll go to Mike Stone, Reuters.

Q: Thanks. Thanks for coming down, thanks to your team for coming down and -- and doing all of this work. 29 audits, seven passed last year, seven passed this year. I'm going to push back on your progress. I ... 


Is there progress there? That's one. I'm going to audit myself. It looks like the total number of site visits versus last year went down, and it was a mix of virtual and on-site. Is that why the cost of the thing went down $30 or $40 million? Is that why the -- I don't know -- can you explain why the site visits went down?

Three, explain how the audit created systems -- explain how the audit created systems and processes that located weapons that were shipped to Ukraine. How?

And finally, $6.2 billion, that's the amount of PDA that got rejiggered. Can you please tell the taxpayer here is what happened -- someone in Army accounting made a poor assumption that they needed to use replacement -- that they should use replacement value when it's -- when they shouldn't have used depreciated value, and that's how that problem metastasized across all the forces and you get to such a big number?

Did you forensically go back -- I'm sorry, I'm using "forensic" in an accounting world -- but did you go back and show any curiosity and figure out what happened there? And can you explain that please?

MR. MCCORD: OK. I'm going to tell you that I can't answer your second one off the top of my head, and that may be one we have to get to you about, this number of site visits and -- and its direct relationship to the cost of the audit effort. But we'll take that one for the record, if you will.

On the first one, correct, the number of unmodified opinions, which is the largest aggregation, what I call the pass-fail version, is the same. The number of -- the number of disclaimers actually went up because we added two audits this year if… I don't think I explained that upfront. We broke out two defense agencies to have separate audits that were not audited but separated last year, and those two did not get a clean opinion their first time.

But yes, what I'm talking about is progress sort of beneath the surface of a pass-fail for the entire Army. That's where we think that fund balance with Treasury and some of these other things are showing progress but it's not enough, to your point and -- and to the Secretary's -- also feels that way, that we need to be doing better at this and moving faster.

So we understand that -- that that audit is ultimately a pass-fail kind of metric with the public and with the auditors, for that matter. And on that metric, it was -- it was static from last year, but we still believe that we have seen signs of progress that are going to get us more favorable in the future.

On the second -- the -- I mean, the second one, we're going to get back to you on site visits, how they relate to the specific costs of the audits.

Third question on the systems that help us locate weapons, the Ukraine effort did not create systems. You know, we were using existing systems to figure out, OK, they're asking us for X rounds of 155 ammunition. We didn't invent new systems that track where our -- we -- we went -- used the existing systems.

My point is more that because we already had a lot of practice at that, what did not happen with Ukraine is we didn't know how much 155 we had, we didn't know where it was, we didn't know if it was any good condition or not. We were well along in that effort.

What is, you know, maybe more complicated with giving ammunition to a partner or giving a -- a missile or a UAV to a partner is export control questions and other things like that do -- does your partner even have the ability to maintain it, as opposed to not knowing whether you have it or not.

So we build off of efforts that have already been underway because of the audit to make sure that we knew where our stuff was, and my point would be that we did not find that they asked for X and we had no idea if we had -- if we had that many or didn't have it or how many we had.

So the asset visibility was solid. The valuation we -- your final point -- different point was more -- is a little more esoteric in that -- remember the little pre-Ukraine, which is only two years ago -- but in law, there's a permanent law cap on drawdown authority in a year, $100 million. What have we done in an average year for Ukraine? 100 times that amount, $10 billion or so per year.

So first of all, the scale of what we -- has happened since Ukraine started is completely different than what happened prior to that. Second point, when drawdown was -- and is under permanent law, $100 million, the general practice was there was no process for replacing it with a supplemental because $100 million out of the Department is $3 trillion -- you know it was -- it was just something either you didn't replace it or you just -- the next time you built a budget you put it in there. 

So it didn't have anywhere near this visibility and there was therefore like no -- no practice of how you value draw on this because there was no point, nobody was giving you any money to replace drawdown with prior to Ukraine.

Therefore, there was no body of practice of how it was done. There were regulations in place that my team -- you know that were in the financial management regulations but the way draw down works is people basically of what I would call for lack of a better term security cooperation experts work with them and what do they access for.

And the way the process works is Ukrainians in this case would first go to European command with request for what they would need. There's a whole process that -- that is run through our policy colleagues and A&S colleagues of whether or not --if they say they need X, what's the best material solution we have to offer for that. 

You know maybe -- maybe they say they want X but really we think Y would meet their needs and Y would get there quicker. So there's a process of they ask for something, we -- agree or disagree that they -- that we even think they need it.

If we think they need it we work what's the best thing we can give them. Run through the policy process. Is there any export control issues. All of that is taking place and then you find those things, you get them on an airplane, you fly them over.

Then the process, right, is to take the book value of that and that is where the mistakes were in some cases was writing down the book value instead of the replacement value and even though the vast majority of cases were done correct, the discrepancy between the cost to buy a new one and -- and the book value of an old one was so great in some cases that it led to the other $6 billion discrepancy, which I will -- this wasn't your question exactly but I think this questions been out thereof and assess before. So I'll answer this part as well was to be clear, not a misuse of taxpayer funds. 

This was counting authority. The only way we can use taxpayer funds is when we buy a replacement item back, that's done with appropriated funds. That by definition is done at the current market price. You don't get to buy things, you know, for -- for less than the market price a vendor charges for them today. 

So there was never any miscalculation of what we were spending to replace items. There was miscalculations are all on valuing the book value, which is not play into any particular accounting system. And again, so we had rules done in the financial community that really were people that had not had no prior practice of strong working relationships with people who are just making security cooperation decisions and running them through the interagency process, which is required because drawdown authority is not a DOD authority, it's a presidential authority. So it has got a whole interagency piece as well. 

If I haven't lost you, I'll stop -- I'll stop there with my response on that.

STAFF: OK. And we'll go to the -- and staying in the room we'll go over to Noah Robertson.

Q: Sure. Noah Robertson, Defense News. I want to drill down a little bit more specifically on the linkage between the practices that should benefit between Ukraine and Israel, are you saying that the two are mutually beneficial and that practice that you had accounting for the different systems capabilities was useful when the war broke out following on October 7? Or are you saying specifically that without that practice and previous use specifically for Ukraine there would not have been that ability to quickly mobilize the -- the relevant materials for Israel?

MR. MCCORD: Yeah, I would say that the -- that the one did inform the other because there were -- there are a process -- a group that was meeting weekly or biweekly to go over how we're going to help Ukrainians how to build these packages.

So there was a lot of kind of working groups and relationships that build up over the last 20 months or so, and that process transferred easily over to -- to Israel, who had a much more finite list of things they were interested in.

And also, as I am sure you know, unlike -- unlike Ukraine we have no supplemental funding for Israel. So the list of the -- the running rule we have to actually help Israel is much more constrained because we don't have any action by Congress yet to, you know, that that has been enacted into law. 

So they were living in the world sort of existing contracts in some and some -- some different authorities and also smaller list of things they were looking for help with. But yes, I'd say the one did inform me at all the although -- yes, the process, the one that Mike was referring to about the valuation is not specific to either one but -- but the sort of action offset driven processes of how we respond to requests and vet them both inside the department, and interagency as necessary and get things approved and on a plane. 

Absolutely the Ukraine experience informed the Israeli one and because there was already a lot of good practice build up.

Q: (Inaudible) necessarily?

MR. MCCORD: Yes. I'm not sure if I -- I hope I'm not misunderstanding your question. I don't -- I don't think your question is necessarily hypothetical like what if Israel had happened and Ukraine had never happened. I -- you know I don't live in that world anyway because the one did happen first. 

I just -- I just would observe that I have seen a lot of -- a lot of weekly meetings and -- and relationships build up that transfer pretty easily. It's just that it runs through a different combatant commander on the front end, now Central Command vs. European Command. But everything that happens here is many of the same people and many of the same practices that help us get on top of these things is just -- and then the final point is, as I said, is that for Ukraine our issue might be the relatively small amount of funding we have left. 

But in Israel we don't have any funding, but Israel has had things that Ukrainians don't have like existing foreign military sales contracts, more robust industrial base it is and being hammered by the Russians the way the, you know, Ukrainian economy has been hammered. 

So a lot of differences, I guess in the -- in the needs and the ability to respond and the amount of self-help that Israel is capable of because their -- of their different situation, but the part that does involve us, I would say there's been a lot of overlap that -- that we'd be able to, you know, build -- been able to build on. Sorry. 

STAFF: Yes. I'm going to just go to the phones real quick. Tony Capaccio.

Q: Hey, sir. A couple quick questions here for all those who do not know what a fund balance with Treasury is, since you've highlighting that is a big improvement, with a layman's explanation, why was that important to fix, basically? And then I had a second question on Ukraine spending but I'll let you answer this one first.

MR. MCCORD: OK. Fund balance with Treasury, I mean I -- like layman's explanation is probably all I'm capable of. So I will take a go at it. If -- if I do not agree with my bank on how much money I have in that bank, what -- we're -- we're in a bad place to start with in terms of reconciling my records and their records. 

And Treasury obviously being all of our accounts flow through them. No money goes from us to anybody without Treasury being in the loop. And to give a reason why that matters, this -- this occurred over a year ago, but it's stuck in my head. There was a fraudulent attempt to create a Treasury account and then have the Treasury pay the fraudulent entity and matching your records is how you find things like that. This one was small by DOD standards, I think, the attempt to, you know, was maybe on the $500,000 range and it strikes me. And, you know, typical thing that you might see a fraud case, someone do a small test transaction. And then if no -- if it looked like nobody noticed, then try for bigger one.

The Fund Balance with Treasury process is -- is one of the ways you find, hey, I don't have any record of that transaction on my side, right, that -- that someone is -- is going to you, Treasury, saying, please pay this person. So that’s has maybe the best layman's example I could give of why it -- why it matters.

And then your second one...

Q: OK.

MR. MCCORD: ... is coming, right?

Q: OK. And this is a short question, kind of a -- a diatribe. How much money is left in terms of authority to buy down PDAs? Is it about $4.9 billion you have remaining? 

MR. MCCORD: Of authority, that is correct.

Q: OK. So in layman's language, the Pentagon now, between now and a supplemental being approved, has $4.9 billion of authority in terms of packages to Ukraine. So this spigot's not totally turned off but it's maybe low -- slowing to a drip.

MR. MCCORD: Well, I think -- I think the -- the amount of drawdown going out has slowed somewhat recently. And here’s a reason, you know, that we would -- I would be concerned -- I won't say -- well, obviously, I’ll speak for myself, or I would be concerned is, drawdown authority is the authority to remove things from our inventory, without funding in place to replace them. It involves taking risk on our part, right, that I'm going to give someone something that I believe that they need, which is I give it to them, but without the assurance that I'll be able to buy it back and restock the inventory of the Defense Department, in this case, mostly the Army's inventory has been at play in Ukraine. And we don't have $4.9 billion of money left to replace -- we have 1 billion left of funding to replace inventory with compared to, as we -- as we just discussed, nearly 5 billion of authority to remove things from our inventory and give them to Ukraine in the hope that we will get this supplemental action by Congress. But -- but, so far, you know, I would say in the last two months we're sort of -- we appear to be 0 for 2 in getting a supplemental acted on. So that's -- that would be the concern is that we do have some running room and some ability to make recommendation to the secretary or the president about things that we could still draw down. But the concern is, you know, we need the funding to make sure that we're not taking undue risk.

Q: Totally understand that, but you can -- you can put out $5 billion of PDAs basically over the next month or two until you get more money?

MR. MCCORD: The next month or two or -- or longer, I mean, the -- much of that authority has -- has a longer lifespan than a month or two. But however long it is. But that -- but your question itself begs part of the point, is, when it -- when it -- how long would that need to last? Is it -- is the supplement going to be considered soon, separately from this new -- these new deadlines of January 19th and February 2nd, or could it possibly slide that late? That's a long time for our partners to wait for assistance from us.

And by the way, it's long time for us to wait for our own base budget, which is, you know, not to be lost in the conversation here.

Q: OK. Thank you very much.

STAFF: OK. We're going to go back to the room. We've got time for just a couple more questions.

Louie, think you had your hand up?

Q: Yes, Luis Martinez, ABC News. How long in the short term can the department continue not getting an increase in past audits? And in the long term is it really an issue for the department?

MR. MCCORD: I'm going to say the fundamental difference with -- with any federal entity or maybe -- certainly with ours is -- is, as has been evidenced in the past, we don't stop operating if we don't have a clean opinion. We are not like a private sector company who might be de-listed from the stock market and -- and have sort of immediate catastrophic impact.

We're expected to do the mission that we're all here to do at DoD. And we're going to keep doing it whether we have, you know, seven unmodified opinions or 12 or 10 or 28 or 30.

The larger question might be, you know, what is the expectation of our CEO, our COO, of our Board of Directors and Congress, and -- and what -- what penalties might they impose or actions might they take or not take if we're not getting there or if we don't get there soon enough?

I think if you've tracked this year's two defense authorization bills, both of them contain language that would tighten the screws on us for those -- but since you can't see me since I'm not on camera, I was making a motion there -- both of them, I have expressed, in both the House and Senate bills, some desire to pressurize us further because the pace of progress is not -- is not, you know, in their opinion, fast enough, and I think the Secretary shares that view, it's not fast enough.

So there are certain -- so part of the answer is, well, what steps do either top management or -- or the Board of Directors take, but as a -- as -- as -- strictly speaking, the lack of a clean opinion would not, you know, relieve us of any of our requirements to do our Title 10 missions and the things that the taxpayers expect our people to do.

I -- did you have a second part of that? I'm sure that's a ... 

Q: I mean, is it detrimental to the organization that you may not get these clean or a higher capacity of clean opinion for quite some time?

MR. MCCORD: Yeah, it -- yes, it -- it -- it certainly -- it certainly is -- is not something that we just say "well, it doesn't matter." And -- and -- and I'd hope that my response wasn't -- wouldn't sound like it doesn't matter. I'm just saying as a technical -- as a technical matter, we have to keep doing our job. And this is one of the things we have to get better at and we will get better at but it doesn't relieve us of our other responsibilities in -- in the meantime.

STAFF: All right, we're going to take one last question from the phone. Tony Bertuca?

Q: Thank you, I appreciate it. Mr. Comptroller, you -- you talked a little bit about the -- the one percent sequester that's going to be triggered in early January because things are still going to be under a CR. Could you talk a little bit about what that drill entails for the department? We know it's around $80 billion but personnel are exempt sort of. It's kind of a wild thing to think of but the department has got to get ready for $80 billion less, right? Could you sort of unpack what that looks like for us?

And also, is that just meant to be just a haircut across the top or are you going to try to do eaches or is there an intelligent way to cut that much money from DOD?

MR. MCCORD: OK, I'll -- so -- so right, the -- the Fiscal Responsibility Act -- Act set up a sort of slow-moving train wreck where, starting on January 1st, you know, you're sort of put on notice that bad things are going to happen but they won't finally happen until the end of April. So that's a pretty -- you know, like a slow-motion disaster is set in place.

We are now on track, it would appear, right, to have CRs that -- that extend past January 1st. So the machinery would, one believe, start cranking.

There's a -- there's still things that we don't know, and we need to -- we need to be on the same page with OMB in particular about what exactly the beliefs are about how this would work for every agency, including ours.

So there's things that we are trying to explore inside our own management team and there are things that we need to make sure we're on the same page with OMB about because they will ultimately be the final arbiters of how a sequester would be implemented, as has been the case in the relatively few numbers of sequesters that have ever -- have ever happened. OMB is -- is going to be making some final calls.

And so we don't have total clarity on all of those yet but a couple of points that -- that I can tell you now. If it were to happen, we've already made a management decision in the department and in the administration that we would exempt military personnel from the sequester.

That has been a choice the department has made every single time it has been able to make that choice of an actual or a pending sequester, that we would not subject our personnel and their salaries to that. What that does is pressurize the other 75 percent of the budget to take that part of -- of the cut and -- and -- you know, so if everybody was going to be cut 10 percent and you exempt this part, then let's say everybody else gets cut 12 percent because you're exempting the personnel. So we've -- already know that we're going to do that if it comes to it.

And secondarily and related to that is pay raises are scheduled to happen. Pay raises operate under permanent law. So we would have -- actually, our -- our personnel costs would go up starting on January 1st because of pay raises, and that also would be -- contribute -- contribute to the pressurization of everything else.

I don't -- I have a different figure than the one you cited about $80 billion. We would -- we would sort of think of it as, compared to what we asked for, more on the nature of 34, 35, compared -- less than what we were planning to get and what we have asked for.

But there are some questions in -- right now, for example, we have no money for Ukraine, as I've just been describing. If we did get some in the interim, would it be subject to a sequester also or would it not be? I would need to have someone from OMB be sure I'm on the same page with them on -- about how that works because, you know, there -- there are cases -- and we've seen this in the past -- where what -- what DOD's reading of the law is doesn't necessarily agree with what somebody else's is and we need to make sure we're clear on that.

Needless to say, this -- this is going to be a -- a -- would be a really bad outcome for us, and it is a reason why we're not throwing a party at my house, because it looks like we're going to avoid a shutdown this week and get a CR. That's good, but we're also moving into the category now where CRs are extending into that trigger period for a sequester later.

So something has to break this pattern of we come up against a deadline, everyone decides that -- that, you know, a CR is better than a shutdown, then nobody disagrees with that, but if you keep doing that, you're going to end up where you -- where -- you're describing, as in a -- in a sequester later on if -- if at some point we don't move off of this track and get a bill done.

And so that's what we want to see happen. We want the supplemental done, we want the base budget done so we don't end up in that -- in that place.

I was here 10 years ago when we had the last sequester that impacted DOD. It was somewhat similar timing. It was triggered around the end of March, as I recall. So we had half the year to absorb the cut. This one is set up to not really go into effect until the end of April, so even less time left to absorb -- it would be a similar dollar amount as last time but over a bigger base budget but over a shorter period.

So we saw a lot of bad things happen last time, and I think that some of those would happen this time as well. Some of them are -- there's only so many choices you have to cut $30-something billion dollars in five months. And -- and I'm not going to go into what those are, but if -- if you look at what happened last time, you'll see -- you'll -- you'll probably have a similar list to me.

So yes, we -- we are concerned about that. It is -- there's plenty of time to avoid that kind of outcome. I'm sure that there is good intent. And I would just say specifically we know that there's strong support, I think, for the strategy and for our budget, and we just need to get to a place where we can have -- have that be, you know, up or down voted on.

And I would say exactly the same thing about Ukraine in particular -- we still believe that there's pretty strong bipartisan support for that if we can get to the point where there is an up or down vote where -- where we can see if that support is still there, cause we -- we believe it is, but it's -- obviously it's a complex thing that the leadership has to work with over there to try and get to that point.

And it's kind of frustrating that -- looks like those -- some of that -- some of those things, especially on our base budget, are now being positioned to not get decided until we're into the new calendar year.

Q: Thank you very much.

STAFF: OK. Thank you, everyone. That concludes our briefing today.