DEFENSE SECURITY SERVICE OVERSIGHT ======================================================================= HEARING before the SUBCOMMITTEE ON NATIONAL SECURITY, VETERANS AFFAIRS, AND INTERNATIONAL RELATIONS of the COMMITTEE ON GOVERNMENT REFORM HOUSE OF REPRESENTATIVES ONE HUNDRED SIXTH CONGRESS SECOND SESSION __________ FEBRUARY 16, 2000 __________ Serial No. 106-152 __________ Printed for the use of the Committee on Government Reform Available via the World Wide Web: http://www.gpo.gov/congress/house http://www.house.gov/reform ______ U.S. GOVERNMENT PRINTING OFFICE 66-789 CC WASHINGTON : 2000 COMMITTEE ON GOVERNMENT REFORM DAN BURTON, Indiana, Chairman BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California CONSTANCE A. MORELLA, Maryland TOM LANTOS, California CHRISTOPHER SHAYS, Connecticut ROBERT E. WISE, Jr., West Virginia ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York STEPHEN HORN, California PAUL E. KANJORSKI, Pennsylvania JOHN L. MICA, Florida PATSY T. MINK, Hawaii THOMAS M. DAVIS, Virginia CAROLYN B. MALONEY, New York DAVID M. McINTOSH, Indiana ELEANOR HOLMES NORTON, Washington, MARK E. SOUDER, Indiana DC JOE SCARBOROUGH, Florida CHAKA FATTAH, Pennsylvania STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland MARSHALL ``MARK'' SANFORD, South DENNIS J. KUCINICH, Ohio Carolina ROD R. BLAGOJEVICH, Illinois BOB BARR, Georgia DANNY K. DAVIS, Illinois DAN MILLER, Florida JOHN F. TIERNEY, Massachusetts ASA HUTCHINSON, Arkansas JIM TURNER, Texas LEE TERRY, Nebraska THOMAS H. ALLEN, Maine JUDY BIGGERT, Illinois HAROLD E. FORD, Jr., Tennessee GREG WALDEN, Oregon JANICE D. SCHAKOWSKY, Illinois DOUG OSE, California ------ PAUL RYAN, Wisconsin BERNARD SANDERS, Vermont HELEN CHENOWETH-HAGE, Idaho (Independent) DAVID VITTER, Louisiana Kevin Binger, Staff Director Daniel R. Moll, Deputy Staff Director David A. Kass, Deputy Counsel and Parliamentarian Lisa Smith Arafune, Chief Clerk Phil Schiliro, Minority Staff Director ------ Subcommittee on National Security, Veterans Affairs, and International Relations CHRISTOPHER SHAYS, Connecticut, Chairman MARK E. SOUDER, Indiana ROD R. BLAGOJEVICH, Illinois ILEANA ROS-LEHTINEN, Florida TOM LANTOS, California JOHN M. McHUGH, New York ROBERT E. WISE, Jr., West Virginia JOHN L. MICA, Florida JOHN F. TIERNEY, Massachusetts DAVID M. McINTOSH, Indiana THOMAS H. ALLEN, Maine MARSHALL ``MARK'' SANFORD, South EDOLPHUS TOWNS, New York Carolina BERNARD SANDERS, Vermont LEE TERRY, Nebraska (Independent) JUDY BIGGERT, Illinois JANICE D. SCHAKOWSKY, Illinois HELEN CHENOWETH-HAGE, Idaho Ex Officio DAN BURTON, Indiana HENRY A. WAXMAN, California Lawrence J. Halloran, Staff Director and Counsel J. Vincent Chase, Chief Investigator Jason Chung, Clerk David Rapallo, Minority Counsel C O N T E N T S ---------- Page Hearing held on Febaruy 16, 2000................................. 1 Statement of: Cunningham, General Charles, Director, Defense Security Service; and General Larry D. Welch, chairman, Joint Security Commission........................................ 36 Schuster, Carol R., Associate Director, National Security International Affairs Division, U.S. General Accounting Office; Christine A. Fossett, Assistant Director, National Security International Affairs Division, U.S. General Accounting Office; and Rodney E. Ragan, Senior Evaluator, National Security International Affairs Division, U.S. General Accounting Office.................................. 2 Letters, statements, et cetera, submitted for the record by: Chenoweth-Hage, Hon. Helen, a Representative in Congress from the State of Idaho, prepared statement of.................. 118 Cunningham, General Charles, Director, Defense Security Service, prepared statement of............................. 39 Schuster, Carol R., Associate Director, National Security International Affairs Division, U.S. General Accounting Office: Budget for investigations and other missions of the DSS.. 27 Contract costs for Personnel Security.................... 29 DSS cost breakdown....................................... 31 Personnel Security Investigation workload................ 25 Prepared statement of.................................... 5 Welch, General Larry D., chairman, Joint Security Commission, prepared statement of...................................... 66 DEFENSE SECURITY SERVICE OVERSIGHT ---------- WEDNESDAY, FEBRUARY 16, 2000 House of Representatives, Subcommittee on National Security, Veterans Affairs, and International Relations, Committee on Government Reform, Washington, DC. The subcommittee met, pursuant to notice, at 10 a.m., in room 2247, Rayburn House Office Building, Christopher Shays (chairman of the subcommittee) presiding. Present: Representatives Terry and Mica. Staff present: Lawrence J. Halloran, staff director and counsel; J. Vincent Chase, chief investigator; David Rapallo, minority counsel; and Earley Green, minority staff assistant. Mr. Shays. I call this hearing to order. The Department of Defense [DOD], relies on personnel security investigations to determine whether individuals should have access to classified information. It is a process critical to safeguarding the national security. Currently, more than 2 million military, civilian, and Defense contractor/employees hold confidential, secret, and top secret security clearances; all of which require periodic re-investigation. The agency responsible for policing access to national secrets, DOD's Defense Security Service, referred to as DSS, has encountered very serious, very persistent problems. In October, the General Accounting Office [GAO], reported that, ``DOD personnel security investigations are incomplete and not conducted in a timely manner. As a result, they pose a risk to national security by making DOD vulnerable to espionage.'' GAO reported a backlog of more than 600,000 re- investigations and deviations from investigative standards in the vast majority of completed cases. How did so vital an element of the national security apparatus fall into such disrepair? Based on a widely publicized case of espionage in 1997 by a DOD employee holding a clearance, our colleague, Representative Ike Skelton from Missouri, ranking member of the House Armed Services Committee, asked GAO to reassess the rigor and consistency of DOD's personnel security investigations. Their findings portray an agency mismanaged and reinvented to the point of corrupting its core mission to provide timely thorough background investigations upon which clearance granting agencies could confidently rely. New leadership at DSS has a plan to address the backlog: increase the quantity and quality of personnel security investigations, and maintain investigative standards. Today, we will examine the particulars of that plan, ask how realistic DSS projections are, what it will cost to implement them, and when we can expect to see real progress. Despite the end of the cold war, threats to our national security remain, more diffused, but no less determined to do us harm, our foes will seek to exploit any lapse in vigilance and any lack of caution. The DSS stands guard at a critical post in the New World Order. It must be able to perform the mission. I would like to welcome all of our witnesses and guests today. In the months ahead, we will convene again to measure DSS progress against the goals and benchmarks that I think will be discussed today. At this time, I would call our first panel and invite them to stand and be sworn in. Carol R. Schuster, Associate Director, National Security International Affairs Division, GAO; Christine A. Fossett, Assistant Director, same division; Rod E Ragan, Senior Evaluator, at the same division, if all three, thank you. [Witnesses sworn.] Mr. Shays. Thank you very much. I note for the record that all witnesses responded in the affirmative to that question. Ms. Schuster, we welcome your testimony. Thank you. The bottom line is we have 5 minutes. Then we will roll over another 5, and we will roll over again if we need to. So, you take what you need to. Our other witnesses will have that same privilege. STATEMENTS OF CAROL R. SCHUSTER, ASSOCIATE DIRECTOR, NATIONAL SECURITY INTERNATIONAL AFFAIRS DIVISION, U.S. GENERAL ACCOUNTING OFFICE; CHRISTINE A. FOSSETT, ASSISTANT DIRECTOR, NATIONAL SECURITY INTERNATIONAL AFFAIRS DIVISION, U.S. GENERAL ACCOUNTING OFFICE; AND RODNEY E. RAGAN, SENIOR EVALUATOR, NATIONAL SECURITY INTERNATIONAL AFFAIRS DIVISION, U.S. GENERAL ACCOUNTING OFFICE Ms. Schuster. Mr. Chairman, we are pleased to be here today to present our findings related to background investigations conducted on DOD employees by the Defense Security Service. With your permission, I would like to briefly summarize my statement. Mr. Shays. I am very sorry. I am very sorry. We have a vote. I think rather than interrupting you, so you all have about 10 or 15 minutes if you want to go get a coffee or something, I will be back. [Recess.] Mr. Terry [presiding]. We will come to order again. As I understand, we were just beginning testimony. We might have been a few sentences into it. Ms. Schuster, pickup where you left off, or start at the beginning, whatever you feel comfortable with. Ms. Schuster. All right. We appreciate this opportunity to present our findings on our background investigations conducted on Department of Defense employees by the Defense Security Service. With your permission, I would like to briefly summarize my statement and ask that the entire statement be submitted for the record. Mr. Shays. Yes, please, without objection. Ms. Schuster. First, let me underscore that safeguarding sensitive national security information is one of the most important responsibilities entrusted to public servants. It is therefore critical that only those individuals who have passed the scrutiny of rigorous background investigations be granted security clearances. While it now appears that DSS is making positive steps to improve the thoroughness and timeliness of its investigations, our review conducted last year found serious lapses in both the thoroughness and timeliness of these investigations. This raises questions about the risks such lapses pose to national security. First, let me briefly summarize the findings with respect to the completeness of DSS investigations. A complete investigation should cover all of the investigative areas required by Federal standards. Following these standards is important to ensure uniformity among the many entities involved in investigations and to provide reciprocity among agencies that grant clearances. Yet, we found from our detailed analysis of 530 personnel security investigations, that the vast majority did not comply with Federal standards, such as verifying residency, citizenship, and employment. For example, 92 percent were deficient in at least one of the required areas. Seventy-seven percent did not meet the standards in two or more areas and 16 percent contained derogatory information that was not pursued, such things as past criminal history, alcohol and drug abuse, and financial difficulties. All 530 individuals were granted top secret security clearances. The primary areas where we identified lapses were in confirming residency, corroborating birth or citizenship of foreign-born subjects and their spouses, verification of employment, interviews with character references, and criminal record checks at the local level. Of particular concern to us were the cases where leads were not pursued. For example, one individual working in the Joint Staff had a credit report that showed that his mortgage was $10,000 past due and foreclosure proceedings had begun. Because this subject denied knowledge of this matter, it was not pursued. In another case, the subject's credit report revealed a bankruptcy, yet there was no followup. In still another case, the subject claimed to be a citizen of another country and a member of a foreign military service. Character references alleged that he had been involved in a shooting. None of these matters were pursued. With respect to timeliness, we found that DSS investigations simply take too long. Defense agencies and contractors want investigations done within 90 days to avoid costly delays. We have found that over half of the 530 investigations we examined, took over 204 days to complete. Less than 1 percent took less than 90 days, and 11 percent took more than a year. There are several problems with this. First, contractors have to wait too long to begin their work. This jeopardizes meeting performance, cost schedules, and drives up costs. Second, individuals having their clearances updated continue to work with classified materials, even though their personal circumstances may have changed, rendering them unfit to retain their clearances. Third, central adjudication facilities, who evaluate the collective information to decide whether a clearance should be granted or denied sometimes rule favorably, even though information is incomplete, because it could take another 6 months if the case was sent back for further investigation. Finally, the backlog of cases awaiting periodic reinvestigation, as you pointed out, Mr. Chairman, has grown to at least 500,000. At the time of our review, it was 600,000. To put this into perspective, the total number of Defense employees who have clearances is about 2.4 million. We found several weaknesses that we believe contributed to the incomplete investigations that we found. For example, we found that DSS relaxed its investigative requirements to give investigators greater discretion in how they might meet Federal standards. Because this guidance was not always consistent with Federal standards, investigators became confused as to what constituted a thorough investigation. DSS also eliminated two important quality control mechanisms: supervisory review of completed investigations and its Quality Assurance Branch. DSS also provided almost no formal training on the new Federal standards to its investigators between 1996 and early 1999. DSS spent $100 million to implement an automated case management system that simply did not work. The problems that ensued added to the already large backlog of cases waiting to be investigated. Another $100 million to $300 million may be needed to correct the problems. Importantly, because DSS had been named a re-invention laboratory under the administration's Reinventing Government Initiative, DSS was allowed to operate with much latitude and without the normal degree of oversight that would normally be expected. Our October 1999 report makes several recommendations to the Secretary of Defense to fix these problems. For example, we recommended that the Secretary increase oversight of DSS operations, provide the necessary funding and priority to deal with the case backlog, bring policy guidance on DSS investigations in line with Federal standards, establish effective quality control and training mechanisms, take corrective action on the case automation problems, and direct adjudication facilities to grant clearances only when investigative work is complete. We also recommended that the Secretary report the DSS Investigative Program as containing material internal control weaknesses under the Federal Managers Financial Integrity Act, and that a strategic plan, with measurable goals and performance measures be developed. I am pleased to say that General Cunningham began taking corrective actions on these matters the very moment he assumed leadership of DSS in June 1999. I will leave it up to General Cunningham to outline the specific actions his agency is taking to correct these problems and ensure the integrity of the investigative process. This concludes my statement. I would be pleased to respond to any questions that you might have. [The prepared statement of Ms. Schuster follows:] [GRAPHIC] [TIFF OMITTED] T6789.001 [GRAPHIC] [TIFF OMITTED] T6789.002 [GRAPHIC] [TIFF OMITTED] T6789.003 [GRAPHIC] [TIFF OMITTED] T6789.004 [GRAPHIC] [TIFF OMITTED] T6789.005 [GRAPHIC] [TIFF OMITTED] T6789.006 [GRAPHIC] [TIFF OMITTED] T6789.007 [GRAPHIC] [TIFF OMITTED] T6789.008 [GRAPHIC] [TIFF OMITTED] T6789.009 [GRAPHIC] [TIFF OMITTED] T6789.010 [GRAPHIC] [TIFF OMITTED] T6789.011 [GRAPHIC] [TIFF OMITTED] T6789.012 [GRAPHIC] [TIFF OMITTED] T6789.013 Mr. Terry. Thank you very much. Mr. Shays is the real chairman of this subcommittee. Would you please start? Mr. Shays [presiding]. I will be happy to start. I ask unanimous consent that all members of this subcommittee be permitted to place any opening statement in the record, and that the record remain open for 3 days for that purpose. Without objection, so ordered. I further ask unanimous consent that all witnesses be permitted to include their written statements in the record, and without objection, so ordered. I have a number of questions that the staff has written out that I want to go through because I really want to cover those in some sequence. First, let me ask you, re- investigations occur how often? Ms. Schuster. It depends on the level of the clearance. For a top secret clearance, which was the focus of our investigation, it is every 5 years. For a secret clearance, which is the next level down, that is currently now 10 years. For a confidential clearance, which is one step below that, it is every 15 years. Mr. Shays. The number was approximately 2 million people with any of these three, the top, the secret, and the confidential. What would be the breakdown of the top secret? Do you know that? I could ask the next panel if you do not have that. Ms. Schuster. Yes. We have 500,000 top secret, 1.8 million secret, and 100,000 confidential. That is a total of 2.4 million. These are rough numbers. Mr. Shays. I understand. Did you evaluate the logic of every 5 years? Did you look at that and say, could it be 6? Could it be 7? Ms. Schuster. No. We did not include that in our review. The only things that were in our review were top secret clearances. So, that is what we focused on. Those are the people who handle the most sensitive information. So, we focused our efforts on just the top secret ones. Mr. Shays. Has it always been 5 years? Has that just been kind of what we do? Ms. Schuster. Top secret has been every 5 years for a long time. The new time limits on confidential and secret are relatively new. I think that was 1997. Those requirements are in the force now. DOD had been doing the secret clearances every 15 years. Now, they will be doing them every 10 years. They had not been doing the re- investigations on the confidential clearances until the new requirement came into being. Mr. Shays. In the 530 cases that you reviewed for top secret clearance, you basically said 92 percent of the 530 investigation cases were deficient and that they did not contain information in at least one of the nine required investigative areas. Then you said 77 percent of the investigations were sufficient in meeting Federal standards in two or more areas. Was there any one of those nine areas that was mostly ignored? Ms. Schuster. Yes. There were some that were more prominent than others. The one that was most frequently omitted was establishing residency, going out to the neighborhoods and making sure that the person really lived at the address that he did, verifying birth and citizenship, checking birth records. Mr. Shays. I do not understand. If I would logically make an assumption, I will be the devil's advocate here, that if they had been investigated once, that was determined. It is like if they were born in the United States, what is the point of checking 5 years later that they were born in the United States. Ms. Schuster. Right. You are making a distinction between the initial investigation and the periodic re- investigations. For the periodic investigations, they do not have to go back and verify certain things that were already verified the first time. They just have to cover the period since the initial one. Mr. Shays. There is logic to it that way. Ms. Schuster. Absolutely. Mr. Shays. You also said 16 percent not pursued when something like a drinking problem or a financial problem. I basically thought the whole point of doing these re- evaluations was to identify a problem area. I mean, to me that is the most shocking thing that you have told me today. Ms. Schuster. I would agree with that, yes. I believe that there is really not too much of an excuse for not following up when you come up with derogatory information. The guidelines do call for going beyond just getting the basic information. When there is derogatory information that seems significant, it should be pursued under the guidelines. Mr. Shays. It reminds me of a cartoon I saw in a newspaper years ago and it showed an investigator and he was looking for a bank thief. He got into this house, and he opened the closet, and all of this money came cascading down on top of him. He said, nothing here but money, and then went on to the next thing. So, that you would clearly identify. How has the mismanagement of the agency contributed to the weakness found in your review of the Personnel Security Investigation Program? Ms. Schuster. I think the management problems that have come to light have been very well-documented, including testimonies as recent as last week, I believe, when the Secretary of Defense acknowledged that there were a lot of problems there. We found the weaknesses in several areas. The first area was relaxing the standards below the Federal standards, and also allowing perhaps too much latitude with their investigators as to how far and how deeply they went into the investigative areas. The second area was doing away with some of the quality control mechanisms they had on those investigations. They did away with the Quality Assurance Branch, and supervisory review, for instance. In the training area, they just really were not giving very much training to the investigators. Because there were new investigative standards, there was a need for such training. They also did away with the Security Institute, which was training not only DSS investigators, but investigators throughout the Government. Mr. Shays. Did this happen during the Clinton administration or did this happen before the Clinton administration? Ms. Schuster. This occurred primarily between March 1996 and very early 1999, but primarily between 1996 and 1998. Mr. Shays. Frankly, I find this pretty astounding. I was thinking if I was asked to come in, as General Cunningham has come in, to remedy this, I mean, to think that you would eliminate the training of your employees who go out, as one example of what you mentioned, to me just frankly boggles the mind. What would attribute to that? Did we in Congress just give lots less money? I mean, what ultimately happened that made that occur? Ms. Schuster. What appears to have occurred is that leading up to 1996, there were several groups that were bringing up problems with the Personnel Security Program across the board. They were saying it was taking too long to do the investigations, and that the whole process was fragmented and needed to be streamlined. So, the Joint Security Commission, and the Defense Reform Initiative, the Quadrennial Defense Review, all of those bodies were saying that something needed to be streamlined and done to try to improve that whole personnel security process. So, at that particular time, the Director decided to take up the mantle and try to do something to streamline the procedures, and got approval to become a re-invention laboratory and streamlined some of the procedures. Mr. Shays. In the beginning of this, I was trying to think. Well, you know, once you have gone through a clearance, I think of myself. I am not really going to change that much. So, I think once they have done a clearance, why would we keep doing it every 5 years? That is why we have these hearings. The answer is quite evident here. What I had realized is that the value of the re- investigation is that as people are in the system, they gain more authority. They have really an opportunity to see things that are far more precious, and important, and sensitive. So, the logic, it seems to me, is that the re- investigation is two things. Then I want you to comment. It is really your statement. So, thank you for it. It is an excellent statement. You have a more important job and you are seeing more sensitive information. Also, you can fall on hard times. You can have a financial problem. You can start to have a drinking problem, both of which would, potentially, to tremendous compromise. So, I am pretty comfortable with why we want to re- investigate. Ms. Schuster. I am in full agreement with what you have said, yes. As a matter of fact, many of the people who are experts in this arena have emphasized that periodic re- investigations are probably more important than even the initial investigations. So, you are absolutely right. Mr. Shays. I think I will just yield back my time, and if other Members want to ask questions. Mr. Terry. Yes. I have got a couple of mop-up questions, if you do not mind. I appreciate it. The field that you investigated from the 530 cases, I apologize for maybe asking questions that are already involved in your statement. I assume those 530 were random. Ms. Schuster. Yes. Mr. Terry. They were not particularly pulled out of a field that was waiting to be investigated. Ms. Schuster. Right. If I could just explain our methodology. Mr. Terry. I would appreciate that, yes. Ms. Schuster. We took all of the cases that were sent four of the adjudication facilities, in January and February 1999. Those four adjudication facilities were the Army, Navy, Air Force, and the National Security Administration. We included all of the cases that went there for adjudication, which means they were going to decide whether to approve or deny a clearance at the top secret level. We took a statistical sample of those cases. I think there were 1,698. We took 530 of those. Mr. Terry. That is a pretty good percentage. Ms. Schuster. The size got us to certain tolerance levels. To be able to project results to that universe of cases that were there. Now, those four adjudication facilities were selected because they represent 73 percent of all the cases that are adjudicated in the defense area. So, it does indicate, I think, that our findings are representative of a systemic problem. So, that is how we selected those. Mr. Terry. The phrase ``systemic,'' shall we assume that it was equally weighted from the four adjudication centers or was it one that was predominantly the problem while one was doing an excellent job? Ms. Schuster. What we found was that all had problems. The lowest one was 88 percent in the Army. That statistic that I gave you about 92 percent had one thing. It was 88 percent in the Army, 91 percent in the Navy, 94 percent at the National Security Agency, and 95 percent in the Air Force. So, all of them were pretty deficient. Mr. Terry. Well, that is incredibly depressing. Ms. Schuster. I did not come here to depress you. Mr. Terry. No, but it is disturbing. It really is, especially the 16 percent with derogatory information that lacked any follow-through and followup. It really speaks volumes. You have done an excellent job, I think, in your report about learning where the problems lay; identifying that there is in fact a problem that we need to address. Now, let us look toward the solutions. You mentioned that General Cunningham has already started addressing them. That became obviously the shorter part of your report and presentation here today, but I think that is where we need to focus on now, since you have done an excellent job of identifying the problems. Let us focus now on the solutions. What has he been able to implement to-date? Where can we help out? Where have been the obstacles that you have been able to identify toward doing a better job? Ms. Schuster. Let me first compliment General Cunningham. He has really taken the bull by the horns and has taken actions on every single item that we recommended in our report. GAO is not used to the agency coming back and agreeing with us 100 percent. But in this particular case, the Department did agree with all of our recommendations. Some of the things that he has done on the management front: we asked for a strategic plan, and for performance measures to try to measure how much progress they are trying to make to meet their goals. He has developed a strategic plan. They are working on it and a performance plan to set milestones for trying to correct some of the problems there. They are designating this investigation program, as a material weakness to the Department of Defense under the Federal Managers Financial Integrity Act. He has brought the standards back in line with the Federal Standards so that the investigators will be following the same standards that other investigators throughout the Government are following, and has created a new manual for them to follow, and will be providing them training. He has re-established the Quality Control Unit within DSS. These staff will be periodically tested on the standards to try to maintain the quality of the investigations. In terms of the backlog, this is a real difficult problem for them to solve. I understand that what they have done is to go back and try to re-evaluate the backlog to see whether in fact all of the people that were in the backlog really in fact needed an update. Some people, for instance, retired. Some people were separated. Some people were no longer working in classified areas. So, they are trying to get a better fix on exactly the extent of the backlog. Because there were quotas established on how many could be sent to DSS for investigation, there is sort of a pent-up demand. The statistical data base was not really very good at capturing the total universe of this backlog. They are taking several actions. One in particular, I think, is very promising. They are working on an algorithm that will try to identify those cases that are most likely to result in a denial of a clearance, based on their past experience. That will allow them, if they can get this to work, to identify those cases that are most risky to the Government and be able to process those in a priority manner. Mr. Terry. Let me interrupt. What do they need to make that work so that we do not run into the same problem that you identified in your testimony as spending $100 million on automation that has not worked? Ms. Schuster. Right. Well, that is a fair question. I do not know the answer to that question because we have not really gotten into the details of how they are developing that algorithm. The idea is certainly a good one. They also are contracting out for some of the backlog. They have put some Reservists on active duty to temporarily work on the backlog. They have OPM working on some of the civilian investigations. They are thinking about also having a contract that would do some end-to-end investigations from the very start to the very end with contractors who would be focusing on some of the cleaner cases, the ones that do not seem to be as risky. They would contract those out. So, they are doing a lot of things on that front. As you alluded to, they have a lot of problems with the Automated Case Control Management System. That, to my mind, is the biggest challenge that they face. That automated system just was not planned properly. It was not implemented properly. The people who were trying to procure that system and manage it really were not totally qualified to do that. They did not have the background in a major acquisition program. They did not have the information technology expertise to really do that. I think all of these weaknesses have been acknowledged. So, they are at a juncture now where they have got to decide whether they are going to try to patch up the system, or if they are going to just give up on it and try to replace it. That is going to be a major decision for them to make. Regarding past evaluations, there was a DOD red team that came in, and evaluated what they should do with that system, and what went wrong with the system, and what they would recommend. A TRW contractor evaluation also looked at it from a technical standpoint. Both of those groups pointed out numerous problems with the way the thing was put together, the lack of documentation, the lack of checks and controls, just what you would expect of an automated system, to the point that the TRW investigation did not feel like it was salvageable. Mr. Terry. I was curious if any of the people from the outside that have reviewed this made any suggestions. You are saying TRW has made a suggestion that you walk away from it. I assume that there are probably people on the inside, for want of a better word. When you invest $100 million and a lot of reputation, that is probably emotionally hard to walk away from, but that is what TRW is recommending? Ms. Schuster. That is what they recommended in their evaluation. Now, I understand that there is another evaluation going on right now. I am not sure who is conducting that. But that evaluation is supposed to come up with a recommendation to the Secretary, I think it is May 1st of this year, who would make the decision: Are we going to try to fix this system or are we going to consider an alternative? One point that should be brought out is that if they do go with a new system, that would fall under the Clinger-Cohen Act, which would mean that they would have to look at things like: Is this an inherently Governmental function? Does it have to be done by the Government? Should it be governmental or could it be privatized? Are there other alternatives out there, such as OPM's system that might be an alternative? Is a new system by the Government needed and should one be procured? So, all of those decisions. Make this sort of tough. It will take awhile to work through that, if the decision would be made to go with a new system. Mr. Terry. But they are moving toward that direction. So, that is movement and that is appreciated. Ms. Schuster. They are at least considering all of the alternatives now, and a decision is going to be made apparently the first of May. Mr. Terry. All right. Thank you very much. Mr. Shays. Mr. Mica. Mr. Mica. Thank you. Just a couple of questions, if I may. Tell me about the numbers of personnel that we are dealing with, with DSS. How many full-time equivalent employees? Ms. Schuster. The employees that we are talking about that do investigations are 11,075, roughly, at the time of our review, and 112 case analysts who also work in this area. The total number of DSS employees is 2,500 or thereabouts. I could get the exact numbers for you for the record, if you would like. Mr. Mica. Well, wait a second. Now, 2,500? Ms. Schuster. Total DSS employees. Mr. Mica. That is total DSS. The 11,000 are those conducting the investigations? Ms. Schuster. I am sorry, 1,175. I misspoke. Mr. Mica. OK. They conduct how many background investigations? Ms. Schuster. They conduct about 150,000 investigations. That would include secret, confidential, and top secret. I would like to check that number and get back to you on that exact number. Mr. Mica. I would like to know the figures on that. [The information referred to follows:] [GRAPHIC] [TIFF OMITTED] T6789.014 Mr. Mica. Then I am curious, OK, then they do a rash of other sort of renewable? Ms. Schuster. Right. There are other kinds of investigations. Mr. Mica. Maybe you could give us a breakdown of figures on that. Ms. Schuster. OK. [The information referred to follows:] [GRAPHIC] [TIFF OMITTED] T6789.015 [GRAPHIC] [TIFF OMITTED] T6789.016 Mr. Mica. The budget was $320 million. Is that right? Ms. Schuster. It was $320 for fiscal year 2000. Mr. Mica. 2000. Ms. Schuster. Right. Mr. Mica. Now, did that include any of the--how much of that is personnel? Was any of that capital $100,000? Ms. Schuster. No. Mr. Mica. Was that already spent? Ms. Schuster. Yes. I think that $100 million is what has already been spent to-date. Then they have estimates of what additional funds might be needed to try to fix things. Mr. Mica. I am trying to get a handle on what it costs to operate this, as far as personnel. Another big item, you said they contract out work. How much in dollars is contracted out for conducting these activities? Ms. Schuster. I would have to get those details for you. I do not have those with me today. Mr. Mica. OK. [The information referred to follows:] Defense Security Service Fiscal Year 2000 ------------------------------------------------------------------------ Contract Costs for Personnel Security In Millions ------------------------------------------------------------------------ Investigation Backlog $45.4 ------------------------------------------------------------------------ Source: Defense Security Service Ms. Schuster. I can say that the investigations are an important part of DSS, but they also have other missions that these 2,500 people conduct. One is the Industrial Security Program. Then they also do security training and education. Mr. Mica. Do they do this also for contractors, for private contractors? Ms. Schuster. Right. It is for civilian, military, and contractors. Mr. Mica. Is there any way for the contractors to reimburse for the cost of that service? Are they billed for that? Ms. Schuster. I am just not familiar with the way they are paid. I know they are trying to move toward a fee-for-service kind of a thing. It has not gotten off the ground. I think that has been put on hold right now because they have not made much movement toward that fee-for-service. Mr. Mica. Because people do not want to pay for it. I think that is something we ought to look at. As chairman of Civil Service for 4 years, kicking and screaming of course, we were successful in reducing the Office of Personnel Management from nearly 6,000 to about 3,000. Of the 3,000 we eliminated, we privatized all of the investigators into an ESOP, Employee Stock Ownership Plan. If you think that was not controversial, Mr. Shays, they did everything to subvert that possibly. But it was actually most successful. Do you know if they contract with our ESOP at all to, yes, I see your shaking of the head. Are they doing a good job? I see another shake of the head. We are getting affirmative shakes of the heads from the audience, just for the record. I know privatization strikes fear into the heart of anyone on a Federal payroll, but it does work and it is a great example of it. I am not sure what could be privatized, or what portion of this could be done, or how much could be contracted out to the entity already privatized. I think it would be good to look at the number of people, what we are producing. Who is paying for the services? The Government picking up the tab for private contractors who are doing business with the Government. There ought to be some reimbursement in it. Certainly, the way it is operating now, just the information from your initial study seems that we have to be able to do a better job doing this. Possibly a little innovation might be in order. $320 million is a pretty big sizable budget. If possible, maybe you could submit for the record and also for me, I would like to see both a flow chart of the organization, and then I would like to see a breakdown of the expenditures. I do not see it. I looked through here and did not see it of how much is in these different categories for personnel, for contracted services, and other expenditures. Maybe we could get a handle on that. Ms. Schuster. We can provide that for the record. That was not part of the scope of our investigation, but we can certainly get those numbers for you. [The information referred to follows:] [GRAPHIC] [TIFF OMITTED] T6789.017 Mr. Mica. I noticed in your recommendations, one of the things is prioritizing. That they need some better system of prioritization. I would imagine some of those would be of the utmost urgency and highest level of security clearance, which would have to be done in a certain fashion by a very secure personnel to start with. Then as it filters on down, maybe some change in procedures in the way that is done. I guess that is a part of your recommendation. Ms. Schuster. Yes. Our recommendation was that they try to work on that backlog as a priority matter. What they have done is they have found several different means to try to catch up with that backlog. Then they are also working on this algorithm that is going to try to identify those cases that, from their past experience, tells them that they might be most likely to be denied a clearance. They have an automated personnel questionnaire that flags certain items. Based on their past experience, if there is derogatory information on certain elements, it tells them that the likelihood this clearance might be denied is higher than another. So, that is what they are working on internally to try to find a means of prioritizing the workload. That seems like a good idea. Mr. Mica. The other final question that deals with $100 million spent on the unsuccessful computerization. Ms. Schuster. What they did was they took the long questionnaire that probably all of us have filled out and they automated that into an electronic form. The whole idea was that everything would be paperless. Mr. Mica. Right. Ms. Schuster. Throuigh this Case Control Management System, they would be assigning the cases to the investigators. Mr. Mica. What basically went wrong? I mean, was it something in the specifications that the agency provided, or was it something that the vendor did not produce? Ms. Schuster. Just about everything that you can imagine that could go wrong did go wrong, I think. Mr. Mica. Was the vendor held liable or did we pay the whole thing? Ms. Schuster. I am not so sure it was the vendor's fault although maybe some of it was the vendor's fault. But the basic underlying factors are that it really was not planned very well as an acquisition program. The people were not very well qualified in either IT or acquisition management. A lot of the basic planning steps that you would go through for a major procurement program, such as determining your requirements, and drawing up a plan, and developing a testing plan, those basis just were incompletely followed. So, when they got to the point where they wanted to implement this, the electronic questionnaire was only being used about 50 percent of the time. Because it was designed as a totally automated paperless system, and you still had paper, then you were trying to keep two systems going; one with paper and one without paper. It just caused all sorts of delays because they could not get the cases to the investigators fast enough. So, that really did contribute to the backlog that we are seeing today. Mr. Mica. Thank you, Mr. Chairman. Mr. Terry [presiding]. Mr. Shays. Mr. Shays. Thank you. As I fully grasp what you are saying, and I am not fully there yet, it is astounding. I do not know how DSS could be in worst shape, or how they could have done a worst job, given the backlog. I want to ask a few more questions. Their budget was $74 million and then it went to $84 million? Ms. Schuster. For the whole agency? Mr. Shays. Yes. Ms. Schuster. $340 million. Mr. Shays. Where am I getting this $74 million? Ms. Schuster. $320 million for fiscal year 2000 was their budget. Mr. Shays. OK. It must be just one part. Was that the contractors? Ms. Schuster. Total budget. Mr. Shays. We had an AIA member company survey. They tried to estimate what its impact, what the backlog was on the companies. These are some of the companies. Boeing had 570 employees that were zero to 90 days. I want to take the 90 days beyond; 1,161 employees. They believe it cost them $52.1 million. Honeywell, 31 employees. They think it cost them $1 million. Northrup-Grummend, 735 employees. They believe it cost them $27 million. Lockheed-Martin. Now, they divided in technical services 58 employees, 4.8; LMTAS, I do not know if they call it LMTAS or what, but 529; employees, $28.4 million. Skunk Works, 540 employees, $26.6 million. United Defense, 145 employees and they did not give a cost in that one. Aero Jet General, 40 employees, $4 million. General Dynamics Information Systems 8 employees. They did not give us a cost. Where we have the cost $143 million, which is basically almost half of what the budget is. Now, I make an assumption, and maybe you can answer this, that the cost that these companies incurred ultimately gets passed on in terms of the cost of the project to the Government. Ms. Schuster. I would assume that is correct, that is the information you are bringing to light. While I do not know those figures, I do know that during the course of when this backlog was building up, there was some association of these contractors--I forget the name of it--that complained to DSS about this and emphasized that it was costing them a lot of money to have these delays. Mr. Shays. But just 3,247 employee backlog, the private sector of these companies has basically determined it cost $143 million. We are talking about potentially hundreds of thousands. So, it is the kind of thing I begin to wonder about the $600 toilet seat. We do know it cost the Government money. We do know that somehow we have not factored that in. Ms. Schuster. Right. Mr. Shays. That is a strong argument to provide the resources necessary to DSS to get the job done. To the extent Congress has not done it, and it may be that we privatize more. My understanding is that when we hear from DSS that they are basically going to tell us that they have a 50 percent assistance from the private sector, ultimately when they get their number down from contractors, those employees disappear. I am basically wondering this question. They had a tremendous backlog so they were to find ways to streamline. It strikes me that the streamlining not only did not streamline, it did the exact opposite. It created even more backlog and it provided a less acceptable quality of result, such as ignoring a large percent, was that 16 percent, of indications you should look at something. That was ignored. Am I correct here? Reinventing got the backlog larger and it compromised the system. I am not looking for a big answer. Ms. Schuster. OK. There were several reasons that led to this backlog. The first thing is back in 1995, the Assistant Secretary of Defense put quotas on the number that could be sent forward. So, you got sort of a pent-up demand that is now a part of that backlog that was not submitted. Then we had new requirements that were instituted during this period for re- investigations on secret and confidential clearances. Those had not been requirements before. So, this added to the periodic backlog. Mr. Shays. So, when you said the 5 has been there for years, the 10 and the 15 were? Ms. Schuster. New. Mr. Shays. OK, fair enough. Ms. Schuster. Right. Also this automated system that we were talking about just did not work. So, the caseload was not going through there like they really wanted to. That contributed to the backlog. Then DSS, also point to a couple of other factors. One is that they feel that there are more people requesting clearances. Their customers are requesting more clearances because of information technology jobs that may require clearances and a couple of other factors. One was that there was a reduction in the number of investigators that they had. So, all of those factors collectively contributed to that problem. The re- invention part certainly had an impact on the quality of the investigation. Mr. Shays. I did not want a long answer, but I needed it because you needed to clarify that there were a whole lot of factors. Ms. Schuster. A lot of factors. Mr. Shays. I know we have a vote, but I just want to just get into this last area. If you go into a company and you try to determine, well, they got bad and so on. You really want to face up to really how bad it is. This is so bad that you could almost be tempted to say, well, it could not be worse. But it could be worse in one respect. It could be that we have a larger backlog. When you go into a company and they say, well, you know, our total IOUs are $10 million and then you look further and you find it is $20 million, that is a shock. Can you tell me with 100 percent confidence that the backlog is not larger than we think it is? Ms. Schuster. No. I cannot tell you what the size of the backlog is. I would really question whether they have an exact fix on it. Mr. Shays. OK. Let me ask you, how was the backlog determined? Ms. Schuster. Each customer that comes to DSS with a need for an investigation has a fix on the number of clearances that they need investigated. But these inputs are not put into a data base that is reliable enough to the extent that you really know the totality of it. So, all they know is what is coming in to DSS to be investigated. Mr. Shays. So, you do not know, in a sense, your liabilities? Ms. Schuster. I would guess that they are probably just estimating the backlog, but you will have to ask General Cunningham exactly how they are estimating that. Mr. Shays. So, potentially it could be double or it could be half of what it is. We at least know that it is this number, but it could be worse. Ms. Schuster. It could be worse. It could be better. I do not think they really know. Mr. Shays. How could it be better? We have a number of actual people, do we not? Ms. Schuster. Well, what General Cunningham has said is they have been trying to look at that backlog with more scrutiny and determine whether all of those people that are in the backlog really need to be investigated, because some may have retired, been separated, et cetera. Mr. Shays. OK, fair enough. You are telling me I should have some question about the number. Ms. Schuster. Yes. Mr. Shays. That it is an estimate. Ms. Schuster. I agree. Mr. Shays. And it could go in either direction. So, we have to determine whether it was a conservative or a liberal estimate. In other words, you get the point. One last and final question. There were 11 recommendations. Is that right? Ms. Schuster. I think there were 14. Mr. Shays. So, they agreed to 11. Ms. Schuster. I think they agreed to all of them. Mr. Shays. Twelve. Ms. Schuster. Twelve. Mr. Shays. In fact, in every one that I see in the letter they wrote on October 13th, uncharacteristically but thankfully, they are succinct. They give you a recommendation and then they say ``concur.'' In ever instance, it is ``concur.'' Was there any additional recommendation that they did not concur? Was there any area where you had disagreement or can I basically accept the fact that all of your recommendations they concurred with and now the issue is how do you remedy it? In fact, you suggest how to remedy it. Ms. Schuster. Yes. Mr. Shays. They are following your guidelines in many cases. Ms. Schuster. Right. From their official response, we can conclude, at this point, that they are doing something about all of those recommendations, and that they do agree with them. Mr. Shays. And that is a very positive thing. So, the bottom line for me, though, is I should take a second look at the number. The committee should take a second look at how is the number determined and is it reliable, the backlog. Ms. Schuster. Right. I am sure General Cunningham can address that. Mr. Shays. OK. Mr. Chairman, thank you. I am finished. Mr. Terry. Thank you, Mr. Chairman. We will be in recess until---- Mr. Shays. I think we have a couple of votes. Mr. Terry. Then we will talk to the Generals. Mr. Shays. It will probably be at least a half hour. So, I would say 20 minutes. Mr. Terry. We will take a 20-minute recess. [Recess.] Mr. Terry. Yes. Mr. Shays [presiding]. I call our second panel, our two witnesses, General Charles Cunningham, Director of Defense Security Service, and General Larry D. Welch, chairman, Joint Security Commission. I appreciate you remaining standing. I will swear you both in. Thank you. [Witnesses sworn.] Mr. Shays. Thank you very much. It is very nice to have both of you here. I know both of you have testimony. You can have your testimony as long as you find it necessary. I think we will start with you, General Cunningham. I know we will start with you. Thank you. STATEMENTS OF GENERAL CHARLES CUNNINGHAM, DIRECTOR, DEFENSE SECURITY SERVICE; AND GENERAL LARRY D. WELCH, CHAIRMAN, JOINT SECURITY COMMISSION Mr. Cunningham. Thank you very much, Mr. Chairman. I made a statement and I would like to submit that for the record. If it is agreeable with you, sir, I would just like to abbreviate that in the interest of time. Mr. Shays. Sure. That testimony will be in the record. Mr. Cunningham. Thank you, sir. Sir, as the GAO reported, the agency did agree completely with the report. In fact, we have used it as a very, very helpful road map to fix the discrepancies and to go beyond those actions. So, I want to start by thanking the GAO. It is working very well in recovering the agency. I would quickly like to go through why we are in this situation. What are the problems? What are the solutions? Of course, I will not be able to cover all of the problems or all of the solutions, but I want to quickly get through this part. Mr. Shays. Feel free to be quick, but do not speak fast. Mr. Cunningham. All right, sir. The situation that we found ourselves in was caused by very much a breakdown in our management effectiveness as reported by the GAO. In fact, a substantive part of the effort made by management, those efforts by management were caused by a work force reduction. It is well-understood that the Defense Security Service was not the only activity in the Department of Defense being reduced in size. That was happening across the Department. Nevertheless, work force reduction was a major factor in that we reduced almost 40 percent of the work force. Investigative requirements increased as the GAO had testified. In fact, the quotas imposed all led to a buildup in the backlog of periodic re- investigations. A major factor in this was that in an effort to compensate for the reduction in personnel, information technology in the form of the Case Control Management System was seen as a major way to reconcile the difference in achieving our mission. Nevertheless, the Case Control Management System, as the GAO reported, was managed in such a way that it did not deliver. You will recall that the Case Control Management System was turned on in October 1998. Immediately it ran into problems. It was barely able to function at all for the first 6 weeks that it was in being. That was a major part of causing the situation we are in because: of the turbulence that it caused beyond just not getting the work done; the turbulence that it caused in the organization. Thus, the management decided, and I do not agree with it at all, the management decision to relax standards and cease the many of the quality control activities that were ongoing. I would hasten to add that the Security Policy Board also did not agree with that action. So, the problems, as they were seen inside the agency, were that there was an un-achievable task to be accomplished. The work force became demoralized. Training had been reduced. There was great fear of out-sourcing in the agency. All of that is not gone. There was a growing backlog. That becomes the definition or the metaphor for a larger problem. The agency, in fact, was trying to work with both the information technology, the electronic personnel security questionnaire and with a paper questionnaire. So that at the time that technology was supposed to be solving the problem, the old method had not gone away. There was the continuing false starts that occurred in the Case Control Management System because that program management was not organized, as reported by the GAO. Very quickly on solutions. The solutions for DSS have had to derive from a comprehensive change in how the agency operates. Quickly, the agency had to return to standards and quality. Training had to be emphasized. The timeframe that I am in now is the summer of 1999. Resources had to be organized to task. That is done. Training is reestablished in the DSS academy. Standards are reestablished in the agency, and operating instruction on August 16th achieved that. An investigations manual had to be redone, approved, and fielded in December. Our quality management activity has been reestablished and is staffed. We have returned to basics and sound management practices. By that, I mean we communicate as openly as possible. We have put our organization in a condition that has a unity of command in it. Everybody now knows their boss. We have reduced the span of control. We are still in the process of this. Be careful how I say that. We are in the process of reducing span of control in the field to where in situations where we had as many as 36 personnel under one first-line supervisor. In March, that will all be reduced across the board to 11:1. It has been an essential factor in how we bring our people along. Especially, we have now put in something called standardization and evaluation. Standardization and evaluation is an activity whereby new investigators we call them agents after they complete appropriate academic training, which we now give in our academy that has been reestablished, they are given an initial qualification check by a standardization and evaluation examiner. After that, we have periodic and a periodic examinations or checks of what our agents are doing. We have begun hiring. We are going to increase across the board from about 2,450 people on board now. We will go up over the next year to about 2,600 people. That will include about 100 more agents, taking us from 1,200 to over 1,300 agents. Augmentation is a major part of what we are looking at. Before I arrived at the agency, the Deputy Secretary of Defense had ordered that augmentation begin. That was done. The decision was made in May. That augmentation came in the form of getting the help of OPM. Mr. Shays. Let me ask you. Who ordered that? Mr. Cunningham. The Deputy Secretary. Mr. Shays. The Deputy Secretary? Mr. Cunningham. Excuse me, sir, the Deputy Secretary of Defense. Thank you very much. It is hard to leave the Pentagon. Thank you. The augmentation that we are into now, then, has that first phase that Secretary Hamrey ordered in May, which uses OPM. In addition to that, letter contracts with a company named OMNISEC and a letter contract with a company named MSM. OPM's contractor is USIS. That was the one that Mr. Mica had mentioned earlier. In addition to that, and this has much higher potential for us, the phase two augmentation will consist of larger contractor support capabilities that we intend to align, as much as possible, with each of the military departments and with industry so that unique requirements can be best met. Those activities begin with the first contract coming on board as early as the end of this month. Four of those contracts we hope to have on board by the beginning of the summer. Sir, I will stop with that and standby for your questions. 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I am going to ask you question now. I do not want you to answer it, even if you want to answer it, right yet, because I want you to think about it. I am going to ask you how confident you are in the backlog. I want you to know that I am going to be writing a letter of request to GAO that they verify the backlog number. That we not work with guesstimates. So, I want you, and frankly this could be a help to you because if the backlog is greater and you set out an agenda based on the backlog, you are dead before you start. Then somebody else will be taking your place saying the mismanagement that preceded them. So, General Welch, thank you. You are on. Mr. Welch. Thank you, Mr. Shays. The Joint Security Commission Report II is in the public record. That is really our report for the record. I do not have an opening statement. Let me take 1 minute and remind you of what the Joint Security Commission was about. Mr. Shays. Yes. I know nothing about the Security Commission. So, you feel free to really educate me. Mr. Welch. The first Joint Security Commission, one, was asked by the Department of Defense and the DCI for a set of recommendations to address what was seen as an incoherent and perhaps sometimes chaotic set of security guidelines. There was seen a need for much more coherent and security guidelines, both to increase effectiveness and to reduce cost. We reported out in 1994 with a set of recommendations. It eventually led to a Presidential Decision Directive to implement the key recommendations of the Joint Security Commission. The Joint Security Commission II convened 5 years later at the request, again, of the Department of Defense and the DCI. It was asked specifically to give a grade on how the Government was doing implementing the direction of the PPD and the recommendations of the first Joint Security Commission. The primary focus, or one of the primary foci of the Joint Security Commission I, was personnel security. Standards were inadequate and execution was inadequate. Once again, one of the primary recommendations of the Joint Security Commission II was that we had agreed to investigative and adjudicative standards, but they were not being followed by all of the Department. So, that was the background for the Joint Security Commission. Mr. Shays. Anything else you would like to say? Mr. Welch. No. That is it. 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OK. Let me just ask you, there was a Commission in 1986. Is this the same Commission that we are talking about now or was that a different Commission? Mr. Welch. No, sir. The Commission in 1986, whose name escapes me, was one of the three---- Mr. Shays. Stillwell, was that it? Mr. Welch. Right. It was one of the three earlier Commissions that lead to increasing concern about the lack of standards, the lack of coherent standards for personnel, and security, and for security in general. Mr. Shays. So, there was in 1986. Was there one earlier or one later? There was one in 1994, right? Mr. Welch. There was one in 1986. There was one in about 1988. There was another one in 1992. Then we reported out in 1994. Mr. Shays. Then you were established in 1994? Mr. Welch. I am sorry? Mr. Shays. You say you were established in 1994? Mr. Welch. The Joint Security Commission I reported out their first report in 1994. Mr. Shays. You reported out your study. You had been in existence for how long. Mr. Welch. Then we disbanded. We met for a year and a half. We reported out. It eventually resulted in a Presidential Decision Directive, which then established the Security Policy Board, which was charged with implementing these recommendations. Then 5 years later, we were asked to reconvene, really for two purposes. One, because it had been 5 years and they wanted to check on how the Government was doing. Second, by that time, there were enough indications of problems with personnel security that we were asked to particularly focus on those issues. Mr. Shays. Well, you are well-aware of what GAO has said. What is your reaction to what they have said? Mr. Welch. I agree with what the GAO has said. Mr. Shays. I want you to characterize it. I mean, is it out of concern? Should I be greatly concerned? Should you be greatly concerned? I mean, I want some characterization of--I will just tell you up-front. For me, I read it and I find it so astounding. When I was speaking to someone on the floor before I came back, I said it is so bad, it is so big that you cannot get your arms around it in one way. I mean, if you had told me that when they did the reinvestigation the found 2 or 3 percent where they noticed that they should do further research, but when you come up with 16 percent, it is like unbelievable. That is the whole point of the investigation is to identify your problem and then go after it. So, I want you to tell me how you characterize it. Mr. Welch. OK. It is bad, and big, and you can get your arms around it. Mr. Shays. You can, c-a-n? Mr. Welch. You can. So, let me tell you why I say that. Personnel security is a risk management business. That is the nature of the business. We are making judgments about the trustworthiness and the reliability of human beings. We now have, which we did not have in the past, a set of standards on which we base those judgments. Understanding that we are always talking about risk management and we are always talking about making judgments. So, the Government has agreed across all of the agencies of the Government, which is an immensely difficult task, that there is a set of standards that we can apply that will give us reasonable confidence that based on our knowledge of past behavior and current circumstances, we have a satisfactory standard for access to classified material. So, the standard is in place. The standard is implementable. The standard is quite reasonable. I do not think there is any question that we can achieve those standards. But we did not. Now, you have heard a lot of reasons why we did not achieve the standard, but the solution is very straightforward. The solution is enforce the standards. We have all agreed that those are the right standards. Mr. Shays. Are those standards different than what the report presented in 1994? Mr. Welch. The standards are quite different. When we entered the effort that was reported out in 1994, the going-in emphasis was on the cost of this largely incoherent system because there was a lot of county option. Each agency set their own standards. Just to give an anecdote to help understand it, at that time, I had three separate top secret clearances. I had four separate compartmented clearances. As we were meeting, I happened to, be undergoing three separate background investigations. My neighbors suggested to me that perhaps we should have a neighborhood barbeque and invite all of the investigators at one time. That was what we characterized. As we began to do our work, that 18-months' worth of work, we became very concerned about personnel standards. Our concern was that in the area of personnel security, some of the agencies had standards that we were so lax that we understood why many agencies would not accept those standards. Mr. Shays. You mean, so some agencies required more than others. So, that is why you had more than one check. Is this kind of like, I used to think that, you know, when you went from red, green, brown, and then black belt, when you reached black belt you were done. Then I learned later on that you had 10 elements to black belt. Are you saying that we have different elements in our top secret, or are you saying that different agencies just would not accept the review of other agencies because of different standards? Mr. Welch. Both. Each agency set their own standards. The Department of Energy had a set of requirements to grant a ``Q'' clearance, which is the equivalent of a top secret clearance. It is the equivalent of a DOD top secret clearance. The DCI had a different set of requirements for clearances that went by the same name. So, there was no reciprocity, but more important we did not have an agreement on what was an adequate standard. Mr. Shays. That was 1994. Mr. Welch. That was 1994. Mr. Shays. So, the focus then was, let us have one review. Let us have common standards among the various departments and agencies. Mr. Welch. Yes. Mr. Shays. But you, in no way, were not suggesting that you relax the standards like what took place. I mean, could someone who had been with DSS go back and say listen, we were being motivated by the report that you all submitted? Could they blame your report for a part of the problem? Mr. Welch. Well, I suppose anyone can do that. Mr. Shays. Are they? Mr. Welch. No. Let me comment on a couple of issues that complicated it a bit. In the end, for the Department of Defense, the standards went up. They went up considerably. This was an interagency effort under the Security Policy Board. So, it took a number of years. I cannot even remember how many, I guess until 1997, for all of these Government agencies to agree on what the standard would be. That is when we came to the definition of what is required to grant a secret clearance, and what is required to grant a top secret clearance, and what the time period would be for re- investigations. Those standards were more stringent than had previously been practiced by the Department of Defense. They were perhaps less stringent than someone's standards, although I do not know whose those would have been. So, from a DSS standpoint, the result of that effort was to raise the standards that DSS was expected to follow in their background investigations. Now, that would be demoralizing only if you then did not get the resources to do that. Mr. Shays. But you were also suggesting that they not have to do double and triple reviews. Mr. Welch. That is right. That is correct. Mr. Shays. So, there should have been some advantage there. Mr. Welch. Our hope was that, that would result in a significant cost savings. But our report did not suggest that we could reduce the cost of personnel security. We suggested you could reduce the cost of physical security and the cost of document security because of the change to electronics. Mr. Shays. You did not suggest lowering the standards. You did not suggest ignoring one of the nine elements. Is that true or not? Mr. Welch. Not at all. In fact, our whole emphasis was that we need an agreed-to Government standard, and then you simply must follow the standard. There are two reasons for that. One is you need an agreed-to bar, some standard of judgment based on behavior and circumstances. Second, the real essence of security is security awareness. Security does not just come from someone jumping over the bar and getting access. Within the organization, everybody in the organization has to be aware of security issues. You cannot have security awareness if the people that you are trying to persuade to have this kind of awareness do not see you adhering to standards. Mr. Shays. Thank you. General Cunningham, before I ask you the question, I said I was going to ask you, I want you to spare me this problem. If you say you have total confidence, then I would want to pursue under what basis you would have total confidence. I would have you try to explain to me, in some detail, how the number was derived. You may have total confidence. I just want to say that up front. I do not want to find that you have total confidence, but you do not know how they did it and so on. Bottom line question is do you have total confidence? First, what is the backlog? Mr. Cunningham. The backlog has been assessed by an integrated product team operating in OSD at 5,005. Mr. Shays. Do you have intricate knowledge of how they determined that? Are you accepting their number based on their expertise? Mr. Cunningham. I am accepting their number. However, I do not have total confidence in it. Mr. Shays. Fair enough. So, it is their best estimate as far as you are concerned. Mr. Cunningham. Yes, sir. Mr. Shays. What do you think we can do to nail down that number? Mr. Cunningham. Sir, the best way to nail down that number is to have very disciplined ``scrub and prioritize,'' scrub in this case, on the part of the military departments, industry, and other smaller entities in the security community. To that end, we, DSS, are working with the military departments to have them embrace the idea and resource the capability to have a central requirements facility on the front end of the process in the same way that there is a central adjudication facility on the back end of the process. Mr. Shays. If I were to ask you for your confidence level that the number would be higher or lower, if you have no sense either way, I do not want you to pick a direction. Do you think it is likely to be underestimated, or overestimated, or do you simply do not know? Mr. Cunningham. Sir, while I think it could be overestimated, I think the number is higher. Mr. Terry. Will you repeat that? Mr. Cunningham. While the number could be lower, I think the number is higher. That is my professional judgment. Mr. Shays. In other words, it could go either way, but if he was a betting man. Mr. Terry. It is or it is not, and that is your professional opinion. Mr. Shays. No, no. Since it was my question, what I hear you telling me is that it could go in either direction, but if you were a betting man, it would be higher. Mr. Cunningham. Yes, sir. That is it. Mr. Shays. Mr. Terry. Mr. Terry. I want your help in coming to a full understanding of an issue. So, I am going to ask you to apply what you are going to perceive as fairly elementary questions, but I have to admit that I am somewhat lost on the role of quotas. As I am perceiving from the some of the testimony and reading the report that some of the backlog, I do not want to say ``blame'' or ``excuse'' but the causal relationship of the backlog to these quotas. Can you explain to me when these quotas were implemented and what they are in their direct relationship toward the backlog? Mr. Cunningham. The quotas were implemented about 1994 in an effort to discipline the clearance requests that were coming in, in an effort to motivate those making their requests to indeed request the clearances they really needed to have. We no longer have those quotas. Mr. Terry. Did you do away with those? Mr. Cunningham. No. Those were done away with in early 1999, I believe, before my arrival. Mr. Terry. But the damage had been done? Mr. Cunningham. Quotas were basically saying, out of a certain percentage of the re-investigations, I do not know what the exact quota is. So, maybe 10 percent or the real high priority ones, so we are only going to make you do 10 percent. Mr. Terry. Is that a good generalization? Is that a ballpark generalization? Mr. Cunningham. Let me tell you what I think I heard you say. Mr. Terry. All right. Mr. Cunningham. The quotas were put on to try to get the number that were really needed, 10 percent or whatever. Mr. Terry. Yes. Mr. Cunningham. But it was a large number. It was a reasonable number. However, it also, without intending to do so, created what the GAO was discussing as a pent-up demand. That pent-up demand finally becomes manifest in a backlog when the quotas are dropped. Mr. Terry. From my perspective, it looked like the quotas set a minimum bar that everybody strived to meet. Then just like the backlog built up from there and you used the quotas as the excuse to do that. So, I am pleased that the quotas have been dropped. Unfortunately, that puts you in a very tough position to deal with that. Could you discuss, as my last question, and you did hit on it during your statement, but I would like you to expand on the automation of the caseload and what steps you are taking now to review the current system that I think everyone agrees is not adequate. Where are you in that process of reviewing it? Where do you feel the direction is going? Mr. Cunningham. Yes, sir. The Case Control Management System was, as the GAO reported, in need of proper program management. Last summer, we asked for a Program Management Office, and properly trained people to run the program and run the recovery. Our judgment at that time was that it made prudent business sense to continue the system, to continue with the Case Control Management System until we knew that it was recoverable. There was nothing in any study that said that the system was not recoverable. Our mission is security and this was central to the system. So, it made good sense to continue. When we continued, we committed to get a Program Management Office to indeed have a test capability for the system, which was not in the original architecture; to develop a concept of operations; to identify the priority requirements, support, and concept of operations to do a baseline architecture; and to do a schedule and a budget. Those things had never been done before. They are now in the process. We will have our first look at those on March 1st. We have our Program Management Office up. It now manages all contractors. The DSS manages none of the contractors. In fact, it has identified time lines for the recovery of the system, in terms of stabilizing the system by June 1, 2000, improving the system by June 1, 2001. From June 1, 2001 through June 1, 2003, enhancing the system to meet those requirements that cannot now be foreseen. Mr. Terry. Thank you. Mr. Chairman, that concludes my questions. Mr. Shays. Thank you very much. I have a number of other questions; some that my staff wants me to get on the record as well. I would like to clarify the budget issue. My sense was that I was being accurate in saying your budget of $74 million went up to $84 million. That the difference of that number of the $300-something is money that goes into a fund that looks at the private sector employees. So, maybe you need to help me sort out your budget a little bit. Mr. Cunningham. The budget includes everything that we are doing this year. It is $324 million. The discrete breakout of what each one of those, each part of that composing that $324, I would like to submit that back to you in detail. Mr. Shays. Sure. My understanding is that basically your Government budgets, $84 million, and then you have a trust fund budget that really is contributed from the employers. Mr. Cunningham. Yes, sir. It is a working capital fund. Mr. Shays. Right. Mr. Cunningham. It is a financing capability by which the requesting entities that we, say essentially the military departments, identify what level of investigations will they need to have done. Then they put the money in to cover that for the year. They budget in advance. Then they move the money to us with their clearance requests. Mr. Shays. I realize that money is fungible. I mean, it may be the same person that pays ultimately. My sense is that a chunk of your budget is associated or tagged to a private company like Boeing or Honeywell, and that they then pay that cost. Mr. Cunningham. Sir, I am not aware of that. I would have to answer you back on that. Mr. Shays. OK. We will get into that later. It raises some interesting questions that I have. Ultimately, if the private sector is paying some of it, we end up paying for it in the final product we buy. It does raise some interesting questions as it relates to the question I asked earlier. If the AIA member companies' survey has taken Boeing and said they have a backlog of 90 days in November 1999. This is what it was. And it was 1,161 employees and it cost them $52 million, and when I went through the list, you came up with 3,247 employees costing $143 million. This is a wasted expenditure, as far as they are concerned. It would be an expenditure, if they were done in a timely basis, would not occur. Have you been presented that type of information from anyone? Mr. Cunningham. Yes, sir. I have a copy of that correspondence. Mr. Shays. Now, this is where my mind starts to work. I say, you got a backlog of hundreds of thousands, and just 3,247 cost ultimately, I believe the Government, $143 million. I mean, if anybody has a good case for arguing that you get the backlog done and we invest in it, you do. I hope OMB has been exposed to this. Is this a document I should have comfort that is credible? Mr. Cunningham. Sir, I think that the private sector entities who identified that problem are in the best position to state what that is costing us collectively. You are right about that. So, I appreciate the urgency that must go against that kind of a problem. Mr. Shays. Have we, in the private sector, tried to estimate the cost? I mean, in other words, this same logic occurs. I mean, you have someone who is not given clearance. So, you cannot get the job done. You have people waiting in line. The job does not get done. It gets delayed. Well, that happens in the public sector as well. Mr. Cunningham. Yes, sir. Mr. Shays. Do we have people in the public sector that have tried to put a cost to this? Mr. Cunningham. Not to my knowledge, sir. In fact, you are highlighting what I am seeking on behalf of the agency to have ``scrub and prioritize'' from everybody. Mr. Shays. Can you tell me how many of the clearance re- investigation checks are the private sector versus the public sector? Mr. Cunningham. Yes, sir. In general terms, about 75 percent of our work is in the military departments and otherwise public sector and about 25 percent is in the private sector. Mr. Shays. Thank you. What kind of risk assessment has been developed to determine the danger the backlog poses to national security? Mr. Cunningham. Sir, the GAO mentioned the algorithm that we have been working on and we have now completed. I will be most pleased to provide a copy to you and your committee. It is aimed at risk management. Our plan is to go into the total population of the backlog, apply the algorithm, identify which records come up as high risk from the algorithm, which we believe and have had scientific support will predict 89 percent, based on a 6.5 percent sample size, that we use it against the backlog while we are bringing the backlog down. So that we both work the backlog down and, in the process, go after those that are identifiable as highest risk in the backlog. Mr. Shays. Is that document ultimately going to be a public document or will it be a secured document? Mr. Cunningham. Sir, it is a public document. I will be happy to provide it. Mr. Shays. I am going to ask you two benchmark issues. What is your timetable for eliminating the backlog? There is another question that I want to ask. That relates to what timeframe has been established to enhance the Case Control Management System? So, timeframes, benchmarks. Mr. Cunningham. Yes, sir. Sir, we believe that---- Mr. Shays. And I am going to interrupt you. I am sorry. This is based on the number that has been presented to you as the backlog. Mr. Cunningham. Yes, sir. We believe that we can bring the backlog, as we now know it, we can eliminate the backlog by the end of calendar year 01. Sir, that is a hard task, and I will say that right up front, but I believe, as I have come to know the agency and the ability of private sector contractors who are seeking the work to augment us, that we will be able to do that. I believe that we can do it in good form in protecting our standards and our quality because we are requiring proper training, certification, applying our standardization and evaluation checking, our quality management, our operations research so we can do the trend analysis that goes along with it, and other activities. It is important, sir, if I may add, it is important that we are going to use our algorithm to determine which cases should go to those contractors so that cases that we predict we will have problems, we will keep those right in the agency. We intend that all problem cases, issue cases, derogatory information uncovered, that those cases revert back to the DSS. Mr. Shays. Is the integral of success, will you get so many each from this point on or will you see the vast bulk of them done from July 2001 to December 2001? In other words, by the end of this year, what do you anticipate you will have done? Will you have 50 percent of it done? Mr. Cunningham. By the end of this year, I think it will be fair for us to expect in the neighborhood of 15 to 20 percent of it. The reason that the rest of it is achievable in the next calendar year is because the contractors will have spun-up. Our timetable for the Case Control Management System, which I have mentioned before, will have taken root. So, that major constraint will be less so. And because all of the four contractors that we intend to put as major efforts, and they will have the opportunity to bring others in with them, that the way they manage their cases will be managed independently of our Case Control Management System. So, it will take the agency from complete dependence on this Case Control Management System over onto another capability, all of which will be visible to us so we know that they are being done properly. In other words, we are going to have belts and suspenders. Mr. Shays. I was with you until that last part. In other words, you are going to have what? Mr. Cunningham. Well, in this hearing term, ``belts and suspenders.'' You know, we will have it both ways. It is not a trivial point because we had all of our eggs in one basket and we are getting out of that. Mr. Shays. It begs the question of whether you get greater productivity from the private sector or from the public? I realize you have to work with both sides. I understand one reason why we do the private is that we ultimately will have phased down that unusual number. So then you do not want to buildup your bureaucracy. So, it makes sense to farm it out. Does the private sector have some inherent advantages that allow them a greater productivity? Mr. Cunningham. Yes, sir. They have agility. They are able to hire and remove people quickly. They are able to locate easily. They are able to spinup fast with a great deal of focus. They are able to marshal resources almost instantaneously, if they decide to go after the business. Mr. Shays. That is a very good answer and one that I would appreciate. One of the things that we have learned on the subcommittees of Government Reform is that in the private sector, three people make a decision. Ultimately, in the public sector it is 11. What that must do for ingenuity, and creativity, and timeliness is mind-boggling. Mr. Cunningham. Sir, if I may tag onto that. We will be watching very closely what happens with these private sector contractors. Where there are better methods and applications of IT, we intend to adopt those same things ourselves. Mr. Shays. Now, there are only two benchmarks so far I have heard. So, give me a few more. We are going to want to come back, I mean, whoever is chairman of this committee next year, I would imagine, and someone will pursue this issue. We will want to meet with you to determine that. We frankly would want to meet with you probably later on. Mr. Cunningham. Yes, sir. Let me give you a few of those. When we worked with the Program Management Office and the contractors, and we saw the way they went about considering progress on the Case Control Management System, those timeframes I mentioned for the Case Control Management System, we identified the same phasing for the overall recovery of the agency. We have a target right now for August of this year to be making the number of cases closed per day, on average, to hit that target. It happens to be 2,500 cases a day closed for the DSS. To hit that target in August, and to hit it in a sustainable way, and to hit it in a way that we are continuing to build capability. To be able to not only take care of the backlog, but also be prepared to be able to do more than that should that arise. We expect that it will arise because of what the security environment is becoming. Therefore, the date to stabilize the agency is September 1st. It will be manifest in the data of output exceeding input for August in a sustainable way. That we will improve the agency, not just the CCMS, but the whole agency, through June 2001. And that we will enhance our capabilities from June 2001 through June 2003. We are tying them all together, and a very good measurement will be when we hit that target in August. That is one that I am happy to see the agency held accountable to, and would be more than happy to come back when you say. Mr. Shays. Is that the first key date, as far as you are concerned? Mr. Cunningham. Yes, sir. The whole agency right now is marshaling to hit that target in a sustainable way. Mr. Shays. Just a few more questions here. What do you consider to be the most pressing problem confronting DSS? You have got lots of challenges, lots of problems. What would be really the most? Mr. Cunningham. I am often asked this by my boss, the ASDC3I, and the answer is---- Mr. Shays. Wait a second. Mr. Cunningham. The Assistant Secretary of Defense for Command, Control, Communications and Intelligence. Mr. Shays. Thank you. Mr. Cunningham. Thank you, sir. Art Money asks me this question a lot. And the answer from the beginning was our people. Today, the answer is the same. It is our people. This work force has had a tremendously difficult time. To bolster their morale, and we are making progress on this, to ensure they get the right training, proper preparation, proper response from their systems, those are the kinds of things we have to work on, but it all centers on the people. Mr. Shays. You know, I have a few other questions. What I will do is submit them, if we feel it is necessary to followup. I will have the committee to submit it in writing and just have you respond to one or two others. I am happy to have either of you make any comment. Is there a question you wish I had asked you, General Cunningham that you could wax eloquently on? Mr. Cunningham. Wax eloquently, sir. Mr. Shays. You do not even have to wax eloquently. Is there a question you were really prepared to answer that you want to answer, or is there a question I should have asked? Mr. Cunningham. Yes, sir. You asked the question. The question that is sometimes not asked, but is the right one to ask is, what is your biggest problem? Mr. Shays. Do you want me to ask you what is your second biggest problem is? Mr. Cunningham. Yes, sir. What is it? Mr. Cunningham. It is the Case Control Management System because it becomes the pacing item for everything else that happens in the agency in investigations. Mr. Shays. Thank you. General Welch, is there a question that you would have liked me to ask or something that you want to say? Mr. Welch. Well, I am very happy with your questions. Mr. Shays. That makes me very concerned. If either of you have a closing comment, we can adjourn. Mr. Cunningham. Thank you very much. Mr. Welch. Thank you. Mr. Shays. Thank you very much. We appreciate you being here. We appreciate your cooperation and we wish you well. The hearing is closed. [Whereupon, at 12:25 p.m., the subcommittee was adjourned.] [The prepared statement of Hon. Helen Chenoweth-Hage follows:] [GRAPHIC] [TIFF OMITTED] T6789.086 [GRAPHIC] [TIFF OMITTED] T6789.087