[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
      BUSINESS PROCESS MODERNIZATION AT THE DEPARTMENT OF DEFENSE

=======================================================================

                             JOINT HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT EFFICIENCY,
                        AND FINANCIAL MANAGEMENT

                                and the

                   SUBCOMMITTEE ON NATIONAL SECURITY,
                   EMERGING THREATS AND INTERNATIONAL
                               RELATIONS

                                 of the

                     COMMITTEE ON GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                              JULY 7, 2004

                               __________

                           Serial No. 108-229

                               __________

       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


                                 ______

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                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana                  HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut       TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana              CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California                 DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky                  DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia               JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania    WM. LACY CLAY, Missouri
CHRIS CANNON, Utah                   DIANE E. WATSON, California
ADAM H. PUTNAM, Florida              STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia          CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee       LINDA T. SANCHEZ, California
NATHAN DEAL, Georgia                 C.A. ``DUTCH'' RUPPERSBERGER, 
CANDICE S. MILLER, Michigan              Maryland
TIM MURPHY, Pennsylvania             ELEANOR HOLMES NORTON, District of 
MICHAEL R. TURNER, Ohio                  Columbia
JOHN R. CARTER, Texas                JIM COOPER, Tennessee
MARSHA BLACKBURN, Tennessee          BETTY McCOLLUM, Minnesota
PATRICK J. TIBERI, Ohio                          ------
KATHERINE HARRIS, Florida            BERNARD SANDERS, Vermont 
                                         (Independent)

                    Melissa Wojciak, Staff Director
       David Marin, Deputy Staff Director/Communications Director
                      Rob Borden, Parliamentarian
                       Teresa Austin, Chief Clerk
          Phil Barnett, Minority Chief of Staff/Chief Counsel

     Subcommittee on Government Efficiency and Financial Management

              TODD RUSSELL PLATTS, Pennsylvania, Chairman
MARSHA BLACKBURN, Tennessee          EDOLPHUS TOWNS, New York
STEVEN C. LaTOURETTE, Ohio           PAUL E. KANJORSKI, Pennsylvania
CANDICE S. MILLER, Michigan          MAJOR R. OWENS, New York
MICHAEL R. TURNER, Ohio              CAROLYN B. MALONEY, New York
KATHERINE HARRIS, Florida

                               Ex Officio

TOM DAVIS, Virginia                  HENRY A. WAXMAN, California
                     Mike Hettinger, Staff Director
                 Larry Brady, Professional Staff Member
            Adam Bordes, Minority Professional Staff Member
 Subcommittee on National Security, Emerging Threats and International 
                               Relations

                CHRISTOPHER SHAYS, Connecticut, Chairman

MICHAEL R. TURNER, Ohio
DAN BURTON, Indiana                  DENNIS J. KUCINICH, Ohio
STEVEN C. LaTOURETTE, Ohio           TOM LANTOS, California
RON LEWIS, Kentucky                  BERNARD SANDERS, Vermont
TODD RUSSELL PLATTS, Pennsylvania    STEPHEN F. LYNCH, Massachusetts
ADAM H. PUTNAM, Florida              CAROLYN B. MALONEY, New York
EDWARD L. SCHROCK, Virginia          LINDA T. SANCHEZ, California
JOHN J. DUNCAN, Jr., Tennessee       C.A. ``DUTCH'' RUPPERSBERGER, 
TIM MURPHY, Pennsylvania                 Maryland
KATHERINE HARRIS, Florida            JOHN F. TIERNEY, Massachusetts
                                     DIANE E. WATSON, California

                               Ex Officio

TOM DAVIS, Virginia                  HENRY A. WAXMAN, California
            Lawrence J. Halloran, Staff Director and Counsel
                  J. Vincent Chase, Chief Investigator
                        Robert A. Briggs, Clerk
             Andrew Su, Minority Professional Staff Member




                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 7, 2004.....................................     1
Statement of:
    Lanzilotta, Lawrence, Under Secretary of Defense and Acting 
      Comptroller, Department of Defense; and Greg Kutz, 
      Director, Financial Management and Assurance, General 
      Accounting Office, accompanied by Keith A. Rhodes, Chief 
      Technologist, Applied Research and Methodology, Center for 
      Engineering and Technology.................................    10
Letters, statements, etc., submitted for the record by:
    Kucinich, Hon. Dennis J., a Representative in Congress from 
      the State of Ohio, prepared statement of...................    88
    Kutz, Greg, Director, Financial Management and Assurance, 
      General Accounting Office, prepared statement of...........    18
    Lanzilotta, Lawrence, Under Secretary of Defense and Acting 
      Comptroller, Department of Defense, prepared statement of..    13
    Platts, Hon. Todd Russell, a Representative in Congress from 
      the State of Pennsylvania, prepared statement of...........     3
    Shays, Hon. Christopher, a Representative in Congress from 
      the State of Connecticut, prepared statement of............    69
    Towns, Hon. Edolphus, a Representative in Congress from the 
      State of New York, prepared statement of...................     6


      BUSINESS PROCESS MODERNIZATION AT THE DEPARTMENT OF DEFENSE

                              ----------                              


                        WEDNESDAY, JULY 7, 2004

        House of Representatives, Subcommittee on 
            Government Efficiency and Financial Management, 
            joint with the Subcommittee on National 
            Security, Emerging Threats and International 
            Relations, Committee on Government Reform,
                                                    Washington, DC.
    The subcommittees met, pursuant to notice, at 2 p.m., in 
room 2247, Rayburn House Office Building, Hon. Todd R. Platts 
(chairman of the Subcommittee on Government Efficiency and 
Financial Management) presiding.
    Present: Representatives Platts, Shays, Towns, Watson, 
Blackburn, Kanjorski, Tierney, and Ruppersberger.
    Staff present: Lawrence Halloran, staff director and 
counsel; J. Vincent Chase, chief investigator; Robert Briggs, 
clerk; Mike Hettinger, staff director; Larry Brady and Tabetha 
Mueller, professional staff members; Amy Laudeman, legislative 
assistant; Adam Bordes and Andrew Su, minority professional 
staff members; and Jean Gosa, assistant clerk.
    Mr. Platts. This joint hearing of the Subcommittees on 
Government Efficiency and Financial Management and National 
Security, Emerging Threats and International Relations will 
come to order.
    I would first like to thank our witnesses here today as 
well as your staff for your written testimony you have prepared 
and we look forward to your oral testimony and our chance to 
have Q&A with you.
    We are here today to discuss business processes at the 
Department of Defense. Today, we will review the status of the 
overall modernization effort. My committee, the Government 
Efficiency and Financial Management Subcommittee will conduct a 
followup hearing in 2 weeks from yesterday, July 20, to review 
some specific problems with Army Reservist pay.
    The Department of Defense is the largest and most unique 
entity in the entire world with over $1 trillion in assets, a 
work force of 3.3 million and disbursements of over $400 
billion. DOD has a worldwide presence of nearly 500,000 
military and civilian personnel deployed across the globe. To 
support its operations, the Department relies on more than 
2,000 business systems. As I think we will hear in Mr. 
Lanzilotta's testimony, it is actually over 4,000 and counting, 
everything from accounting and logistics to procurement and 
personnel. Nearly $19 billion was requested in 2004 to maintain 
and modernize these systems. The inherent challenge is that 
these systems are not integrated and regardless of the amount 
of investment, the fact remains that until these systems are 
integrated, they will not function effectively.
    The Business Management Modernization Program launched in 
2001 is an aggressive, bold attempt to achieve this important 
goal. This hearing will discuss the progress being made in 
implementing BMMP and the remaining challenges that need to be 
overcome before DOD will have integrated systems in place that 
produce timely, reliable data.
    While we continue to hope that DOD will achieve a clean 
audit opinion in 2007, as has been projected, there is much 
more at stake here. Problems with business systems are starting 
to have an impact on the Department's mission. Over the past 2 
years, we have heard from the General Accounting Office about 
serious problems relating to financial management and business 
systems--chem bio suits unaccounted for, soldier's not 
receiving the right compensation, vehicles cannibalized for 
parts because of inadequate supply systems. These instances are 
troubling because they hinder operational effectiveness and the 
ability of our troops in the field to fulfill their important 
missions. Congress has the responsibility to see that these 
problems are addressed and that is the reason my subcommittee 
scheduled a followup hearing to look at the military pay issue 
in greater detail.
    While it is important to fix these problems as soon as 
possible, we need a solution, the right solution for the long 
term. These are the concerns that must be balanced as the 
Department moves forward with the broad based reforms 
envisioned in the BMMP.
    Today, we are proud to have with us and glad to hear from 
first, Larry Lanzilotta, Acting Under Secretary of Defense and 
Comptroller, Department of Defense. We appreciate your being 
with us again. We also have Mr. Greg Kutz, Director of 
Financial Management and Assurance, General Accounting Office. 
Mr. Kutz will be joined during the question and answer period 
by Mr. Keith Rhodes from the General Accounting Office. We 
appreciate all three of you being with us as well as your staff 
and their work in preparing for this hearing.
    [The prepared statement of Hon. Todd Russell Platts 
follows:]
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    Mr. Platts. I would now like to yield to our ranking member 
from New York, Mr. Towns, for the purpose of an opening 
statement.
    Mr. Towns. Thank you, Mr. Chairman.
    In March of this year, the subcommittee held a hearing on 
the consolidated financial statements of the U.S. Government. 
It was clear from that hearing that while many Federal agencies 
continue to improve in their compliance with the financial 
management requirements, the Department of Defense continues to 
fail in demonstrating adequate financial accounting and 
internal control practices. Furthermore, quantifying the 
problems at DOD remains a challenge due to the extensive amount 
of money involved as well as the complexity involving its many 
financial management programs.
    The Defense Department receives approximately one-half of 
the discretionary budget of the United States each year with an 
annual allocation of about $400 billion, assets valued at over 
$1 trillion and approximately 3 million military and civilian 
employees. Within these totals, DOD spends approximately $18 
billion annually on information technology and upgrades to its 
roughly 2,300 agencywide business systems. Despite these 
resources, its financial management system practices and 
procedures are hampered by critical weaknesses and minimal 
oversight.
    Since 1995, GAO has designated the financial management 
system at DOD as high risk because they are vulnerable to 
waste, fraud and abuse. Once again, as has been the case for 
the last 8 years, the Inspector General of the Department of 
Defense could not provide an opinion on the agency's financial 
statements. Such widespread chronic, financial and internal 
control problems have hindered all of DOD's major components 
and programs from achieving a clean independent financial 
audit.
    Specific challenges facing DOD include: the lack of 
adequate documentation for nearly $1 trillion in asset 
holdings, including both weapons systems and support equipment; 
complete and reliable information on its environmental 
liabilities under Federal law; and structural accounting 
procedures resulting in extensive under and over payment to 
contractors. While not exhaustive, the problems I have 
mentioned are longstanding in nature and will require extensive 
changes within the operations and culture of DOD in order to be 
remedied.
    In 1995, the DOD Inspector General testified before 
Congress that a turnaround in the Pentagon's financial 
management practices might be expected by the year 2000--2000 
has long gone. Nearly a decade later, DOD has yet to 
demonstrate such progress and it remains unclear how much 
longer it will take for us to realize our goal of a clean 
agency audit.
    As we continue to allocate the necessary resources to 
support our troops abroad and define the long term needs of our 
military, it is imperative for us to ensure that such funding 
is used effectively and appropriately. The achievement of a 
clean agency audit will provide evidence that our efforts are 
working.
    Mr. Chairman, thank you again for holding this hearing. I 
know I have no time to yield back, but I will yield.
    [The prepared statement of Hon. Edolphus Towns follows:]
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    Mr. Platts. Thank you, Mr. Towns.
    We will proceed to our witnesses testimony. If I could ask 
our two witnesses and your staff to stand and take the oath 
before we begin.
    [Witnesses sworn.]
    Mr. Platts. We appreciate your written testimony. We are 
going to try to stay with the 5-minute opening statements if 
you want to summarize and then get into a give and take on the 
question and answers.
    Mr. Lanzilotta, if you would like to begin?

 STATEMENTS OF LAWRENCE LANZILOTTA, UNDER SECRETARY OF DEFENSE 
 AND ACTING COMPTROLLER, DEPARTMENT OF DEFENSE; AND GREG KUTZ, 
     DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, GENERAL 
   ACCOUNTING OFFICE, ACCOMPANIED BY KEITH A. RHODES, CHIEF 
  TECHNOLOGIST, APPLIED RESEARCH AND METHODOLOGY, CENTER FOR 
                   ENGINEERING AND TECHNOLOGY

    Mr. Lanzilotta. Thank you, Mr. Chairman and members of the 
committee.
    Thank you for this opportunity to discuss the Department of 
Defense business management. This will be one of my last 
hearings before leaving the Department. I also want to give you 
my observations from the last 3 years of working on DOD 
management challenges.
    Led by Secretary Rumsfeld, transforming DOD management has 
been a top priority. Our overarching aim has been to achieve an 
integrated environment of DOD business processes, supported by 
systems that efficiently deliver relevant decisionmaking 
information to leaders and fulfill all financial management 
requirements.
    My message today is, the Department of Defense has 
undertaken an unprecedented, comprehensive and visionary 
transformation to achieve this aim. We are making progress to 
correct weaknesses and control business system investment. 
Strong and consistent congressional support of this 
transformation is vital to sustaining our progress.
    To transform DOD business management, the Department must 
succeed with all three independent pillars of its strategy: 
overhaul and integrate DOD business processes and systems 
throughout the Department's Business Management Modernization 
Program; refine and advance the financial improvement plans of 
the military services and defense agencies to enable them to 
produce auditable financial statements resulting in a clean 
audit opinion, and audit line items on financial statements as 
they become ready for such an audit by developing a capability 
to do so.
    Each of these pillars is essential and must be advanced 
simultaneously. None can be stopped or slowed without hurting 
the progress of the entire transformation. This transformation 
will not only dramatically improve DOD's business and financial 
management, it will also enable DOD leaders to make resource 
decisions based on the best information and data obtainable. It 
enables the Department to meet the Chief Financial Officers Act 
and other legal requirements including satisfactory financial 
statements.
    During the last 3 years, the Department began its business 
management transformation and we have had substantial 
accomplishments. The Department established a progressively 
more comprehensive inventory of all DOD management systems; 
began to build a blueprint or architecture to guide the 
transformation from its current stovepiped conglomeration of 
DOD business systems into an integrated environment of 
overhauled systems and processes; designed an incremental 
strategy to achieve our transformational goals and defined the 
focus for each increment; developed a governance process to 
provide strategic direction to oversee transformation of 
business processes and systems so that they will transcend 
organizational boundaries and become integrated; organized all 
major DOD business activities into six areas or domains and 
designated an Under Secretary of Defense as a domain owner to 
oversee each business area; established a portfolio management 
process by which domain owners would oversee investment in 
information technology to ensure full integration of all DOD 
business processes and systems; established a DOD Audit 
Committee to provide a concerted senior leadership focus to 
produce auditable financial statements resulting in a clean 
opinion; developed for individual reporting entities 
improvement plans that show planned improvements and 
milestones; and implemented additional discipline in our 
quarterly reporting processes that have accelerated the 
preparation of our financial reports and elevated our 
commitment to quality. More importantly, we developed a common 
set of shared values for the Department to address this issue.
    It is important to note that domain owners are responsible 
for overseeing the transformation of business activities 
managed by the military services and other DOD components. This 
governance plan has already demonstrated that it can work and 
we are continuing to strengthen and expand it. Some observers 
do not believe that we are moving fast enough, yet acknowledge 
that DOD is one of the world's largest and most complex 
organizations with huge business transformational challenges.
    The Department is in business transformation for the long 
term. It will take years to fix our systematic problems which 
evolved over several decades. DOD's accomplishments over the 
last 3 years have significantly benefited from both 
congressional and GAO support of our comprehensive 
transformation initiative. In view of this strong past support, 
we are concerned by the apparent contradictory direction given 
by the Congress in both House and Senate in the fiscal year 
2005 defense authorization bills. Both bills cut funding that 
is essential to achieve transformation that everyone agrees is 
essential. The rationale seems to be that progress has been too 
slow, yet funding cuts will make continued progress more 
difficult.
    Besides funding cuts, both authorization bills propose 
radical change in the role of domain owners. Changing the 
domain owner's role of oversight of business systems to being 
responsible for virtually all aspects of business systems. 
Today, the DOD approach has given domain owners oversight 
responsibility using prescribed architectural standards and 
business rules. This structure will enable domain owners to 
control business-related investment and ensure that standards 
are adhered to and move DOD business and processes toward full 
integration. The complimentary nature of the domain process to 
traditional acquisition management enhances our ability to meet 
service unique war fighting needs while implementing business 
standards across the Department.
    We should be careful about derailing this governance 
structure. It promises to overhaul and integrate DOD business 
activities ultimately saving billions of dollars. Changing this 
governance structure could prevent us from eliminating 
stovepiped systems or creating new stovepipe problems. For 
decades, the DOD and the congressional leaders have recognized 
the need for operational expertise and perspective in managing 
business systems. We should resist centralization of all 
business systems decisions and losing this expertise and 
perspective.
    In closing, I urge you and other congressional leaders to 
continue to support the Department of Defense in its efforts to 
transform DOD business management. Congress and the Department 
must continue to be partners in this unprecedented undertaking. 
Our business transformation progress is consistent with U.S. 
industry standards and it is all the more remarkable that our 
accomplishments have occurred while we fight the global war on 
terror and advance bold initiatives to transform America's 
military capabilities.
    This is a critical time for ensuring that DOD's management 
of the business systems becomes just as superlative as the 
military forces they support. We in the Department of Defense 
appreciate and continue to need the congressional support to 
achieve this vital priority.
    Thank you.
    [The prepared statement of Mr. Lanzilotta follows:]
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    Mr. Platts. Thank you, Mr. Lanzilotta. Thank you also for 
your more than 3 years of service at the Department in the area 
of financial management. We wish you well in your new position. 
We are sorry to be losing you from the Department but are 
grateful for your past work and your presence here today in 
what we understand will be your last House hearing prior to 
your departure.
    Mr. Kutz.
    Mr. Kutz. Thank you, Mr. Chairman.
    Thank you for the opportunity to discuss financial 
management at the Department of Defense. My testimony has two 
parts, first, examples that demonstrate the need for reform and 
second, the status of reform efforts and two suggestions for 
legislative action.
    First, DOD's financial management and related problems 
result in significant waste and inefficiency. Just a few 
examples include: over $115 million wasted on unused airline 
tickets; $8 million of potentially fraudulent travel claims; at 
least $100 million lost annually because payments to DOD 
contractors with unpaid Federal taxes are not levied; and $179 
million spent on two failed financial systems efforts.
    These problems also impact DOD's mission and have other 
consequences. Examples include: substantial problems accurately 
paying Army National Guard soldiers that distracted them from 
their missions, imposed financial hardships on their families 
and has had a negative impact on retention; the inability to 
recall 250,000 defective chemical and biological protective 
suits resulting in concerns that our forces in Iraq were issued 
these defective suits; and improper issuance of defective chem 
bio suits to local law enforcement agencies with no warning 
that use could result in death or serious injury. These and 
many other examples clearly demonstrate the need for reform.
    My second point is that the lack of sustained leadership, 
inadequate accountability and cultural resistance to change 
continues to impede DOD's reform efforts. DOD's stovepiped, 
duplicative business systems continue to contribute to 
operational problems and will cost taxpayers $19 billion in 
2004. That is $52 million a day.
    Attempts to modernize DOD's business systems routinely 
costs more than planned, miss their schedules by years and 
deliver only marginal improvements or are terminated with no 
benefits at all. The two systems we evaluated as part of our 
report that is being issued today are examples of systems that 
were not designed to solve corporate problems. For example, 
although DOD testified to the contrary before Chairman Shays, 
we found that DLA's BSM Project will not provide the total 
asset visibility needed for the chemical and biological 
protective suits. As a result, if a batch of the new JSLIST 
suits were found to be defective, BSM does not provide the 
capabilities to recall defective suits.
    DOD is continuing its effort to develop and implement a 
business enterprise architecture to oversee and control its 
systems investments. We support DOD's architecture efforts to 
date but progress has been slow and control of ongoing 
investments has been ineffective.
    Our testimony offers two suggestions for legislative 
consideration that could help address DOD's longstanding 
financial and business management problems. First, to ensure 
sustained, focused leadership in business transformation, we 
suggest the creation of a chief management official. This 
position could be filled by a Presidential appointment with 
Senate confirmation for a set term of 7 years with the 
potential for reappointment. We envision this position being 
filled by an individual with a proven background in the 
transformation of large, complex organizations. We see this 
individual as an integrator across DOD's business lines working 
full-time on business transformation.
    Second, we propose that the leaders of DOD's functional 
areas, known as domains, control business systems investment 
decisions and funding rather than the services and the Defense 
agencies. We believe that effective budgeting and control of 
the investment technology money by the domains is critical to 
their success.
    Before closing, I too, Mr. Chairman, want to acknowledge 
Mr. Lanzilotta for his years of dedicated public service at DOD 
and before that at the Senate Armed Services Committee. GAO has 
had a very constructive relationship with Mr. Lanzilotta and we 
wish him the best in his new position in the private sector.
    In conclusion, DOD's superior war fighting capabilities 
were clearly demonstrated in Afghanistan and Iraq. However, 
that excellence is often achieved despite the enormous problems 
with DOD's business systems and processes. With the significant 
fiscal challenges facing our Nation, the potential for billions 
of dollars of savings through successful DOD transformation is 
increasingly important.
    That concludes my statement. Mr. Rhodes, our Chief 
Technologist, will be happy to answer your questions.
    [The prepared statement of Mr. Kutz follows:]
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    Mr. Platts. Thank you, Mr. Kutz. We appreciate your written 
and oral testimony as well. We will move right into questions 
with the expectation that we will be joined by some other 
Members from both sides. We will start with the 5-minute rule 
and see how that goes.
    I would like to start with the issue of the chief 
management official proposal. Mr. Lanzilotta, your predecessor, 
Mr. Zakheim, talked about his support for that when he left the 
Department. In your position now and given your 3 years at the 
Department as well as your work on the Senate side, what do you 
think of the benefits of this type of position? Especially in 
view as we all acknowledge, and as you said in your opening 
statement, that this transformation is going to be years in the 
process, it is not going to happen quickly. Also, because of 
the length of time involved and there likely being turnover of 
key personnel such as yourself. The proposal from GAO would 
perhaps bring greater stability and continuity to the focus and 
the prioritization of this transformation process. I would be 
interested in your opinion and any recommendations you have of 
how, if we were to look at this proposal in more detail, we 
should go about that process?
    Mr. Lanzilotta. This proposal, like most of GAO's proposal, 
I agree in concept. I think mostly our differences have been on 
implementation. I think the fact that there is a Chief 
Operating Officer in the Department of Defense is a concept 
that has not only been looked at by GAO but has been looked at 
by the Defense Business Board and they are looking at it for 
the Secretary as to how that would be implemented. I think the 
problem is not in the concept but in the implementation of it. 
Knowing the Department's psyche, per se, that would be more 
difficult than just legislating it.
    Mr. Platts. What do you think will be most difficult for 
the new officer to actually get people to do as he instructs in 
the sense of across the Department? Is it the service branches? 
Can you give more specifics on what challenges in 
implementation you see?
    Mr. Lanzilotta. I think, first of all, we have to get a 
detailed study of the statutory requirements of each position. 
Both the Chief Financial Officer for the Department and the 
Acquisition Executive are set in statute. The Operating 
Officer, if he was placed above that, we would have to look to 
see how this interface would take place or what laws would have 
to be changed. I don't know the answer to that. I also don't 
know if you maintained a Deputy Secretary and a Chief Operating 
Officer how that interface would take place. I am not quite 
sure, even if I am smart enough to figure out how that would 
take place.
    I know that the Secretary has been made aware of this 
proposal. I know he has the Defense Business Board, made up of 
business leaders, looking at it as to whether he should develop 
this proposal or how it would be developed, and I guess I would 
kind of wait to see how these guys come out with it to see what 
their recommendation would be.
    Mr. Platts. Is your concern what level of authority the new 
position would have, in other words, how these others would 
answer to your work and partner with a new CMO?
    Mr. Lanzilotta. On both ends of it. I don't know if I 
understand the interface of how this position would work in 
relationship to the Deputy and the Secretary and how that 
interface works and I don't know how this person works in 
relationship with my successor as the CFO. The CFO has certain 
Title 10 responsibilities that he is held accountable for. 
Right now they are very specific as to what those 
responsibilities are. I think we would have to go back and look 
at Title 10 and see where these things interface to see what 
changes we would want to make and then I don't know--I guess I 
am kind of rambling but you certainly don't want to loosen the 
accountability of certain things that the Under Secretary for 
Acquisition and Technology must do or the Under Secretary 
Comptroller must do but the concept of a Chief Operating 
Officer is very attractive.
    Mr. Platts. Mr. Kutz, what do you envision at GAO to 
address those relationships with the CFO, with the Acquisition 
Officer for example, what level of authority this new position 
would have relative to existing positions and basically what 
leverage the new person would have is going to be key?
    Mr. Kutz. I think this position attacks some of the causes 
better than probably the current situation where again I think 
if you look at the in-box, Mr. Lanzilotta went over to the 
Department with the idea that he would be spending full time on 
transformation. The reality of the situation is that is not 
going to happen. So from the standpoint of getting someone 
there to attack the causes of having someone full-time 
championing this, I think this is something that has some merit 
to it.
    I think there are issues with respect to legislation, how 
you would write it, how the interactions would take place but 
certainly it would be a position at a higher level than the 
current Comptroller position which is kind of the champion of 
this right now and might have better leverage over the services 
because that is one of the real situations, you do have 
cultural issues with the different services and you have issues 
with the business systems and other things, just getting 
everybody to play in an integrated manner. That goes over to 
the weapons side too but on the business side, that is true.
    We would see this as similar to having a Deputy for Policy 
and Mission-related Activities and this would be the Deputy for 
Mission Support Activities. You would have to somehow draw the 
line as to where those two crossed over. You would have dual 
reporting of the Under Secretary AT&L to both of those Deputies 
probably so there would be certain issues with that.
    If there was a silver bullet or an easy way for this to 
happen, it would have already happened, so I think we do need 
to think about some out of the box kind of thinking to try to 
solve this very difficult problem.
    Mr. Platts. But however you align the authority, you see 
the benefit of a fixed term position to have that continuity of 
focus will enhance the likelihood of success?
    Mr. Kutz. Two things, continuity of focus across 
administrations and someone who works on this full-time. This 
is their responsibility regardless of what else is happening in 
the world, because there is always going to be various 
conflicts that become emergencies in the Department of Defense. 
It would be someone that this is what they do period and this 
is their responsibility and it gives someone for Congress to 
hold accountable.
    Mr. Platts. I think I am going to come back to that but I 
want to yield to the ranking member. Before I do, we have been 
joined by the gentlelady from California, Ms. Watson, and our 
Vice Chair, the gentlelady from Tennessee, Mrs. Blackburn. I 
appreciate both of you being with us.
    Mr. Towns.
    Mr. Towns. Thank you very much.
    Why 7 years, Mr. Kutz? Why would you appoint him for 7 
years?
    Mr. Kutz. We said 5 to 7 years, something that would cross 
administrations. Right now, the current political appointee 
turnover is every 2 or 3 years. The Comptroller position has 
routinely turned over ever 2 to 3 years. It is very difficult 
to sustain efforts over 2 to 3 years that are going to take 
possibly a decade or more. That would be why.
    Mr. Towns. Mr. Lanzilotta, first of all, let me join my 
colleagues in wishing you well. I understand why you are 
testifying with a smile on your face. [Laughter.]
    Some have said the Pentagon's books are in such utter 
disarray that no one knows what America's military actually 
owns or spends. What changes have you made that will enable the 
Department to effectively carry out its stewardship and 
responsibilities over the funding, equipment and other assets 
it receives from America's taxpayers? They are saying that 
nobody knows where the equipment is and how much we are 
spending, it is in total disarray. Would you respond to that?
    Mr. Lanzilotta. Prior to 1990 and the Chief Financial 
Offices Act and several other acts, the Department's financial 
systems were geared toward what we called appropriation 
accounting. Basically, when the Congress gave the Department a 
certain amount of money, it was kind of like checkbook 
accounting. It isn't that we don't know how much money we are 
spending or where it is, but standards after 1990 changed to an 
auditable financial statement which is a different standard.
    The problem we had in the past and what we are trying to 
correct now, which goes to the basis of your question, I think, 
is our supply people developed supply systems and they 
developed systems that met their needs to track certain items 
the way they thought they should be tracked. There was no 
integration with the financial systems to ensure that we had an 
end to end process from buying something to inventory back to 
actually paying the vendor and tracking it through its life.
    What we are trying to do now and why it is so complicated 
is we are trying to build an architecture that maps out the 
business processes of the Department. When we look at the 
finance and accounting domain, which is all the finance and 
accounting systems, we went to look to see how many business 
rules, processes and regulations we had to build into the 
review in these processes. It was like 180,000 of them. Those 
have to be reviewed to make sure they are valid and that our 
systems incorporate those because as we get to stovepipe 
systems what is wrong is they don't incorporate all those 
standard business rules and don't incorporate cross integration 
between logistics or maintenance or whatever the system is with 
the financial system. I am corrected, there are 5,000 for the 
accounting and finance domain and 180,000 departmentwide.
    That is what was wrong and that is what has to be done and 
that is what has taken so much time. For us to get this right, 
we need to make sure we understand the interface of all our 
systems, we know what touches what and what happens if we 
change something. If we don't, we will learn the same lesson 
private industry has learned over and over which is the main 
reason why ERPs fail in private industry. It is the lack of 
planning prior to implementation that causes most of these 
systems to fail. With the Department, it is complicated.
    Mr. Towns. Mr. Kutz, would one chief management person be 
able to do this? This is colossal. Could we look at maybe how 
it could be divided because when you look at the fact the 
Department has made its goal of getting a clean opinion on its 
financial statements a top priority, their efforts seem to be 
futile under the current circumstances. Looking at the fact we 
wasted so much money with systems, we go so far with them and 
then stop and then go in a different direction. Do you think 
one Chief Operating Officer could do this or should we find a 
way to divide this and have two? I am asking you because you 
have spent a lot of time on this and I really want to get your 
thinking.
    Mr. Kutz. I agree with you, I don't think one person can do 
this but one person needs to lead this and needs to be 
accountable within the Department and to the Congress for this. 
We believe that would be the kind of person you would want, 
someone with a proven track record in business transformation. 
All transformations have a leader, a point person, someone you 
can go out and touch and say you are responsible and you are 
accountable, but you are right, they can't do it alone. They 
are going to need all of the functional areas to work together 
with them to develop integrated solutions to the various 
problems the Department has.
    I agree and say they do need a chief management official or 
something like that but they also need a lot of people to pull 
together to solve this very complex and significant challenge.
    Mr. Towns. We will get another round, right?
    Mr. Platts. Yes, we will come around again. Thank you, Mr. 
Towns.
    Before I go to our Vice Chair, we have been joined by Mr. 
Kanjorski from Pennsylvania. Thanks for being with us, Paul.
    Mrs. Blackburn.
    Mrs. Blackburn. Thank you, Mr. Chairman, and thanks to all 
of you for being here.
    We had a hearing last year pertaining to some of these 
issues and I think it is disappointing to see there is not a 
lot of progress or energy that has gone forward in correcting 
some of this. Let us continue to talk for just a moment about 
this leadership structure and the type of leadership structure 
that would be necessary to implement in order to go through the 
business process modernization because I think that is really 
important and the accountability, Mr. Kutz, as you just said, 
somebody has to be the one who is responsible and held 
responsible and accountable not only to us but to the American 
people and the taxpayers for actually putting something in 
place. Let us talk about that for a moment.
    Mr. Kutz, I would like to hear from you and Mr. Lanzilotta 
from you also as to what you see the leadership structure 
looking like to carry this forward. You are talking about a 
decade or 7 years preferably. How would that go through an 
evolution?
    Mr. Kutz. With respect to the structure, again I think this 
would be the point person. They would report directly or be 
part of the box that says Secretary of Defense. They would have 
responsibility over the business side versus the mission and 
the weapons side of the Department of Defense. Again, as Mr. 
Lanzilotta said, it would require certain legislative drafting 
and organizational responsibilities be clarified but they would 
be someone who would have a set term for sustained leadership 
purposes and would be brought in with a certain type of 
background. You are looking for someone that Secretary Rumsfeld 
himself or whoever is the Secretary is going to have to make a 
call and get someone with special qualifications who is going 
to want to come to the Government and money is not going to be 
the issue for them, they are going to want to make an impact on 
the Government. This is certainly one of the biggest challenges 
you could possibly envision for someone from the private sector 
to come in and actually try to do.
    Mrs. Blackburn. So you envision it being a team that is 
brought in from the outside and not utilizing talent that 
exists within?
    Mr. Kutz. I think the leader would be someone brought from 
the outside but I think they may bring some of their own people 
in to serve certain functions because there are a lot of 
talented people within the Department of Defense. I have looked 
across the Government and they have some of the very best 
people in the Federal Government and in the private sector I 
have dealt with. There are a lot of good people in the 
Department of Defense. There aren't a lot of people that have 
had experience in the transformation at the Department of 
Defense. There are probably better people outside that have 
experience leading these kinds of transformational efforts.
    Mr. Lanzilotta. Actually, Mr. Towns brought up some of the 
concerns or issues that I think need to be wrestled with. It is 
a colossal effort and it may be too big for one guy. I am just 
going to give you observations from working on this for the 
last 3-plus years.
    I have found that the CIO has to be a strong player in this 
effort. If you don't have a strong CIO with a marriage with the 
Comptroller because that allowed us to get the technical 
expertise from somebody who was familiar with the IT business, 
familiar with fielding IT systems and brought that in that 
expertise along with, I don't want to say the threat of money 
but the ability of somebody to sit down and say, sometimes you 
just have to be unreasonable with people to get a point across, 
to make a go. This is what we are going to do and if you don't 
do this, we are going to take your money. You don't find that. 
What I have a hard time with, you don't find that one 
individual that brings the total package together. It has to be 
a marriage of certain skills.
    When I was looking for a program manager to head this 
program, I advertised for 2 years to try to find a guy that 
brought the skills necessary that I thought were needed to 
manage a program like this. I finally had to settle on 
somebody--not settle--let me edit the record and get it 
straight. I found a very good individual but I set my goals too 
high because there wasn't anybody in private industry that had 
the type of experience to deal with something of this 
magnitude. I talked to CIOs of private enterprise, I don't want 
to mention names but some of the largest corporations. I went 
to the largest conglomerates looking for help because I figured 
a large conglomerate was most similar to the Department where 
they were trying to manage all the information systems from all 
the various sectors that this conglomerate had. I think there 
were 200 different sectors this conglomerate had, to try to get 
some ideas of what the qualities were of the person.
    This individual we are trying to get, the Government does 
have good people. The Government has some of the very finest 
people but this particular individual has to have a certain set 
of skills that are very difficult to find. That is one of the 
concerns about trying to get one of these guys. It is colossal.
    The only way I think you can attack this is to break it up 
in pieces. I think it is a marriage, a conglomeration of people 
that have to come together to make this work. I don't think if 
you create another layer of bureaucracy in the Pentagon for 
operating versus operational versus the other staff, you are 
going to make any progress because the staffs will just fight 
each other all the time. We just won't go anywhere.
    I agree in concept. I just have questions or concerns on 
how it is implemented because after 3 years in the Pentagon I 
became a little jaded with how things work.
    Mrs. Blackburn. Thank you, sir.
    Mr. Platts. We will come around again for more questions.
    Ms. Watson.
    Ms. Watson. Thank you, Mr. Chairman.
    Looking at the title of the subcommittee hearing, the 
Subcommittee on Government Efficiency, so I read through the 
preparation that my staff had given me last night and one of 
the things I picked up on is the communication and across 
lines, I guess across units, understanding what the general 
principles are in terms of financial management. Would you 
address that after my second question?
    You had said previously that DOD and GAO agreed on strategy 
but that you need to do more studying before you can proceed 
with this implementation. Have you begun such a study and if 
not, what are the obstacles that are in the way of the study 
and what can we do to help expedite this? I feel there still 
doesn't seem to be the kind of communication and general 
procedures that are understood across lines.
    Mr. Lanzilotta. The Defense Business Board, a group of men 
the Secretary has put together to advise him on business 
processes, has brought this concept to the Secretary and the 
Deputy for study. I do not know what the outcome of that is. 
The concerns I had expressed not in concept but some of the 
things I spoke about previously, the things that need to be 
thought through and which I haven't done on how to make this 
work.
    I think the devil is in the detail. I think it is going to 
take somebody to go through Title X and all the statutory 
requirements and clearly define the scope of what everyone is 
going to do. I still have the concern Mr. Kutz expressed that 
this is a huge effort. My personal belief is that it may be 
better implemented with a marriage of people, each bringing a 
different expertise to the playing field than just one 
individual. I guess if you could find the right guy with all 
this, you would be set to go. I just think he is exceptionally 
hard to find.
    Ms. Watson. I think you have to recommend that. You need to 
have several people. I don't think you will ever find that 
person with expertise across the board. That ought to be your 
major recommendation.
    Mr. Lanzilotta. I agree.
    Ms. Watson. The other thing, in reading through materials, 
it seems as if there is a bit dragging of the feet because 
there is fear that some of the dysfunctioning of this process 
might be revealing some things that have to do with the way 
Defense operates and the war we are fighting, etc. What do you 
find? That is on the political side.
    Mr. Lanzilotta. I guess it really depends on where you sit. 
I know GAO has made comments that our progress hasn't been as 
fast as it should be and I am thinking I am moving at 
lightening speed and probably the truth is somewhere in the 
middle. We addressed this communication issue and the 
communication issue became very vital for two reasons. First of 
all when we divided all the business systems into business 
lines and the six business lines we divided them into, we had 
to deal with something we have never dealt with in the 
Department before, the cross domain issues where one issue 
crosses a number of lines or number of responsibilities. Most 
of the problems--I shouldn't say most. Lanzilotta believes a 
lot of our problems evolve when an issue goes across 
responsibilities. If it is strictly in my area, then I focus on 
it and take care of it, but when you talk about some of the 
issues that Mr. Kutz talked about before like unused airline 
tickets, tax and everything and travel, that actually crossed 
five staff areas of responsibility. It is those cross domain 
issues that we are struggling with and where the communication 
has become very important.
    How did we do this? Lanzilotta believes and this is 
Lanzilotta believing, I have my six domains and I put them in a 
room and that is all they do, talk about these issues. We call 
it a Do It Committee. There are representatives from each of 
these business lines and as we bring up these issues, these 
people are responsible for figuring out how to make this work. 
They now then come to a steering group if they can't get 
resolution within a couple of days. If they can't come to an 
agreement, it is immediately elevated to the Executive Steering 
Group for decision.
    I feel it is two things. First of all, communications, you 
have to bring everybody involved into the same room, give them 
a lot of coffee and not let them leave and if they can't 
resolve the issue, you can't let them work on it for weeks. It 
has to be one of these things where after a certain time limit, 
it has to be elevated for decision. We have found we have had 
remarkable success in that area. The communications you brought 
up as the second part of your question is key on making these 
changes and also on change management. Everybody has to know 
what everybody is doing, there has to be complete transparency, 
everybody has to agree to what the facts are.
    We might disagree like GAO and Mr. Kutz and I do on the 
implementation of some of this stuff but I don't think there is 
disagreement on the facts. I don't think there is disagreement 
on the findings. We just disagree sometimes on the best way to 
implement it or make change but the communications is key. That 
is maybe two observations I painfully had to work through, how 
to get this done and we call it a little group, let's do it and 
that is all they do.
    Ms. Watson. That do it concept ought to go across all 
domains.
    Mr. Lanzilotta. It takes in all domains.
    Ms. Watson. And we shouldn't have barrier walls. I think 
throughout the system, when we want to get rid of something 
that is a little natty problem, we go to study. We are beyond 
that. Let's just do it. I would suggest that your policy of do 
it be something across, as you say, all domains, just do it, 
let's get it done because I think your job is essential since 
we are in a time of war and this is defense budgeting that we 
do and we don't have the information and so on. You certainly 
need it and need to know how the dollars are working and so on. 
We have to have a do it approach across all domains, 
communication and transparency now.
    Mr. Lanzilotta. I agree. I hope I didn't mislead you 
because it is something we are trying to do.
    Ms. Watson. No, you didn't. I am just supporting what you 
say you are doing.
    Mr. Lanzilotta. I am out of time but I would like to give 
you some examples later on of things we have done.
    Ms. Watson. Thank you.
    Mr. Platts. Thank you.
    Mr. Kanjorski.
    Mr. Kanjorski. Do you think we ought to just privatize the 
Defense Department?
    Mr. Lanzilotta. Sometimes with 180,000 business rules.
    Mr. Kanjorski. Back in May 1998, the Defense Travel System 
Program Management Office awarded a $263 million contact to 
Northrop Grumman to develop and implement an automated 
electronic travel management system for all DOD components 
worldwide, probably a good idea. Is Northrop Grumman the major 
software manufacturer in this country. I thought they were a 
munitions factory?
    Mr. Lanzilotta. Because of my personal considerations on 
this, I am going to have to recuse myself from talking 
specifically about Northrop Grumman. I would be glad to talk to 
you about the process.
    Mr. Kanjorski. Are you associated with them?
    Mr. Lanzilotta. On the 17th.
    Mr. Platts. He is leaving his current position to go to 
Northrop in a few weeks.
    Mr. Lanzilotta. I can talk to you about the process and I 
can talk to you about Defense's travel system. I can't answer 
any questions on Northrop Grumman.
    Mr. Kanjorski. I am not particularly addressing Northrop 
Grumman other than they are the contract holder.
    Three years later, the system was deployed in August 2001 
and it was determined it didn't work. Under that original 
contract, all the development costs were to be borne by the 
company but under the new administration, a new contract was 
entered and they restructured that contract and the U.S. 
Government picked up all the development costs to improve that 
program.
    There is a highly critical Inspector General's report of 
the contract award and here we are in 2004 and the system still 
doesn't work. It cost twice its original cost, so more than the 
original contract costs were borne by the taxpayers and it 
still purchases tickets sometimes $1,200 more than the lowest 
available fee.
    I am wondering assuming half a billion dollars has been 
expended, how long can the Department of Defense go on putting 
Band-aids on all of its contracts or systems that don't work?
    Mr. Lanzilotta. I can talk about the process. First of all, 
the system was originally designed by a company known as TRW 
and TRW was later merged into Northrop Grumman and that is how 
they became involved. The Department currently has 42 or 43 
different travel systems. When GAO did some work on unused 
airline tickets, premium travel and some other areas, they 
found they were deficient. The problem was we had no way to 
look at an integrated system for Defense travel. Defense travel 
did start out as a seriously flawed program but the requirement 
for a Defense travel system never disappeared.
    The Department needed an end to end system that allowed it 
to go all the way through the process from the time a traveler 
made a reservation to the time he got paid to keep it in the 
financial statements. That way we would have tracked what 
people were doing. That requirement remained.
    The Department had a troubled program, and I am not 
disputing the fact that Defense travel initially started out as 
a wrong contract vehicle, maybe a strange concept and later 
evolved into what I think is a very successful system. We are 
in the process of fully deploying Defense travel systems 
throughout the Department. The Defense travel system has 
competed on the Government's e-travel and has been picked up as 
one of the vendors for e-travel governmentwide.
    Mr. Kanjorski. That is another question I have. First of 
all, do you have any idea what was spent on this system?
    Mr. Lanzilotta. I can get you that for the record. I don't 
have that with me.
    Mr. Kanjorski. Would it be reasonable to say in excess of 
half a billion dollars?
    Mr. Lanzilotta. Over the last 10 years?
    Mr. Kanjorski. Over the last 5 years?
    Mr. Lanzilotta. I don't know if it is that much. Before I 
hazard a guess, I would like to get the information.
    Mr. Kanjorski. I would like to know why it ended up in the 
ownership of the company that had the contract to develop it 
when the United States paid for the development costs? You 
brought up the point you are now competing with other 
Government agencies with a process that has been developed by 
the taxpayers' money for the Department of Defense.
    Mr. Lanzilotta. The Government bought the license and 
bought the program.
    Mr. Kanjorski. Then why is the company bidding with other 
Government agencies using that process?
    Mr. Lanzilotta. There are two ways to pay for it. We bought 
the developmental costs up front, that way we would own the 
software, we would own the system and wouldn't have to pay the 
developmental costs over the transactional fee. Government on 
e-travel is paying for the developmental costs by each 
transaction as people use it. There will be a huge savings when 
we get one integrated system in two ways. First of all, we 
won't have to spend so much money processing claims on paper 
for travel.
    Mr. Kanjorski. That is for the Defense Department.
    Mr. Lanzilotta. I can only speak to the Defense Department.
    Mr. Kanjorski. I understand but Northrop Grumman is now 
selling this to 13 other Government agencies using the 
development money the U.S. taxpayer forwarded to develop your 
system. I don't think that is smart. The Defense Department 
should have formed a corporation, developed its own system and 
then contracted with other Government agencies to handle their 
system. If there is going to be a profit made in the 
development of the system, it seems to me it should inure to 
the benefit of the American taxpayers, not to Northrop Grumman.
    Mr. Lanzilotta. I can't speak to that.
    Mr. Kanjorski. There are some travel agencies in this 
country that function pretty well. Have you looked into just 
contracting that out? You fellows are always talking about 
privatizing. Why didn't you go to Travelocity or someone else 
and say give us a system that works, here is what we want to 
pay. We want the lowest fare and contract it out?
    Mr. Lanzilotta. Truth of matter, our services are 
contracted out to Carlson, Sado, I forget how many different 
companies we have different contracts with. We were looking for 
an integrated system that would go into our pay systems and 
allow the traveler to go all the way from his travel, go 
through our finance and accounting systems and then come back 
and disburse the money to him. The only way we are ever going 
to get a clean opinion is if it wasn't a matter of just going 
to Travelocity or one of those other systems because we have 
systems now that will make a reservation, 43 of them. We were 
looking for a total end to end system that would allow us to 
automate the entire process because the savings we would get 
from this is manpower, paper reduction and then the most 
efficient use.
    I can't get to a clean financial statement, the Department 
can't get to a clean financial statement if we go to 
Travelocity, get a certain rate and it has to manually be put 
into a finance system, then manually put in somewhere else 
because each one of the manual inputs my friend Mr. Kutz is 
going to come by and slap. I need the total integrated system 
if I am ever going to get to a clean financial statement and I 
am also able to with one data base to look to see if there are 
any abuses for premium travel, unused ticket.
    Mr. Platts. If we could maybe come back, I am trying to get 
to everyone. My understanding is we have votes in the next 10 
or 15 minutes. I will come back to you for another round after 
all Members have had one round.
    We have been joined by Mr. Tierney from Massachusetts. 
Thanks for being with us as well. The esteemed chairman of the 
National Security, Emerging Threats and International Relations 
Subcommittee, Mr. Shays from Connecticut. Mr. Shays, you are 
recognized.
    Mr. Shays. Thank you.
    I think this is an important hearing and I apologize for 
not being here. This week is even worse than most of my 
Wednesdays. I will be leaving for a Budget Committee meeting 
but I want to put my statement in the record.
    Mr. Platts. Without objection.
    [The prepared statement of Hon. Christopher Shays follows:]
    [GRAPHIC] [TIFF OMITTED] T6947.052
    
    [GRAPHIC] [TIFF OMITTED] T6947.053
    
    Mr. Shays. Also I want to compliment the staff on their 
good briefing paper about DOD.
    I know that all three of you want this system to be dealt 
with, but it is amazing to most of us that no one seems to 
crack it, no one seems to break through and get a system that 
works better. I am curious as this relates to hearings on the 
chem-bio suits, we were basically dealing with control and 
accountability. We were basically in need of making sure we had 
the best protective gear. We had too many of the brand new 
suits and some of them were being sold for a fraction of the 
cost, and we were increasing production so that we could get 
more suits. I want to get your view.
    In your view, what are the two or three most important 
steps DOD needs to take in order to prevent the asset 
visibility and accounting problems illustrated by the chem-bio 
suits from continuing in the future, buying when we are 
actually selling some because we have excess in some places?
    Mr. Kutz. With respect to the problems with the BDO suits 
which were the prior suits, you had the hearings on the 
defective suits that they were unable to recall, we had an 
issue with total asset visibility. When the suits were shipped 
from the Defense Logistics Agency to the Army, for example, 
accountability was lost and the Army did not have systems to 
account for that inventory. If you wanted to know where the 
suits were once they left the Defense Logistics Agency, you had 
to do a data call.
    One of the systems we looked at is part of today's hearing 
and that we issued a report on goes back to a hearing you had 
where DOD represented to you that BSM, a current system effort 
at DLA, was going to solve that asset visibility problem. I 
testified earlier to the subcommittee here that the system as 
implemented right now will not fix that problem.
    If we had another situation where you had the defective 
suits out there or another need to recall them for some other 
emergency that might arise that required suits to be moved from 
one part of the country to the other, you would need to still 
do a data call today and for the foreseeable future because the 
systems development effort did not involve the integration of 
the Defense Logistics Agency systems with the Army, for 
example. That problem has not been fixed as a result. So you 
still have that risk and the other risk that you mentioned of 
selling suits at the same time that we need to be buying them.
    Mr. Shays. So we will just continue right now?
    Mr. Kutz. Right now I don't see a solution necessarily for 
this. The BSM system is relied upon all these other things 
happening which may never happen to provide that asset 
visibility. For the JS list, the current suits, it is too late, 
those suits are already out there and you don't have your 
accountability for those.
    Mr. Shays. Does DOD agree with that?
    Mr. Lanzilotta. I think Mr. Kutz has stated the facts 
accurately. There is no short term solution to this problem 
because it doesn't go just to the suits, this problem goes to 
asset visibility. The suits are just systematic. It also goes 
to the gentleman's question about travel. We need integrated 
systems so we can track whether it is a travel voucher or a 
reservation or a suit or a widget, no matter what it is we need 
to be able to track it as it goes through the process. Now we 
have numerous systems that do the same thing and we lose where 
it is in the system because we don't have the middle system.
    Mr. Shays. The implications of all this is mind boggling 
because we are talking incredible amounts of assets and 
inventory. I was thinking about this after reading the briefing 
paper because after 17 years I hear the same story, not all 17, 
but a good chunk of it that I have been in Congress. I am 
almost struck by the fact that the President and Congress have 
to agree and get someone with a term of office of 10 years like 
General Accounting Comptroller and basically assign this task 
and integrate the 2,300 systems we have. I would love some long 
term solution because I don't think there is a short term. I 
don't think we have it yet. I don't think we have the 
continuity yet to guarantee that it will be carried over from 
one administration to another.
    Mr. Kutz. We agree with you and we talked about it in some 
of your subcommittee hearings, the need for a chief management 
official and someone to be responsible for business 
transformation, integration of systems, improving human capital 
and processes across all business lines. We agree. This person 
would need to have a term of 5 to 7 years with potential for 
reappointment so they could be there long enough to sustain 
change.
    One of the nice things about working at the GAO is we know 
David Walker is going to be the Comptroller General for 15 
years. If he was a bad Comptroller General, that would be one 
thing but I believe he is a good one. We have plans and 
processes in place and he has sustained transformation of our 
organization and we know it is there to stay. It is not going 
to change, so that is a positive and one of the reasons I am at 
GAO and I plan to stay because of sustained quality of 
leadership of my organization.
    Mr. Shays. Thank you.
    Mr. Platts. Thank you. We appreciate your being here on I 
know a hectic day for you as well.
    Mr. Shays touched on why we can't get this done. One 
example was on the number of systems. Last year at our hearing 
we were in the 2,400 systems range and now we are at 4,000 and 
still counting. We are having difficulty even getting our arms 
around what is out there.
    One issue deals with CMO as an accountable individual or 
who is going to be responsible for what is happening or not 
happening and the cultural resistance at the Department to 
change and having more accountability. I wanted to specifically 
focus on the 2003 Defense authorization bill where we put the 
requirement that the Comptroller had to approve any 
expenditures over $1 million on systems to try to have 
everything be part of that business enterprise architecture and 
the fact GAO's numbers on a limited basis identified at least 
$863 million of obligations that were not appropriately 
reviewed as the statute required, as well as an effort to have 
lots of contracts that would be just under the $1 million 
threshold to avoid having to go through the approval process.
    Mr. Lanzilotta, if you could address your assessment of 
that $863 million of expenditures that were not properly 
approved and specifically what, if any, consequences occurred 
within the Department once those inappropriate transactions 
occurred? Who, if anyone, was held accountable for not 
following the statute?
    Mr. Lanzilotta. I will say Mr. Kutz was kind, there is 
probably much more out there than identified in the report. As 
you mentioned, there were 4,000 systems and we are also trying 
to capture the maintenance contracts. We found you can call 
something a maintenance contract and it also is really a 
systems development contract because the guys sit there with no 
maintenance to be done, so they work on upgrades to the system. 
We are trying to capture all that.
    We always had a procedure to do that. We didn't have the 
ability to do it which is a difference. We have now gone 
through a lengthy process to bring in something we call 
portfolio management. I can't explain away the sins of the 
past. I can talk to you about what we will do in the future to 
correct. We have portfolio management, a leading business 
industry practice we brought to the domains and our IT 
investment. I think we are effective and it is now being 
exported to the war fighting systems as well as a way of 
managing the war fighting portfolios.
    In these six domains, they will come through under 
portfolio management and in the palm I imagine the program 
objective memorandum, the future year plan, 2006-2011, each of 
these services are responsible for reviewing the IT systems in 
their domain. We are taking responsibility for the systems over 
$1 million and have told the domains they have the flexibility 
to review the systems under $1 million to get to 100 percent.
    The problem is one of workload. I know my successor won't 
be able to come to this committee and guarantee that we looked 
at 4,000 systems. The finance and accounting domain is one of 
the domains personally under the Comptroller. I can look at I 
believe 20 systems and 80 percent of the dollars, so I believe 
we can get the majority of the dollars and look at those 
systems. It is like the vendor pay and the tax issue which we 
haven't gotten to. I have 20 vendor pay systems, 8 represent 85 
percent of the dollars disbursed, 12 represent 15 percent of 
the dollars disbursed. My priority is to look at those eight 
systems that represent 85 percent of the dollars disbursed and 
go after them. I will pick up or the Department will pick up in 
the future those other 12 systems that represent 15.
    Mr. Kutz. Can I quickly address that?
    Mr. Platts. Yes.
    Mr. Kutz. I think you hit on a very important point, that 
there are no consequences. In fact the consequence might be 
that they are going to get more money next year and that sets 
up the incentive systems in place. When I mentioned it in my 
opening statement, that is what I meant. We see it not just in 
areas of compliance with the law, but for misuse of Government 
funds. When people are found to misuse Government funds at DOD, 
we found there are no consequences, nothing happens to them. I 
think that gets back to the culture and some of the reasons why 
you don't see change.
    Mr. Platts. If your examples with the $863 million of 
expenditures not found in the approval process as set in the 
statute, was the Inspector General involved in looking into any 
of those from what you found?
    Mr. Kutz. Not that I am aware of, no, and I again, I don't 
know for sure there were no consequences but if history is 
accurate, there were no consequences.
    Mr. Platts. You said you can't undo the wrongs of the past 
but try and go forward. As part of going forward, is there 
being laid out within the senior leadership of the Department 
the message, whether a civilian department employee or a 
uniformed officer who makes these transactions, engages in them 
inappropriately, there will be consequences, you will not be 
promoted, you will be demoted, you will be held accountable in 
some way?
    Mr. Lanzilotta. I want to clear up one issue. If we are 
talking about fraudulent transactions, the Secretary has made 
it very clear there should be consequences and disciplinary 
actions taken.
    Mr. Platts. What about where it is not fraudulent, but they 
said I am not going to get approval. I need this, I am going to 
do it and I am not going to the Comptroller to get approval to 
do this?
    Mr. Lanzilotta. I would like to tell you that won't happen 
but it probably will.
    Mr. Platts. If it does happen what would be the 
recommendation for action in response to it happening 
inappropriately?
    Mr. Lanzilotta. There is only one action and everyone knows 
what that action is. It is like HOV violators on the HOV. You 
can try to get through there and maybe on a certain day you 
will but if I catch you, everybody knows the consequence is you 
lose your money. We set up a portfolio management system, each 
of the domains came in and briefed their concept to the 
services on how it was going to work for the future year's 
defense plan and for the budget and they are getting ready to 
go through another round of briefings on how they are going to 
implement that information in August. The word has gone out if 
we find you we are going to take the money. We don't normally 
find systems like this where you can find the one guy who 
actually did it because the system might be at Fort Polk, LA 
and maybe that guy didn't get the word properly and he put in a 
budget request for something that wasn't reviewed. If we find 
it, we will take it. He might not have known that he was 
violating departmental guidance but the guidance is out there.
    Mr. Platts. We are also talking about violating statute 
too. If it is in the Defense authorization, it is law. It is 
saying you won't do this, so it is not just guidance, it is 
saying we are going to follow the law. The Department has a 
responsibility to make sure your acquisition officials know 
what the law is. Send out the word, if you are looking at a 
system over $1 million, you may not procure it without approval 
from the Comptroller. There is a duty of the senior leadership 
to make sure they do know what the law is.
    Mr. Lanzilotta. I agree. Also we are looking at it as a 
potential ADA violation, along with the investigative things 
that go with that.
    Mr. Platts. I think that there has to be consequences 
whether monetary funding for a program or personnel 
consequences for those not complying with the law as Congress 
has said it will be.
    I want to get to Mr. Towns.
    Mr. Towns. Quickly, at this moment in time, what mechanism 
does DOD have in place to say no to proposed system investments 
across the Department and to pull the plug on ongoing systems 
that are not cost effective and in accord with the Department's 
overall future of its business support operations? Have there 
been any instances in which DOD has said no or pulled the plug 
on such systems? If so, could you give me an example?
    Mr. Lanzilotta. We have two ways of pulling the plug. We 
have asked the domains to look at the service and Defense 
agency budget submissions and certify these systems ought to go 
forward. We also have another way that in the acquisition 
process when the large systems go through for their milestone 
decisions, part of the requirement is they have to say I am 
going to put the system on and these following systems get 
canceled or turned off and this is when the systems get turned 
off. This is implemented in something we call the budget review 
process and we will issue a program budget decision with the 
results of these reviews as to how they occur. That is how we 
plan to handle that.
    The second question goes to when we turn off systems that 
waste dollars. The truth is in the Comptroller shop we have 
turned off systems because we didn't think they were going to 
be effective. We find ourselves in a situation right now that 
some of these systems were developed prior to our being able to 
develop architecture and being able to develop the guidance as 
to what these systems would do. We have found some systems in 
the course of development we didn't think they were going to do 
what we wanted them to do. Rather than take on the full life 
cycle cost of these systems and put them out there because we 
know once we deploy a system, it is out there for a good long 
time before we find the money to replace it, we terminated 
those systems we didn't feel were going to happen. We also have 
cases where we modified systems to make these old systems be 
somewhat compliant. The entire transformation of the 
Department's systems isn't going to be something that happens 
in 2007. That is when we are shooting for a clean statement but 
the automation and replacement of the investment in our 
automation systems is going to be an ongoing effort. This 
transformation effort will never stop because technology 
changes every 18 months. We are using things now in our new 
systems that weren't even available to us when we started the 
program. I always try to get the people in the Defense 
Department to understand this transformation will never stop 
and we are setting up a permanent structure to handle our 
business lines that will continually reevaluate how this works.
    Mr. Towns. Thank you.
    Mr. Platts. Mrs. Blackburn went to vote and will come back 
so I can vote.I can try to get through more questions.
    I would like to address a question or two to Mr. Rhodes on 
the technology side. A lot of what we are talking about is 
using technology to compile useful information, information 
that is timely and relied on and acted upon. From a personnel 
standpoint, what do you see as the challenges for the 
Department? We talked about a Chief Management Official or 
other realignments and recommendations from GAO about domain 
focus across all service branches. From a personnel standpoint, 
what do you see DOD's challenge is regarding personnel on the 
technology side?
    Mr. Rhodes. DOD has some of the most talented technology 
people in the world. The struggle for DOD is that I and other 
engineers can build anything you tell us to build. Prior to 
coming to Government, I designed airplanes that disappeared, I 
designed large scale systems but they were designed to meet a 
set of requirements. When Mr. Lanzilotta answered Mr. 
Kanjorski, he used the term end to end. If you leave it to me 
as the chief engineer to define end to end, I promise you I 
will be wrong, I will be completely right from my perspective, 
I will not solve your problem, I will solve what I think is 
interesting. I cannot fix your problem in a vacuum. If the 
Chief Management Officer or whoever this person is going to be 
who is in charge of all this is going to have to be able to say 
end to end means x.
    Mr. Platts. Spell out what it is.
    Mr. Rhodes. Spell out what end to end is. The reason the 
Department of Defense, talking about the Marine Corps, the Navy 
and the relationship between the Navy and the Marine Corps, 
there are so many systems out there and now I have to define 
end to end. First of all, end to end is not technology, it is a 
human function. You have to explain it to me from a business 
perspective, what are we going to do. Why do we lose chem bio 
suits? Because nobody knows where they went because I am in my 
area. Where did it go when you were done with it? I don't know, 
that is not my responsibility, I don't care about that.
    Everybody has to understand that it is not just code, it is 
process. Process is a bad word for a lot of engineers because 
we look at it and say it is meaningless. It is meaningless 
because we never had it explained to us necessarily as 
succinctly and clearly as I need to go from A to B to C to D; 
what are the relationships between these entities so I can know 
what systems I can turn off.
    Mr. Platts. So we need to emphasize or strengthen the 
relationship, the communication between our technology people 
and the management officials?
    Mr. Rhodes. Absolutely. Technologists are just as guilty of 
being arrogant and domain specific and looking at others as 
being lower life forms and being all that because we are the 
engineers and what not, but there has to be a translation that 
takes place between this is a human process to the bits and 
bytes that have to move on this cable from point A to point B 
and what those human interfaces are between the systems based 
on process so you can engineer the system interfaces so the 
messages can pass.
    Mr. Platts. When we go forward with the systems and there 
are lots of investments being made, what do you think we could 
do better or DOD could do better to avoid this $863 million of 
expenditures on systems that weren't checked to make sure they 
would jive with the architecture we put in place? what do we 
need to do better to ensure they all are going to work hand in 
hand?
    Mr. Rhodes. One thing I would want to see coming from 
whoever this person is or whatever this entity is that is going 
to be the chief management function is instilling of discipline 
and requirements development process. The requirement has to be 
clear, concise, unambiguous, testable. We didn't look at all 
the requirements associated with the systems involved. We 
looked at a small subset. Every one of them had a problem, so 
if I only look at 10 percent of them, I understand I don't have 
a statistically valid sample. If 100 percent of the 10 percent 
I looked at had a problem, then I know I have a serious flaw in 
the development, requirements analysis and requirements 
management process. That would be what I would want. This is 
the technology perspective, the technology personnel view of 
the development cycle. I would want that individual through 
carrot, stick, money, punishment, whatever to be able to 
instill in everyone across the services, across the domains, 
across the Department of Defense, that we are going to get one 
set of requirements, one definition of financial management and 
no, Service X, you are not going to get a waiver for weighted 
valuing of that asset.
    Mr. Platts. Uniformity.
    Mr. Rhodes. Absolutely, consistency, uniformity, translated 
so that I can actually build a system because I don't know any 
contractor, having been one, that gets up every morning and 
says how can I screw up the system. It is how can I build the 
system to meet the vague requirements I have in a changing 
environment.
    Mr. Platts. I am going to have to run and vote and the Vice 
Chair should be here shortly. I am going to recess briefly and 
pick up where we left off.
    [Recess.]
    Mrs. Blackburn [assuming Chair]. We will call the committee 
to order.
    I will begin with my question and when the chairman 
returns, he will retake the Chair. Thank you for being patient 
and waiting.
    Mr. Kutz, the 94 percent of mobilized Army National Guard 
soldiers from the six units we reviewed had pay problems. That 
is on page 2 of your summary. This is something that is 
important to figure out if we are addressing those pay problems 
with the National Guard, the per diem, etc. and the other part, 
the Defense travel system we talk so much about. Is that 
equipped to cover or not cover the National Guard soldiers 
being mobilized?
    Mr. Kutz. We were just speaking of that as you were out. 
Our understanding is the Defense travel system will not deal 
with contingency travel for mobilized Army National Guard or 
Reserve soldiers. Mr. Lanzilotta says there appears to be 
another potential solution to that.
    Mr. Lanzilotta. When we were looking at DTS, it was 
designed to do TDY and the process was reengineered and the 
system built to do TDY. When we looked at two other aspects of 
travel, one is mobilization and the other is permanent change 
of station travel, DTS did not perform to the standard we 
wanted. We are looking now at the implementation of another 
system called Reserve Travel System that does a better job and 
we are looking at a PCS Travel System that does a better job of 
doing that.
    Instead of having the 42 systems, I think our solution will 
be 3. Eventually we will get down to one but we need to fix 
these problems sooner versus later. One thing is to get to a 
system that will do it. The overall solution is not going to be 
defense travel. The overall solution is going to be Dimers. 
What happens to us now is most of these pay problems aren't 
generated because they are pay problems, but because there are 
personnel problems. There is something in the personnel records 
that keep the pay from being correct. A case in point, a 
reservist is mobilized, so the personnel tells us he is 
mobilized. For some reason, he doesn't come on active duty, 
medical or some other problem that he has that he is later not 
activated. If the personnel system doesn't come back and say he 
has been demobilized, it is very hard for us to catch him and 
catch that with our systems. We know who the active is and who 
the reserve is and do bumps to see if anybody is paid on both 
systems but if someone is paid on the active system and the 
personnel doesn't catch up to tell us he is not supposed to be 
there, if the commander doesn't do a review of his records and 
tell us that or if our procedures fail, then we develop a pay 
problem.
    In most cases, they really break down not in the systems 
but break down in our procedures and policies that have caused 
these problems to occur. We recently went through and I have 
asked each of the services to verify that we later weren't 
going to find the same problem in the Navy Reserve, the Air 
Force Guard and the Air Force Reserve, that we have a handle on 
it. If GAO catches us, we should thank them and correct the 
problem and look forward and make sure we don't have the 
problems in other areas. Each Service FM came back and said 
they reviewed it and don't believe they have a problem.
    We are still looking for ways to correct our procedures to 
see if there is a procedure that will allow us to see these 
people that are in between systems, on the active system but 
should be on the reserve to make sure they are paid the right 
amount for the service they have done on the right system.
    Mrs. Blackburn. We would hope that you can find a solution 
to that because coming from a State with thousands of Guardsmen 
and Reservists who are deployed, this is something we hear from 
the families regularly, that there are irregularities, they 
have to wait a long time to get the pay, there is a backlog. 
There just seems to be innumerable problems.
    I have one other question. Chairman Shays mentioned he had 
heard you are working on improving things for 17 years. I have 
only been here a year, only had the last hearing and this one 
and he is a much more patient person than I am. I remain a bit 
baffled. We sit here and talk about this, have a hearing and 
thank you for being here. Then we touch base a couple of times 
watching what is taking place during the year and talk about 
the need for leadership in addressing the business 
modernization, talked about the need for a timeline and 
consistently hear we need more money, we need more money. I am 
fully convinced this is not something you can sit here and 
answer today but it is something I think would be a good 
productive exercise for your team and the team that is going to 
oversee the modernization of the practices with DOD.
    I would love to see a realistic timeline, a realistic 
leadership chart and a realistic cost of what this is going to 
be whether 10 years or 7 years because I think it is unfair to 
the American people and to us to continually say, there are big 
problems out there, we can't get our hands around it, we need 
more money, we need a technological architecture that is going 
to work in a framework.
    I am not asking you to answer it today but I am asking you 
submit in writing something that we can look at so we don't 
have to talk in generalities next year when whomever is your 
successor comes in. We can look at some specifics. Having a 
timeline and an expectation of when you think a goal can be 
realistically achieved is an excellent exercise. It doesn't 
matter if it is your children with summer goals, if it is your 
family, if it is a business, if it is a governmental agency. I 
think that would be a most productive exercise. I would 
encourage you to do that and I would love to see the finished 
product.
    Mr. Platts. Thank you, Mrs. Blackburn.
    Mr. Rhodes, talking about the uniformity and consistency, 
it is my understanding the Joint Financial Management 
Improvement Program has specific standards for testing any new 
financial management systems to be acquired and any package 
presented has met the standards, yet we find a lot of the 
systems purchased and put in place are not fulfilling their 
requirements.
    Any insights to why that is the case? It seems we have 
tried to set up this uniformity, every system needs to at least 
do this to get after that approach and yet we still have the 
problems of a failure?
    Mr. Rhodes. JFMIP core requirements are codified. They are, 
however, at an extraordinarily high level for me as an engineer 
or software engineer to build to. This is why I make my plea 
for whoever is going to be in charge of transformation to be in 
charge of stabilizing the requirements management and bringing 
the discipline because yes, everybody in Government can look at 
the JFMIP core requirements and say fine, these are the 
requirements for how you are supposed to report out your 
financial system. Moving that to where someone actually designs 
the system is the difficulty and where the parochial nature of 
the various stovepipes within any department or agency, whether 
Department of Defense or whomever, that is where the difficulty 
comes. Now it is fine, we are going to do this function. Now 
everyone has to agree on the interpretation of what that 
process definition, that business process definition, is.
    At least from my experience, that is where it all breaks 
down. If the requirements management process were disciplined 
so there was a feedback loop and I as a designer were giving 
the information back to those beginning only with the JFMIP 
core requirements which are not everything anyone needs in 
order to have a financial management system but a subset, then 
the system we are designing will have more chance of being 
correct.
    Mr. Platts. Do I understand that in designing those core 
requirements there wasn't enough input, feedback from the 
technology side?
    Mr. Rhodes. There is not enough detail. Everyone 
understands that who is trying to build a financial management 
system, whether you are a vendor or an integrator or the 
Government agency, everyone says yes, we all agree to the JMFIP 
core requirements, the subset of requirements but translating 
those into code is the process that I am making a plea for in 
terms of definition because you have to be able to take that 
highest definition in the core requirement and as you decompose 
it into system design, you have to make certain that your 
description is concise, specific, not arbitrary or open to 
interpretation.
    Mr. Platts. Otherwise you get lots of discretionary 
decisions in the code?
    Mr. Rhodes. Absolutely. As I say, if you give me a 
requirement in a vacuum, I will build my own interpretation of 
it. I don't know any engineer who understands financial 
management.
    Mr. Platts. Mr. Lanzilotta.
    Mr. Lanzilotta. If I could emphasize the points Mr. Rhodes 
has made, I fully agree. That is why staying the course in 
development of the architecture is so important. The 
architecture is going to define the activities, the processes 
the Department will use. When we go to Mr. Rhodes' first point, 
the engineer says I get to define what the end to end process 
means, no, the engineer doesn't, the process owner doesn't, the 
owner of the system doesn't. We go to the architecture and it 
says it is this. This is what the process is.
    We are working with IBM right now because when we look at 
this approach, we knew we weren't going to be able to flip a 
switch and have all the business systems redefined. We went to 
an incremental approach. We said the most pressing issue is to 
eliminate our material weaknesses. We went to the finance and 
accounting domain and said, out of all the evils here, you are 
going to be the lead domain. You are going to build the 
standard definitions, the rules, the business rules, do the 
verifications, define what a financial transaction is, the 
requirements. When the other domains start looking at their 
systems, they will have the standard definition and these 
business rules that they have to build to which goes to the 
other point. It is not only important that you define the 
process from end to end and it is something everybody has and 
nobody can have open for discussion, it is also important that 
inside that are those definitions and those common points 
clearly defined.
    We are working with IBM to get this done. We have three 
deliverables and the proof will be in the pudding to see if 
that meets the needs. We need that to go forward. It is 
important, I feel, that we stay the course, that we are to the 
point where we have this mapped out, we know the 
interrelationships. Mr. Rhodes is right, the element of detail 
isn't there all the way and it has to be further defined. This 
is going to be an ongoing effort. We have the definitions and 
they will be available for the other domains to look at to 
build systems to.
    I agree with Mr. Rhodes that we do have some of the most 
talented people. I feel our problem isn't one of quantity. When 
we came to the area of financial statements and getting a clean 
audit, we looked at the capability to be able to audit our 
statements. The growth we are seeing in our budget is when we 
weren't doing it, the money wasn't there to do the audits. Now 
we are putting the money there to do the audits and I have two 
concerns. The market won't bear the capability we need to do 
the work on our financial statements.
    When we went to BMMP and tried to ramp up this effort about 
the definitions, they had to hire 40 accountants. They were 
slow because they had a hard time finding 40 CPAs willing to 
work on this project. When we start auditing all our statements 
and developing this capability, if we are to have it by 2007, 
you need to start putting auditors on in 2005, 2006 and 2007 to 
get up there, my fear is the guys aren't out there, the CPAs 
aren't out there to do the audit work we need and we are going 
to bid ourselves up.
    I agree I have some of the finest CPAs you can find. One is 
sitting behind me right now. The problem is only one of them is 
sitting behind me right now. I need more. That is something we 
have to deal with as a Government.
    I agree on the JMFIP compliance but another reason why we 
need to have the architecture and the standardization is the 
problem we are experiencing right now is in the implementation. 
These systems have the core accounting procedures and 
principles built into them. Unless you change them, these 
systems are flexible enough that you can take a perfectly 
compliant system and wreck it. It is in the implementation. To 
get the implementation right, you have to have your 
architecture right, your definitions right, these common 
processes defined. ERPs fail in the private industry because of 
planning. The Department has the most complex problem and it 
has to do the planning to make this work.
    My last plea in leaving Federal Government is that we stay 
the course and don't change directions after 3 years and try to 
reinvent it because eventually we will come back to the same 
route we are on because I believe we are on the right route.
    Mr. Platts. The importance is it is going to pay dividends 
if we stay the course, not be impatient, that we need to take 
what is there and build on it and not try to start over. I 
think Congress trying to recognize DOD not just in financial 
management but across the board needing more flexibility has 
given somewhat unprecedented human resource flexibility which 
hopefully will help address some of the needs of financial 
management, as well as hiring and recruiting and being able to 
get good people to come in and stay in the Department.
    Mr. Lanzilotta. The Congress has been very generous helping 
implement personnel until Civil Service reform implementation. 
I want to thank the Congress for doing that because without it, 
we can't succeed. We need to be able to get the IT folks and 
bring them on board, get the accountants and bring them on 
board. My concern is how many of them are out there.
    Mr. Platts. Especially accountants as the SEC is ramped up 
and there are lots of entities out there that are competing 
more and more within the Federal Government let alone the 
private sector as we put more demands on them through some of 
our new legislation. You are right, it is going to be a tough 
market.
    Earlier you talked about partnership between the 
Department, GAO, Congress and all of us working together. In 
Mr. Kutz's testimony, GAO obviously spent a lot of time over 
many years and continue to invest a lot of time and effort in 
trying to complement the Department's efforts and be a partner. 
He references the fact that of 24 recommendations regarding the 
architecture being put in place, 22 of the 24 recommendations 
have not been addressed by DOD. First, Mr. Kutz, what do you 
mean when you say have not been addressed and Mr. Lanzilotta if 
you could respond from a Department perspective why there is 
not more receptiveness to these recommendations?
    Mr. Kutz. Several have been partially addressed. We have in 
the appendix to the report the partially addressed ones and 
some have not been addressed at all. I went back and did look 
at those recently. The most common one that cuts across the 
ones that have not been implemented at all relates to the 
investment technology management oversight, the oversight of 
ongoing investments. The Department has been particularly 
troubled as to whether or not they can get their hands around 
what is going on. Mr. Lanzilotta said we are now up to 4,000 
potential systems. They still don't have a good handle on how 
many systems there are, how much money is being spent on them, 
where all those buckets of money actually are. Not only do you 
have RDT&E money, procurement money, working capital fund 
money, all kinds of different money being spent on business 
systems. Getting your hands around this whole thing is a major 
challenge.
    The corporate governance and management of ongoing 
investments have been the two areas that we see the slowest 
progress. On the governance side, Mr. Lanzilotta has 
acknowledged that they have made more progress in recent 
months. Hopefully they are further along than when our report 
was finalized.
    Mr. Lanzilotta. Mr. Kutz is too kind. I think there are 42 
recommendations not 22. I agree in concept with the GAO 
recommendations. I think we disagree in implementation of how 
those recommendations ought to be placed. One was COO and we 
have talked to that as to where we are on that. On the 
investment board, I think we have a governance process where it 
goes with the domains, steering group, executive steering 
group, that takes care of the need of the investment board.
    We are going to develop and are in the process of 
developing a data base that captures all these automation 
systems and the budgetary resources associated with them. Mr. 
Kutz is right, it is all in different colors but that is based 
on appropriation law, before I can move and tell Congress this 
is how I think we ought to budget for IT systems, I owe it to 
the Congress to identify where all these systems are, to sit 
down and say they are in working capital funds and there is all 
the different business activities in the working capital funds, 
they are in R&D, O&M, in procurement, in all the different 
accounts. When we developed this data base which we are in the 
process of doing, we will identify these systems.
    We are using OMB Exhibit 300 for the IT 300 as a basis for 
starting to get together all these requirements we have on 
automation systems and try to standardize them all into one 
system. Right now I have five data bases of what these systems 
are. At the end, I will have one that will have everything. The 
way we are enforcing it is if your system ain't in this data 
base, it ain't funded. We are going to tell the services this 
is what the data base has in it, if you want to correct a data 
base and get your system in there, then do that. If you don't, 
then you lose the money.
    I think after we do that, then we can better address the 
GAO concerns. It is not that we disagree with the GAO 
recommendation, it is how we are implementing it that I think 
sometimes we disagree on implementation of that recommendation.
    Mr. Kutz. There is a difference between issuing a memo from 
headquarters and actually having something done. I think we 
talked about it earlier with the $1 million threshold. That is 
something where they might have declared victory because the 
Comptroller issued a memo and said everyone shall follow the $1 
million threshold. The reality is because they don't have good 
investment management controls, nobody follows it. That gets 
back to the consequences. You get back to some of the themes of 
the things we are seeing slower progress on. I think they have 
a pretty good handle on the Comptroller and the DFAS systems 
and lot has happened there. It is a lot harder to deal with the 
Army, Navy, Air Force, Marine Corps and DLA systems from where 
Mr. Lanzilotta sits than maybe has acknowledged. I think that 
is a lot harder nut to crack than just saying we will take our 
own systems at DFAS and within the Comptroller's control and 
terminate them or control them. The other is much, much more 
difficult.
    Mr. Lanzilotta. Let me say what only a guy who is leaving 
the Department would ever say, the proof is in the pudding. 
Whether I complied with this recommendation to the extent Mr. 
Kutz has said will be known in January because that will be the 
first time we actually do a budget request to the Congress 
based on this new guidance to the domains and to the services. 
Whether the memo was enough or whether we should have done more 
or the actions we did, the proof will be in January when we 
submit a budget request. It is either there or not.
    I also need the hammer or something that I have to explain 
this. I need to be able to go back to the people working this 
problem and say this is how we have to have it done because in 
January or February, I am going to be called up there to answer 
what we got done.
    Mr. Platts. The dialog between the Department and GAO has 
been pretty constant and my hope is that now and in the future 
that partnership will continue because there is that shared 
goal we want, good processes being put in place and benefiting 
the personnel at the Department making decisions for the 
American public.
    I have two final areas. One is specifically about how much 
we are spending on programs that are then terminated. DFAS is 
the subject area. The two systems totaling $179 million in 
GAO's report last year, in March 2003, talked about the Defense 
Procurement Payment System, and the Defense Standard Disbursing 
System and they were terminated. My understanding is there is 
another system, the Corporate Warehouse System at DFAS that is 
still unjustified or unproven that we have already spent $129 
million on. What safeguards are we taking? I think the answer 
is we get this enterprise system in place and that is going to 
allow for better and more informed decisions to be made on what 
we invest in or what we don't. In the interim right now, $179 
million is gone and no benefit, another $129 million perhaps at 
risk. What are we doing in the interim to really make sure we 
are not going to keep repeating these expenditures for naught?
    Mr. Lanzilotta. The systems we terminated were Comptroller 
systems. We did not feel they were ever going to be compliant 
or were ever going to forward the ball. We looked at the life 
cycle costs of these systems and there have been others we have 
canceled, and we determined the life cycle cost was not 
justified for fielding these systems. So we did away with them.
    On the data warehouse, DFAS, we are using that system at 
the same time we are evaluating it. It contains my vendor pay, 
my 370,000 registered vendors I use when corporations or 
businesses submit their invoices to me. I need this. As we go 
along, these systems are all going to be eliminated. As we go 
along on the new architecture, these systems were designed and 
put into place well before the architecture started and are now 
coming to fruition. We have a generation of new systems coming 
that we are looking to see if they fit in the architecture and 
do what we want to do.
    We are not going to be able to replace all these systems 
but I think I would be misleading you to say we are not going 
to terminate other systems. My goal is to terminate these 
systems because I save on the operating cost of these and if 
they are not going to get us to where we need to go, then we 
need to reduce our losses and cut them out. In the future, it 
is much more grave if we design a system under the new 
architecture and it doesn't work. If it doesn't fit into our 
plan, I think that is much more serious. I expect a rash of 
systems that were developed in the early or mid 1990's before 
we saw where they fit in the architecture. It seems so amazing 
to me that we have 42 travel systems, they are going to go. At 
the end of the day, I think in the short term we will have 
three and then ultimately one and all the other systems need to 
go and be terminated.
    Each one has someone who thinks they are better than sliced 
bread. I think it is important to have congressional support 
because your constituents if they own one of these are going to 
say, the Department spent all this money on a system they are 
now terminating. It happens to be in your district, what do you 
think about that but it is coming.
    Mr. Platts. That is a major issue here. If you look at $19 
billion, major contracts, I don't know how many jobs are behind 
that in how many districts, that is a major issue and it is 
important for Congress to be on board for this effort as a 
partner as well.
    Mr. Kutz, any other comments on the interim efforts? I 
understand some systems will be terminated because of where 
they were in the pipeline but we are not continuing to repeat 
that as we go forward?
    Mr. Kutz. I look at the architecture a little different 
than the stuff we saw with the two systems we looked at today, 
the BSM and LMP systems where it has guiding principles versus 
the issues we saw with respect to those two projects even 
though they weren't designed to be corporate solutions, so they 
were flawed from the start.
    The other issues we saw requirements and testing were 
project management issues and we see this across the 
Department. You can design the architecture which would be like 
designing what you want your house to look like, but unless you 
have people who can actually build it and do the project 
management, you are never going to be successful. So I think 
there is a separate aspect to this that needs to get some 
sunshine at the Department of Defense. That is actually day to 
day project management of going through and implementing what 
Mr. Rhodes talked about with an off the shelf software package 
from SAP for example.
    Mr. Rhodes. The only point I would make is that at its 
highest level, an architecture is trying to help you design 
your home, but the guiding principle is you need shelter. That 
is not necessarily a home but you have to have that level of 
abstraction, I need to be warm, dry, cover from the elements 
and then you can start talking about why don't we build a house 
and then the house needs a roof and the roof needs shingles.
    The architecture is a guide, the No. 1 artifact of the 
discipline of management. The architecture is not something 
that you define, you bind and put on the shelf. Every 
engineering principle I have ever used in my 25 years has been 
a DOD engineering principle. They invented them, they come up 
with them and they sit on the shelf and get ignored. They make 
consultants a lot of money being able to train people on how to 
do this stuff but we are paying for these ideas and this rigor 
and this discipline several times and it is still not coming 
through.
    The architecture is extraordinarily important but there is 
``end-to-end'' in terms of the system and there is ``end-to-
end'' in terms of management. It has to go from the 
architecture down to the lowest level of the organization and 
the development process.
    Mr. Lanzilotta. Not that I disagree with Mr. Rhodes because 
he is correct but the other aspect of it I think we need to 
emphasize is the Department has had tremendous value just going 
through the process of designing what an architecture is, 
figuring it out. When I started this 3 years ago, I had no idea 
what an architecture looked like, I had no idea of why this was 
important. By taking the Department through the process, in 
some cases kicking and screaming, we have learned a lot on how 
to make this work. Mr. Rhodes is right if we make it shelfware, 
then shame on us but I think that is what your next hearing 
will be about to make sure we don't do that.
    Mr. Platts. Final question, looking into your crystal ball, 
you talked about 2007 and a clean audit opinion, what is the 
realistic nature of that goal and will it be achieved through a 
good system in place versus heroic efforts to get a clean audit 
opinion? Are we on track based on the foundation you have laid 
in the past 3 years as we go forward that we really are going 
to be where we hope to be in 2007?
    Mr. Lanzilotta. I don't think in 2007--I think our first 
step is we are going to get a qualified opinion and then an 
unqualified opinion. I think our first step is going to be a 
heroic effort through procedures to get this done in 2007. I 
don't think we are going to have the systems in place and the 
problem is right now the Department takes 10 years to field a 
major system. I can't get a system in place in 2007, it just 
isn't going to happen. I think we need the heroic effort and 
the reason I am pushing that is because if I don't have a 
milestone out there, if I don't say 2007, say climb tall 
mountains, leap tall buildings, we won't make the progress we 
need to get this done.
    Right now, the services are going toward 2007. We will 
probably get a qualified opinion and then an unqualified 
opinion. I think that is the nature of the way accountants 
think. I started off on Tri-Care for life and because it is a 
new fund, I couldn't get an unqualified opinion basically 
because it is a new fund, so I understand how this works.
    There are going to be problems but I need to have a 
milestone, need to say it is 2007 to be able to drive people to 
a solution. It is going to be procedural. Like environmental 
liabilities, it is not a systems problem to begin with, it is a 
process problem. After we fix the process, we should be able to 
get there. I think we will make progress on getting our 
liabilities ready for audit.
    When we talk about what we have to do we have a whole list 
of things and when we think they will be ready for audit. It 
won't be 2007. I hope you will see progress each year, that we 
get better. We have eliminated two material weaknesses, 
hopefully we can eliminate a few more and get down to where 
arbitrary weaknesses are no longer material and 2007 is 
aggressive.
    Mr. Platts. Mr. Kutz.
    Mr. Kutz. We haven't seen a link between the business 
systems modernization program and the 2007 opinion. He just 
said there isn't a link because the systems aren't going to be 
line to make that happen. I would concur, that for them to 
reach 2007, it would require a heroic effort. The issue is how 
much would that cost and is that even feasible?
    Mr. Platts. And is it worth the investment?
    Mr. Kutz. Is it worth the investment and will that 
investment then take away from the longer term? It is not like 
we have unlimited resources of the Department of Defense from a 
personnel standpoint to do that. I do think heroic effort is 
probably also unlikely to happen. I do think it would be 
important to measure their progress from the perspective 
environmental liabilities and some interim milestones. Those 
are important achievements they can make between now and 2007 
that should be considered successes.
    I would agree that things like environmental liabilities 
and all liabilities, that DOD have an opportunity to be cleaned 
up and resolved. So those are good things. We need to keep 
pursuing those and from oversight, you need to try to hold them 
accountable for that along with the more important part which 
is providing world class support to the war fighter which is 
what this is all about.
    Mr. Platts. I agree having a defined year as a goal kind of 
keeps everyone working toward it in a more aggressive fashion 
but your successor and the department as they look at this 
effort I hope that we don't get to where it is a goal set in 
stone, that we will spend x dollars just to have a clean 
opinion but through heroic efforts not through systematic 
improvements that we are really after and that we have a clean 
opinion because a system is in place that generates it. That 
means we have a system in place that is usable day in and day 
out throughout the year and not just something that looks good 
at the end of the year.
    I hope the Department will keep pushing aggressively in 
having that year as a goal but at some point make the decision 
it is not going to be a wise investment to say we are going to 
have a clean opinion if it is short-lived.
    That concludes the questions I have. All three of you, I 
appreciate your insights and wealth of knowledge you each have 
and have shared with us. We will look to continue to work with 
you in your current positions. Mr. Lanzilotta, we wish you well 
in your new position and appreciate the past years of service. 
How many years combining your Senate and DOD service, how many 
years altogether?
    Mr. Lanzilotta. The truth of the matter is I am retired 
military and I have never worked private sector so this will be 
the first time in over 30 years.
    Mr. Platts. What branch?
    Mr. Lanzilotta. Army.
    Mr. Platts. Thank you for all your service and especially 
your service in uniform. I am not a veteran myself and you all 
who have and do wear the uniform set the example for me and 
everyone else in public service. We wish you well.
    We will keep the record open for 2 weeks for additional 
information submitted. We appreciate everyone's participation. 
This hearing stands adjourned.
    [Whereupon, at 4:22 p.m., the subcommittee was adjourned, 
to reconvene at the call of the Chair.]
    [The prepared statement of Hon. Dennis J. Kucinich 
follows:]
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