[Senate Hearing 108-859]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 108-859
 
                   THE STATUS OF FINANCIAL MANAGEMENT 
                    REFORM WITHIN THE DEPARTMENT OF 
                  DEFENSE AND THE INDIVIDUAL SERVICES 

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

                                HEARING

                               before the

            SUBCOMMITTEE ON READINESS AND MANAGEMENT SUPPORT

                                 of the

                      COMMITTEE ON ARMED SERVICES
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                           NOVEMBER 18, 2004

                               __________

         Printed for the use of the Committee on Armed Services

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                      COMMITTEE ON ARMED SERVICES

                    JOHN WARNER, Virginia, Chairman

JOHN McCAIN, Arizona                 CARL LEVIN, Michigan
JAMES M. INHOFE, Oklahoma            EDWARD M. KENNEDY, Massachusetts
PAT ROBERTS, Kansas                  ROBERT C. BYRD, West Virginia
WAYNE ALLARD, Colorado               JOSEPH I. LIEBERMAN, Connecticut
JEFF SESSIONS, Alabama               JACK REED, Rhode Island
SUSAN M. COLLINS, Maine              DANIEL K. AKAKA, Hawaii
JOHN ENSIGN, Nevada                  BILL NELSON, Florida
JAMES M. TALENT, Missouri            E. BENJAMIN NELSON, Nebraska
SAXBY CHAMBLISS, Georgia             MARK DAYTON, Minnesota
LINDSEY O. GRAHAM, South Carolina    EVAN BAYH, Indiana
ELIZABETH DOLE, North Carolina       HILLARY RODHAM CLINTON, New York
JOHN CORNYN, Texas                   MARK PRYOR, Arkansas

                    Judith A. Ansley, Staff Director

             Richard D. DeBobes, Democratic Staff Director

                                 ______

            Subcommittee on Readiness and Management Support

                     JOHN ENSIGN, Nevada, Chairman

JOHN McCAIN, Arizona                 DANIEL K. AKAKA, Hawaii
JAMES M. INHOFE, Oklahoma            ROBERT C. BYRD, West Virginia
PAT ROBERTS, Kansas                  BILL NELSON, Florida
WAYNE ALLARD, Colorado               E. BENJAMIN NELSON, Nebraska
JEFF SESSIONS, Alabama               MARK DAYTON, Minnesota
JAMES M. TALENT, Missouri            EVAN BAYH, Indiana
SAXBY CHAMBLISS, Georgia             HILLARY RODHAM CLINTON, New York
JOHN CORNYN, Texas                   MARK PRYOR, Arkansas

                                  (ii)

  

















                            C O N T E N T S

                               __________

                    CHRONOLOGICAL LIST OF WITNESSES

  The Status of Financial Management Reform Within the Department of 
                  Defense and the Individual Services

                           november 18, 2004

                                                                   Page

Walker, Hon. David M., Comptroller General of the United States..     4
Jonas, Hon. Tina W., Under Secretary of Defense (Comptroller)....    24
Baldwin, Hon. Valerie Lynn, Assistant Secretary of the Army 
  (Financial Management and Comptroller).........................   110
Greco, Hon. Richard, Jr., Assistant Secretary of the Navy 
  (Financial Management and Controller)..........................   113
Montelongo, Hon. Michael, Assistant Secretary of the Air Force 
  (Financial Management and Comptroller).........................   114

                                 (iii)


  THE STATUS OF FINANCIAL MANAGEMENT REFORM WITHIN THE DEPARTMENT OF 
                  DEFENSE AND THE INDIVIDUAL SERVICES

                              ----------                              


                      THURSDAY, NOVEMBER 18, 2004

                           U.S. Senate,    
                 Subccommittee on Readiness
                            and Management Support,
                               Committee on Armed Services,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 3:29 p.m. in 
room SR-222, Russell Senate Office Building, Senator John 
Ensign (chairman of the subcommittee) presiding.
    Committee members present: Senators Ensign, Warner, and 
Levin.
    Majority staff members present: William C. Greenwalt, 
professional staff member; Gregory T. Kiley, professional staff 
member; and Thomas L. MacKenzie, professional staff member.
    Minority staff member present: Peter K. Levine, minority 
counsel.
    Staff assistants present: Alison E. Brill and Andrew W. 
Florell.
    Committee members' assistants present: D'Arcy Grisier, 
assistant to Senator Ensign; Erik Raven, assistant to Senator 
Byrd; and Davelyn Noelani Kalipi, assistant to Senator Akaka.

       OPENING STATEMENT OF SENATOR JOHN ENSIGN, CHAIRMAN

    Senator Ensign. The subcommittee will come to order. I want 
to welcome our witnesses to the subcommittee today, the 
Subcommittee on Readiness and Management Support, and we'll be 
happy to receive your testimony after I make an opening 
statement.
    Senator Akaka would have loved to have been with us today, 
obviously, and he and I enjoy a great bipartisan relationship. 
We work together. Our staffs work together incredibly well on 
this subcommittee. He would have loved to have been here today, 
but there was something to do with a little presidential 
library opening in Little Rock, Arkansas, that he is attending 
right now. So we know that he is with us in spirit, if not in 
presence.
    We talked about 6 months ago about having this hearing, a 
follow-up hearing. The reason was because in the past people 
have continued to come before this subcommittee and say changes 
are underway; well, we are getting our arms around these 
problems and changes are underway, but we keep hearing, way 
before I was on this committee, that the problems are going to 
be fixed, and they are going to be fixed, and they are going to 
be fixed.
    We have problems that are widespread with our National 
Guard and reservists getting paid. For me, especially when we 
are at a time of war, that is something that is completely 
unacceptable. You are calling people from their jobs--you are 
calling them up, and it is completely unacceptable that there 
would be problems with their pay.
    If it were an isolated incident, that might be at least 
understandable. But when the problems are as widespread, at 
least as they are reported, that is completely unacceptable.
    Now, we have problems, obviously, knowing where our 
inventory is, where it is in the world. It has been a long-time 
problem, and we understand that that problem is still 
widespread.
    The financial statements, 23 out of 24 major agencies of 
the United States can pass audits, but not the Department of 
Defense (DOD). Supposedly that will happen by 2007, but from 
what I hear that is only in our dreams. Because of Sarbanes-
Oxley, Chief Executive Officers (CEOs) and Chief Financial 
Officers (CFOs) now have to sign their financial statements and 
be responsible for those financial statements in huge companies 
in the world, and if they are not accurate they can be held 
criminally liable, be criminally liable, and civilly liable as 
well. You ask those CEOs and CFOs if those things get done, and 
they certainly happen.
    We now have something like 4,000 different business systems 
within DOD. I guess an additional 1,700 have been discovered 
since March. We certainly want to hear why all of these 
different business systems need to exist and what we are doing 
about those, and especially how did we just discover another 
1,700 in the last 6 months.
    Also, every time folks appear before this committee 
promises are made, and I want to reiterate that those promises 
are just not being kept. I think about a company like Wal-Mart. 
One of the excuses we hear is because of how massive the 
Department of Defense is. Wal-Mart is the largest employer in 
the United States as far as the private sector is concerned. 
They have over a million employees.
    When you think about a company like that, with the number 
of employees--part-time, full-time, people coming in and out 
all the time--they get their paychecks. They know where their 
inventories are. FedEx can trace any package anywhere in the 
world at any time, and we cannot keep track of our inventories.
    The bottom line with it is that their people are held 
accountable, and I do not think that this Congress has been 
holding DOD accountable. The message that I want to send today 
is, with this hearing--and we want to hear some answers--is 
that if the Department of Defense does not start holding their 
own people accountable, the Congress is going to have to, and 
that is just the way it needs to be. We cannot hear, ``Well, we 
are getting our arms around it,'' and keep hearing that.
    We will continue to hold hearings in this subcommittee to 
make sure that the fire does stay applied to the feet and that 
we will make sure that we are at least doing our part from the 
congressional end to make sure that some of these changes are 
made. Our men and women in uniform, frankly, deserve better. 
The American taxpayer deserves better.
    In your testimony today, I hope that you address some of 
the issues that I've pointed out and are willing to give us 
forthright answers. I realize that sometimes people are in jobs 
and the bureaucracy waits people out. When the political 
appointees come and they're there for a short period of time, 
the bureaucracies will just wait them out. But I also know that 
if priorities are driven from the top down, people understand 
that those are priorities. Things do get done, even if those 
people are only going to be there for a period of time.
    I have been a person in the past that has said to our most 
important entity in the Federal Government, the Department of 
Defense, that we will give you what you need to do your jobs. 
Without question we will make sure you have the resources to do 
your jobs, but then we must hold you accountable for those 
resources. That is what this hearing is about today--
accountability. Frankly, accountability needs to be increased 
as far as the Department of Defense is concerned.
    I recognize Senator Levin for any opening statements.
    Senator Levin. Mr. Chairman, thank you, first and foremost, 
for convening this hearing today. You are right on target in 
your sentiments and your concerns. I commend you on calling a 
hearing that focuses on shortcomings in the financial 
management systems in the Department of Defense. This is a 
subject of vital importance to the Department and to this 
committee. Without timely, accurate financial information our 
senior military and civilian leaders are severely handicapped 
in making day-to-day management decisions and ensuring that 
taxpayers' dollars are well spent.
    Three years ago, Mr. Walker and the Department of Defense 
Comptroller, Dov Zakheim, told us that the foundation for 
solving the Department's financial management problems was a 
new enterprise architecture covering all of the Department's 
business systems. Unfortunately, despite spending some $200 
million on the project, it appears the Department still does 
not have an adequate enterprise architecture and transition 
plan.
    In fact, we have been told that the Department of Defense 
has yet to develop even such basic elements of an enterprise 
architecture as DOD-wide standards and data elements. This is a 
major failure. In effect, what we are being told is that 3 
years and $200 million later we have not even been able to move 
the ball forward.
    I understand that in the absence of an effective DOD-wide 
enterprise architecture, the military departments may be 
pressing ahead with their own plans to field new systems to 
improve their financial management. But I am concerned that 
these stand-alone efforts by individual components may be 
counterproductive in the absence of an overall plan.
    Because of a last-minute scheduling change, the ranking 
member of this subcommittee, Senator Akaka, is unable to attend 
today's hearing. I also have another previous obligation, which 
I cannot change, and so I am afraid that I must leave. I think 
our witnesses know and I know our chairman knows that this is 
not from a lack of interest in this subject.
    Mr. Chairman, you are intrepid and dogged in pursuing this. 
I commend you on it. I join you, at least in spirit. If I 
could, I want to leave three questions for our witnesses that I 
hope they will address in the course of the hearing: First, 
does the Comptroller General and does the DOD Comptroller still 
believe, as they did 3 years ago, that the Department needs a 
comprehensive business enterprise architecture and transition 
plan to guide the transformation of its business systems?
    Second, if so, when can we expect to see such an enterprise 
architecture and transition plan?
    Third, in the absence of such an enterprise architecture 
and transition plan, are the individual efforts of the three 
military Services a positive contribution to the overall 
financial management of the Department or are these efforts 
counterproductive? I think those are probably the questions 
which you would be asking in any event, but I thought I would 
lay them out.
    Again, I thank you, Mr. Chairman. I am only sorry that I 
cannot stay to join you in this important effort.
    Senator Ensign. Thank you, Senator Levin. Thanks for your 
interest and your passion on this issue as well.
    Let me, first of all, officially welcome all of you. Just 
for the record, first off will be the Honorable David M. 
Walker, Comptroller General of the United States; followed by 
the Honorable Tina W. Jonas, Under Secretary of Defense. Then, 
from what I understand, we have written statements from the 
Honorable Valerie Lynn Baldwin, Assistant Secretary of the 
Army; the Honorable Richard Greco, Jr., Assistant Secretary of 
the Navy; and the Honorable Michael Montelongo, Assistant 
Secretary of the Air Force, and they are here to respond to 
questions.
    I welcome all of you, and we will start with David Walker.

 STATEMENT OF HON. DAVID M. WALKER, COMPTROLLER GENERAL OF THE 
                         UNITED STATES

    Mr. Walker. Thank you, Mr. Chairman. It is good to be back 
before you. If it is all right with you, I would like to have 
my entire statement entered in the record and I will summarize 
it, with your permission.
    Senator Ensign. Without objection, all of the written 
statements will be made part of the record.
    Mr. Walker. Thank you, Mr. Chairman.
    I am pleased to be back before you. I want to compliment 
this subcommittee for having a hearing on DOD's financial 
management and business transformation efforts. I agree with 
you--it is important to have these hearings, hopefully at least 
twice a year, because this is a critically important 
initiative.
    DOD has six of the specific program areas on the General 
Accountability Office's (GAO) high-risk list and it also shares 
three of the government-wide areas. So it has 9 of 25, more 
than its fair share. I will say that there is absolutely no 
question in my mind that from the Secretary of Defense down 
that the key leadership in the Department is committed to 
changing the status quo and that some progress has been made 
over the last several years.
    However, significant challenges remain and I believe that 
it is ultimately going to be several years before we're 
ultimately at the place that we need to be.
    If I can, let me summarize some of the key issues that I 
think would be of interest to you, Mr. Chairman, and some of 
the members on the subcommittee. I think it is important to 
know that financial management is a subset of the overall 
transformation effort and that, while DOD currently deserves an 
A-plus on fighting and winning armed conflicts, they are still 
a D on economy, efficiency, transparency, and accountability on 
the business side, and that is graded on a curve.
    As I reported to you several years ago, many of these are 
longstanding and deeply-rooted challenges that are part of the 
culture of DOD, where to a great extent the resources have been 
allocated to the Services and various units. It is the old 
adage: Better to ask for forgiveness than for permission. As 
General George Washington said during the Revolution, it is 
critically important to be able to link resources with 
responsibility in order to get results; and if you do not link 
resources with responsibility in order to get results, chances 
are you are not ultimately going to be successful. That is also 
critically important from an accountability standpoint.
    With regard to DOD's financial management challenges, 
clearly there are more entities that now have clean opinions 
than was the case 3 years ago. I believe there are six. I think 
Under Secretary Jonas will testify six that the Department has 
six clean opinions now versus three 3 years ago. That is 
progress, but none of the major Services have been able to put 
themselves in a position to be able to withstand an audit at 
the present point in time.
    At the present point in time, DOD has a target date to 
achieve a clean opinion on the financial statements of DOD by 
2007. In my opinion, Mr. Chairman, while that is a goal, there 
is not a plan to reach that goal and it is not a realistic 
goal. They need to recalibrate what the goal is. They need to 
develop a plan with specific milestones focused on specific 
entities and specific line items in the financial statements, 
what the goals would be by year, assign responsibility and 
accountability for each item. Realistically, there is no way 
that the Department is going to be in a position to get a clean 
opinion on its financial statements by 2007.
    With regard to Business Management Modernization Program 
(BMMP) or the Business Enterprise Architecture (BEA), that is a 
critically important initiative with regard to the overall 
business transformation effort. Over $200 million has been 
spent. There are deliverables that have resulted from that. 
However, there is also a need to develop a more formalized plan 
and responsibility and accountability for that.
    One of the challenges that exists at the Department of 
Defense is that frequently there is turnover with regard to the 
point persons who are responsible and accountable for getting 
things done. The fact of the matter is, if you take the BMMP, 
there have been three people who have served as directors of 
that project in the last 3 years. You cannot have that type of 
turnover and get the type of results and have the type of 
accountability that is necessary.
    So I think it is important, not just for the financial 
management area, but also the BMMP. There is a need for a plan 
with specific milestones, broken down into digestible parts, to 
assign responsibility and accountability to specific people, 
and to generate more continuity of leadership in order to be 
able to do what needs to be done.
    I would note that the Ronald W. Reagan National Defense 
Authorization Act (NDAA) for Fiscal Year 2005 did include some 
provisions that made the so-called functional areas or domains 
responsible for approval of system investment activities. That 
is clearly a positive step forward. However, I would also note 
that the resources for information technology (IT) investments 
have still been allocated to the Services.
    Mr. Chairman, we continue to believe you cannot separate 
responsibility from resources. It is critically important to 
align responsibility with resources in order to get 
demonstrable and sustainable results. So I would compliment 
this subcommittee and the Senate and the Congress for that step 
forward, but I believe it is critically important that the 
additional step be taken.
    I would also note, Mr. Chairman, that when you look at the 
challenges facing the Department of Defense that are 
longstanding since 1947, at the inception of the Department of 
Defense, that one of the challenges I really believe that they 
have is in many cases you cannot answer the question of who is 
in charge, what single person is responsible and accountable 
for who is in charge and then breaking it down into individual 
components.
    In my opinion, Mr. Chairman, there is no question that the 
Department of Defense needs a Chief Management Officer, at the 
Level II area, focused full-time, with a proven track record of 
success, preferably in the private sector, with some government 
experience for dealing with these basic business challenges 
that exist. This person would have a term appointment, a 
performance contract, and could be responsible and accountable 
solely for this business transformation effort. The chief 
management officer is who the under secretaries with 
appropriate portfolios would report to, who the Service 
Secretaries with regard to business transformation efforts 
would report to, and who would report to the Secretary.
    Mr. Chairman, in my opinion--and I have many years of 
experience in the public sector and private sector on 
transformation efforts--if the Department of Defense does not 
develop a Chief Management Officer at Level II who is 
responsible and accountable for this, who can take a more 
strategic and integrated approach on a sustained basis over a 
period of time, and if we do not link resources with 
responsibility, this effort will not succeed.
    Let me restate that, Mr. Chairman. I think it is absolutely 
critical that the Department of Defense have a Chief Management 
Official and that we link resources with the results, or else I 
fear that it will never be successful. At a time where our 
Nation faces huge deficits and long-range fiscal imbalances, we 
cannot afford to waste the billions of dollars that are wasted 
by not being able to deal with these issues--billions of 
dollars each year.
    Mr. Chairman, let me also note that it is possible for the 
Department of Defense within its existing allocation of 
presidential appointee Senate confirmation positions, to 
administratively implement this position without legislative 
action.
    However, I also believe that ultimately the Congress should 
act to codify this position in order to make sure that it will 
stay no matter who is the President, no matter who is Secretary 
of Defense. This is basic and I believe essential for success 
at the Department of Defense.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Walker follows:]
               Prepared Statement by Hon. David M. Walker
    Mr. Chairman and members of the subcommittee: It is a pleasure to 
be back before this subcommittee to discuss financial management and 
overall business transformation efforts at the Department of Defense 
(DOD). At the outset, I would like to thank the subcommittee for having 
this hearing and acknowledge the important role hearings such as this 
one serve in addressing DOD's business transformation challenges. DOD 
spends billions of dollars each year to sustain key business operations 
that support our forces, including systems and processes related to 
acquisition and contract management, financial management, supply chain 
management, support infrastructure management, human capital 
management, and other key areas. Recent and ongoing military operations 
in Afghanistan and Iraq and new homeland defense missions have led to 
higher demands on our forces in a time of growing fiscal challenges for 
our Nation. In an effort to better manage DOD's resources, the 
Secretary of Defense has appropriately placed a high priority on 
transforming key business processes to improve their efficiency and 
effectiveness in supporting the Department's military mission. However, 
as our reports continue to show, fundamental problems with DOD's 
financial management and related business operations continue to result 
in substantial waste and inefficiency, adversely impact mission 
performance, and result in a lack of adequate transparency and 
appropriate accountability across all major business areas. Of the 25 
areas on GAO's government-wide high-risk list, 6 are DOD program areas, 
and the Department shares responsibility for 3 other high-risk areas 
that are government-wide in scope.\1\ The problems we continue to 
identify relate to human capital challenges, ineffective internal 
control and processes, and duplicative and nonintegrated business 
information, systems, and operations. The seriousness of weaknesses in 
DOD's business operations underscores the importance of no longer 
condoning the ``status quo'' at DOD.
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    \1\ GAO, High-Risk Series: An Update, GAO-03-119 (Washington, DC: 
January 2003). The nine interrelated high-risk areas that represent the 
greatest challenge to DOD's development of world-class business 
operations to support its forces are: contract management, financial 
management, human capital management, information security, support 
infrastructure management, inventory management, real property, systems 
modernization, and weapon systems acquisition.
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    Although, the Secretary and several key agency officials have shown 
commitment to transformation, as evidenced by key initiatives such as 
human capital reform, the Business Management Modernization Program 
(BMMP), and the Financial Improvement Initiative, little tangible 
evidence of significant broad-based and sustainable improvements has 
been seen in DOD's business operations to date. Improvements have 
generally been limited to specific business process areas, such as 
DOD's purchase card program, and resulted in the incorporation of many 
key elements of reform, such as increased management oversight and 
monitoring and results-oriented performance measures. It is important 
to note that current business transformation initiatives are not 
integrated and lack many of the key elements that contributed to the 
success of the narrowly defined initiatives that I will highlight 
today.
    For DOD to successfully transform its business operations, it will 
need a comprehensive and integrated business transformation plan; 
people with the skills, responsibility, and authority to implement the 
plan; an effective process and related tools, such as a Business 
Enterprise Architecture (BEA)\2\; and results-oriented performance 
measures that link institutional, unit, and individual personnel goals 
and expectations to promote accountability for results. Over the last 3 
years, we have made a series of recommendations to DOD and suggested 
legislative changes that, if implemented, could help DOD move forward 
in establishing the means to successfully address the challenges it 
faces in transforming its business operations.\3\ The framework that we 
have proposed includes several key elements for successful reform, 
recognizes the complexity of the challenges facing DOD in its efforts 
to transform the Department, and the long-term nature of overcoming 
these challenges. Moreover, it recognizes that the lack of clearly 
defined and sustained leadership, an enterprise architecture to guide 
and direct business operational changes, cultural resistance to change, 
and internal parochialism have impeded the success of previous reform 
efforts. DOD has agreed with our recommendations and launched efforts 
intended to implement many of them, but progress has been slow. Unless 
DOD can address the underlying causes that have contributed to the 
failure of previous broad-based reform efforts, improvements will 
remain marginal and confined to narrowly defined business process areas 
and incremental improvements in human capital policies, business 
processes, internal controls, and information technology systems.
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    \2\ A BEA is a well-defined blueprint for operational and 
technological change. It generally consists of three integrated 
components: a snapshot of the enterprise's current operational and 
technological environment, a snapshot of its target environment, and a 
capital investment roadmap for transitioning from the current to the 
target environment.
    \3\ GAO, DOD Business Systems Modernization: Billions Continue to 
Be Invested with Inadequate Management Oversight and Accountability, 
GAO-04-615 (Washington, DC: May 27, 2004), Department of Defense: 
Further Actions Needed to Establish and Implement a Framework for 
Successful Financial and Business Management Transformation, GAO-04-
551T (Washington, D.C., Mar. 23, 2004), DOD Business Systems 
Modernization: Important Progress Made to Develop Business Enterprise 
Architecture, but Much Work Remains, GAO-03-1018 (Washington, DC: Sept. 
19, 2003), DOD Financial Management: Integrated Approach, Transparency, 
and Incentives Are Keys to Effective Reform, GAO-02-497T (Washington, 
DC, Mar. 6, 2002), Defense Management: New Management Reform Program 
Still Evolving, GAO-03-58 (Washington, DC: Dec. 12, 2002), Information 
Technology: Architecture Needed to Guide Modernization of DOD's 
Financial Operations, GAO-01-525 (Washington, DC: May 17, 2001), and 
DOD Financial Management: Integrated Approach, Accountability, and 
Incentives Are Keys to Effective Reform, GAO-01-681T (Washington, DC: 
May 8, 2001).
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    Today, I will provide my perspectives on (1) the impact that 
longstanding weaknesses continue to have on the economy, efficiency, 
and effectiveness of DOD's business operations, (2) underlying causes 
that have impeded the success of prior efforts, (3) keys to successful 
reform, and (4) DOD business transformation efforts and interim 
improvements. In addition, while statutory requirements enacted 
recently as a part of the Ronald W. Reagan National Defense 
Authorization Act for Fiscal Year 2005 \4\ are a positive step towards 
improving leadership and accountability over DOD's systems 
transformation efforts, I will offer two suggestions for legislative 
consideration related to sustained top-level leadership, responsibility 
and accountability that would better permit the effective use of 
transition plans, processes, people, and tools and thereby increase the 
likelihood of successful business transformation. My statement is based 
on previous GAO reports and routine efforts to track the status of open 
recommendations, as well as on our review of the work of other Supreme 
Audit Institutions and DOD auditors, and recent DOD reports and 
studies. Our work was performed in accordance with generally accepted 
government auditing standards.
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    \4\ Ronald W. Reagan National Defense Authorization Act for Fiscal 
Year 2005, Pub. L. No. 108-375, Sec. Sec. 332, 352, 118 Stat. 1811 
(Oct. 28, 2004) (codified, in part, at 10 U.S.C. Sec. Sec. 185, 2222).
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 impact of financial management and related business process weaknesses
    As I previously stated, and we have reported on for several years, 
DOD faces a range of challenges that are complex, longstanding, 
pervasive, and deeply rooted in virtually all major business operations 
throughout the Department. As I testified last March and as discussed 
in our latest financial audit report,\5\ DOD's financial management 
deficiencies, taken together, continue to represent the single largest 
obstacle to achieving an unqualified (clean) audit opinion on the U.S. 
government's consolidated financial statements. While it is important 
to note that some DOD organizations, such as the Defense Finance 
Accounting Service (DFAS),\6\ the Defense Contract Audit Agency, and 
the Office of the Inspector General, have clean audit opinions for 
fiscal year 2004, significant DOD components do not. To date, none of 
the military services has passed the test of an independent financial 
audit because of pervasive weaknesses in internal control and processes 
and fundamentally flawed business systems. Moreover, the lack of 
adequate transparency and appropriate accountability across DOD's major 
business areas results in billions of dollars of wasted resources 
annually at a time of growing fiscal constraints.
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    \5\ GAO, Fiscal Year 2003 U.S. Government Financial Statements: 
Sustained Improvement in Federal Financial Management Is Crucial to 
Addressing Our Nation's Future Fiscal Challenges, GAO-04-477T 
(Washington, DC: Mar. 3, 2004).
    \6\ DFAS's financial statements and corresponding audit opinion 
pertain only to the administrative functions of DFAS itself and, 
consequently, do not provide any assurance as to the reliability of the 
accounting processes and systems DFAS uses to provide services to other 
DOD components, including the military services.
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    In identifying improved financial performance as one of its five 
government-wide initiatives, the President's Management Agenda 
recognized that obtaining an unqualified financial audit opinion is a 
basic prescription for any well-managed organization. At the same time, 
it recognized that without sound internal control and accurate and 
timely financial and performance information, it is not possible to 
accomplish the President's agenda and secure the best performance and 
highest measure of accountability for the American people. The Joint 
Financial Management Improvement Program (JFMIP) \7\ principals have 
defined certain measures, in addition to receiving an unqualified 
financial statement audit opinion, for achieving financial management 
success. These additional measures include (1) being able to routinely 
provide timely, accurate, and useful financial and performance 
information, (2) having no material internal control weaknesses or 
material noncompliance with laws and regulations, and (3) meeting the 
requirements of the Federal Financial Management Improvement Act of 
1996 (FFMIA).\8\ Unfortunately, DOD does not meet any of these 
conditions. For example, for fiscal year 2004, the DOD Inspector 
General issued a disclaimer of opinion on DOD's financial statements, 
citing 11 material weaknesses in internal control and noncompliance 
with FFMIA requirements.
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    \7\ JFMIP is a joint undertaking of the Office of Management and 
Budget, GAO, the Department of Treasury, and the Office of Personnel 
Management, working in cooperation with each other and with operating 
agencies to improve financial management practices throughout the 
government.
    \8\ Pub. L. No. 104-208, div. A., Sec. 101(f), title VIII, 110 
stat. 3009, 3009-389 (Sept. 30, 1996).
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    Recent audits and investigations by GAO and DOD auditors continue 
to confirm the existence of pervasive weaknesses in DOD's financial 
management and related business processes and systems. These problems 
have (1) resulted in a lack of reliable information needed to make 
sound decisions and report on the status of DOD activities, including 
accountability of assets, through financial and other reports to 
Congress and DOD decisionmakers, (2) hindered its operational 
efficiency, (3) adversely affected mission performance, and (4) left 
the Department vulnerable to fraud, waste, and abuse, of which I have a 
few examples.

         782 of the 829 mobilized Army National Guard and 
        Reserve soldiers from 14 case study units we reviewed had at 
        least one pay problem--including overpayments, underpayments, 
        and late payments--associated with their mobilization. DOD's 
        inability to provide timely and accurate payments to these 
        soldiers, many of whom risked their lives in dangerous combat 
        missions in Iraq or Afghanistan, distracted them from their 
        missions, imposed financial hardships on the soldiers and their 
        families, and has negatively impacted retention. (GAO-04-89, 
        Nov. 13, 2003 and GAO-04-911, Aug. 20, 2004)
         DOD incurred substantial logistical support problems 
        as a result of weak distribution and accountability processes 
        and controls over supplies and equipment shipments in support 
        of Operation Iraqi Freedom, similar to those encountered during 
        the prior gulf war. These weaknesses resulted in (1) supply 
        shortages, (2) backlogs of materials delivered in-theater but 
        not delivered to the requesting activity, (3) a discrepancy of 
        $1.2 billion between the amount of materiel shipped and that 
        acknowledged by the activity as received, (4) cannibalization 
        of vehicles, and (5) duplicate supply requisitions. (GAO-04-
        305R, Dec. 18, 2003)
         Inadequate asset accountability also resulted in DOD's 
        inability to locate and remove from its inventory over 250,000 
        defective chemical and biological protective garments known as 
        battle dress overgarments (BDOs)--the predecessor of the new 
        Joint Service Lightweight Integrated Suit Technology (JSLIST). 
        Subsequently, we found that DOD had sold many of these 
        defective suits to the public, including 379 that we purchased 
        in an undercover operation. In addition, DOD may have issued 
        over 4,700 of the defective BDO suits to local law enforcement 
        agencies. Although local law enforcement agencies are most 
        likely to be the first responders to a terrorist attack, DOD 
        failed to inform these agencies that using these BDO suits 
        could result in death or serious injury. (GAO-04-15NI, Nov. 19, 
        2003)
         Ineffective controls over Navy foreign military sales 
        using blanket purchase orders placed classified and controlled 
        spare parts at risk of being shipped to foreign countries that 
        may not be eligible to receive them. For example, we identified 
        instances in which Navy country managers (1) overrode the 
        system to release classified parts under blanket purchase 
        orders without filing required documentation justifying the 
        release and (2) substituted classified parts for parts ordered 
        under blanket purchase orders, bypassing the control-edit 
        function of the system designed to check a country's 
        eligibility to receive the parts. (GAO-04-507, June 25, 2004)
         DOD and congressional decisionmakers lack reliable 
        data upon which to base sourcing decisions due to recurring 
        weaknesses in DOD datagathering, reporting, and financial 
        systems. As in the past, we have identified significant errors 
        and omissions in the data submitted to Congress on the amount 
        of each military service's depot maintenance work outsourced or 
        performed in-house. As a result, both DOD and Congress lack 
        assurances that the dollar amounts of public-private sector 
        workloads reported by the military services are reliable. (GAO-
        04-871, Sept. 29, 2004)
         Ineffective controls over DOD's centrally billed 
        travel accounts led to millions of dollars wasted on unused 
        airline tickets, reimbursements to travelers for improper and 
        potentially fraudulent airline ticket claims, and issuance of 
        airline tickets based on invalid travel orders. For example, we 
        identified 58,000 airline tickets--primarily purchased in 
        fiscal years 2001 and 2002--with a residual value of more than 
        $21 million that were unused and not refunded as of October 
        2003. On the basis of limited airline data, we determined that 
        since 1997, the potential magnitude of DOD's unused tickets 
        could be at least $115 million. (GAO-04-825T, June 9, 2004 and 
        GAO-04-398, Mar. 31, 2004)
         The Navy's lack of detailed cost information hinders 
        its ability to monitor programs and analyze the cost of its 
        activities. For example, we found that the Navy lacked the 
        detailed cost and inventory data needed to assess its needs, 
        evaluate spending patterns, and leverage its telecommunications 
        buying power. As a result, we found that at the sites reviewed, 
        the Navy paid for telecommunications services it no longer 
        required, paid too much for services it used, and paid for 
        potentially fraudulent or abusive long-distance charges. For 
        instance, we found that DOD paid over $5,000 in charges for one 
        card that was used to place 189 calls in one 24-hour period 
        from 12 different cities to 12 different countries. (GAO-04-
        671, June 14, 2004)
         DOD continues to use overly optimistic planning 
        assumptions to estimate its annual budget request. These 
        assumptions are reflected in its Future Years Defense Program 
        (FYDP), which reports projected spending for the current budget 
        year and at least 4 succeeding years. Such overly optimistic 
        assumptions limit the visibility of costs projected throughout 
        the FYDP period and beyond. As a result, DOD has too many 
        programs for the available dollars, which often leads to 
        program instability, costly program stretch-outs, and program 
        termination. For example, in January 2003, we reported that the 
        estimated costs of developing eight major weapons systems had 
        increased from about $47 billion in fiscal year 1998 to about 
        $72 billion by fiscal year 2003. In addition, in September 2004 
        the Congressional Budget Office projected that if the costs of 
        weapons programs and certain other activities continued to grow 
        as they have historically rather than as DOD currently 
        projects, executing today's defense plans would require 
        spending an average of $498 billion a year through 2009. 
        Without realistic projections, Congress and DOD will not have 
        visibility over the full range of budget options available to 
        achieve defense goals. (GAO-03-98, Jan. 2003 and GAO-04-514, 
        May 7, 2004)
         DOD did not know the size of its security clearance 
        backlog at the end of September 2003 and had not estimated this 
        backlog since January 2000. Using September 2003 data, we 
        estimated that DOD had a backlog of roughly 360,000 
        investigative and adjudicative cases, but the actual backlog 
        size is uncertain. DOD's failure to eliminate and accurately 
        assess the size of its backlog may have adverse affects. For 
        example, delays in updating overdue clearances for personnel 
        doing classified work may increase national security risks and 
        slowness in issuing new clearances can increase the costs of 
        doing classified government work. (GAO-04-344, Feb. 9, 2004)

    These examples clearly demonstrate not only the severity of DOD's 
current problems, but also the importance of reforming the Department's 
business operations to more effectively support DOD's core mission, to 
improve the economy and efficiency of its operations, and to provide 
for transparency and accountability to Congress and American taxpayers.
      underlying causes of financial and related business process 
                       transformation challenges
    The underlying causes of DOD's financial management and related 
business process and system weaknesses are generally the same ones I 
have outlined in my prior testimonies before this subcommittee over the 
last 3 years. Unfortunately, DOD has made little progress in addressing 
these fundamental issues and thus is at high risk that its current 
major reform initiatives will fail. For each of the problems I cited 
previously, we found that one or more of these longstanding causes were 
contributing factors. Over the years, the Department has undertaken 
many well-intended initiatives to transform business operations 
Department-wide and improve the reliability of information for 
decisionmaking and reporting. However, many of these efforts resulted 
in costly failures because the Department did not fully address the 
following four underlying causes of transformation challenges.
Lack of Sustained Leadership and Management Accountability
    DOD has not routinely assigned accountability for performance to 
specific organizations or individuals who have sufficient authority, 
resource control, and continuity in their position to accomplish 
desired goals. In addition, top management has not had a proactive, 
consistent, and continuing role in integrating daily operations with 
business transformation-related performance goals. It is imperative 
that major improvement initiatives have the direct, active support and 
involvement of the Secretary and Deputy Secretary of Defense to ensure 
that daily activities throughout the Department remain focused on 
achieving shared, agency-wide outcomes and success. However, sustaining 
top management continuity and commitment to performance goals, long-
term planning, and follow-through that will necessarily span several 
years is particularly challenging for DOD. For example, in fiscal year 
2004, DOD's Comptroller, Deputy Under Secretary of Defense for 
Management Reform, and Deputy Chief Financial Officer--to whom the 
Secretary delegated the leadership role for key transformation 
initiatives--all resigned from the Department within a 5-month period. 
Moreover, the Department's primary transformation program--BMMP--has 
had three different directors responsible for leading the program since 
Secretary Rumsfeld initiated it a little over 3 years ago. Given the 
importance of DOD's business transformation effort, it is imperative 
that it receives sustained, focused department-wide leadership needed 
to improve the economy, efficiency, and effectiveness of DOD's business 
operations. As I will discuss in more detail later, we continue to 
advocate the establishment of a new executive position to provide 
strong and sustained leadership to the entire spectrum of DOD business 
transformation initiatives.
Cultural Resistance and Parochialism
    The Department has acknowledged that it confronts decades-old 
problems deeply grounded in the bureaucratic history and operating 
practices of a complex, multifaceted organization. Many of DOD's 
current operating practices and systems were developed piecemeal to 
accommodate different organizations, each with its own policies and 
procedures. As we have reported over the last 3 years,\9\ DOD has 
continued to use a stovepiped approach to develop and fund its business 
system investments. The existing systems environment evolved over time 
as DOD components-- each receives its own system funding and follows 
decentralized acquisition and investment practices--developed narrowly 
focused parochial solutions to their business problems. While the 
Ronald W. Reagan National Defense Authorization Act for Fiscal Year 
2005 \10\ more clearly defines the roles and responsibilities of 
business system investment approval authorities, control over the 
budgeting for and execution of funding for system investment activities 
remains at the component level. As I will discuss later, unless 
business systems modernization money is appropriated to those who are 
responsible and accountable for reform, DOD is at risk for continuing 
its current stovepiped approach to developing and funding system 
investments and failing to fundamentally improve its business 
operations. DOD's ability to address its current ``business-as-usual'' 
approach to business system investments is further hampered by its lack 
of an effective methodology and process for obtaining a complete 
picture of its current business systems environment--a condition we 
first highlighted in 1997.\11\ In September 2004, DOD reported that the 
Department had identified over 4,000 business systems--up from the 
1,731 the Department reported in October 2002. Unfortunately, due to 
its lack of an effective methodology and process for identifying 
business systems, including a clear definition of what constitutes a 
business system, DOD continues to lack assurance that its systems 
inventory is reliable. This lack of visibility over business systems in 
use throughout the Department hinders DOD's ability to identify and 
eliminate duplicate and nonintegrated systems and transition to an 
integrated systems environment.
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    \9\ GAO-01-681T, GAO-04-551T, GAO-03-1018, and GAO, DOD Business 
Systems Modernization: Limited Progress in Development of Business 
Enterprise Architecture and Oversight of Information Technology 
Investments, GAO-04-731R (Washington, DC: May 17, 2004).
    \10\ Pub. L. No. 108-375, Sec. 332.
    \11\ GAO, Financial Management: DOD Inventory of Financial 
Management Systems is Incomplete, GAO/AIMD-97-29 (Washington, DC: Jan. 
31, 1997).
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Lack of Results-Oriented Goals and Performance Measures
    At a programmatic level, the lack of clear, comprehensive, and 
integrated performance goals and measures has handicapped DOD's past 
reform efforts. As a result, DOD managers lacked straightforward 
roadmaps showing how their work contributed to attaining the 
Department's strategic goals, and they risked operating autonomously 
rather than collectively. As of March 2004, DOD had formulated 
Department-wide performance goals and measures and continues to refine 
and align them with the outcomes described in its strategic plan--the 
September 2001 Quadrennial Defense Review (QDR). The QDR outlined a new 
risk management framework consisting of four dimensions of risk--force 
management, operational, future challenges, and institutional--to use 
in considering trade-offs among defense objectives and resource 
constraints. According to DOD's Fiscal Year 2003 Annual Report to the 
President and Congress, these risk areas are to form the basis for 
DOD's annual performance goals. They will be used to track performance 
results and will be linked to planning and resource decisions. As of 
October 2004, the Department was still in the process of implementing 
this approach department-wide. However, it remains unclear how DOD will 
use this approach to measure progress in achieving business reform.
    As we reported in May 2004, DOD had yet to establish measurable, 
results-oriented goals for BMMP.\12\ BMMP is the Department's major 
business transformation initiative encompassing defense policies, 
processes, people, and systems that guide, perform, or support all 
aspects of business management, including development and 
implementation of the BEA. A key element of any major program is its 
ability to establish clearly defined goals and performance measures to 
monitor and report its progress to management. The lack of BMMP 
performance measures has made it difficult to evaluate and track 
specific program progress, outcomes, and results, such as explicitly 
defined performance measures to evaluate the architecture's quality, 
content, and utility of subsequent major updates. Given that DOD had 
reported total obligations for BMMP of over $203 million since 
architecture development began 3 years ago, with little tangible 
improvements in DOD operations, this is a serious performance 
management weakness.
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    \12\ GAO-04-731R.
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    Further, DOD has not established measurable criteria that 
decisionmakers must consider for its revised weapons system acquisition 
policy, issued in May 2003.\13\ The revisions make major improvements 
to DOD acquisition policy by adopting knowledge-based, evolutionary 
practices used by successful commercial companies. However, DOD has not 
provided the necessary controls to ensure such an approach is followed. 
For example, the policy does not establish measures to gauge design and 
manufacturing knowledge at critical junctures in the product 
development process, allowing significant unknowns to be judged as 
acceptable risks. Without controls in the form of measurable criteria 
that decisionmakers must consider, DOD runs the risk of making 
decisions based on overly optimistic assumptions.
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    \13\ GAO, Defense Acquisitions: DOD's Revised Policy Emphasizes 
Best Practices, but More Controls Are Needed, GAO-04-53 (Washington, 
DC: Nov. 10, 2003).
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Lack of Incentives for Change
    The final underlying cause of the Department's longstanding 
inability to carry out needed fundamental reform has been the lack of a 
clear linkage of institutional, unit, and individual results-oriented 
goals, performance measures, and reward mechanisms for making more than 
incremental changes to existing ``business-as-usual'' operations, 
systems, and organizational structures. Traditionally, DOD has focused 
on justifying its need for more funding rather than on the outcomes its 
programs have produced. DOD has historically measured its performance 
by resource components, such as the amount of money spent, people 
employed, or number of tasks completed. Incentives for its 
decisionmakers to implement behavioral changes have been minimal or 
nonexistent.
    The lack of incentives to change is evident in the business systems 
modernization area. We have identified numerous business system 
modernization efforts that were not economically justified on the basis 
of cost, benefits, and risk; took years longer than planned; and fell 
far short of delivering planned or needed capabilities. Despite this 
track record, DOD continues to invest billions in business systems 
while at the same time it lacks the effective management and oversight 
needed to achieve real results. Without appropriate incentives and 
accountability mechanisms, as well as more centralized control of 
systems modernization funding, DOD components will continue to develop 
duplicative and nonintegrated systems that are inconsistent with the 
Secretary's vision for reform. To effect real change, actions are 
needed to (1) develop a well-defined blueprint for change, such as an 
enterprise architecture, that provides a common framework of reference 
for making informed system investment decisions, (2) adopt an 
investment decisionmaking model that uses the architecture to break 
down parochialism and reward behaviors that meet DOD-wide goals, (3) 
establish incentives that motivate decisionmakers to initiate and 
implement efforts that are consistent with better architecture and 
program outcomes, including saying ``no'' or pulling the plug early on 
a system or program that is failing, (4) address human capital issues, 
such as the adequacy of staffing level, skills, and experience 
available to achieve the institutional, unit, and individual objectives 
and expectations, and (5) facilitate a congressional focus on results-
oriented management, particularly with respect to resource allocation 
decisions.
     keys to successful reform and current status of reform efforts
    The success of DOD's current broad-based business reform 
initiatives is threatened, as prior initiatives were, by DOD's 
continued failure to incorporate key elements that are critical to 
achieve successful reform. Any efforts at reform must include (1) a 
comprehensive, integrated business transformation plan, (2) personnel 
with the necessary skills, experience, responsibility, and authority to 
implement the plan, (3) effective processes and related tools, such as 
a BEA and business system investment decisionmaking controls, and (4) 
results-oriented performance measures that link institutional, unit, 
and individual personnel goals, measures, and expectations. Today, I 
would like to discuss three of those broad-based initiatives. In 
addition, I will briefly highlight some of the several smaller, more 
narrowly focused initiatives DOD has started in recent years that, 
through incorporation of many of the key elements, have been successful 
in making tangible improvements in DOD operations. Furthermore, I would 
like to reiterate two suggestions for legislative consideration that I 
believe are essential in order for DOD to be successful in its overall 
business transformation effort.
Keys to Successful Reform
    As I have previously testified,\14\ and as illustrated by the 
success of the more narrowly defined DOD initiatives I will discuss 
later, there are several key elements that collectively would
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    \14\ GAO-04-551T and GAO-02-497T.

         enable the Department to effectively address the 
        underlying causes of its inability to resolve its
         longstanding business management problems. These 
        elements, which we believe are key to any
         successful approach to transforming the Department's 
        business operations, include
         addressing the Department's financial management and 
        related business operational challenges as part of a 
        comprehensive, integrated, DOD-wide strategic plan for business 
        reform;
         providing for sustained, committed, and focused 
        leadership by top management, including but not limited to the 
        Secretary of Defense;
         establishing resource control over business systems 
        investments;
         establishing clear lines of responsibility, authority, 
        and accountability;
         incorporating results-oriented performance measures 
        that link key institutional, unit, and individual personnel 
        transformation objectives and expectations, and monitoring 
        progress;
         addressing human capital issues, such as the adequacy 
        of staff levels, skills, and experience available to achieve 
        the institutional, unit, and individual personnel performance 
        goals and expectations;
         providing appropriate incentives or consequences for 
        action or inaction;
         establishing an enterprise architecture to guide and 
        direct business systems modernization investments; and
         ensuring effective oversight and monitoring.

    These elements, which should not be viewed as independent actions 
but rather as a set of interrelated and interdependent actions, are 
reflected in the recommendations we have made to DOD over the last 3 
years and are consistent with those actions discussed in the 
Department's April 2001 financial management transformation report.\15\ 
The degree to which DOD incorporates them into its current reform 
efforts--both long and short term--will be a deciding factor in whether 
these efforts are successful. Thus far, the Department's progress in 
implementing our recommendations pertaining to its broad-based 
initiatives has been slow. Further, while the new legislation \16\ on 
business systems oversight directs DOD to take action on some of these 
elements, we have not yet seen a comprehensive, cohesive, and 
integrated strategy that details how some of the ongoing efforts are 
being integrated. For example, we have not seen how the Department 
plans to integrate its objective of obtaining an unqualified audit 
opinion in fiscal year 2007 with the BMMP.\17\ It appears as if these 
two efforts are being conducted without the degree of coordination that 
would generally be expected between efforts that share similar 
objectives.
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    \15\ Department of Defense, Transforming Department of Defense 
Financial Management: A Strategy for Change, (Washington, DC: Apr. 13, 
2001).
    \16\ Pub. L. No. 108-375, '332.
    \17\ GAO, Financial Management: Further Actions Are Needed to 
Establish Framework to Guide Audit Opinion and Business Management 
Improvement Efforts at DOD, GAO-04-910R (Washington, DC: Sept. 20, 
2004).
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Human Capital Initiative
    The first broad-based administrative initiative is effective 
implementation of the National Security Personnel System (NSPS). In 
November 2003, Congress authorized the Secretary of Defense to 
establish a new human capital management system--NSPS--for its civilian 
employees, which is modern, flexible, and consistent with the merit 
principles outlined by the act.\18\ This legislation requires DOD to 
develop a personnel system that is consistent with many of the 
practices that we have identified as elements of an effective human 
capital management system, including a modern and results-oriented 
performance management system. For several years, we have reported \19\ 
that many of DOD's business process and control weaknesses were 
attributable in part to human capital issues. For example, GAO audits 
of DOD's Army Reserve and National Guard payroll and the centrally 
billed travel card programs \20\ further highlight the adverse impact 
that outdated and inadequate human capital practices, such as 
insufficient staffing, training, and monitoring of performance, 
continue to have on DOD business operations. If properly developed and 
implemented, NSPS could result in significant improvements to DOD's 
business operations.
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    \18\ National Defense Authorization Act for Fiscal Year 2004, Pub. 
L. No. 108-136, Sec. 1101, 117 Stat. 1392, 1621 (Nov. 24, 2003) 
(amending subpart I of part III of title 5, United States Code).
    \19\ GAO, Major Management Challenges and Program Risks: Department 
of Defense, GAO-01-244 (Washington, DC: Jan.1, 2001).
    \20\ GAO, Military Pay: Army Reserve Soldiers Mobilized to Active 
Duty Experienced Significant Pay Problems, GAO-04-911, (Washington, DC: 
Aug. 20, 2004), Military Pay: Army National Guard Personnel Mobilized 
to Active Duty Experienced Significant Pay Problems, GAO-04-89, 
(Washington, DC: Nov. 13, 2003), and DOD Travel Cards: Control 
Weaknesses Led to Millions in Fraud, Waste, and Improper Payments, GAO-
04-825T, (Washington, DC: June 9, 2004).
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    I strongly support the need for modernizing Federal human capital 
policies both within DOD and for the entire Federal Government. Since 
April 2003, I have testified on four different occasions, including 
before this subcommittee, on NSPS and related DOD human capital 
issues.\21\ In the near future, we will issue a summary of the forum 
GAO and the National Commission on the Public Service Implementation 
Initiative cohosted to advance the discussion of how human capital 
reform should proceed. Participants discussed whether there should be 
an overall government-wide framework for human capital reform and, if 
yes, what such a framework should include. While the forum neither 
sought nor achieved consensus on all of the issues identified in the 
discussion, there was broad agreement that there should be a 
government-wide framework to guide human capital reform built on a set 
of timeless beliefs and boundaries. Beliefs entail the fundamental 
principles that should govern all approaches to human capital reform 
and should not be altered or waived by agencies seeking human capital 
authorities. Boundaries include the criteria and processes that 
establish the checks and limitations when agencies seek and implement 
human capital authorities.
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    \21\ GAO, Defense Transformation: Preliminary Observations on DOD's 
Proposed Civilian Personnel Reforms, GAO-03-717T (Washington, DC: April 
29, 2003); Defense Transformation: DOD's Proposed Civilian Personnel 
System and Government-wide Human Capital Reform, GAO-03-741T 
(Washington, DC: May 1, 2003); Human Capital: DOD's Civilian Personnel 
Strategic Management and the Proposed National Security Personnel 
System, GAO-03-493T (Washington, DC: May 12, 2003); Building on DOD's 
Reform Effort to Foster Government-wide Improvements, GAO-03-851T 
(Washington, DC: June 4, 2003).
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    A modern, effective, credible, and integrated performance 
management system can help improve DOD's business operations. 
Specifically, such a performance management system aligns individual 
performance expectations with organizational goals and thus defines 
responsibility and assures accountability for achieving them.\22\ In 
addition, a performance management system can help manage and direct a 
transformation process by linking performance expectations to an 
employee's role in the process. Individual performance and 
contributions are evaluated on competencies such as change management. 
Leaders, managers, and employees who demonstrate these competencies are 
rewarded for their success in contributing to the achievement of the 
transformation process.
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    \22\ GAO, Results-Oriented Cultures: Creating a Clear Linkage 
Between Individual Performance and Organizational Success, GAO-03-488 
(Washington, DC: Mar. 14, 2003).
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    There are significant opportunities to use the performance 
management system to explicitly link senior executive expectations for 
performance to results-oriented goals. There is a need to hold senior 
executives accountable for demonstrating competencies in leading and 
facilitating change and fostering collaboration both within and across 
organizational boundaries to achieve results. Setting and meeting 
expectations such as these will be critical to achieving needed 
transformation changes. Recently, Congress established a new 
performance-based pay system for members of the Senior Executive 
Service (SES) that is designed to provide a clear and direct link 
between SES performance and pay. An agency can raise the pay cap for 
its senior executives if the agency's performance management system 
makes meaningful distinctions based on relative performance.\23\ This 
visible step in linking pay to the achievement of measurable 
performance goals within a context of a credible human capital system 
that includes adequate safeguards is helpful in constructing a results-
oriented culture.
---------------------------------------------------------------------------
    \23\ GAO, Human Capital: Senior Executive Performance Management 
Can Be Significantly Strengthened to Achieve Results, GAO-04-614 
(Washington, DC: May 26, 2004).
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    In my March 2004 testimony on DOD's financial management and 
related business management transformation efforts,\24\ I stated that 
as DOD develops regulations to implement its new human capital 
management system, the Department needs to do the following:
---------------------------------------------------------------------------
    \24\ GAO-04-551T.

         Ensure the active involvement of the Office of 
        Personnel Management in the development process, given the 
        significant implications that changes in DOD regulations may 
        have on government-wide human capital policies.\25\ In this 
        regard, the Office of Personnel Management has assigned a 
        senior representative to support and advise DOD on the 
        development of jointly prescribed NSPS regulations and the 
        implementation of NSPS.
---------------------------------------------------------------------------
    \25\ GAO-03-717T.
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         Ensure the involvement of civilian employees and 
        unions in the design and development of a new personnel system. 
        The law calls for DOD to involve employees, especially in the 
        design of its new performance management system. Involving 
        employees in planning helps to develop agency goals and 
        objectives that incorporate insights about operations from a 
        front-line perspective. It can also serve to increase 
        employees' understanding and acceptance of organizational goals 
        and improve motivation and morale. In this regard, DOD has 
        launched a new Web site to educate its employees about the new 
        National Security Personnel System. In addition, DOD leadership 
        has indicated that it has sought input from civilian employees 
        through town hall meetings, focus groups, and discussions with 
        union leaders.
         Use a phased approach to implement the system, 
        recognizing that different parts of the organization will have 
        different levels of readiness and different capabilities to 
        implement new authorities. A phased approach allows for 
        learning so that appropriate adjustments and midcourse 
        corrections can be made before the regulations are fully 
        implemented department-wide. In this regard, DOD had initially 
        indicated that it planned to implement its new human capital 
        system for 300,000 civilian employees by October 1, 2004. DOD 
        has since indicated that it has adjusted its timelines to 
        reflect a more cautious, deliberative approach involving more 
        stakeholders. DOD has now indicated that it plans to phase in 
        its new human capital system beginning in July 2005.

    We are currently evaluating DOD's NSPS design process and look 
forward to sharing our findings with Congress upon completion of our 
review.
Business Management Modernization Program
    While BMMP \26\ is vital to the Department's efforts to transform 
its business operations, DOD has not effectively addressed many of the 
impediments to successful reform that I mentioned earlier, including 
(1) a lack of sustained, effective, and focused leadership, (2) a lack 
of results-oriented goals and performance measures, and (3) 
longstanding cultural resistance and parochialism. As a result, the 
program has yielded very little, if any, tangible improvements in DOD's 
business operations. We have made numerous recommendations to DOD that 
center on the need to incorporate the key elements to successful 
reform, which I discussed previously, into the program. In May 2004 we 
reported \27\ that no significant changes had been made to the 
architecture since the initial version was released. Further, we 
reported that DOD had not yet adopted key architecture management best 
practices, such as assigning accountability and responsibility for 
directing, overseeing, and approving the architecture and explicitly 
defining performance metrics to evaluate the architecture's quality, 
content, and utility. For these and other reasons, DOD's verification 
and validation contractor concluded that this latest version of the 
architecture retained most of the critical problems of the initial 
version, such as how the architecture should be used by the military 
services and other DOD components in making acquisition and portfolio 
investment decisions. I will now expand on the problems facing BMMP.
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    \26\ Originally named the Financial Management Modernization 
Program, BMMP was chartered in July 2001 to oversee the development of 
the financial management enterprise architecture. Such an architecture 
was required by 10 U.S.C. Sec. 185(b)(4) and by section 1004 of the Bob 
Stump National Defense Authorization Act for Fiscal Year 2003. Pub. L. 
No. 107-314, Sec. 116, Stat 2458, 2629 (Dec. 2, 2002). The Ronald W. 
Reagan National Defense Authorization Act for Fiscal Year 2005 now 
requires DOD (through the Defense Business Systems Management 
Committee) to develop a business enterprise architecture and a 
transition plan by September 2005, covering all defense business 
systems. See 10 U.S.C. Sec. 2222(c).
    \27\ GAO-04-731R.
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    The purpose of BMMP is to provide world-class mission support to 
the warfighter through transformation of DOD's business processes and 
systems. A key element of BMMP is the development and implementation of 
a well-defined BEA. Properly developed and implemented, a BEA can 
provide assurance that the Department invests in integrated 
enterprisewide business solutions and, along with effective project 
management and resource controls, it can be instrumental in developing 
corporate-wide solutions and moving resources away from nonintegrated 
business system development efforts. As we reported in July 2003,\28\ 
DOD had developed an initial version of BEA and had expended tremendous 
effort and resources in doing so. However, we also reported that 
substantial work remains before the architecture would be sufficiently 
defined to have a tangible impact on improving DOD's overall business 
operations. In May 2004, we reported \29\ that after about 3 years of 
effort and over $203 million in reported obligations for BMMP 
operations, BEA's content and DOD's approach to investing billions of 
dollars annually in existing and new systems had not changed 
significantly. Under a provision in the recently enacted Ronald W. 
Reagan National Defense Authorization Act for Fiscal Year 2005,\30\ DOD 
must develop an enterprise architecture to cover all defense business 
systems and related business functions and activities that is 
sufficiently defined to effectively guide, constrain, and permit 
implementation of a corporate-wide solution and is consistent with the 
policies and procedures established by the Office of Management and 
Budget. Further, the act requires the development of a transition plan 
that includes not only an acquisition strategy for new systems, but 
also a listing of the termination dates of current legacy systems that 
will not be part of the corporate-wide solution, as well as a listing 
of legacy systems that will be modified to become part of the 
corporate-wide solution for addressing DOD's business management 
deficiencies. Transforming DOD's business operations and making them 
more efficient through the elimination of nonintegrated and 
noncompliant legacy systems would free up resources that could be used 
to support the Department's core mission, enhance readiness, and 
improve the quality of life for our troops and their families.
---------------------------------------------------------------------------
    \28\ GAO, Business Systems Modernization: Summary of GAO's 
Assessment of the Department of Defense's Initial Business Enterprise 
Architecture, GAO-03-877R (Washington, DC: July 7, 2003).
    \29\ GAO-04-731R.
    \30\ Codified at 10 U.S.C. Sec. 2222 (c)-(e).
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    I cannot overemphasize the degree of difficulty DOD faces in 
developing and implementing a well-defined architecture to provide the 
foundation that will guide its overall business transformation. The 
Department's business transformation depends on its ability to develop 
and implement business systems that provide corporate solutions. 
Successful implementation of corporate solutions through adherence to a 
well-defined enterprise architecture and effective project management 
and fund control would go a long way toward precluding the continued 
proliferation of duplicative, stovepiped systems and reduce spending on 
multiple systems that are supposed to perform the same function. 
Without these things, we have continued to see \31\ that DOD is still 
developing systems that are not designed to solve corporate-wide 
problems.
---------------------------------------------------------------------------
    \31\ GAO-04-615.
---------------------------------------------------------------------------
    For example, the Defense Logistics Agency's (DLA) Business Systems 
Modernization (BSM) and the Army's Logistics Modernization Program 
(LMP), both of which were initiated prior to commencement of the BEA 
effort, were not directed towards a corporate solution to the 
Department's longstanding weaknesses in inventory and logistics 
management, such as the lack of total asset visibility. Rather, both 
projects focused on their respective entity's inventory and logistics 
management operations. As a result, neither project will provide asset 
visibility beyond the stovepiped operation for which they were 
designed. For example, BSM is only designed to provide visibility over 
the items within the DLA environment-- something DLA has stated already 
exists within its current system environment. As a result, DOD 
continues to lack the capability to identify the exact location of 
items, such as defective chemical and biological protective suits, that 
were distributed to end-users, such as the military services, or sold 
to the public. The Department would have to resort to inefficient and 
ineffective data calls, as it has done in the past, to identify and 
withdraw defective items from use.\32\
---------------------------------------------------------------------------
    \32\ GAO, Chemical and Biological Defense: Improved Risk Assessment 
and Inventory Management Are Needed, GAO-01-667 (Washington, DC: Sept. 
28, 2001).
---------------------------------------------------------------------------
    Another major impediment to the successful transformation of DOD's 
business systems is funds control. DOD invests billions of dollars 
annually to operate, maintain, and modernize its business systems. For 
fiscal year 2004, the Department requested approximately $28 billion in 
IT funding to support a wide range of military operations as well as 
DOD business systems operations, of which DOD reported that 
approximately $18.8 billion \33\--$5.8 billion for business systems and 
$13 billion for business systems infrastructure--relates to the 
operation, maintenance, and modernization of the Department's reported 
thousands of business systems. The $18.8 billion is spread across the 
military services and defense agencies, with each receiving and 
controlling its own funding for IT investments. Although the recently 
enacted Ronald W. Reagan National Defense Authorization Act for Fiscal 
Year 2005 more clearly defines the roles and responsibilities of 
business system investment approval authorities, control over the 
budgeting for and execution of funding for system investment activities 
remains at the component level. Under a provision in the act,\34\ 
effective October 1, 2005, DOD must identify each defense system for 
which funding is proposed in its budget, including the identification 
of all funds, by appropriation, for current services (to operate and 
maintain the system) and modernization. Further, DOD may not obligate 
funds for a defense business system modernization that will have a 
total cost in excess of $1 million unless specific conditions called 
for in the act are met.\35\ The Defense Business Systems Management 
Committee, also required by the act to be established, must then 
approve the designated approval authorities' \36\ certification before 
funds can be obligated. Further, obligation of funds for modernization 
programs without certification and approval by the Defense Business 
Systems Management Committee is deemed a violation of the Anti-
Deficiency Act.\37\ Although proper implementation of this legislation 
should strengthen oversight of DOD's systems modernization efforts, it 
is questionable whether DOD has developed or improved its processes and 
procedures to identify and control system investments occurring at the 
component level. Unless DOD establishes effective processes and 
controls to identify and control system investments occurring within 
DOD components and overcome parochial interests when corporate-wide 
solutions are more appropriate, it will lack the ability to ensure 
compliance with the act.
---------------------------------------------------------------------------
    \33\ The remaining $9 billion is for national security systems. 
These systems are intelligence systems, cryptologic activities related 
to national security, military command and control systems, and 
equipment that is an integral part of a weapon or weapons system or is 
critical to the direct fulfillment of military or intelligence 
missions.
    \34\ Codified at 10 U.S.C. Sec. 2222 (a).
    \35\ A key condition identified in the act includes certification 
by designated approval authorities that the defense business system 
modernization is (1) in compliance with the enterprise architecture, 
(2) necessary to achieve critical national security capability or 
address a critical requirement in an area such as safety or security or 
(3) necessary to prevent a significant adverse effect on a project that 
is needed to achieve an essential capability, taking into consideration 
the alternative solutions for preventing such an adverse effect.
    \36\ Approval authorities, including the Under Secretary of Defense 
for Acquisition, Technology, and Logistics; the Under Secretary of 
Defense (Comptroller); the Assistant Secretary of Defense for Networks 
and Information Integration and the Chief Information Officer of the 
Department of Defense, and the Deputy Secretary of Defense or Under 
Secretary of Defense, as designated by the Secretary of Defense, are 
responsible for the review, approval, and oversight of business systems 
and must establish investment review processes for systems under their 
cognizance.
    \37\ 31 U.S.C. Sec. 1341(a)(1)(A); see 10 U.S.C Sec. 2222(b).
---------------------------------------------------------------------------
    We fully recognize that developing and implementing an enterprise 
architecture for an organization as large and complex as DOD is a 
formidable challenge. Nevertheless, a well-defined architecture is 
essential to enabling some of the elements for successful reform that I 
discussed earlier. Accordingly, we remain supportive of the need for 
BMMP, but are deeply concerned about the program's lack of meaningful 
progress and inability to address management challenges. Accordingly, 
we plan to continue working constructively with the Department to 
strengthen the program and will report to this subcommittee on DOD's 
progress and challenges in the spring of 2005.
Financial Improvement Initiative
    While DOD's former Comptroller started the financial improvement 
initiative with the goal of obtaining an unqualified audit opinion for 
fiscal year 2007 on its department-wide financial statements, we found 
that the initiative was simply a goal that lacked a clearly defined, 
well-documented, and realistic plan to make the stated goal a reality.
    In September 2004 we reported \38\ that DOD's financial improvement 
initiative lacked several of the key elements critical to success, 
including: (1) a comprehensive, integrated plan; (2) results-oriented 
goals and performance measures; and (3) effective oversight and 
monitoring. Specifically, we found that DOD had not established a 
framework to integrate the improvement efforts planned by DOD 
components with broad-based DOD initiatives such as human capital and 
BMMP. Rather, DOD intended to rely upon the collective efforts of DOD 
components, as shown in their discrete plans, to address its financial 
management deficiencies while at the same time continuing its broad-
based initiatives. However, the component plans we reviewed did not 
consistently identify whether a proposed corrective action included a 
manual work-around or business system enhancement or replacement. 
Further, the component plans lacked sufficient information regarding 
human capital needs, such as the staffing level and skills required to 
implement and sustain the plans. In addition, as we have previously 
reported,\39\ the Department currently lacks a mechanism to effectively 
identify, monitor, and oversee business system investments, including 
enhancements, occurring within the Department. Because of this lack of 
visibility over how DOD components plan to advance their financial 
management functionality, the DOD Comptroller and BMMP may not have 
sufficient information to assess the feasibility of a work-around or to 
review and approve all modifications to existing legacy business 
systems to ensure that they: (1) are sound investments, (2) optimize 
mission performance and accountability, and (3) are consistent with 
applicable requirements and key architectural elements in DOD's 
business enterprise architecture.
---------------------------------------------------------------------------
    \38\ GAO-04-910R.
    \39\ GAO-04-615.
---------------------------------------------------------------------------
    In addition, our review of key individual component plans revealed 
that the plans varied in levels of detail, completeness, and scope, 
such that it will be difficult for DOD Comptroller staff to use the 
departmental database of component plans it was developing to oversee 
and monitor component efforts. We found that the component plans did 
not consistently identify how staff (human capital), processes, or 
business systems would be changed to implement corrective actions. Such 
changes are key elements in assessing the adequacy of a component's 
plan and in monitoring progress and sustainability.
    Further, DOD lacked effective oversight and accountability 
mechanisms to ensure that the plans are implemented and corrective 
actions are sustainable. The database the Department is currently using 
was not integrated electronically with subordinate component plans and 
the milestone dates identified in the component plans were generally 
based on assertion dates prescribed by the DOD Comptroller and not on 
actual estimates of effort required. Furthermore, task dependencies 
were not clearly identified, including critical corrective tasks that 
would need to be completed in order for the fiscal year 2007 audit 
opinion to be achieved.
    On the positive side, DOD had developed business rules,\40\ which 
if implemented as planned, should clearly establish a process for 
ensuring that corrective actions, as described in the component plans, 
are implemented and validated in order to minimize the Department's 
risk of unsupported claims by DOD components that reported financial 
information is auditable. Further, the business rules clearly recognize 
that management, not the auditor, is responsible for documenting 
business processes, systems, and internal control for collecting and 
maintaining transaction data. In addition, DOD's involvement of its 
components in developing and implementing solutions to longstanding 
deficiencies in their business operations under this initiative is a 
critical and positive step toward obtaining the commitment and buy-in 
that has not been readily apparent in BMMP. Further, the recently 
enacted Ronald W. Reagan National Defense Authorization Act for Fiscal 
Year 2005 \41\ has placed a limitation on continued preparation or 
implementation of DOD's financial improvement initiative pending a 
report to congressional defense committees containing the following: 
(1) a determination that BEA and the transition plan have been 
developed, as required by section 332 of the act, (2) an explanation of 
the manner in which fiscal year 2005 operation and maintenance funds 
will be used by DOD components to prepare or implement the midrange 
financial improvement plan, and (3) an estimate of future year costs 
for each DOD component to implement the plan. DOD Comptroller staff 
acknowledged that their goal was ambitious, but believed that they were 
in the process of laying a framework, which they believe would address 
our issues, to facilitate movement towards sustainable financial 
management improvements and eventually obtain an unqualified audit 
opinion.
---------------------------------------------------------------------------
    \40\ Business rules are statements of fact, policy, law, 
regulation, or a combination of these that drive business activities.
    \41\ Pub. L. No. 108-375, Sec. 352.
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Interim Initiatives
    In contrast to its broad-based initiatives, DOD has incorporated 
many of the key elements for successful reform in its interim 
initiatives. As the following examples demonstrate, leadership, real 
incentives, accountability, and oversight and monitoring were clearly 
key elements in DOD's efforts to improve its operations. For example, 
the former DOD Comptroller developed a Financial Management Balanced 
Scorecard that is intended to align the financial community's strategy, 
goals, objectives, and related performance measures with the 
department-wide risk management framework established as part of DOD's 
Quadrennial Defense Review, and with the President's Management Agenda. 
To effectively implement the balanced scorecard, the DOD Comptroller 
has cascaded the performance measures down to the military services and 
defense agency financial communities, along with certain specific 
reporting requirements. At the Department-wide level, certain financial 
metrics are selected, consolidated, and reported to the top levels of 
DOD management for evaluation and comparison. These ``dashboard'' 
metrics are intended to provide key decisionmakers, including Congress, 
with critical performance information at a glance, in a consistent and 
easily understandable format.
    DFAS has been reporting the metrics cited below for several years, 
which under the leadership of DFAS's Director and DOD's Comptroller, 
have reported improvements including the following.

         From April 2001 to September 2004, DOD reduced its 
        commercial pay backlogs (payment delinquencies) by 72 percent.
         From March 2001 to September 2004, DOD reduced its 
        payment recording errors by 77 percent.
         From September 2001 to September 2004, DOD reduced its 
        delinquency rate for individually billed travel cards from 9.4 
        percent to 4.3 percent.

    Using DFAS's metrics, management can quickly see when and where 
problems are arising and can focus additional attention on those areas. 
While these metrics show significant improvements from 2001 to today, 
our report last year on DOD's metrics program \42\ included a caution 
that, without modern integrated systems and the streamlined processes 
they engender, reported progress may not be sustainable if workload is 
increased.
---------------------------------------------------------------------------
    \42\ GAO, Financial Management: DOD's Metrics Program Provides 
Focus for Improving Performance, GAO-03-457, (Washington, DC: Mar. 28, 
2003).
---------------------------------------------------------------------------
    DOD and the military services have also acted to improve their 
oversight and monitoring of the Department's purchase card program and 
have taken actions, that when fully implemented, should effectively 
address all of our 109 recommendations. For example, they issued policy 
guidance on monitoring charge card activity and disciplinary actions 
that will be taken against civilian or military employees who engage in 
improper, fraudulent, abusive, or negligent use of a government charge 
card. In addition, they substantially reduced the number of purchase 
cards issued. According to the General Services Administration records, 
DOD had reduced the total number of purchase cards from about 239,000 
in March 2001 to about 131,875 in June 2004. These reductions have the 
potential to significantly improve the management of this program.
    Further, the DOD Inspector General (IG) and the Navy have 
prototyped and are now expanding a data-mining capability to screen for 
and identify high-risk transactions (such as potentially fraudulent, 
improper, and abusive use of purchase cards) for subsequent 
investigation. On April 28, 2004, the DODIG testified \43\ on ways the 
Department could save money through the prudent use of government 
purchase cards. The testimony highlighted improvements made in the 
management of the Department's purchase card program and areas for 
which additional improvements are needed. Specifically, the testimony 
identified actions the DODIG had taken to partner with the DOD purchase 
card program management offices so that DOD could more proactively 
identify and prevent potential fraud, waste, and mismanagement. 
However, more still needs to be done because the testimony also 
discussed more than $12 million in fraudulent, wasteful, or abusive 
purchases identified by the DODIG.
---------------------------------------------------------------------------
    \43\ Department of Defense, Office of the Inspector General, 
Statement of David K. Steensma, Assistant Inspector General, Contract 
Management, COL William J. Kelley, Program Director, Data Mining 
Division, Office of the Inspector General of the Department of Defense 
to the Senate Committee Governmental Affairs on How to Save the 
Taxpayers Money Through Prudent Use of the Purchase Card, D-2004-076-T 
(Arlington, VA: Apr. 28, 2004).
---------------------------------------------------------------------------
    In addition to the oversight and monitoring performed by DOD over 
these business areas, we believe that consistent congressional 
oversight played a major role in bringing about these improvements in 
DOD's purchase and travel card programs. From 2001 through 2004, 10 
separate congressional hearings were held on DOD's purchase and travel 
card programs. Numerous legislative initiatives aimed at improving 
DOD's management and oversight of these programs also had a positive 
impact. Most recently, the fiscal year 2005 Defense Appropriations Act 
\44\ reduced DOD's appropriation by $100 million to ``limit excessive 
growth'' in DOD's travel expenses.
---------------------------------------------------------------------------
    \44\ Department of Defense Appropriations Act, 2005, Pub. L. No. 
108-287, Sec. 8141, 118, Stat. 951, 1003 (Aug. 5, 2004).
---------------------------------------------------------------------------
    Another important initiative underway at the Department pertains to 
the quarterly financial statement review sessions held by the DOD 
Comptroller, which have led to the discovery and correction of numerous 
recording and reporting errors. Under the leadership of DOD's former 
Comptroller, and continuing under its new leadership, DOD is working to 
instill discipline into its financial reporting processes to improve 
the reliability of the Department's financial data. Specifically, the 
DOD Comptroller requires DOD's major components to prepare quarterly 
financial statements along with extensive footnotes that explain any 
improper balances or significant variances from previous year quarterly 
statements. All of the statements and footnotes are analyzed by 
Comptroller office staff and reviewed by the Comptroller. In addition, 
the midyear and end-of-year financial statements must be briefed to the 
DOD Comptroller by the military service Assistant Secretary for 
Financial Management or the head of the defense agency. Under DOD's 
former Comptroller, GAO and the DODIG were invited to observe several 
of these briefings and noted that the practice of preparing and 
explaining interim financial statements has improved the reliability of 
reported information through more timely discovery and correction of 
numerous recording and reporting errors. Although these meetings are 
continuing under the current Comptroller, GAO and the DODIG have not 
been invited to attend.
Suggestions for Legislative Consideration
    I would like to reiterate two suggestions for legislative 
consideration that I discussed in my testimony last March, which I 
believe could further improve the likelihood of successful business 
transformation at DOD. Most of the key elements necessary for 
successful transformation could be achieved under the current 
legislative framework; however, addressing sustained and focused 
leadership for DOD business transformation and funding control will 
require additional legislation. These suggestions include the creation 
of a chief management official and the appropriation of business system 
investment funding to the approval authorities responsible and 
accountable for business system investments under provisions enacted by 
the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 
2005.\45\
---------------------------------------------------------------------------
    \45\ Pub. L. No. 108-375, Sec. 332.
---------------------------------------------------------------------------
Chief Operating Officer/Chief Management Official
    While the Secretary and other key DOD leaders have demonstrated 
their commitment to the current business transformation efforts, in our 
view, the complexity and long-term nature of these efforts requires the 
development of an executive position capable of providing strong and 
sustained executive leadership--over a number of years and various 
administrations. The day-to-day demands placed on the Secretary, the 
Deputy Secretary, and others make it difficult for these leaders to 
maintain the oversight, focus, and momentum needed to resolve the 
weaknesses in DOD's overall business operations. This is particularly 
evident given the demands that the Iraq and Afghanistan postwar 
reconstruction activities and the continuing war on terrorism have 
placed on current leaders. Likewise, the breadth and complexity of the 
problems preclude the under secretaries, such as the DOD Comptroller, 
from asserting the necessary authority over selected players and 
business areas while continuing to fulfill their other 
responsibilities.
    While sound strategic planning is the foundation upon which to 
build, sustained and focused leadership is needed for reform to 
succeed. One way to ensure sustained leadership over DOD's business 
transformation efforts would be to create a full-time executive-level 
II position for a chief operating officer or chief management official 
(COO/CMO), who would serve as the Principal Under Secretary of Defense 
for Management.\46\ This position would elevate, integrate, and 
institutionalize the attention essential for addressing key stewardship 
responsibilities, such as strategic planning, human capital management, 
performance and financial management, acquisition and contract 
management, and business systems modernization, while facilitating the 
overall business transformation operations within DOD.
---------------------------------------------------------------------------
    \46\ On September 9, 2002, GAO convened a roundtable of government 
leaders and management experts to discuss the chief operating officer 
concept. For more information see GAO, Highlights of a GAO Roundtable: 
The Chief Operating Officer Concept: A Potential Strategy to Address 
Federal Governance Challenges, GAO-03-192SP (Washington, DC: Oct. 4, 
2002) and The Chief Operating Officer Concept and its Potential Use as 
a Strategy to Improve Management at the Department of Homeland 
Security, GAO-04-876R (Washington, DC: June 28, 2004).
---------------------------------------------------------------------------
    The COO/CMO concept is consistent with the commonly agreed-upon 
governance principle that there needs to be a single point within 
agencies with the perspective and responsibility--as well as 
authority--to ensure the successful implementation of functional 
management and transformation efforts. Governments around the world, 
such as the United Kingdom and Ireland, have established term appointed 
positions, similar to the COO/CMO concept we propose, that are 
responsible for advancing and continuously improving agency operations.
    The DOD COO/CMO position could be filled by an individual, 
appointed by the President and confirmed by the Senate, for a set term 
of 7 years with the potential for reappointment. Articulating the roles 
and responsibilities of the position in statute helps to create 
unambiguous expectations and underscores Congress' desire to follow a 
professional, nonpartisan approach to the position. In that regard, 
such an individual should have a proven track record as a business 
process change agent in large, complex, and diverse organizations--
experience necessary to spearhead business process transformation 
across the department and serve as an integrator for the needed 
business transformation efforts. In addition, this individual would 
enter into an annual performance agreement with the Secretary that sets 
forth measurable individual goals linked to overall organizational 
goals in connection with the department's business transformation 
efforts. Measurable progress towards achieving agreed-upon goals would 
be a basis for determining the level of compensation earned, including 
any related bonus. In addition, this individual's achievements and 
compensation would be reported to Congress each year.
Funding Control over System Investments
    DOD's current systems investment process in which system funding is 
controlled by DOD components has contributed to the evolution of an 
overly complex and error-prone information technology environment 
containing duplicative, nonintegrated, and stovepiped systems. We have 
made numerous recommendations to DOD intended to improve the management 
oversight and control of its business systems modernization 
investments. However, as previously mentioned, progress in achieving 
this control has been slow. Recent legislation,\47\ consistent with the 
suggestion I made in my prior testimony, established specific 
management oversight and accountability with the ``owners'' of the 
various functional areas or domains. The legislation defined the scope 
of the various business areas (e.g., acquisition, logistics, finance 
and accounting) and established functional approval authority and 
responsibility for management of the portfolio of business systems with 
the relevant Under Secretary of Defense for the Departmental Domains 
and the Assistant Secretary of Defense for Networks and Information 
Integration (information technology infrastructure). For example, the 
Under Secretary of Defense for Acquisition, Technology, and Logistics 
is now responsible and accountable for any defense business system 
intended to support acquisition activities, logistics activities, or 
installations and environment activities for DOD.
---------------------------------------------------------------------------
    \47\ Pub. L. No. 108-375, Sec. 332.
---------------------------------------------------------------------------
    The legislation also requires that the responsible approval 
authorities establish a hierarchy of investment review boards with DOD-
wide representation, including the military services and Defense 
agencies. The boards are responsible for reviewing and approving 
investments to develop, operate, maintain, and modernize business 
systems for their business area portfolio, including ensuring that 
investments are consistent with DOD's BEA.
    Although the new legislation clearly assigns responsibility and 
accountability for system modernization to designated approval 
authorities, control over system investment funding remains at the DOD 
component level. As a result, DOD continues to have little or no 
assurance that its business systems modernization investment money is 
being spent in an economical, efficient, and effective manner. Given 
that DOD spends billions on business systems and related infrastructure 
each year, we believe it is critical that funds for DOD business 
systems be appropriated to those responsible and accountable for 
business system improvements. However, implementation may require 
review of the various statutory authorities for the military services 
and other DOD components. Control over the funds would improve the 
capacity of DOD's designated approval authorities to fulfill their 
responsibilities and transparency over DOD investments, and minimize 
the parochial approach to systems development that exists today. In 
addition, to improve coordination and integration activities, we 
suggest that all approval authorities coordinate their business system 
modernization efforts with the chief management official who would 
chair the Defense Business Systems Management Committee. Cognizant 
business area approval authorities would also be required to report to 
Congress through the chief management official and the Secretary of 
Defense on applicable business systems that are not compliant with 
review requirements and to include a summary justification for 
noncompliance.
                               conclusion
    The United States is facing large and growing long-term fiscal 
pressures created by the impending retirement of the baby boom 
generation, rising health care costs, increased homeland security and 
defense commitments, and a reduction in Federal revenues. These 
pressures not only sharpen the need to look at competing claims on 
existing Federal budgetary resources and emerging new priorities, they 
underscore the need for transparent and reliable information upon which 
to base decisions at all levels within the Federal Government. This 
includes timely, useful, and reliable financial and management 
information that demonstrates what results are being achieved and what 
risks are being incurred by various government programs, functions, and 
activities. As I have discussed, DOD lacks the efficient and effective 
financial management and related business operations, including 
processes and systems, to support the warfighter, DOD management, and 
Congress. With a large and growing fiscal imbalance facing our Nation, 
achieving tens of billions of dollars of annual savings through 
successful DOD transformation is increasingly important. DOD's senior 
leaders have demonstrated a commitment to transforming the department 
and improving its business operations. Recent legislation pertaining to 
defense business systems, enterprise architecture, accountability, and 
modernization, if properly implemented, should improve oversight and 
control over DOD's significant system investment activities. However, 
DOD's transformation efforts and legislation to date have not 
adequately addressed key underlying causes of past reform failures. 
Successful transformation will require an effective transformation 
plan; adequate human capital; effective processes and transformation 
tools, such as a BEA; and results-oriented performance measures that 
link institutional, unit, and individual personnel goals and 
expectations. Reforming DOD's business operations is a monumental 
challenge and many well-intentioned efforts have failed over the last 
several decades. Lessons learned from these previous reform attempts 
include the need for sustained and focused leadership at the highest 
level, with appropriate authority over all of DOD's business 
operations, as well as centralized control of all business 
transformation-related funding with the designated approval authorities 
assigned responsibility for transformation activities within their 
specific business process areas. This leadership could be provided 
through the establishment of a Chief Operating Officer/Chief Management 
Official. Absent this leadership, authority, and control of funding, 
the current transformation efforts are likely to fail.
    I commend the subcommittee for holding this hearing and I encourage 
you to use this vehicle, on an annual basis, as a catalyst for long 
overdue business transformation at DOD.
    Mr. Chairman, this concludes my statement. I would be pleased to 
answer any questions you or other members of the Subcommittee may have 
at this time.
                      contacts and acknowledgments
    For further information about this testimony, please contact 
Gregory D. Kutz at (202) 512-9095 or [email protected], Randolph C. Hite at 
(202) 512-3439 or [email protected], Sharon Pickup at (202) 512-9619 or 
[email protected], or Evelyn Logue at (202) 512-3881 or [email protected]. 
Other key contributors to this testimony include Catherine Baltzell, 
Sandra Bell, Molly Boyle, Peter Del Toro, Francine DelVecchio, Bill 
Doherty, Abe Dymond, Cynthia Jackson, John Kelly, Neelaxi Lakhmani, 
Elizabeth Mead, Chris Mihm, Mai Nguyen, John Ryan, Lisa Shames, Darby 
Smith, and Marilyn Wasleski.
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    Senator Ensign. Thank you.
    Secretary Jonas.

  STATEMENT OF HON. TINA W. JONAS, UNDER SECRETARY OF DEFENSE 
                         (COMPTROLLER)

    Secretary Jonas. Mr. Chairman and members of the 
subcommittee, I appreciate this opportunity to discuss our 
progress concerning financial management and the transformation 
of our business systems and processes in the Department of 
Defense. Before doing that, I want to thank the committee for 
your strong support of the men and women of our Armed Forces 
and their families.
    Turning now to business transformation, I am glad to be 
back in the Department of Defense and to help lead this 
critically important work. In the few months that I have had to 
review our transformation efforts, I have found that the 
Department is making progress. However, we have difficult 
challenges to overcome. We recognize that we must change how we 
do business in the Department of Defense in order to meet the 
changing requirements of our Armed Forces, and we are committed 
to providing the best possible support to our men and women in 
uniform through improved business processes and financial 
management.
    Mr. Chairman, I have a written statement for the record 
that includes additional details of our progress, and I would 
just like to summarize a few points of the effort. There are 
two integrated efforts the Department has focused on. The first 
is the financial improvement initiative, which focuses on 
efforts to identify and correct reporting deficiencies, as well 
as lay the framework and foundation for systems improvements.
    The second piece, as the Comptroller General has just 
noted, is the business management modernization program, which 
focuses on modernizing business systems. I think we have made 
some progress in both areas and that we have some measurable 
results.
    In 2001, as David mentioned, the Department had only three 
organizations that had a clean audit. The Department has made 
some progress. We expect six clean opinions this year, with 
possibly seven, and one qualified opinion. We have made some 
progress on our material weaknesses. We have eliminated 2 and 
we are working and focusing on the remaining 11.
    We certainly agree with the concerns of many that we should 
not attempt to obtain a clean opinion with heroic efforts. But 
we also believe that there are improvements that can be made in 
order to strengthen our internal controls, correct weaknesses, 
and again lay the groundwork for systems improvements.
    The financial improvement initiative has given us insight 
into the actions required to resolve our reporting deficiencies 
without wasting audit resources, and we are integrating the 
financial improvement plans with the business enterprise 
architecture.
    The BMMP, as I have said, the goal of the BMMP is to 
improve efficiency and effectiveness of our business operations 
and to provide the Department's management with accurate and 
timely information. We believe that achieving this goal will 
ultimately save millions, but more importantly it will allow us 
to channel limited resources to the warfighting mission of the 
Department.
    This is a large and complex undertaking, but we are 
energized by the potential benefits that the program will 
deliver. Just briefly, I would like to comment that we do 
believe that we have a good framework, a good road map. The 
Business Enterprise Architecture (BEA) does provide a road map 
for transformation. We are working on additional versions of 
that, but to date the architecture defines or depicts 90 core 
business processes, and we have incorporated 25,000 of 180,000 
business rules, which is very important.
    I think Senator Levin mentioned that we had not provided 
standard data elements, and that is what this does. So it is a 
substantial and important aspect of that.
    We have established a consolidated information technology 
repository, which includes our major information systems and 
allows us to do portfolio management, which gets at controlling 
spending on many of these systems. We expect to this year 
review 132 systems, which represents 80 percent of the 
development and modernization budget for information business 
systems. We have an ambitious goal for this year.
    We appreciate the provisions of the National Defense 
Authorization Act that will help us strengthen our governance. 
The Defense Business Systems Management Committee, which was 
part of the National Defense Authorization Act for Fiscal Year 
2005, we think will be very helpful and includes--it will be 
chaired by the Deputy Secretary of Defense and that should be 
very useful. Again, the Comptroller General mentioned the 
domain owners and their participation in certifying.
    So I would just like to thank you and emphasize our 
commitment to improve the way we do business. We hope that what 
we do will help transform our capabilities in the Department of 
Defense. Again, we just want to reiterate our grateful thanks 
for the committee's help and support.
    So, Mr. Chairman, I thank you and look forward to answering 
your questions.
    [The prepared statements of Ms. Jonas, Ms. Baldwin, Mr. 
Greco, Mr. Montelongo, and the Air Force Financial Management 
Strategic Plan follow:]
                Prepared Statement by Hon. Tina W. Jonas
    Mr. Chairman, members of the committee, I appreciate this 
opportunity to discuss our progress concerning financial management and 
the transformation of our business processes and systems in the 
Department of Defense (DOD).
    Before doing that I want to thank this committee for your continued 
strong support for the men and women of our Armed Forces and their 
families.
    Turning now to business transformation, I am glad to be back in the 
DOD and to help lead this critically important work. In the few months 
I have had to review our transformation efforts, I have found that the 
Department is making progress. However, we have difficult challenges to 
overcome. We recognize that we must change how we do business in the 
DOD in order to meet the changing requirements of our Armed Forces. We 
are committed to providing the best possible support to our men and 
women in uniform through improved business processes and financial 
management.
                   improving dod financial management
    The Department's efforts to improve financial management have 
focused on two integrated programs--the Financial Improvement 
Initiative (FII) and the Business Management Modernization Program 
(BMMP).
    The FII focuses on efforts to identify and correct reporting 
deficiencies as well as efforts to clean up data to lay the groundwork 
for systems improvements. The BMMP focuses on business process 
reengineering and business systems modernization.
    These initiatives are closely linked. Both initiatives are central 
to our ability to achieve an unqualified audit opinion, and both have 
yielded measurable results.
                            accomplishments
    In 2001, only three organizations in the Department received an 
unqualified or ``clean'' audit opinion. Since then, we have steadily 
added to those numbers, and in 2004 we expect to receive at least six 
clean opinions--possibly seven--and one qualified opinion. These six 
clean opinions are for: the Defense Finance and Accounting Service 
(DFAS), Defense Contract Audit Agency (DCAA), Military Retirement Trust 
Fund, Defense Commissary Agency, Defense Threat Reduction Agency, and 
Office of Inspector General. The Medicare Eligible Retiree Healthcare 
Fund received a qualified opinion.
    In addition, we are making progress on our material weaknesses. The 
Department has eliminated two of its material weaknesses (military 
retirement health care data and problem disbursements) and is focused 
on eliminating the remaining eleven. Of the weaknesses remaining, our 
analysis shows that some weaknesses are primarily process problems, not 
systems problems. In particular, we are optimistic about eliminating 
the Department's environmental liabilities weakness because we have 
made progress in identifying the sites to be restored and in the 
reliability of our estimating techniques.
    We agree with the concerns of many that we should not attempt to 
obtain a clean opinion through ``heroic'' efforts that do not correct 
underlying business systems problems and thus would not result in a 
sustainable clean opinion. However, we also believe that there are 
improvements that can and should be made in order to strengthen 
internal controls, correct weaknesses, and lay the groundwork for 
financial systems improvements.
    The FII has given us insight into the actions required to resolve 
our reporting deficiencies--without wasting audit resources--and we are 
integrating the financial improvement plans with the Business 
Enterprise Architecture (BEA). The improvement plans identify deficient 
processes, and we use these plans to ensure that the BEA addresses 
those deficiencies. The BEA in turn provides the business rules for the 
corrective actions outlined in the plans. We are developing a web-based 
tool to assist us in tracking corrective actions across the Department, 
and we will continue to make process improvements because often process 
improvements--not new systems--are what is needed to correct a problem.
                      dod business transformation
    A key driver of DOD business transformation has been the BMMP. The 
goal of BMMP is to improve the efficiency and effectiveness of DOD 
business operations and provide the Department's leaders with accurate 
and timely information.
    We believe that achieving this goal will ultimately save millions 
of dollars. But more importantly, it will allow us to channel limited 
resources to the warfighting mission of the Department. We are pursuing 
the improvement and alignment of three key functional business 
processes in the Department:

         Financial management
         Acquisition, materiel, and asset management
         Human resource management

    We are improving these three business processes by implementing 
greater standardization and streamlining our work. We are aligning 
these three processes by ensuring that the systems that support them, 
and the critical data that flows between them, adhere to Department-
wide business rules and standards. These business rules and standards 
are embedded in the BEA.
    This is a large and complex undertaking. Nonetheless, we are 
energized by the potential benefits that the program will deliver. BMMP 
has laid a strong foundation for transformation across the Department 
and has given us the knowledge to move ahead smartly.
                            accomplishments
    Since initiating its business transformation, the Department has 
had a number of accomplishments.
    We developed the Business Enterprise Architecture to serve as a 
roadmap for transformation. The architecture depicts over 90 core 
business processes, and includes approximately 25,000 rules and 
regulations that are necessary to get us to our future vision and 
desired end-state. These processes, rules, and regulations are required 
to control investments and to configure new systems to ensure 
interoperability and data integrity.
    We established a consolidated information technology repository to 
focus on the major information technology (IT) business systems. This 
will help us to control investments and prevent unnecessary IT 
spending. The repository contains 362 systems that represent 54 percent 
($2.8 billion) of the total budget for DOD business systems. The 
repository is a subset of a larger inventory of all DOD business 
systems.
    We initiated a specific process to control spending on the 
development and modernization of business systems and to ensure that 
funds are spent on systems that comply with the enterprise 
architecture. In fiscal year 2004, we reviewed 56 systems that 
represented approximately 34 percent ($0.6 billion) of the budget for 
that year. This was a good start, and in fiscal year 2005 we will go 
further by reviewing 132 systems representing 78 percent ($1.4 billion) 
of this year's development and modernization budget. To date we have 
withheld $220 million in fiscal year 2005 funding pending determination 
of compliance. For systems that we find to be noncompliant, we will not 
invest in them.
    We initiated a formal process for controlling spending on older, 
``legacy'' systems. This process, called ``portfolio management,'' 
helps us eliminate redundant systems that do not fit with our future 
architecture. We estimate portfolio management will facilitate the 
phasing out of hundreds of systems within the next several years. For 
example:

         Navy Converged Enterprise Resource Planning (ERP) 
        System. This program--the Navy's enterprise solution for 
        automated information in its intermediate-level maintenance and 
        wholesale and plant supply activities--will facilitate the 
        phase-out of 58 systems.
         The Defense Enterprise Accounting and Management 
        System (DEAMS). This new Air Force enterprise accounting system 
        is being implemented at the U.S. Transportation Command 
        (TRANSCOM) and will facilitate the phase-out of 12 systems.
         General Fund Enterprise Business System (GFEBS). This 
        new Army system for managing general funds will facilitate the 
        phase-out of 28 systems.
         Defense Integrated Military Human Resource System 
        (DIMHRS). Our new human resources enterprise solution for 
        military personnel management will facilitate the phase-out of 
        about 100 systems.

    We developed and published a Standard Financial Information 
Structure to standardize budget and accounting codes so that all DOD 
entities use the same descriptors to classify financial activity. 
Standardization is extremely important and will allow us to 
consistently trace financial activity. Today we rely on coding that 
results in data errors and inhibits our ability to maintain a clean 
audit trail. Standardization will correct this problem.
    We adopted the U.S. Standard General Ledger as our approved DOD 
ledger system. Today, all new accounting and business systems in DOD 
must comply with this standard. Similar to the Standard Financial 
Information Structure, adoption of this common general ledger will 
permit standard data entry and improve our ability to achieve a clean 
audit opinion.
                    business systems transition plan
    Building on these accomplishments, the Department is developing a 
transition plan that includes key milestones to mark the path from 
where we are to where we are going. This plan is critical to our 
ability to understand and measure the steps and milestones required for 
transformation. There is much work to be done as we continue to develop 
the plan and make it more comprehensive and specific. The real work of 
transition planning is taking place in the domains and military 
Services. BMMP is leading the effort and is focusing on a common set of 
transformation objectives. When complete, the plan will include an 
agreed-upon list of the most critical new systems, the existing systems 
they will replace, and a reasonable timeline for such replacements.
    There are several steps involved in the development of this plan, 
and we have a lot of work to do. But let me tell you where we are 
today.
    First, we are completing work on a definitive list of existing 
``legacy systems'' and projected new systems. Second, we are working 
with the Services and the domains to develop a detailed strategy for 
modifying or replacing existing systems, as necessary, to ensure 
compliance with the architecture. Third, we are establishing a master 
schedule and milestones for each new major system development and 
modification.
    We expect to fulfill the authorization act requirements by 
September 2005 and expect our plan to contain cost estimates and system 
migration data for the systems in our inventory.
                          new bmmp governance
    We understand that in order to succeed, the Department's leadership 
must continue to be fully engaged and supportive of this effort. 
Therefore, we believe that our goals are consistent with the provisions 
of the National Defense Authorization Act for Fiscal Year 2005. The 
Defense Business Systems Management Committee (DBSMC), to be chaired by 
the Deputy Secretary of Defense, will help strengthen the program. The 
provisions that expand and strengthen the responsibilities of the 
Domain Owners by requiring them to certify that their system changes 
are compliant with the enterprise architecture are also consistent with 
sound management and are helpful to senior leadership. To ensure 
greater control and compliance, under the legislation, the Domains' 
investment review boards will review all business systems in their 
functional area.
    The National Defense Authorization Act also adds incentives and 
controls to enforce compliance with the BEA. Effective October 1, 2005, 
the Department may not obligate funds for any business system 
modernization with costs exceeding $1 million unless the modernization 
complies with the Department's enterprise architecture, and the Defense 
Business Systems Management Committee approves it.
                                closing
    In closing, I would like to emphasize our commitment to improve the 
way we do business in the DOD. Our success is essential to provide 
strong support to our military forces and to make the best use of 
taxpayer funds. As our military forces transform their capabilities to 
adapt to a changing security environment that requires speed, agility, 
and flexibility, so must we change our business processes to ensure 
that we can provide support to them in the most efficient and effective 
way.
    The Department is grateful for this committee's support. Mr. 
Chairman, I thank you for the opportunity to discuss our progress in 
financial management. I would be happy to answer your questions at this 
time.
                                 ______
                                 
            Prepared Statement by Hon. Valerie Lynn Baldwin
    Chairman Ensign, Senator Akaka, distinguished members of the 
subcommittee----
    Thank you very much for the opportunity to appear before you this 
afternoon to discuss financial management reform at the Defense 
Department that is specific to the Army. Before addressing this issue, 
on behalf of the Army and the troops fighting the global war on 
terrorism, I would like to thank you for your tremendous and unwavering 
support. By it, you do credit to Congress and to our fellow Americans. 
Thank you.
    The Army is undergoing a process to prepare for the future, which 
we have dubbed transformation. When most people hear this term, they 
think of the new modular brigades the Army is building, Stryker combat 
vehicles or the Future Combat System. But transformation is not limited 
to how the Army fights--it is applicable to how we manage our business, 
too.
    In conjunction with DOD's Business Management Modernization Program 
(BMMP), the Army is in the process of reforming its business and 
financial management functions. We are eliminating redundant and 
noncompatible systems. We are streamlining, re-engineering and 
standardizing business rules and procedures. We are evaluating how to 
manage our resources more efficiently and effectively. We are exploring 
ways to provide our senior leaders timely, accurate information that 
empowers them to make sound warfighting decisions.
    Clearly, financial management reform can be successful only if 
reform extends to other interrelated and interdependent business areas, 
including: (1) logistics, at both the wholesale and retail levels; (2) 
procurement; (3) healthcare; (4) personnel management and pay; and (5) 
asset management.
    The value of our business portfolios is huge and continues to grow 
in order to sustain an Army that is transforming and fighting a war. In 
fiscal year 2001, Army resource managers accounted for $113 billion in 
total direct appropriations and reimbursable orders. That figure grew 
to $123 billion in fiscal year 2002, $176 billion in fiscal year 2003 
and $224 billion in fiscal year 2004. This is a nearly 100-percent 
increase in the amount of appropriations and receivables managed in 
just 3 years.
    Despite this staggering growth, the Army improved its financial 
management performance, according to several key measures:

------------------------------------------------------------------------
                                            Fiscal year     Fiscal year
                 Measure                       2002            2004
------------------------------------------------------------------------
Unmatched disbursements over 120 days...  $116.2 million    $1.3 million
Negative unliquidated obligations over      $7.3 million            $0.0
 120 days...............................
Unsupported accounting adjustments......  $346.2 billion  $196.6 billion
Contract interest and penalty payments           $147.00          $91.00
 per $million paid......................
Canceled account liabilities funded with   $34.2 million    $5.8 million
 current funds..........................
Total Antideficiency Act Cases Closed...               7              14
Total Travel Card Delinquencies.........    $7.6 million    $2.9 million
------------------------------------------------------------------------

    Still, I agree that the Army has ``pervasive weaknesses in internal 
control, processes, and fundamentally flawed business systems,'' as 
stated by the General Accountability Office (GAO) (GAO-04-910R).
    The progress we have made is attributable to the manner in which we 
are executing our Chief Financial Officer (CFO) Strategic Plan. 
Likewise, we are developing a disciplined, portfolio-based governance 
process that will enable us to manage better information technology 
investments. Additionally, we are proceeding aggressively to purchase a 
commercial off-the-shelf (COTS) business system that will correct flaws 
in our business systems and associated processes. I believe that, if we 
continue to execute our plan in a disciplined and decisive manner, the 
Army will be well-positioned to achieve a clean audit opinion.
               the chief financial officer strategic plan
    Everyone agrees that current DOD financial management systems do 
not provide decisionmakers timely, reliable, and accurate data. The 
systems have well-documented, endemic control weaknesses that prevent 
us from issuing reliable financial statements and obtaining favorable 
audit opinions. The lack of integration with other business systems and 
processes, and the reliance on business practices and technology 
developed in the 1970s, impede production of correct, timely and 
reliable financial information. This is why the Department of Defense 
and the Army must implement integrated business systems, robust 
management controls and standardized business processes that focus on 
enterprise business management.
    The Army's Chief Financial Officer Strategic Plan, which 
synchronizes our financial improvement efforts through a single 
comprehensive management strategy, is the key to rectifying the 
situation I just described. The plan's focus is sustainable 
improvement, not end-of-year `heroic' and costly efforts designed to 
scrub the books for audit.
    Initiated in fiscal year 1998, the CFO Strategic Plan is updated on 
a quarterly basis. It was revised most recently in September 2004 to 
incorporate many of the recommendations included in the Government 
Accountability Office report, ``Financial Management: Further Actions 
Are Needed to Establish Framework to Guide Audit Opinion and Business 
Management Improvement Efforts at DOD'' (GAO-04-910R).
    The plan identifies the steps each organizational element in the 
Army must take to correct all known financial and non-financial 
processes and systems that prevent us from achieving clean financial 
statements. It assigns 1,183 actionable and specific tasks to 22 
functional Army business entities and DOD activities, such as the 
Defense Finance and Accounting Service (DFAS). Each task has a target 
start and completion date, and progress is tracked quarterly. Completed 
tasks remain marked as ``open'' until independently validated by the 
Army Audit Agency. As recommended by GAO, I have directed the staff to 
revise the plan to: (1) assign specific persons to particular tasks; 
and, (2) estimate the cost of meeting each requirement. These changes 
will be complete by the end of March 2005.
    As of September 30, 2004, the Army completed 249 of these 1,183 
tasks, all of which were validated by the Army Audit Agency. Among 
other accomplishments, the Army improved accuracy of the fund balance 
with Treasury, and investment valuations are now reported on our 
financial statements. We implemented the web-based Property Book Unit 
Supply Enhanced system. Additionally, the Army is: more accurately 
reporting criminal and civil fraud recoveries; correcting real property 
documentation deficiencies; and preparing for internal audit of other 
liability valuations and stewardship land.
    One of our most significant achievements to date is the Army-wide 
implementation of the Defense Property Accountability System (DPAS). 
DPAS is an FFMIA-compliant, property accountability system that serves 
as a single source of information for all general (non-tactical) 
equipment. More than 8.6 million general-equipment records, with a 
value of nearly $20.9 billion, are housed in DPAS. We capitalized, and 
reported on the Army's balance sheet, more than 28,000 of these 
records, with a combined value of nearly $12 billion. The remaining 
records and associated dollar values are below the capitalization 
threshold and do not require balance-sheet reporting.
    It also is important to note that the switch to DPAS, which was 
completed in 2002, allowed the Army to eliminate several property-
accountability systems that were not FFMIA-compliant.
                   financial enterprise architecture
    As part of the Business Management Modernization Program (BMMP) 
effort, the Department of Defense is constructing a Business Enterprise 
Architecture (BEA). To ensure that our business processes and systems 
comply with the DOD BEA, the Army's financial management community has 
developed the Single Army Financial Enterprise (SAFE) architecture.
    SAFE, which is an integral component of the CFO Strategic Plan, 
enables the Army to identify the business process relationships among 
its various business domains. The SAFE architecture provides several 
advantages including: (1) operational views, focusing on business 
rules, processes and operations; (2) systems views, covering the `as-
is' systems environment and data flows from these systems; and (3) 
technical views centered on technology standards. The SAFE architecture 
documents standard, cross-domain, financial processes and business 
rules that are necessary for future, business-process reengineering and 
COTS-software implementation efforts.
    As part of SAFE development, the Army has identified more than 100 
business systems that generate financial data, and the functions 
performed by each system. My shop, Financial Management and Comptroller 
(FM&C), intends to eliminate 28 of these systems by integrating their 
functions into the core processes of new, COTS financial software. We 
have marked an additional 31 systems for possible retirement and 
integration into the COTS software. Other business domains (such 
acquisition, logistics, etc.) intend to retain 34, and eliminate 18, of 
their systems.
                general fund enterprise business system
    As I've already mentioned, the Army's CFO Strategic Plan calls for 
a transition to JFMIP-certified, COTS financial software, which we call 
the General Fund Enterprise Business System (GFEBS.) The Program 
Executive Officer-Enterprise Information Systems (PEO-EIS) is in charge 
of GFEBS acquisition.
    GFEBS implementation will follow the standards set in the Chief 
Financial Officers (CFO) Act of 1990 and in the Federal Financial 
Management Improvement Act (FFMIA) of 1996. The Army will ensure that 
GFEBS conforms to the Federal, financial-management systems 
requirements identified by the JFMIP. Additionally, the system will 
comply with all applicable accounting standards, including requirements 
of the U.S. Government Standard General Ledger (USGSGL) at the 
transaction level as set by Office of Management and Budget (OMB) 
Circular A-127. GFEBS will comply with the Department's Business 
Enterprise Architecture, as well, and align with the processes and 
systems of all business domains.
    The Army plans to implement GFEBS in several phases between fiscal 
years 2005 and 2009. Each phase of the GFEBS acquisition is considered 
a separate option, which will enable the Army to discontinue the 
contract at the end of any particular phase. The first phase will 
consist of a technical demonstration of GFEBS' end-to-end, core, 
financial capability. During this portion of the program, the Army will 
confirm that GFEBS conforms to the BEA and to FFMIA requirements. 
Contractually established key performance parameters will be used as 
benchmarks and an independent evaluation of each performance parameter 
will ensure compliance.
    Although I am optimistic that GFEBS should enable the Army to cure 
several accounting deficiencies that prevent us from attaining a clean 
financial audit, GFEBS is only as good as the information it receives 
from nonfinancial business systems and processes. Incoming data must be 
accurate, reliable and in compliance with the DOD enterprise 
architecture.
    For example, the primary sources of information for valuing 
inventory are the Army's inventory management systems. These systems 
must provide GFEBS an accurate accounting and valuation of that 
inventory if the Army is to produce reliable and accurate financial 
statements. Fortunately, the financial management community is working 
closely and cooperatively with the Army's logistics and other business 
domains to ensure that their systems comply with DOD's enterprise 
architecture requirements and can supply the quality data GFEBS needs.
    We project it will take 5 years to implement GFEBS and to integrate 
the Army's business systems. This goal is extremely ambitious. To put 
it in context, compare the Army to Oracle Corporation. Oracle has 
nearly 40,000 employees in 140 countries, a narrow business focus and 
revenues of just $10.1 billion in 2004. They began their integration 
effort in 1999. Today, 5 years later, Oracle is in the final stages of 
its transition.
      
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
      
    In contrast, the Army employs nearly 1.3 million active, Guard, 
Reserve, and civilian personnel, who are stationed in 120 countries. 
Our fiscal year 2004 revenue stream was nearly $224 billion. Unlike 
Oracle, the Army has multiple businesses, which include buying and 
selling parts and developing and procuring weapon systems. On our 
fiscal year 2004 balance sheet, we reported $246.7 billion total assets 
and $64.3 billion in total liabilities. To say that implementing GFEBS 
by 2009 is aggressive is an understatement of the highest magnitude. 
Regardless, the Army is committed to doing everything possible to 
achieve this goal.
    In addition to creating reliable financial statements, I firmly 
believe that GFEBS, effectively integrated with nonfinancial business 
systems, will provide the Army's senior leaders and decisionmakers 
quality information upon which they can base business and strategic 
decisions.
    For example, it is vital to know how many soldiers are in a medical 
hold status for healthcare and manning purposes. Currently, the Army 
must engage in extensive data calls from multiple business systems to 
track this information. When GFEBS is integrated with our human-
resource management systems, the Army will be able to track easily the 
number of soldiers in a medical hold status and the associated cost. We 
will be able to obtain the needed information from a single source, in 
a timely manner, without extensive data calls from multiple business 
systems. My challenge is to convey these benefits to the Army's 
leaders, and I know the committee will support me in this effort.
                       new governance procedures
    Also under the umbrella of business management transformation, the 
Army's Chief Information Officer (CIO) is instituting a robust and 
disciplined governance process to help us better manage our portfolio 
of business information systems and investments. The CIO is positioned 
to establish formally a domain governance structure and a portfolio 
management process by January 1. The governance structure being 
developed mimics the domain delineations established by the Office of 
the Secretary of Defense and, for the first time, assigns 
responsibility for managing the full portfolio to the owner of that 
domain.
    In order to institutionalize portfolio management in the financial 
management domain, the Army is developing a business-system baseline. 
This baseline will tell us what systems are in use throughout the 
service and it will identify the attributes of each from the 
functional, technical, and cost perspectives. The validation and 
categorization of our financial management systems is ongoing, and we 
expect to complete this assessment by March 1, 2005.
    Once the baseline is set, we plan to review all systems to 
determine whether they have a future in the Army. If a system is 
underperforming, the Army will stop investing in it and, eventually, 
discontinue its use altogether. Any system that fulfills a requirement, 
which the General Fund Enterprise Business System can cover, will be 
retired. Only those that GFEBS cannot replace will be retained and 
brought into compliance with the BEA.
    The Army already has made substantial progress in this IT house-
cleaning effort. In conjunction with the portfolio review process, we 
identified and eliminated 59 financial management systems from our 
inventory in fiscal year 2004. We also terminated the Army National 
Guard's unique accounting system, which operated in 54 separate 
databases. Now, the standard finance system (STANFINS), operating in 
five databases at a single location, supports the Guard's accounting 
requirements. The Army intends to consolidate another 69 separate 
accounting system databases and to terminate the installation supply 
buffer, which currently can be found in 36 separate applications.
                               conclusion
    I agree with the President, the Secretary of Defense, the acting 
Secretary of the Army, and Congress that financial-management 
transformation at DOD is not an option--it is an imperative. 
Implementing sustainable, financial-management improvements that 
support the Army's transition to a modular expeditionary force is in 
our best interest, the Defense Department's best interest and the 
taxpayers' best interests.
    One very important issue I have not discussed is the human-capital 
aspect of the Army's business transformation. The average civilian 
employee in our comptroller workforce is 49 years old and has 21 years 
of experience. Although more than three-quarters of our civilians have 
some college education, I am concerned that both the average age and 
the number of years logged in our old financial management framework 
may indicate that a significant portion of our personnel is not 
optimally suited to the integrated, modernized, business environment of 
the future. To address this concern, I have directed our career 
proponent to develop an education program that will teach our workforce 
about commercial information technology products, and how they support 
business operations. This program must transcend the training typically 
provided to users as part of systems implementation. It must truly 
educate our workforce in modern information-technology techniques and 
processes, and position them to adapt to business modernization.
    Without a doubt, the success of our transformation efforts, 
particularly GFEBS, is contingent upon the involvement of senior DOD 
and Army leaders. It is our collective responsibility to establish DOD-
wide goals and objectives, and to monitor our progress in reaching 
them. We need to focus on effectively managing the DOD and Army 
information technology portfolios and on developing the Business 
Enterprise Architecture.
    I have, however, a cautionary note. We must guard against planning 
for the sake of planning. Over-planning leads to inertia that 
ultimately results in sustaining the status quo. The Department of 
Defense needs to develop a transition blueprint that guides the 
transformation effort, provides a mechanism to track progress and 
enables a reasonable level of flexibility to adjust to changing 
conditions.
    The Army is committed to managing its portion of this long-term 
transition effort in a disciplined manner to ensure success. I look 
forward to being a part of the process and I thank the committee for 
its support of and interest in Army financial management.
                                 ______
                                 
             Prepared Statement by Hon. Richard Greco, Jr.
                              introduction
    Mr. Chairman and members of the committee, thank you for the 
opportunity to appear at these proceedings today and to submit a 
statement for the record. Transforming the Department of the Navy's 
(DON) business processes while concurrently supporting the global war 
on terrorism, is a formidable but absolutely essential task. It will 
require time, resources, and leadership focus from every business area 
of our Department. It also will drive many changes, in processes as 
well as in systems, and the effort will not succeed unless our sailors, 
marines, civilian employees, and their commanders and executives 
understand and embrace this transition.
    Although I have been in my position for less than 1 month, I 
strongly believe that the concerted, coordinated efforts in DON and 
throughout the Department of Defense will improve business operations 
that will result in improved financial management information. This 
higher-quality information, in turn, will aid managers at all levels in 
the Navy and Marine Corps to make better informed and more accurate 
decisions about using their resources to achieve the Department's 
mission.
                        don transformation goals
    The Secretary of Defense has challenged each military service to 
pursue an aggressive transformation of their warfighting capabilities 
in order to meet emerging 21st century threats. To complement this 
transformation in critical mission support areas, we need an equally 
aggressive strategy for business transformation. I am pleased to report 
that the my Department of the Navy has proactively moved to modernize 
our business systems and improve processes that will ultimately improve 
the quality of our financial information. At the same time, our 
business transformation efforts must be synchronized with broader, 
ongoing DOD programs to achieve the necessary total enterprise goal. 
The same interoperability which is critical to joint operations on the 
battlefield is also necessary for efficient processes that support the 
warfighter.
    To put this discussion into context, the DON's business 
transformation strategy includes four primary elements:

         Business Management Modernization Program. While not a 
        DON initiative, OSD's Business Management Modernization Program 
        (BMMP) has developed a blueprint for modernization called the 
        Business Enterprise Architecture (BEA). Still in an 
        evolutionary form, BEA serves as the framework for our future 
        systems' evolution. It contains basic business rules and 
        dictates process flows so that our supporting systems can 
        exchange information effectively and seamlessly.
         Enterprise Resource Planning. In the late 1990s, we 
        embarked on a series of Enterprise Resource Planning (ERP) 
        pilot programs in selected business areas, providing an 
        immediate contribution to those operations as well as critical 
        implementation experience. We are currently working to merge 
        the configuration pilot implementations of this commercial off-
        the-shelf product to deploy its capabilities more broadly. This 
        will serve as the cornerstone of our business modernization 
        effort. It will drive process re-engineering using commercial 
        best practices wherever possible across diverse business areas 
        (such as weapons systems program management, R&D, and depot 
        maintenance). This effort is in compliance with the business 
        rules and process flows set out in the broader BEA.
         Functional Area Managers (FAM). To move to DON's 
        standard IT network infrastructure, the Navy-Marine Corps 
        Intranet (NMCI), we needed to establish a process to inventory 
        and catalogue our robust portfolio of applications. Since 
        Functional Area Managers (FAMs) provided us with early 
        portfolio management, they are now natural interfaces with 
        corresponding BMMP domains. This portfolio baseline and the 
        supporting FAM process will serve as the transition tool to 
        help us move from our current legacy systems and into the 
        future target environment.
         DON Financial Improvement Plan (FIP). The FIP is our 
        program to achieve a clean audit opinion on our financial 
        statements. Recognizing that this plan continues to evolve, we 
        must consider and integrate key milestones of each of the major 
        initiatives above, specifically evaluating different 
        alternatives for accomplishing corrective action (e.g., manual, 
        or legacy enhancements while awaiting replacement systems).

    The elements of our transformation strategy are large and complex 
initiatives that continue to develop over time. In addition to being 
intricate, each of these elements has distinctive challenges involving 
communication and change management. Recognizing that each has its own 
timeline and may provide constraints to the others, we believe that the 
real value comes in integrating these efforts. We have made significant 
progress in each area. Over time, the integrated value of the total 
will be greater than the sum of its parts. This integration is ongoing, 
and there is much to do; however, I would like to look briefly at what 
we have accomplished in each of these areas.
            business management modernization program (bmmp)
    We strongly support OSD's efforts to map out standard processes and 
business rules to be used throughout the Defense Department. The 
evolving Business Enterprise Architecture (BEA) will provide a common 
framework and business rules leading to fewer, but more efficient, 
complementary systems and integrated applications. While I will defer 
to the DOD Comptroller for the details of this extensive effort, I do 
want to make two key points.
    First, Navy-Marine Corps representatives have been fully engaged in 
workshops that have helped develop the architecture. We continue to 
gain an improved understanding of the emerging structure and what it 
will mean to our operations. Second, among BMMP leaders, there has been 
increased awareness and support of our Navy-Marine Corps business 
initiatives, most notably the ERP pilots and the FAMs; we have shared 
our lessons learned with the BMMP domains, as well as with the other 
Services, as we make progress, and our continuous dialogue better 
ensures that our efforts are compatible with the BEA.
                   enterprise resource planning (erp)
    Five years ago, we initiated four ERP pilot programs in different 
business areas of our systems commands. Each one of these test projects 
has matured and has provided value to the Department of the Navy and 
its mission. While the propensity may be to engage in a large, 
enterprise-wide effort, lessons from private industry showed that 
smaller, more focused efforts are much more likely to succeed; and we 
have been successful. We are now working to integrate the business 
rules and processes of the four pilots into a single ERP. This merged 
system will become the standard solution for diverse Navy business 
areas, including financial management, major weapons systems program 
management, inventory and supply-chain management, and depot and 
intermediate maintenance support.
    This single ERP is our Navy ERP Program. The program has been 
certified by BMMP leadership to be architecturally compliant with the 
BEA and has successfully passed Milestone A/B. We expect that the final 
Navy ERP product will be available for use in each of our systems 
command headquarters and warfare/system centers, regional maintenance 
centers, and aviation maintenance facilities in the near future. The 
Navy ERP, as well as the predecessor pilots, employs commercial off-
the-shelf software that has been approved by the Joint Financial 
Management Improvement Plan (JFMIP). The BEA has been designed to 
support commercial software that embodies the ``best practices'' of the 
private sector while reducing government software maintenance costs.
    We have realized a number of positive results from our ERP pilot 
experience:

         The Converged-Enterprise Resource Planning is a system 
        that will significantly improve logistics movement ashore and 
        afloat. The system will provide an end-to-end supply chain 
        integration for sustainability producing benefits in cycle time 
        reduction, and asset visibility. In the naval aviation 
        community, engineering change process approval time decreased 
        from 87 to 25 days, and over 1 million inventory transactions 
        were processed with less than 0.5 percent error rate.
         The Naval Sea Systems Command (NAVSEA), Task Force 
        Lean Implementation Plan focuses on efforts to align the entire 
        NAVSEA command to a culture that recognizes the practices of 
        six sigma, theory of constraints, and a prioritized application 
        of these methodologies to achieve maximum business results. 
        Examples include a 92-percent flow time reduction in ordering 
        material for Attack Submarine (Nuclear Propulsion) (SSN) 688 
        Los Angeles class submarine maintenance periods resulting in a 
        44 percent productivity improvement.
         The Marine Corps Logistics Modernization program takes 
        industry, government, and military best practices to maximize 
        combat effectiveness and lethality by substantially improving 
        the logistics chain processes. The Global Combat Support System 
        is the key technology enabler. Results from implementing 
        changes at the Marine Corps Depot in Albany, NY, include 
        reducing repair cycle time anywhere from 14 to 75 percent, and 
        reducing the quantity of assets in maintenance by 50 percent.
                    functional area managers (fams)
    Three years ago, DON started portfolio management of business 
systems in conjunction with the Navy-Marine Corps Intranet (NMCI) 
implementation. The year 2000 effort had forced us to face the problem 
of systems and applications proliferation, but NMCI implementation 
allowed us to take action. FAMs have led our Departmental portfolio 
management; FAMs are organized by business discipline and include, for 
example, Finance and Accounting, Acquisition, and Logistics. FAMs 
report to the DON Chief Information Officer and the Director of Navy 
Staff.
    Using the the FAM process, we have accomplished the following:

         Aggressive portfolio management has significantly 
        reduced the number of authorized systems and applications, by 
        standardizing versions and by eliminating outdated and 
        duplicative systems. Financial management systems have been 
        reduced from over 2,000 in 2001 down to 338 in 2004.
         NMCI desktops can carry only FAM-approved systems and 
        applications, providing a means of enforcing the Department's 
        application reduction effort. This reduction is from 
        approximately 67,000 legacy applications to a portfolio of 
        approximately 7,000.
         Goals for further systems reductions have been 
        established and will be executed, consistent with the domains' 
        transition plans.

    Because we needed to limit the number of systems and applications 
operating on desktops within NMCI, we began to catalog systems and 
applications, consolidating systems versions and eliminating systems 
superseded in ERP pilots. More work needs to be done to eliminate 
systems performing duplicative functions, but we now have a credible 
start and an effective tool in our portfolio management.
    Our FAMs have a natural alignment with the Office of the Secretary 
of Defense (OSD)-sponsored functional BMMP Domains, which are also 
actively managing DOD-wide portfolios. Under the leadership of the DON 
CIO, we are working collaboratively with the BMMP to use our baseline 
systems inventory to develop a meaningful, time-phased, and resourced 
transition plan for movement into new systems such as the Navy ERP. 
This is another area where our progress has been adopted and used by 
OSD on a broader scale. The systems inventory database, originally used 
by DON FAMs, is now being used at the OSD-level within the BMMP.
                  don financial improvement plan (fip)
    One of the key objectives of the President's Management Agenda is 
improved financial management. The DON FIP is the overarching element 
that will drive toward this objective for the Department of the Navy.
    In addition to implementing a better integrated systems 
environment, we realize that the ultimate goal of our business 
transformation must be to establish a culture and sound business 
processes that produce high-quality financial information for 
decisionmaking. Only a clean opinion on our financial statements can 
confirm that we have met this standard. Much-improved financial 
information will provide a self-reinforcing mechanism on which our 
leadership will rely; leaders will in turn demand that this quality be 
maintained. With that as a premise, our plan provides the roadmap to 
measure outcomes and evaluate progress toward this goal.
    Our Financial Improvement Plan by necessity must integrate the 
evolving elements of our business transformation strategy. In reviewing 
and validating our business processes to prepare for audit, we will be 
using the business rules and standards that have been developed by the 
BMMP to date. Corrective actions must be evaluated against the systems 
transition plan to ensure that any investment in a legacy system has a 
solid cost justification and can be sustained. As a recent GAO report 
\1\ highlighted, we must work to integrate fully these external 
elements into our FIP; however, we have made significant progress.
---------------------------------------------------------------------------
    \1\ GAO-04-910R DOD Fiscal Year 2007 Audit Opinion
---------------------------------------------------------------------------
    DON's FIP evolved into a comprehensive, detailed plan after 
extensive consultation with major DON organizations. We identified key 
material weaknesses, in either processes or systems, that affected the 
audit quality of specific lines on our financial statements. We are 
mapping the required flow of this information and assessing whether 
present or planned business systems could give us this data 
efficiently.
    As we identified actions needed to correct known deficiencies, the 
DOD Comptroller recently developed a much-needed, structured process 
for audit preparation. This procedure is a rigorous set of business 
rules requiring that we lay out our processes in a structured and well-
documented way. This validation and assertion process is time-consuming 
and deliberate, but it is essential so that we do not waste auditors' 
time and resources. The process also encourages managers to take 
ownership of their own business processes and consider their internal 
controls environment as a key element supporting the preparation of 
financial statements.
 synchronizing the business management modernization program and don's 
                       financial improvement plan
    Achieving the goals set by the BMMP while simultaneously pursuing 
DON's FIP will be a complex undertaking. However, both projects seek to 
standardize business processes and data elements, and both seek to make 
the flow of this management information more accurate and efficient. 
Regardless of the cause, the more-efficient flow of standard data is 
the desired outcome. If each project moves DON toward this result, then 
there will be a synergy in doing both. The ``business transformation'' 
called for in the BMMP will not be a ``Big Bang'' event; rather, it 
will be evolutionary in development.
    Depending on the timing of legacy systems' transition, investment 
in these systems may be justified if an improved and more auditable 
process is the result. Specifically, any action requiring an investment 
of resources must result in meaningful, sustainable results, not 
``heroic'' actions that may temporarily correct a problem. 
Synchronizing FIP with key elements (a systems transition plan and 
business rules or standards that are part of the BEA) of the BMMP will 
allow both initiatives to progress.
    DON's FIP will document the specific tasks that will move us toward 
this end-state. Acting on this conviction, the Navy-Marine Corps team 
has fully funded its FIP in fiscal year 2005 and beyond through 
completion, including out-year maintenance funding. I would be happy to 
provide this committee detailed information about the evolution of our 
FIP, its organization, its planned administration, and the 
comprehensive results that we want to achieve.
                               conclusion
    In summary, the Department of the Navy is moving forward with an 
aggressive business transformation strategy and refining that strategy 
to adapt to our priorities and the larger transformation that is taking 
place across DOD. Our transformation focuses on changes for our people, 
processes, and systems. There are three key elements that are currently 
being executed within the broader context of the OSD Business 
Management Modernization Program: The Navy Enterprise Resource 
Planning, our Functional Area Managers process, and the Department of 
the Navy Financial Improvement Program.
    Each element is large and complex; all elements continue to evolve, 
but each is also providing near-term benefits. They also must be 
synchronized because they are interrelated, and segments of one plan 
may depend on completion of tasks in another. For example, the systems 
transition plan in BMMP is critical to making meaningful long-term 
progress in the Financial Improvement Plan.
    We are working diligently to accomplish this synchronization. I am 
personally committed to implementing improvements that will produce 
meaningful and sustainable results, and more importantly, ensure that 
timely and accurate financial information is available to our 
Department's leadership.
    I thank the committee for their support in this endeavor.
                                 ______
                                 
             Prepared Statement by Hon. Michael Montelongo
                              introduction
    Chairman Ensign, Senator Akaka, and distinguished members of the 
committee, thank you for this opportunity to comment on our progress 
with business management transformation in the Department of Defense 
and, more specifically, to share with you the details of our ambitious, 
bold, yet very necessary journey to transform a component of that 
larger change--Air Force Financial Management (FM). This is an 
imperative directed by Congress and inspired by the President (through 
his President's Management Agenda), the Secretary of Defense (expressed 
most urgently in his ``Bureaucracy to Battlefield'' remarks on 9-10-01) 
and the Secretary of the Air Force (when he declared ``our financial 
professionals will enable the Air Force to achieve its transformational 
goals. . .'').
    I echo the views expressed by Secretary Jonas (and my Service 
counterparts) in her written statement to you on the Department's (and 
by extension the Services') progress, successes, and challenges in this 
undertaking. The Air Force Financial Management community is in 
lockstep with OSD Comptroller and my Service colleagues in working to 
achieve an enterprise-wide business and financial management capability 
that is modern, comprehensive, and responsive to the warfighter--it's 
crucial that we modernize our total ``back office'' to achieve 
enterprise transformation. Indeed, our very presence here today is a 
testimony of our solidarity and firm resolve to see this through. In 
short, we care. Your presence and this hearing are powerful signs that 
this matters, and I thank you for that. I'm pleased to say, we can all 
be encouraged by the fact that the basic building blocks for DOD-wide 
process and systems integration are beginning to produce tangible 
results enabling achievement of Business Management Modernization 
Program (BMMP) objectives.
    But, there's more to business management reform than just the usual 
focus on financial management. For instance, while non-financial 
processes and systems account for the bulk of transactions across the 
Air Force, most of them drive a financial consequence. Improving 
financial management then, fundamentally requires transforming 
management processes and systems in all major functional areas, not 
just financial. There's more to financial management reform than just 
the conventional emphasis on information technology (IT). For example, 
in financial management, we must jettison our transaction orientation 
and embrace a decision support mindset so that we can help warfighters 
make better, more informed, and timely decisions. As financial 
professionals, then, we need to become less like accountants of an 
industrial age and more like consultants (or even e-accountants) for an 
information/knowledge age.
    In other words, Business and Financial Management Transformation--
like any large organization-change exercise--is more about changing 
people, behavior, and culture than it is about installing new IT 
platforms. It also is as much about changing the way we do business 
(our processes) as it is about eliminating redundancy and noncompatible 
systems. On top of that, we have to change while we operate--build the 
airplane while we're flying it, transform while we fight wars--because 
we don't have the luxury of timeouts.
    That's why I'll comment on the comprehensive nature of 
transformation in financial management and later cover some of the 
broader features that are DOD-wide and Air Force-specific in scope. 
Along the way, I'll touch on the progress we've made in spite of our 
incompatible legacy systems, the work we're doing to ``fix'' them, and 
the continuing refinement we're making to our transition plan.
    What will success look like? In its purest form we will be able to 
do what we cannot do today, namely, produce and track accurate, 
reliable, relevant, and timely management and financial information 
that we can use to help decisionmakers make more prudent and informed 
decisions. But I know what success will look like along the way there. 
It won't exclusively be measured in terms of the number of clean 
opinions we get or the number of legacy systems we shut down, although 
these metrics are useful. Instead, you and I will be able to ``smell 
and taste'' success by how much of this continuous improvement process 
is imbedded and institutionalized in the fabric and DNA of this 
Department.
    Although much work lies ahead, I smell and taste it [success] 
already! We've sized up the challenge and know what we're up against; 
we have a clear vision of where we want to be and what has to be done; 
and we have a plan (already in execution) to get there. At my 
confirmation hearing, I committed myself to addressing our business and 
financial management problems. I suggested then that we tackle this 
``from an enterprise-wide perspective, beginning with developing a 
systematic architecture for the Department.'' \1\ We've done just that, 
Mr. Chairman, and I'm pleased to report we have transformed many of the 
Air Force's business and support functions. Some of what we laid out in 
our vision is now taking shape and we can all share in that and 
leverage it for greater success.
---------------------------------------------------------------------------
    \1\ Quoted from Michael Montelongo's 27 June 2001 testimony before 
the Senate Armed Services Committee.
---------------------------------------------------------------------------
    Bottom Line: I believe the Department of Defense and the Air Force 
are well positioned to achieve business and operational integration 
across the Department over time. But, as the Comptroller General has 
stated, ``it's going to take time [as we] go from patience to 
persistence to pain before, ultimately, we prevail.'' \2\ Mr. Chairman, 
we will prevail.
---------------------------------------------------------------------------
    \2\ Quoted from 24 March 2004 Hearing before the Senate Armed 
Services Committee, Subcommittee on Readiness and Management Support.
---------------------------------------------------------------------------
             air force financial management transformation
Our Shared Vision
    While the United States Air Force is the most advanced, capable, 
and powerful air force in world history, our vision is to be even 
better. . . . ``Our Air Force is in the midst of a profound, exciting, 
and critical transformation. Warfighters, acquirers, maintainers, 
trainers and testers are coming together in new and unprecedented ways 
to ensure that when our people go in harm's way--5, 10, 15, 20+ years 
from now--they will have the training, equipment, and support they need 
to assure decisive victory.'' \3\
---------------------------------------------------------------------------
    \3\ Quoted from the Air Force Financial Management Vision 
Statement.
---------------------------------------------------------------------------
    This is how our ``Vision for Financial Management Leadership and 
Strength'' begins and how we began our transformational journey by 
expressing our great ambition in the financial function to be 
``strategic partners recognized as the ultimate source for financial 
and management information . . . providing high-quality, customer-
focused decision support and financial services.'' That's what we, as 
financial professionals, must be and do to deliver financial 
capabilities that are every bit as sophisticated and ``leading-edge'' 
as the warfighting concepts and systems we support.
    When we get there, what will it look like? Well, just ``imagine an 
Air Force wing operating at peak effectiveness and efficiency . . . one 
where every dollar strikes the correct balance between supporting the 
mission, maintaining the infrastructure and taking care of our people. 
Imagine a wing where the key leadership knows the true costs of its 
major processes and can make the proper trade-offs when confronted with 
unforeseen requirements. Imagine a wing where Air Force people can take 
care of all their pay requirements from their phone or computer without 
a trip to Finance, where status of vendor payments is transparent, and 
where connections with the Defense Finance and Accounting Service 
(DFAS) are seamless . . . Imagine an Air Force where all wings achieve 
this level of performance and where our consolidated financial 
statements are both auditable and meaningful.'' \4\
---------------------------------------------------------------------------
    \4\ Quoted from the Air Force Financial Management Vision 
Statement.
---------------------------------------------------------------------------
    This is the world that our vision seeks to place us in--where we 
have the tools and skills that we need to complete our work with 
optimal efficiency. This is an FM where broad professional and personal 
growth and development are integral to our jobs. This is an FM whose 
processes are streamlined, free of rework, rekeying, and manual 
intensity. This is an FM free of data calls because financial and 
feeder systems are fully integrated, compatible, and interconnected in 
an end-to-end Enterprise Architecture (EA).
    This is an FM where professionals, enabled by enhanced skills, 
efficient processes, and flow-through systems across the Air Force now 
have time to perform the highly valuable analysis that our commanders 
want and need to support the warfighter. To get there, we developed a 
comprehensive Strategic Plan that links our vision with concrete 
actions and measurable results. I've included a copy of this plan for 
the record.
Our Strategic Plan--``Financing the Fight'' and How We Will Do It
    Using modern tools like the balanced scorecard and insights from 
experts like Professors Bob Kaplan and John Kotter, both from Harvard 
Business School, we outlined a specific set of activities, initiatives, 
and projects to improve the people, processes and systems dimensions of 
our business. In doing so, we decided to specifically focus our work on 
three strategic themes, namely, warfighter support, strategic 
resourcing and cost management, and information integration and 
reliability.
    In warfighter support, we are dramatically improving our personal 
finance service delivery by increasing our self-service capability. For 
example, partnering with DFAS, we are using web-based technology on a 
wider basis, similar to what most citizens would find on commercial 
banking and financial services websites (we call it myPay) to handle 
routine military and civilian pay inquiries. Think about it--airmen, 
part of an Expeditionary Air Force, deployed to Camp Doha, Kuwait now 
with 24/7 access to conduct routine pay transactions, costing the 
Service only pennies per transaction! The functionality and user-
friendliness of myPay is so good, I'm pleased to say that last month we 
fully implemented electronic pay statements for our Airmen through 
myPay instead of by mail (we expect to save over $1 million annually 
with this action). Once we complete the requisite union negotiations, 
we will require our civilian workforce to do the same. In the near 
future, we will do even more to deliver efficient services to the 
warfighter by centralizing and automating our back-office operations 
that today are fragmented and very labor intensive. Early efforts here 
have already manifested themselves as we continue to make great strides 
toward reducing late payment penalties and realizing vendor discounts. 
For instance, interest penalties are down from a high of $343 per 
million disbursed in 2001 to $81 per million disbursed in 2004--
reflecting a 77-percent savings for the Air Force. We have also lowered 
our Government Travel Card (GTC) delinquency rates from a high of 9 
percent in 2001 to a low of 3 percent in 2004. The Air Force has also 
aggressively tackled the processing of Anti-Deficiency Act (ADA) cases. 
Through improvements in ADA process training, and stressing the 
importance of timely investigations, we have been able to reduce late 
cases from a high of 12 in 2002 to just one this year. The Air Force 
also met the Department's goal of closing all cases over 12 months old.
    In strategic resourcing and cost management we will employ concepts 
and tools like performance-based budgets to maximize resource 
effectiveness and cost efficiencies. Using pilots underway, the work in 
this area is designed to move us from a regulatory-oriented regime to a 
more performance management-oriented framework. This will give our 
senior leaders, including yourselves, a much clearer picture of the 
critical linkages among our strategic goals, investments, and the value 
we derive from those investments.
    Our information reliability and integration work is designed to 
streamline our processes and integrate our technology so that we can 
produce relevant, reliable, accurate, timely and actionable financial 
and management information. This is the area that is typically 
addressed by the Department of Defense's BMMP, to which I'll speak more 
about later. For now, I'll say that our focus is on end-to-end 
information flows, accessible and transparent to users anytime, 
anywhere. The final proof that shows we've arrived will be a clean 
opinion on our financial statements. We're not there yet, but we have a 
solid plan to get there, and we've ``moved the ball downfield'' 
considerably. For example, by institutionalizing rigor and discipline 
into the process, we have already reduced our financial statement 
preparation cycle time by almost one-half!
    Finally, all of this is built upon the foundation of our great 
people, which symbolizes the importance of the role they play in the 
successful execution of our plan. That is why we are taking a ``people 
first'' approach to develop, groom, mentor, educate and train our 
workforce (even as we streamline processes and integrate technology) so 
that they have the sophisticated skills to deliver 21st century 
financial management capability. Our Air Force Force Development 
Program--soon to be complemented by the National Security Personnel 
System (NSPS) that you passed earlier this year--is designed to 
purposefully broaden the experiences of our workforce throughout a 
career in public service to achieve both personal and organizational 
goals. The idea is to ensure the right people, with the right talent, 
are in the right jobs at the right time with the right tools and 
information they need to succeed and be challenged, rewarded and valued 
in the process. The result is an airman, military and civilian, that is 
progressively better qualified to tackle and solve the challenges of 
today and tomorrow; the result is an FM professional more capable of 
``financing the fight'' for a much more complex and dynamic world.
            technology/systems--an element of transformation
    As I stated previously, technology and systems--the Information 
Reliability and Integration piece of our financial management 
strategy--are but an element of a more comprehensive financial 
management reform journey and business management transformation that 
we have undertaken. But it's a key element because if done correctly, 
it can institutionalize effective and efficient processes, integrate 
them, and empower our workforce to deliver more value-added services.
            business management modernization program (bmmp)
Enterprise Architectures
    It was with this prospect in mind that the Secretary of Defense 
launched the BMMP--a framework to deliberately modernize not just our 
financial systems, but also our business management systems 
infrastructure over time. From the very beginning, the Air Force has 
played a strong, collaborative, and involved role with our DOD and 
Service colleagues to develop BMMP products like the DOD Business 
Enterprise Architecture (BEA) and serve in domains and governance 
committees. This is a key point because an architecture lays out the 
fundamental standards and guidelines that describe how an enterprise 
coheres or how it operates in an integrated fashion--it's a blueprint 
we've never had before and a major step forward!
    Architectures ``connect'' an organization--they permit a large 
enterprise like DOD to align its many disparate pieces and achieve the 
kind of integration we're all seeking. To drive this connection 
further, the Air Force has developed a complementary ``business'' 
architecture that addresses both combat support and business 
activities--the Air Force BEA. The Air Force BEA is linked to the DOD 
BEA and focuses on the activities and processes that provide business 
support to the Air Force warfighters; it also gives the Air Force the 
ability to define, evaluate, and improve these processes in a cross-
functional environment. Finally, these DOD architectures are connected 
to the Federal Enterprise Architecture, which further extends alignment 
and standards government-wide.
Enterprise Resource Planning Systems
    Because these aligned architectures form the basis for business and 
operational integration, we can employ modern tools like Enterprise 
Resource Planning (ERP) systems with greater confidence than we ever 
have. Having the architectural blueprint is one reason; another is that 
ERP systems are maturing (through greater scalability, 
interoperability, and flexibility) to include the unique requirements 
of the Department. DOD's voice as a major ERP customer is growing 
louder and hence, strengthening the Department's position to influence 
ERP industry capabilities. For example, all ERPs competing for U.S. 
Government business must pass Joint Financial Management Improvement 
Program (JFMIP) testing to achieve JFMIP standards-compliance 
certification.
    A third reason why our ``ERP readiness'' has increased is the Air 
Force's and DOD's move toward net-centricity and data sharing--doing 
more of the fundamental and foundational tasks that facilitate 
enterprise integration. In this area, the Air Force has developed a 
common technical framework for providing warfighting and supporting 
activities with timely, accurate, and trusted combat support and 
business information. The technical framework has been developed under 
our Air Force portion of the DOD Global Combat Support System (GCSS). 
Within GCCS, the Air Force Portal (our gateway to applications and 
information) is the standard user interface to all Air Force support 
data and functions. The Air Force Portal includes personalized, role-
based access and single sign-on information for over 100 capabilities 
within combat support and business areas that have been reengineered to 
be self-service accessible to our airmen both at home and deployed. We 
see tangible evidence of this in the logistics, human resources and 
personal finance functions where they have greatly improved their 
respective service delivery capability to the warfighter.
    A key part of the technical framework is a common Air Force-wide 
enterprise data warehouse. Incrementally, the Air Force is moving data 
locked in our legacy systems to this enterprise data warehouse which 
provides an integrated platform for the storing, processing, and 
managing of enterprise data. With the data warehouse, airmen and 
commanders can now rapidly access authoritative information and perform 
ad hoc queries dramatically reducing the time to perform critical 
support functions. For all these reasons outlined above, we are now 
pragmatically poised for the next stage to fully achieve the enterprise 
business and systems integration we all seek!
    An excellent example of an ERP project being developed under the 
DOD BMMP and consistent with our EAS is the Defense Enterprise 
Accounting and Management System (DEAMS) \5\. The current Air Force 
accounting system has been with us since the early 1960s. DEAMS will 
replace a number of antiquated Air Force and U.S. Transportation 
Command (USTRANSCOM) systems with a new, commercial off-the-shelf 
(COTS) finance and accounting system that will process and record all 
budgetary, accounting, and vendor pay transactions; we will use this 
opportunity to perform business process reengineering and implement 
industry best practices throughout the Air Force. As an approved BMMP 
pilot project, DEAMS is being developed by a joint Air Force, 
USTRANSCOM, and DFAS team based outside of Scott Air Force Base and 
demonstrates a continuing trend toward DOD-wide--rather than component-
specific--business and operational systems. Initial fielding of DEAMS 
at Scott AFB will occur by fiscal year 2007; current plans call for 
fielding to the Air Force Operational Major Commands by fiscal year 
2009. The DEAMS Executive Steering Group includes representation from 
the Air Force, Army, Navy, OSD, and DFAS and thus the program has joint 
oversight.
---------------------------------------------------------------------------
    \5\ The other projects are the Expeditionary Combat Support System 
(ECSS) and the Defense Integrated Military Human Resource System 
(DIMHRS). ECSS will replace (500+) legacy IT systems with a COTS IT 
suite of 10+ integrated modules with software/hardware, embedded/
updateable best business practices, with capabilities in product 
support & engineering, supply chain management, expeditionary logistics 
C2, and maintenance, repair and overhaul while DIMHRS will provide a 
single database for all military personnel information.
---------------------------------------------------------------------------
    The major takeaway from all this is that, today, we have a working 
blueprint for business and systems integration, we are beginning to 
field new systems based on that road map, and (as I'll discuss later) 
we have an effective process in place to drive and monitor progress and 
control and coordinate investments in business systems.
Governance
    To direct and manage all these moving parts (i.e., develop/
implement the BEAs, develop/implement a systems migration path or 
transition plan from the current to future state, ensure that IT 
investments are consistent with the BEAs and migration path) and 
provide direction and oversight for Air Force business and combat 
support modernization efforts, the Secretary of the Air Force and Chief 
of Staff created a BMMP analogue called the Air Force Operational 
Support Modernization Program (to emphasize the warfighter linkage) and 
chartered a Commanders' Integrated Process Team (CIPT). The CIPT is led 
by the Deputy Chief of Staff, Warfighting Integration (AF/XI) with the 
Air Force Chief Information Officer (AF-CIO) as the vice chair. Its 
membership includes Major Command (MAJCOM) representation and mirrors 
the DOD BMMP domains where we are full partners with our DOD and 
Service colleagues in five areas: human resource management, 
acquisition, accounting and finance/strategic planning and budgeting, 
logistics, and installations and environment. Together, we work through 
these domains to promote and achieve broad BMMP goals.
    The Commanders' IPT will guide and integrate the transformation of 
processes and systems supporting Air Force business and combat support 
areas in order to meet BMMP goals and objectives. On an Air Force-wide 
basis, it will be the forum that provides Joint and Air Force 
Commanders with robust business support products, services, and 
information, effectively ``closing the seams that divide our 
capabilities today.'' \6\
---------------------------------------------------------------------------
    \6\ General John Jumper, USAF, as quoted in Government Executive 
Magazine, 19 March 2002 (http://www.govexec.com/dailyfed/0302/
031902db.htm).
---------------------------------------------------------------------------
Funding and Investments
    All our business modernization funding and efforts will be overseen 
by the CIPT governance structure outlined above. To accomplish this 
oversight, the Air Force Chief Information Officer has implemented a 
comprehensive IT portfolio management process that is consistent with 
the provisions of the National Defense Authorization Act for Fiscal 
Year 2005. This process provides visibility into IT expenditures and 
enables control and prioritization of IT resource requests for 
sustainment of existing systems and development of new ones. For 
example, business systems expending over $1 million (in modernization) 
must be certified for architectural compliance and sound business 
cases.
    One of the success stories in our portfolio management efforts is 
that we've been able to hold the line on spending in the Combat 
Support/Business areas of the portfolio. For fiscal year 2005, our 
spending here represents only 9 percent of our total spending on 
information technology, which is down from about 11 percent in fiscal 
year 2004. Meanwhile, our spending on business and combat support IT is 
significantly less, almost half, of similar organizations within DOD. 
In both instances, we attribute progress to the discipline and rigor of 
our portfolio management process. Even more important than expense 
control, however, is that we're investing in the right systems that are 
standards-compliant and consistent with our BEA requirements and 
migration plan.
air force information reliability and integration (afir&i) action plan 
                  (a.k.a., financial improvement plan)
    This brings us to auditable financial statements and the progress 
we are making there. We don't consider financial statements an ``end 
onto themselves'' but rather an affirmation or validation that our 
systems and processes can, indeed, produce reliable, accurate, and 
timely financial and management information. The clean opinion is an 
objective declaration that our financial management engine is clicking 
on all cylinders.
    In this area, like our counterparts in the other Services, we have 
developed an action plan to achieve auditable financial statements. We 
call it the Air Force Information Reliability and Integration (AFIR&I) 
action plan. The AFIR&I Action Plan is our roadmap to achieve an 
unqualified opinion on Air Force Financial Statements. The achievement 
of an unqualified opinion will assure decisionmakers throughout the Air 
Force that their decisions are based on sound financial data.
    The AFIR&I Action Plan supports several efforts, including the 
President's Management Agenda (PMA) Scorecard Initiative, the DOD 
Financial Improvement Plan, and our Air Force Financial Management 
Strategic Plan. A governance structure, including an audit committee, 
an executive-level steering committee, along with our accountability 
and financial management Integrated Process Team, provides direction, 
monitors progress, and establishes accountability for detained actions 
that need to be accomplished in order to achieve an unqualified opinion 
and improved financial management services.
    The AFIR&I Action Plan details specific actions for both our 
general and Working Capital Fund financial statements. It provides 
detailed taskings, responsible offices, estimated completion dates and 
the resources needed to achieve success. Accomplishment of the taskings 
requires significant effort on the part of our logistics and 
acquisition communities, as well as our accounting partners in DFAS.
    Our business rules that provide the methodology for proceeding 
include developing assertion packages that detail the issues, the 
systems, the policies and procedures, and any corrective actions taken 
to resolve those issues. This step also includes an internal validation 
process by our Air Force Audit Agency. Our assertion packages are 
subsequently assessed by a DOD executive committee to ensure that, 
prior to expending funds, the area is ready for audit.
    The Air Force has made significant progress over the past several 
years in identifying issues, developing solutions, and implementing 
corrective actions as documents in the AFIR&I Action Plan. However, we 
recognize that while much still needs to be done, we have a firm 
commitment throughout the Air Force to execute our plan.
    Recently, the General Accountability Office (GAO) critiqued our 
plan and offered several constructive recommendations that we are 
presently incorporating. Once complete, Air Force will integrate our 
plan without our Service counterparts' plans to create a consolidated 
DOD Financial Improvement Plan, which will also be more closely linked 
to BMMP milestones and objectives. That will be key because, remember, 
information required for financial statements must come from many 
different sources--logistics, acquisition, human resources, and others.
    Finally, the Secretary of the Air Force established the Air Force 
Audit Committee to help us improve the effectiveness of the financial 
statement preparation process and the unqualified audit opinion 
process. It is composed of non-Air Force individuals with extensive 
experience in Federal Government financial management. I personally met 
with the committee earlier this month and each member--all volunteers--
is excited about the prospect of helping us build and strengthen our 
financial management capability.
                         conclusion and summary
    I want to close, Mr. Chairman, by thanking you and members of this 
committee, on behalf of the Secretary and Chief of Staff, for your 
continued support of our airmen and their families in so many areas, 
particularly by providing them what they need to fight the global war 
on terror and defend the Nation. I'm personally grateful to the Armed 
Services Committee for the privilege of serving in this office and for 
your support of this important transformation.
    I am excited, enthused, and passionate about what we're doing. We 
have a powerful vision focused on delivering integrated business 
products and sophisticated financial services to our commanders and 
airmen. Our transformation plan is prudent, comprehensive, and 
disciplined by architectures, portfolio management processes, and 
oversight structures like the Commanders' Integrated Product Team. Our 
investments in people, processes, and information technology are 
designed to address our capability shortfalls so any reduction in 
funding these activities and projects will severely impact providing 
operational capabilities to the warfighter.
    We're fully aware of the magnitude and difficulty of this challenge 
and the hard work that lies ahead of us, but with your active 
participation and help and support for our plans--from BMMP to our 
Service equivalents, all of which form a solid framework to address our 
challenges--I am confident we will succeed and leave the Air Force and 
the Department more financially sound and capable of ``financing the 
fight'' for a promising future. Indeed, if we institutionalize these 
plans and build on the progress we've made to date, I believe this 
reform movement will enjoy the full support of succeeding 
administrations. I look forward to working with you and thank you again 
for this opportunity to address the committee.
                                 ______
                                 
[GRAPHIC(S) NOT AVAIALBLE IN TIFF FORMAT]
                                 
    Senator Ensign. Thank you. Let me start. We mentioned 2007 
for audits. Mr. Walker, you talked about how you didn't think 
that that was achievable, a realistic goal. You mentioned that 
a Chief Management Officer, Level II, be a term appointment 
with performance contracts, somebody with proven record in the 
private sector to come in. First of all, explain what you would 
include in a performance contract, such as measurable goals, as 
you would have in a private sector company. Imagine you were a 
new CEO before the board. Do you think if you said, ``Well, I 
do not think I can get there by 2007,'' that would be 
acceptable as a new CEO coming in?
    Mr. Walker. I think it is important, Mr. Chairman, to be 
truthful with you. If I was in that position and I was speaking 
to the board of directors, I would be truthful with the board 
of directors. You need to have goals, no question about it. You 
want to have goals that are aggressive but realistic and 
attainable. If they are not aggressive, realistic, and 
attainable, they are not credible.
    But what is more important, in addition to having goals, 
you have to have a comprehensive plan that has key milestones, 
that assigns responsibility and authority for achieving those 
key milestones, that also links institutional, unit, and 
individual performance measurement and reward systems for 
achieving those key milestones. If you are successful, you are 
rewarded and if you are not you are held accountable. That does 
not exist.
    Senator Ensign. Let me interrupt you right there. The 
reason that I asked the question the way that I asked--and 
Secretary Jonas, I want you to respond as well--is, the saying 
can be, when the standards are low, lower your standards. Just 
because the Department of Defense has been so pathetic at this 
over the years, do we say 2007, there is no way, even if we put 
the right reforms in place, that they could meet this----
    Mr. Walker. In my view, Mr. Chairman, it is not realistic 
to expect that the Department of Defense, with all the work 
that needs to be done--as Under Secretary Jonas said, they have 
dealt with two material control weaknesses but have 11 left. 
Yes, six entities now have opinions, clean opinions, up from 
three, but none of the major Services have yet to withstand an 
audit to get any type of opinion yet.
    So, being realistic--and by the way, I am a Certified 
Public Accountant (CPA) and I have had responsibility for 
auditing major entities in the private sector as well as being 
the audit partner on the consolidated financial statements of 
the U.S. Government. It is just not realistic to do it.
    On the other hand, it is very realistic to set specific 
goals and to have a plan that will achieve certain key factors, 
whether it be opinions on certain entities, whether it be work 
on specific line items, and to be able to demonstrate to this 
Congress and to the taxpayers that real meaningful and 
sustainable progress is being achieved, working towards getting 
a clean opinion on the consolidated financial statements of the 
DOD within a reasonable time frame.
    Senator Ensign. What is that reasonable time frame in your 
opinion?
    Mr. Walker. I cannot give you a date right now, Mr. 
Chairman, because without the plan I cannot give you an opinion 
on that. But coming back real quickly to what you had asked 
for, the reason this position is necessary is because 
realistically the Deputy Secretary of Defense has a full-time 
job without having to focus on business transformation. The 
business transformation challenges that we have are so 
critically important, and they are so interrelated, and they 
are so challenging that it is going to take the sustained 
attention of a top level executive for at least, I believe, 5 
to 7 years, at least 5 to 7 years.
    Now, personally, I believe that it is important that they 
move quickly without the legislation to identify a person and 
put them in place. But I believe it is in the interest of the 
DOD and the country to institutionalize this position, because 
these challenges are going to continue and the stakes here are 
very high.
    Senator Ensign. This person would be somebody who, 
regardless of--it would not be a political--it would be a 
political appointee, but it would cross regardless of who the 
administration was? In other words, this term would not expire 
at the end of an administration's term?
    Mr. Walker. That is correct. The idea would be, Mr. 
Chairman, that you are not talking about a policymaker. You are 
talking about an operational executive, and therefore----
    Senator Ensign. Not somebody who is a dove or a hawk----
    Mr. Walker. No.
    Senator Ensign.--or pro or anti----
    Mr. Walker. Correct. Let us face it, with the type of 
person you are talking about, if they do not get along with the 
Secretary they are not going to stay. I mean, you are talking 
about people that would do this because they want to do 
something for their country, not because they want to do this 
for the money.
    They would want to do it for the challenge, and it would be 
a major challenge. Those type of people, you are not going to 
have to worry about those issues, I do not believe.
    Senator Ensign. Secretary Jonas?
    Secretary Jonas. I do agree with David on many of his 
points, particularly regarding the progress that I think we can 
make. I have been back in the Department for just a few months, 
but when I came back I took a look at it and I asked the staff 
to brief me on the program. What became clear to me is there 
are certain financial line items and material weaknesses that 
result from a process problem and there are--for example, our 
environmental liabilities line is one area that I think we can 
make very substantial progress and hope to this year.
    Part of that is related to our estimating techniques, so I 
think we could make good progress there. But there are other 
line items that we will not be able to make progress on without 
systems improvement. I agree that it may take longer. I was not 
in the Department that set the 2007 date and at this moment I 
cannot say that we could not do that. But I do know from what I 
have seen that we have much work to do, and I do need a little 
bit more time to understand what I think is feasible.
    But I do think that they have made substantial progress, 
and I think taking apart the problem and attacking each problem 
one by one--for example, the financial line items--is a more 
feasible approach to this. I think it would allow us to 
demonstrate to Congress more of the work that actually is 
getting done. It is a big job to get a clean audit on the 
Department's statement, and I know we are the last--the biggest 
Department outstanding on a financial statement. There is 
nothing more that I would love than to be able to deliver a 
clean statement.
    But I do agree with what David has said. We need sustained 
leadership on it. I have spent a fair amount of my time so far 
on it. I know that other under secretaries and assistant 
secretaries are attacking the problem with me. I have spent 
time with the Secretary on this, particularly with respect to 
implementation of management information systems, which again 
crosses many lines, not just the financial area.
    But I do agree with many of the things that David has said.
    Senator Ensign. Secretaries Jonas and Baldwin, if you could 
maybe address then, when you talked about looking at pieces, 
can you address the pay problems with the Reserve and the Guard 
I talked about? I am sure you know that this is a fundamental 
problem. GAO still reports that these problems are continuing. 
I forget the numbers; of the 900 and some that they 
interviewed, 700 had pay problems.
    This is something that we addressed 6 months ago and it 
does not seem to be fixed. It is a fundamental problem. Let me 
ask first, how are you addressing it and when will this problem 
be fixed?
    Secretary Jonas. Certainly, I would be glad to start, and 
then if Secretary Baldwin wants to continue. There were 829 
Reserve component soldiers identified in GAO's report, 481 
Guard and 348 Reserve. We have addressed those concerns. This 
is actually a great example to pick to illustrate the types of 
problems that we have had with management information systems 
across the board.
    Let me tell you immediately what we have done. We are 
deploying a new system called the Forward Compatibility Pay 
System, which allows adjustments for allotments. What happens 
today is that a pay specialist spends about 2 hours at the 
current system that he has inputting manually adjustments when 
someone is put on active duty. That is pretty substantial in 
itself, but I am told that every month after that they have to 
go in and make sure, spend at least 30 minutes or so, checking 
to see that those things are still correct.
    So our systems, which are Vietnam era systems, have not 
been useful to this. The Forward Compatibility Pay System is 
due to be on line in the spring, March I am told, and that 
should address many of those problems. The Hardship Duty Pay, 
for example, that is one aspect of our pay, I am told that this 
system when implemented will prevent 420,000 manual 
transactions. So this is just one particular system and it is 
going to make a big difference. But this is compounded across 
the Department, which is exactly why we need to press these 
issues.

STATEMENT OF HON. VALERIE LYNN BALDWIN, ASSISTANT SECRETARY OF 
        THE ARMY (FINANCIAL MANAGEMENT AND COMPTROLLER)

    Ms. Baldwin. Senator, thanks for the opportunity to discuss 
this today. First of all, I want to assure you that pay is one 
of the biggest issues in the Department of the Army and it is 
at the highest level, sir. The Chief of Staff of the Army, the 
Vice Chief of Staff of the Army, the Sergeant Major of the 
Army, the Assistant Secretary of Manpower and Reserve Affairs, 
and myself, are working very closely on trying to resolve some 
of these problems, because, sir, you are absolutely right. 
Particularly in a time of war, but regardless, people deserve 
to get paid the proper amount and they deserve to get paid on 
time.
    Ms. Jonas addressed some of the short-term solutions that 
we are putting into place, and one of the keys I think to 
understand is that finance is one component part of pay. Vital 
to proper pay is knowing what entitlements a soldier is 
supposed to receive. That is not part of the finance portfolio. 
That is actually part of the Manpower and Reserve Affairs 
portfolio, and our two systems do not talk to one another. We 
have our own particular system.
    So from a finance perspective, we pay the soldier what they 
are supposed to receive based on the information that we have. 
If we do not know that they have been mobilized or if we do not 
know that they have actually gone from Kuwait into Iraq, we do 
not know what entitlements they should be receiving and as a 
consequence they continue to get paid at the amount that we are 
aware of.
    So with forward compatible pay we are trying to deal with 
some of those issues, but until we actually have a long-term 
solution, which is coming in the form of the Defense Integrated 
Military Human Resources System (DIMHRS)--I think everybody 
knows it by the acronym more than its long title--until we 
actually get DIMHRS online, the pay and the personnel systems 
will not be linked and we will be doing manual work-arounds.
    I will come back to DIMHRS. Another part of the short-term 
response for the Army is a very aggressive training program 
that we have put in place, where we actually have our finance 
people learning a whole lot more about what they need to be 
asking from soldiers as they go into country, so that we can 
try to get a handle on what entitlements they are supposed to 
be receiving.
    Linking back up to DIMHRS, that is the long-term solution. 
At this point, sir, it is supposed to be online--this is a 
Defense-wide system--it is supposed to be online I believe in 
March 2005. What is very important for us until that time is to 
begin to understand how the pay and the personnel are linked. 
We calculate that there are roughly 136 personnel actions that 
directly affect pay and we need to understand how that system 
works so that we can integrate it with our system so they talk 
to one another.
    If we can understand how all of these various actions 
impact pay and if we can begin to map for that in the systems 
that we have, then we are going to be in a very good position 
to link into DIMHRS. The Army has asked for DIMHRS to be--we 
asked to be the first organization to start using it because, 
sir, it is our biggest problem and we have to get a handle on 
it.
    We are hoping against hope that the testing goes well so 
that we can link into it, but we have a responsibility from now 
until then to begin to understand our system.
    Senator Ensign. Is DIMHRS a proprietary software?
    Ms. Baldwin. No, sir, I think part of it is a commercial 
off-the-shelf (COTS) system. I think PeopleSoft is what it is.
    Mr. Walker. It is almost all COTS.
    Ms. Baldwin. Yes, I think it is almost all commercial off-
the-shelf.
    What we need to do is make sure that our system, which is 
not a commercial off-the-shelf system, actually can talk, can 
be integrated into that PeopleSoft system. That is what we have 
to start working on right now.
    Senator Ensign. Mr. Walker, the solutions that they talk 
about over the next--when we do this hearing 6 months from 
now--and after you respond I want to hear from both of them 
again. When we have this hearing 6 months from now, what do you 
foresee as the response to the question that I just asked? In 
other words, what kind of problems are we still going to end up 
with? Do you foresee that solutions--is it going to be 10 
percent better, 50 percent better, 80, 90, 100 percent better? 
What is it?
    Mr. Walker. I cannot give you a percentage. I will tell you 
that as both of the Secretaries have mentioned, there are 
systems challenges and process challenges that exist that are 
not going to be fixed within 6 months. Therefore, 6 months from 
now I would expect that there are still going to be problems. I 
would expect that there would be some progress and there should 
be fewer problems on a relative basis, but there are still 
going to be problems.
    This is an example of the need to have a clear plan with 
specific things that need to be done, specific milestones, 
responsibility and accountability, what can be done in the 
short term, and some things that are going to require more 
comprehensive longer-term solutions like the new information 
system.
    Senator Ensign. Secretaries Jonas or Baldwin, are there 
specific goals in what you are doing for the short term and 
accountability if people are not meeting those goals? Is that 
put in place?
    Ms. Baldwin. I can answer from an Army perspective, but I 
think there is also--I think that Dr. Chu and Ms. Jonas are 
also working on this from the OSD side, because it is a defense 
system, not an Army system specifically.
    Senator Ensign. I understand.
    Ms. Baldwin. But from an Army position, the acting 
Secretary of the Army, Les Brownlee, signed a memorandum which 
was distributed to the entire command and all of the 
secretariat, that established a pay personnel council. The 
primary reason that we established this council is so that my 
finance folks could sit down with Mr. Brown's personnel folks 
and understand every single transaction that we have to 
undertake and understand how people become eligible to receive 
their entitlements, and begin to--right now, sir, 31 percent of 
our pay comes in late and we do not know why.
    We need to figure out what is not happening or what is 
happening, so that we can ameliorate those problems, if not 
eliminate them.
    Senator Ensign. So you have no idea, then, how to set those 
time lines because you have not identified the full problem 
yet; is that what you are telling me?
    Ms. Baldwin. That is part of it. We need to really sit down 
and identify the problems. Senator, let me just explain too. 
These problems are at all levels. Oftentimes we do not know, we 
do not have visibility on entitlements because they happen down 
at the unit level. This might be somebody who is in Iraq, on 
the front line, and their commanding officer has just--maybe 
they have had to go into harm's way that particular day and 
they are entitled to a special----
    Senator Ensign. Does this happen at the--do generals have 
problems with this?
    Ms. Baldwin. Sir, I do not think I will be revealing too 
much if I say that the Chief of Staff of the Army, when he came 
back on board, in fact had a pay problem.
    Senator Ensign. Is this widespread amongst----
    Ms. Baldwin. I think it is for the actions, Senator, that 
we have not expected to this point. With Reserve pay the reason 
we have this problem is because we had a system in place that 
was designed for somebody who reported once a month and did 
their monthly exercise. We did not have a pay system or we did 
not have a personnel system that recognized that you could come 
back onto active duty, and as a consequence the Chief had 
problems.
    So our systems are designed for a certain--in this case, 
for peacetime--and they were never designed to accept this kind 
of mobilization.
    Senator Ensign. The reason I asked that was not to be 
overly dramatic. The reason I asked that, I would guess that if 
this was a common problem amongst generals that it would be 
fixed very quickly. It would not take nearly as long to fix it 
if it was a common problem amongst generals. I do not think 
that there is anybody that could reasonably disagree with that 
statement. They would make sure top-down that this thing was 
fixed.
    Ms. Baldwin. I can tell you, Senator, that the Vice Chief 
of Staff of the Army has looked me in the eye and said: Get it 
fixed.
    Senator Ensign. Secretary Jonas?
    Secretary Jonas. I would just add, David Chu is working 
this problem with respect to DIMHRS very hard. I have my eye 
very close on the forward compatibility pay. DIMHRS just as an 
example is a combination of two military payroll systems and 80 
military personnel systems. So it gives you some idea of the 
complexity. The date is the second quarter of 2006 for the 
DIMHRS, and I think the Services are clamoring for the system.
    Senator Ensign. Mr. Walker, do you think DIMHRS will fix 
these problems?
    Mr. Walker. It is too early to say, Mr. Chairman. I think 
one of the problems that the Defense Department has, quite 
frankly, is it has too many layers, too many players, too many 
systems. I mean, it is unbelievable. I do not know who designed 
some of the systems we are talking about, but there clearly was 
not an accountability mechanism for it. You could not sell it 
to anybody.
    Senator Ensign. Where to begin on the next question. There 
are so many, and whatever questions that we do not get to 
today, I will submit them for writing and to make sure that we 
get some answers, so that we can have good follow-up in what we 
do next spring, when we do the follow-up hearing.
    Mr. Walker. Mr. Chairman, I was just notified from one of 
my very capable executives that the Reserve component pay 
system problem was around in Operation Desert Storm, so it has 
been there for a number of years; and that DIMHRS is in direct 
response to some recommendations that we made. But as I said, 
it is too early to tell whether or not that is going to in and 
of itself be effective. But it clearly is a step in the right 
direction.
    Senator Ensign. You said that the Reserve pay component 
thing was since Operation Desert Storm?
    Mr. Walker. That is correct, Mr. Chairman.
    Senator Ensign. But, Ms. Baldwin, you said that we had the 
system set up for somebody who is not--I mean, if this is 
something that you have experienced before?
    Ms. Baldwin. Yes, sir, it has been experienced before. In 
Operation Desert Storm, obviously, we were not prepared then. 
We were still operating on the fact that we thought people 
would only report once a month. DIMHRS has been the solution 
that we have been talking about at the Department of Defense 
for a good long time.
    We are keeping our fingers crossed that it actually comes 
together and can work. It has been a long time in coming and 
there is no question that this has been a long-term problem, 
absolutely.
    Senator Ensign. Would either of the other Services like to 
respond? You are probably thankful that you are under the radar 
right now. [Laughter.]
    But I would like to hear from you as far as the problems. 
You have made more progress, I understand, especially the Navy 
has made more progress on this. But maybe to just hear from 
your different perspectives?

 STATEMENT OF HON. RICHARD GRECO, JR., ASSISTANT SECRETARY OF 
         THE NAVY (FINANCIAL MANAGEMENT AND CONTROLLER)

    Mr. Greco. Sure, Mr. Chairman. Thank you very much. I 
appreciate also this opportunity to speak before you and the 
committee today.
    Fortunately, with regard to pay, it has not been a problem 
for the Navy, nor the Marine Corps. The Department of the Navy 
of course has two Services, the Marine Corps and the Navy. The 
Marine Corps uses one system, called the Marine Corps Total 
Force System, which is an integrated pay and personnel system, 
much like DIMHRS will be. We also plan as well to use DIMHRS 
once it becomes available to use online. With regard to forward 
compatible pay, it is scheduled for Navy implementation in 
March 2006. Until DIMHRS becomes available, at least for the 
Marine Corps, they will stay with their program, which works 
very well actually.
    Senator Ensign. Why do you think that? You obviously have 
Reserves. I mean, you have called up Reserves and it is 
working. You are not having significant pay problems. Would you 
agree with that, Mr. Walker, that they are not having the 
problems in the Navy and the Marines?
    Mr. Walker. That is my understanding. Let me say, the 
Marines have their act together, but in fairness, my son is a 
Marine Corps officer, so I want to disclose that. [Laughter.]
    Ms. Baldwin. Senator, I also think it is important to note 
that the Marines are all active duty. We do not have this 
problem in our active duty component. It is with the 
mobilization; our problem is with the Guard and the Reserve 
pay.
    Senator Ensign. Did not the Marines mobilize reservists?
    Mr. Greco. Actually, sir, I am not certain if the Marines 
in this conflict have called up Reserves. However, I do know 
that there is a Reserve component.
    Senator Ensign. We will find that out. I actually thought 
that they did as well.
    Mr. Greco. But I understand that, with regard to the Marine 
system, it is a single integrated system and there really are 
no significant----
    Senator Ensign. Mr. Montelongo, would you like to comment 
on what the Air Force is doing?

 STATEMENT OF HON. MICHAEL MONTELONGO, ASSISTANT SECRETARY OF 
      THE AIR FORCE (FINANCIAL MANAGEMENT AND COMPTROLLER)

    Mr. Montelongo. Gladly, Mr. Chairman. Let me just apologize 
for coming in just a tad late. I was passing in the hallway as 
I was going to the restroom and could not time it just right, 
so my apologies.
    I might add that we also in the Air Force have a similar 
challenge in terms of integrating pay and personnel systems 
that my colleague in the Army has already stated. As she had 
already outlined, we took the same or a similar approach in 
meeting the challenge that was facing us, and particularly with 
our mobilized force, our mobilized reservists and guardsmen, by 
doing something similar to what she has already outlined. That 
is bringing together the different constituencies that are 
involved in the total pay process, if you will. She has already 
outlined that, in terms of bringing our personnel colleagues 
together as well as the actual payers. The payer in this 
instance is the Defense Finance and Accounting Service (DFAS), 
for all the Services, actually cuts the checks.
    So there are primarily three constituencies that are 
involved in this process. Like Secretary Baldwin, we set up a 
Personnel and Pay Council where we bring these constituencies 
together and we work very hard on three areas. First, we 
integrate the people that are involved in this process, 
regardless of where the hand-offs and the intersection points 
are; second, we ensure our processes are as integrated as 
possible among those three constituencies; third, we make some 
of the near-term fixes in our personnel system as well as our 
pay system, so that we mitigate these kinds of pay problems.
    I will tell you that, thankfully, because of that effort I 
will put it this way: while we still have some issues, we are 
managing those, and they are not at the alarm level.
    Senator Ensign. By the way, Senator Collins' Military 
Legislative Assistant is a Marine reservist who is now serving 
in Fallujah because of being called up. So I do not know how 
widespread it is, but we at least know one around here was 
called up.
    For the Service Secretaries--are you aware of the 
legislation requiring review of your Service's business system 
investments before money is obligated?
    Ms. Baldwin. Yes, sir.
    Mr. Greco. Yes, we are.
    Senator Ensign. What assurance can you give us that your 
Service will identify and report on business system investments 
to the designated appproval authorities as required under the 
new legislation, and what steps will you take to ensure 
compliance?
    Ms. Baldwin. I guess as the senior Service I get to go 
first. Sir, I feel very confident that as far as our financial 
management systems we have a very good handle on the number 
that we have. We know what the system is. We in my domain, if 
you will, will be able to be very compliant. In terms of giving 
you asssurances, I can tell you that I feel very confident 
about that.
    One area in the Army that we are working on currently with 
our Chief Information Officer (CIO), also known as the G-6 in 
our parlance, is putting together a plan that creates domains, 
business domains, in the other functional areas of the Army. 
Once we are able to do that, those domains will then begin 
identifying their systems. They have really already begun to do 
this.
    Senator Ensign. Give me an example.
    Ms. Baldwin. For example, with the logistics domain, they 
have a fairly good handle on their various systems and they 
know what they would like to move to. It is called the 
Logistics Management System.
    Mr. Walker. Modernization Program.
    Ms. Baldwin. The Logistics Modernization Program (LMP). 
Then also Global Combat Support System (GCSS)--Army, which is 
an inventory system at the installation that monitors what the 
folks need at the installation level.
    Senator Ensign. Does it make sense for the Army--each one 
of you have all of your own little businesses, business 
systems. We have 4,000 of them. Does it make sense to maybe 
have some of the same ones across? There may be a few that are 
Service-specific, but as we have seen with all kinds of other 
weapons systems and various things, that it makes a lot more 
effficiency to do it across the Services. In other words, just 
like the pay thing, it seemed like the Navy had their act 
together maybe a litttle better and things are working fairly 
well. Does it seem to copy systems instead of reinventing the 
wheel?
    Ms. Baldwin. I think that depends on the business, sir. I 
mean, all of the Service components have different types of 
businesses that they operate. So there may be opportunities for 
us to utilize, basically to reap the benefit of somebody else's 
good experience. I know, for example, with the Department of 
Army, we are in the financial management world, we are planning 
to put together a general fund enterprise business system, and 
there is discussion that some of the other Service components, 
if we can get it deployed in a workable way and tested, might 
be interested in that.
    Obviously, it makes sense potentially for us to look at 
civilian pay to see if we can have similar systems there, 
possibly with procurement. But those are business domains that 
are outside my particular area, so it is awkward for me to tell 
you specifically whether or not I think that those systems can 
be shared across the Services.
    But at least the civilian pay--we all pay our civilians 
exactly the same way.
    Senator Ensign. I want Mr. Walker to comment, but I want to 
hear from the other Services first.
    Mr. Walker. Mr. Chairman, absolutely positively they ought 
to be pursuing opportunities to develop shared systems in 
certain functional areas across the Services. I am on the Joint 
Financial Management Improvement Program along with the 
Secretary of the Treasury, the Director of the Office of 
Management and Budget (OMB), as well as the Director of the 
Office of Personnel Management (OPM). We have an initiative 
underway right now to consolidate the number of payroll systems 
that are used by executive branch agencies.
    I see no reason why there would not be an effort to do the 
same thing to the extent possible and appropriate within the 
Defense Department. Furthermore, I would say this is an example 
of where having a chief management officer can facilitate 
establishment of comprehensive and integrated enterprise-wide 
solutions. Right now you do not have that.
    I would come back to what I said before, Mr. Chairman. 
Linking resources with responsibilities is very important. That 
is not done right now. Furthermore, while I think the recent 
legislation is a step in the right direction and it deals with 
new business investments, it does not deal with the billions of 
dollars that are spent every year on maintaining outmoded 
legacy systems that are not stay-in-business essential systems.
    I mean, there are billions of dollars being spent on those 
4,000-plus systems that are wants rather than needs, and they 
are taking vital resources that otherwise could be used to 
create a better future.
    Ms. Baldwin. May I speak to that? One of the key aspects of 
performance or portfolio management is identifying 
redundancies. We have taken some good steps in that regard. 
Each of the domains have portfolio management tools. As I 
described in my testimony, our repository of all these systems, 
we have enough detail that we need, including the resources 
associated with those systems.
    So what the tool does is it tells you what you are spending 
in terms of what we call legacy systems. It identifies areas 
where there might be cost growth. In this particular graph that 
I looked at, it tells you if there is a 10-percent growth in a 
particular legacy system. What we have done and we are doing 
through this budget process is using our program planning 
process to make sure that we clamp down on that type of 
spending.
    So I think we are completely in agreement here. We are not 
interested--the $5.2 billion that is spent on business systems, 
we want to get at that excess systems spending. So that is why 
the architecture is important, that is why these tools are 
important, and again that is why we are looking forward in this 
budget to controlling certain types of investment.
    Senator Ensign. Thank you.
    Mr. Greco. Thank you, Mr. Chairman. I have been in my job 
now for about 3 weeks and in that time I have had the chance to 
meet with all those who are involved in this whole process, and 
I have been very impressed with their commitment to the effort, 
to business modernization, and have learned a great deal from 
them.
    Just to give you an idea of the scope of what has been done 
in terms of, for example, systems reduction, the Navy has gone 
from 67,000 different systems now to about 7,000 systems 
Department-wide. Just in the area of financial management, my 
area, we have gone from about 2,000 systems to 338 systems. So 
there has been significant reduction and significant commitment 
to this, and I think that will continue, especially because as 
we implement our enterprise resource planning programs they 
need to be in compliance with the BMMP and the enterprise 
architecture, which in theory, even if each of our Services 
implemented different programs such as enterprise resource 
planning, so long as they are compliant with the architecture 
they should work, and they basically are united in that way by 
being compliant with the overall Department of Defense effort 
at creating a system of rules which allow systems to talk to 
one another.
    So that is something that I am committed to. That is 
something that I have seen over the last 3 weeks that my staff 
is committed to. So in answer to your question, how can we 
assure you, I do assure you that we will continue very 
seriously, as the past record has shown.
    Senator Ensign. Secretary Montelongo.
    Mr. Montelongo. Mr. Chairman, let me echo what my 
colleagues have already stated, and that is a commitment to in 
fact making sure that we do meet the requirements that are set 
out in the National Defense Authorization Act. Just like they 
have already stated, we also have a very comprehensive 
portfolio management process in place. It is headed by our CIO. 
We partner with the CIO to make sure that whenever we grade 
each system, particularly each business system that we have in 
the Department of the Air Force, that it does comply with 
standards as well as being business case relevant.
    So on the one hand, it is an issue of standards and also 
looking at the economics. So we do that, not just as the 
Comptroller General is concerned about, in terms of the 
development of new systems, but also in terms of applying that 
same scrutiny and discipline to the sustainment of existing 
systems.
    In the Air Force, for instance in terms of overall IT 
spending, we are probably at about 9 percent in fiscal year 
2005--that we are executing right now in terms of the overall 
spending on business systems, which is down from about 11 
percent or so that we had last year.
    Then overall, our spending on business and combat support 
IT is roughly about half of what you would find in some of the 
comparable DOD agencies. So we feel that the success that we 
have had there is attributable to the discipline and the rigor 
that we have put in this portfolio management process. I am 
just about ready to send up a memorandum, notifying the 
Department of the Air Force that we are going to get very 
serious about this issue, to the point that we will be 
withholding funding if, once again, any of the systems do not 
pass the scrutiny that I have just laid out in terms of being 
standards-compliant and also business case relevant.
    Senator Ensign. Mr. Walker, maybe you can address the idea 
you talked about of a Chief Management Officer (CMO), this 
Level II person. First of all, just maybe a nodding of the head 
from the Services: do you agree that the comprehensive Business 
Enterprise Architecture is critical to this whole 
transformation that is taking place? Would you all be in 
agreement with that? No, yes?
    Ms. Baldwin. Yes.
    Senator Ensign. Yes, I see. Let the record show they were 
all ``yes'' nods.
    The question for you, Mr. Walker, is, without this Level II 
person with the expertise needed, evaluate how you think that 
what they are doing will work?
    Mr. Walker. First you have to have a plan, and they still 
need to work on developing a comprehensive and integrated plan 
for each of these key areas--BMMP, financial management, et 
cetera--with key milestones, assigning responsibility and 
authority. I would respectfully suggest, Mr. Chairman, if you 
are going to hold this hearing every 6 months, one of the 
things that if I were you I would want to know is what can I 
expect is going to be accomplished the next time we meet, such 
that you can ascertain whether or not in fact it has been 
accomplished, if you will, the next time that we meet.
    Senator Ensign. That question will be submitted to each one 
of you in writing, because I do not expect you to be able to 
answer it here. But I want it for the record so that we will be 
able to review.
    Mr. Walker. So we need that plan. With respect to have a 
CMO, let me tell you why I think this individual is critical. 
The undertaking at the Department of Defense is unprecedented 
as to size, scope, and complexity. There are many different 
layers, players, and units that have to get involved. There are 
a number of under secretaries who have to be involved in 
achieving a solution here. The Service Secretaries and their 
key support also have to be involved.
    I come back to what I said before: who is in charge? It is 
totally unrealistic in my opinion to expect the Deputy 
Secretary of Defense, with all that is going on in today's 
world, to expend the amount of time necessary to focus on this. 
I think it is unrealistic to expect that they will ever be able 
to spend the time necessary. Plus, the Deputy Secretary of 
Defense may or may not even have the type of management and 
operational executive background that makes it conducive 
towards that person doing this.
    You have to have somebody who has the background, a proven 
track record, who is at the right level, who can make sure that 
they can hold the appropriate persons responsible and 
accountable for results, who is going to be there long enough 
to be able to demonstrate patience, persistence, perseverance, 
and experience pain before you prevail. That is going to take 5 
to 7 years plus.
    We are not set up for success without that.
    Senator Ensign. Thank you.
    I guess one final question that I would ask of you all is, 
because--this has maybe been a little rough being up there 
today, and I do not apologize for that, simply because I think 
it is important that we have this accountability, as I talked 
at the beginning. But I also want to hold us accountable for 
our jobs that we are doing up here.
    So my question now is to you: how can we help you do this? 
It is okay if you do not want to respond on the record right 
now. If that is something you want to think about over the next 
week or 2 weeks and get back to us in writing, that would be 
fine. If you want to make a statement on the record right now, 
that would be fine as well.
    But I think the suggestion--I have actually thought about 
this before, Mr. Walker, and I think that your suggestion on 
this Level II person, I want to think that through exactly how 
that would work. But it seems to, just on the surface, make a 
heck of a lot of common sense. But what else can we do to help 
you all? We all want the same goals. There is no question. You 
people are doing this because you are passionate about what you 
do and I appreciate your service to this country, and that is 
why I am doing my job here.
    So how can we now help you?
    Secretary Jonas. Mr. Chairman, first of all, I would like 
to thank you for the support that we have gotten from the 
committee. I have only, as I say, just been back a few months. 
But very grateful--we are very grateful for the help that you 
have provided in the legislation.
    With respect to David's comment, if I just may say, I have 
spoken many times since I have been back to the Secretary on 
some of the issues we have. He is passionate about this. He 
understands that if we make improvements in the business area 
every single dollar we save in the business area goes into the 
warfighting mission, and that is absolutely where we all are.
    But it does take a lot of hard work and hours that we are 
all committed to. We have several of the under secretaries 
involved, many assistant secretaries obviously here. What David 
has described is something regarding what we call horizontal 
integration, and that is a technical kind of a term, but really 
the problem is working across the Department. So while I would 
not be prepared to give the Department's position on what he 
suggested, I would say that the Deputy and the Secretary are 
extremely involved. If they had many more hours in the week--we 
have their attention, we have their full authority on this. 
They are very committed to it.
    So I just wanted to extend our appreciation and our 
commitment on the part of the Department to work this through.
    Senator Ensign. Yes, Mr. Walker?
    Mr. Walker. Mr. Chairman, let me also say that I sit as an 
observer on the Defense Business Board, which advises the 
Secretary and the Deputy Secretary, and I know they have 
recommended that this position be created and they unanimously 
feel that it is essential for success.
    Second, let me also compliment you on asking the question 
that you did. I have testified many, many times before the 
Senate and the House and I think you are to be commended for 
asking what do we need to do, because it is a two-way street, 
and it is going to take the combined efforts of Congress and 
the executive branch to solve this problem. There is no doubt 
about it.
    Senator Ensign. Let us make sure that we come up with 
suggestions, since I asked the question. But like I said, do 
not feel pressure answering that question today. If you would 
like to, that is fine.
    Secretary Jonas. Mr. Chairman, I may have a little bit more 
that I would like to say, but one thing that I think you can be 
extremely helpful to us with is something that I actually said 
in my statement, which is we need your help communicating the 
power of an integrated system to our uniformed and civilian 
leaders, because the information that can be extracted from an 
integrated system is vital to the warfighter and it is vital to 
the way they have to make business decisions.
    If we can convey that power to them more effectively than 
we have, as opposed to just telling them: ``this is a way we 
can get an auditable financial statement,'' then I think that 
we will have done our jobs.
    Senator Ensign. Great suggestion.
    Mr. Greco. I also would like to thank you and the committee 
for your support that you have shown in this effort, which of 
course is extremely important, and your understanding of the 
challenges that we face and the complexity of the issues, and 
accept our commitment to addressing this with the seriousness 
that it deserves.
    We would very much welcome to see continued support for the 
investments that we have made in this, as you have done in the 
past. I would be happy to provide more detail in writing to 
you. Thank you.
    Senator Ensign. Thank you.
    Mr. Walker. I have one comment, Mr. Chairman, which I think 
is directly relevant to your question. After the Defense 
Department puts together its comprehensive and integrated plan 
and after it presents that plan and Congress and your key staff 
have an opportunity to review it and feel comfortable with it--
and you may ask our comments on it, which we will be happy to 
provide that--there is no question in my mind there are a lot 
of people going to come up here and they are going to say, and 
it is primarily going to be from the Services: We like the 
status quo. Because, let us face it, whoever controls the 
people and whoever controls the dollars has the power.
    So one of the things that is going to have to happen is, 
not only within the Department, but Congress is going to have 
to, once the plan is agreed to and once you feel comfortable 
with it, stick with it and make sure that the Department is in 
a position to be able to deliver on it, because there are 
strong cultural issues here and there is going to be a lot of 
resistance to giving up control of some of these things. But it 
is necessary for us to get to where we need to be.
    Senator Ensign. Mr. Chairman of the full committee, we 
appreciate your coming by and showing your interest. Today we 
have had a very spirited conversation, and well worthwhile.
    Senator Warner. I judged that. Well worthwhile.
    Senator Ensign. It has been really one of, I think, the 
best hearings that this subcommittee has ever had, and we have 
some great commitments from the Services and the DOD to move 
forward so that we are doing the best with the dollars that we 
provide them. We have some great suggestions on what we can do 
for them and what they can do for themselves.
    So we look forward in 6 months from now, they are going to 
come up with exactly what we can expect from the progress, or 
at least estimates on what they think the progress they can 
make in the next 6 months, when we do the next hearing on this 
particular issue. As we are working forward together to try to 
help them maybe with some legislation that will even advance 
what we are trying to do here on using the dollars, improving 
the systems, making sure that there are not pay problems with 
the Guard and the Reserve, making sure that we know where our 
inventories are, how much we have, where tanks are, where 
planes are, where bullets are, the various things.
    I think that, working together, we will not just transform 
our military from a Cold War to a modern fighting force in 
those regards, but we can also transform it into an efficient 
business systems type of a model where we are using the dollars 
efficiently.
    Senator Warner. That is certainly a goal that we must 
achieve.
    Secretary Jonas, we welcome you. Is this your first 
appearance?
    Secretary Jonas. Yes. The first one was my confirmation 
with you, sir.
    Senator Warner. That was hardly an appearance of this 
magnitude.
    Secretary Jonas. It was a good opportunity, sir.
    Senator Warner. That is good. We congratulate you for your 
efforts.
    Secretary Jonas. Mr. Chairman, I appreciate it.
    Senator Warner. Thank you, Mr. Chairman, for undertaking 
this.
    Senator Ensign. Thank you.
    Senator Warner. The more work that he does, the less I have 
to do. [Laughter.]
    Senator Ensign. The subcommittee will stand adjourned.
    [Questions for the record with answers supplied follow:]
               Questions Submitted by Senator John Ensign
                       chief management official
    1. Senator Ensign. Ms. Jonas, in your opinion, would the 
appointment of a Chief Management Officer (CMO) whose main focus would 
be on business transformation issues and who would be appointed for a 
term of 5-7 years, be needed for the Department to succeed in its 
transformation efforts?
    Secretary Jonas. It is difficult to say whether a CMO focused on 
business transformation would be any more effective than the current 
operating structure within the Department. The CMO concept for DOD has 
been employed in the past with mixed results. I do believe, however, 
that simply appointing a new senior manager in the Department would not 
necessarily break down the institutional barriers that act to impede 
our transformation progress. While I respect the Comptroller General's 
perspective on this issue, I believe that the Secretary of Defense has 
appropriately delegated business transformation leadership to his Under 
Secretaries of Defense and the Secretaries of the military Services. 
Our challenge, as his designees, is to work collaboratively to achieve 
the Secretary's business transformation priorities without forcing the 
creation of an additional layer of management.

                        financial audit opinion
    2. Senator Ensign. Mr. Walker, one objective of DOD's Business 
Management Modernization Program is to obtain an unqualified opinion on 
its fiscal year 2007 financial statement. Do you believe that the DOD 
has a realistic, comprehensive, integrated plan with appropriate 
accountability mechanisms in place to achieve its goal of a clean audit 
opinion in fiscal year 2007?
    Mr. Walker. No, consistent with our report of September 2004,\1\ 
DOD's goal to obtain an unqualified audit opinion on its fiscal year 
2007 consolidated financial statements is still not supported by a 
comprehensive and integrated plan. Although most of the DOD components, 
including the Army, Navy, and Air Force, had submitted improvement 
plans to the DOD Comptroller, we reported that DOD had not yet 
developed an integrated departmental strategy, key milestones, 
accountability mechanisms, or departmental cost estimates for achieving 
its fiscal year 2007 audit opinion goal. In our opinion, the Department 
is not yet in the position to obtain a clean opinion on its financial 
statements by 2007. In fact, the Army recently informed DOD's 
Comptroller that the Army would not achieve an unqualified audit 
opinion before fiscal year 2010.
---------------------------------------------------------------------------
    \1\ GAO, Financial Management: Further Actions Are Needed to 
Establish Framework to Guide Audit Opinion and Business Management 
Improvement Efforts at DOD, GAO-04-91OR (Washington, DC: Sept. 20, 
2004).

    3. Senator Ensign. Ms. Jonas, realizing that an audible financial 
statement is not the goal in and of itself, but rather that 
unauditable, unreliable data is merely symptomatic of poor oversight 
and accountability, will the 2007 audit be a productive use of limited 
funds?
    Secretary Jonas. Performing extensive audit procedures on financial 
statements that are not ready for audit would not be a productive use 
of limited funds. In addition, section 1008 of the National Defense 
Authorization Act for Fiscal Year 2002 specifically requires that the 
Inspector General minimize the use of audit resources when management 
represents the statements as unreliable. The Department has developed 
rigorous business rules to ensure that statements are reliable before 
representing to the Inspector General that the statements are ready for 
audit. We will only ask the Inspector General to audit statements that 
are deemed ready for audit as demonstrated by compliance with the 
business rules. If all of our financial statements are not ready for 
audit in fiscal year 2007, we will not request that the Inspector 
General audit them. Our prudent approach ensures that we properly 
prioritize efforts and comply with the law.

             system investment reviews ($1 million review)
    4. Senator Ensign. Ms. Jonas, Congress recently passed a law (the 
Ronald W. Reagan National Defense Authorization Act for Fiscal Year 
2005) reinforcing existing statutes that require all business system 
modernization investments totaling over $1 million be reviewed and 
approved for consistency with the Business Enterprise Architecture. Has 
DOD established a process that will enable it to identify and certify 
all systems that meet the $1 million threshold prior to funding as 
required by the 2005 Authorization Act? If yes, please describe this 
process and the effective date.
    Secretary Jonas. Yes. The Department had previously established a 
systems review and certification process, in accordance with existing 
statutes, as defined in recent Defense Appropriations Acts, for 
business systems modernization investments. The process begins with the 
system owner filling out a detailed questionnaire, which is composed of 
a standard set of questions and additional domain specific questions. 
This information, and its supporting documentation, is reviewed by the 
business domain subject matter experts, Assistant Secretary of Defense 
(Networks and Information Integration) (ASD(NII))/CIO experts on net-
centric design against the existing Business Enterprise Architecture 
and Business Transformation objectives, and the cognizant financial 
authority to validate the economic analysis. The BMMP Program Office 
(BMSI) performs a final check to assure that all stakeholders have 
completed their reviews. If acceptable to all stakeholders, the package 
is sent to the comptroller recommending certification. Noncompliant 
systems are returned to the system owner for issue resolution. The 
Department used this process to review and certify systems in fiscal 
year 2004 and fiscal year 2005.
    Additionally, in October 2004, the DOD CIO issued guidance 
requiring DOD components to enter into a central database all business 
systems with planned expenditures of $1 million or more in any year of 
the Future Years Defense Plan. This month (January), the database will 
be populated with detailed data from the DOD components. This database 
will allow the Department to more accurately identify systems that meet 
the threshold for review and therefore enable improved scheduling of 
future system reviews and approvals.
    According to the NDAA for Fiscal Year 2005, the process for 
certifying systems is the responsibility of the approval authorities--
Under Secretary of Defense (Acquisition, Technology, and Logistics) 
(USD(AT&L)), Under Secretary of Defense (Comptroller) (USD(C)), Under 
Secretary of Defense (Personnel) (USD(P&R)), and ASD(NII)--and must be 
defined and in place by March 2005. DOD is currently working to ensure 
that all the approval authorities will have their Investment Review 
Boards in place by that time, and use a standardized process and set of 
criteria.

    5. Senator Ensign. Ms. Baldwin, Mr. Greco, and Mr. Montelongo, are 
you aware of the legislation requiring review of your Service's 
business system investments before money is obligated?
    Ms. Baldwin. Yes, I am aware of this requirement. The analysis and 
categorization of our financial systems will be completed in the next 6 
months. We will use the information from this analysis, and work with 
our CIO, to ensure compliance with this requirement. The Army has, 
through several communications vehicles, disseminated information to 
the field regarding this requirement. The Army CIO in coordination with 
the Assistant Secretary of the Army (Financial Management and 
Comptroller) has implemented procedures to expedite Army's review of 
business IT investments prior to submission for OSD certification.
    Mr. Greco. Yes, I am aware of the legislative requirement. My staff 
is working with the Department of the Navy CIO to put procedures in 
place to ensure compliance.
    Mr. Montelongo. Senator Ensign, the Air Force is fully aware of the 
legislation requiring review of business system investments before 
money is obligated. The Air Force took the necessary steps adhering to 
the 2004 legislation requiring approval of investments exceeding $1 
million in business systems. The Air Force also understands that 
investments in excess of $1 million, without prior certification/
approval, will result in an Anti-Deficiency Act Violation effective 1 
October 2005.

    6. Senator Ensign. Ms. Baldwin, Mr. Greco, and Mr. Montelongo, what 
assurance can you give us that your Service will identify and report 
all business system investments to the designated approval authorities 
as required under the new legislation and what step will you take to 
ensure compliance?
    Ms. Baldwin. In order to ensure compliance, the Army is 
establishing business processes to identify and report all IT business 
system investments through the appropriate OSD domain to the OSD 
Comptroller. The Army has established close working relationships with 
the OSD domains, the Business Modernization and System Integration 
office, and the OSD Comptroller to maximize awareness of those systems 
requiring certification. The Army has also established the Army IT 
Portfolio Review Committee, whose purpose is to work with the Army 
domain owners to identify business systems that require certification 
because of the level of investment. This internal Army process will not 
only ensure the Army and OSD are in agreement on the business systems 
requiring certification, but also, as part of the review process, to 
ensure accuracy of reporting in the certification process.
    Mr. Greco. The Department of the Navy Chief Information Officer 
(DONCIO) coordinates compliance within the Department of the Navy. 
DONCIO uses an authoritative database to identify investments which 
require approval and to track them through final certification. DONCIO 
makes modifications to the department's Application and Database 
Management System to highlight essential information in this process.
    Mr. Montelongo. Senator Ensign, the Air Force gives you full 
assurance that all business system investments will be identified and 
reported to designated approval authorities as required under the new 
legislation.
    In order to govern system investments, the Secretary of the Air 
Force and Chief of Staff I created a BMMP analogue called the Air Force 
Operational Support Modernization Program (to emphasize the warfighter 
linkage) and chartered a Commanders' Integrated Product Team (CIPT). 
The CIPT is led by the Deputy Chief of Staff, Warfighting Integration 
(AF/XI) with the Air Force Chief Information Officer (AF-CIO) as the 
vice chair. The CIPT membership includes Major Command (MAJCOM) 
representation and business domain representatives mirroring the DOD 
BMMP domains where we are full partners with our DOD and Service 
colleagues in five areas: human resource management, acquisition, 
accounting and finance/strategic planning and budgeting, logistics, and 
installations and environment. Together, we work through these domains 
to promote and achieve broad BMMP goals.
    All our business modernization funding and efforts will be overseen 
by the CIPT governance structure outlined above. To accomplish this 
oversight, the AF-CIO has implemented a comprehensive IT portfolio 
management process that is consistent with the provisions of the 
National Defense Authorization Act for Fiscal Year 2005.

    7. Senator Ensign. Mr. Walker, do you believe the oversight and 
governance provisions from the National Defense Authorization Act for 
Fiscal Year 2005 are a step in the right direction?
    Mr. Walker. Yes, the business system modernization oversight and 
governance provisions of the Ronald W. Reagan National Defense 
Authorization Act for Fiscal Year 2005 \2\ were clearly a positive step 
toward defining the roles and responsibilities of business system 
investment approval authorities. Further, the new legislation \3\ 
clearly describes business system investment reporting requirements and 
criteria for determining when an obligation of funds for a business 
system modernization effort would be considered a violation of the 
Anti-Deficiency Act.\4\ However, it is important to ensure that the 
approval authorities identified in the new legislation also have the 
commensurate authority for effectively performing their new roles and 
responsibilities. Accordingly, we propose creating a chief management 
official position and making this person chairman of the Defense 
Business Systems Management Committee, responsible and accountable for 
business system investment funding and the approval authorities under 
the act. As I testified in November 2004,\5\ the complexity and long-
term nature of DOD's business transformation efforts requires strong 
and sustained executive leadership over a number of years and various 
administrations. Our proposal is aimed at ensuring that such executive 
leadership can occur.
---------------------------------------------------------------------------
    \2\ Ronald W. Reagan National Defense Authorization Act for Fiscal 
Year 2005, Pub. L. No. 108-375, Sec. 332, 118 Stat. 1811 (Oct. 28, 
2004) (codified, inpart, at 10 U.S.C. Sec. Sec. 185, 2222).
    \3\ P.L. 108-375, Sec. 332.
    \4\ 31 U.S.C. Sec. 1341(a)(1)(A).
    \5\ GAO-05-140T.

 definition of systems and differences between the navy and the office 
                 of the secretary of defense testimony
    8. Senator Ensign. Mr. Greco, in your written statement you note 
that the Navy has reduced the number of financial systems from 2,000 in 
2001 to 338 in 2004. At the same time the Department's inventory of 
systems has grown from a few hundred in 2001 to over 4,000 today. How 
could the Navy have had 2,000 systems in 2001 when the Department was 
reporting less than 1,000 systems?
    Mr. Greco. As leader of the Financial Management Functional Area, I 
can discuss the progress in reducing the number of finance and 
accounting systems. My answer here includes only the tally for 
financial management systems. The 2,000 financial systems I cited in my 
testimony was the Navy's total from a user survey preceding Navy-Marine 
Corps intranet implementation. We immediately recognized some double-
counting of systems among users, which we subsequently eliminated; we 
also identified different systems which replicated functionality and 
encouraged major commands to use the ``best of breed.'' After these 
actions, the total number of financial systems was set at 338. Included 
among these 338 systems are about 80 non-Navy systems managed by 
Defense Finance and Accounting Service but used by my Department.

    9. Senator Ensign. Ms. Baldwin, Mr. Greco, and Mr. Montelongo, what 
is your definition of a system and is it the same as the Army, Air 
Force, and DOD definition of a system?
    Ms. Baldwin. In April 2004, the BMMP Steering Committee agreed to 
the following definition of a system: ``A set of information resources 
organized for the collection, storage, processing, maintenance, use, 
sharing, dissemination, disposition, display, or transmission of 
information.'' This definition is in the DOD IT Registration Guidance 
dated December 21, 2004, and is consistent with the Army's definition 
of a system.
    Mr. Greco. The Department of the Navy uses the definition found in 
the Department of Defense Information Technology Registration Guidance 
dated 21 December 2004: ``. . . a set of information resources 
organized for the collection, storage, processing, maintenance, use, 
sharing, dissemination, disposition, display, or transmission of 
information.'' This recently published definition is important because 
all of the components now share a common definition; the definition 
will guide us as we proceed with portfolio management.
    Mr. Montelongo. Sir, the Air Force uses the Assistant Secretary of 
Defense for Command, Control, Communications, and Intelligence Networks 
and Information Integration (OSD/NII) definition. Recently, OSD/NII 
conducted a request for information from the individual components. In 
their October 20, 2004 letter they stated: ``the definition of a 
Business Management Modernization Program (BMMP) system is a set of 
information resources organized for the collection, storage, 
processing, maintenance, use, sharing, dissemination, disposition, 
display, or transmission of information.'' (DOD Directive 8500.1, 
``Information Assurance,'' October 24, 2002, Certified Current as of 
November 21, 2003). We follow the OSD definition and provide 
information based on their definition.

    10. Senator Ensign. Ms. Jonas, I'm sure you are aware that DOD 
reported that the entire Department had less than 1,000 systems in 
2001. The Navy Comptroller is reporting today that Navy alone had 2,000 
systems in 2001 and has eliminated 1,662 financial systems in the last 
3 years. How can you reconcile this seemingly inconsistent information?
    Secretary Jonas. In 2001, the Financial Management Modernization 
Program (FMMP) required the DOD components to submit a listing of all 
financial management systems and financial feeders in their inventory. 
In May 2003, the program scope was expanded to include all DOD business 
processes, and the program was renamed the Business Management 
Modernization Program to reflect this expanded scope. Consequently, 
later updates to the Business Mission Area system database were not 
limited to financial management systems but included, by design, the IT 
systems fitting this broader definition encompassing all DOD business 
systems.
    Today, military departments and defense agencies have a better 
understanding of the scope and mission of BMMP, a clearer understanding 
of system inventory reporting requirements, and a consistent definition 
of a business system. Furthermore, the Business Mission Area systems 
information is being consolidated into a single military headquarters 
database, known as the DOD Information Technology Portfolio Repository 
(DITPR), to ensure that one reliable, authoritative source exists for 
reporting DOD business systems, while serving as the principle tool for 
military department CIOs to use to manage IT resources within their own 
departments. These factors will allow the Department to report business 
system inventories more accurately.

              services' plans compared with dod's program
    11. Senator Ensign. Ms. Baldwin, Mr. Greco, and Mr. Montelongo, 
each of you appear to have separate architectures and processes and 
view your Service's systems as a ``portfolio.'' You also refer to 
various solutions you are developing to your Service's problems. Under 
the 2005 Authorization Act, domains are established for the Department, 
with a focus on developing department-wide, integrated solutions. 
Please reconcile how your Service portfolio management reconciles with 
DOD-wide portfolio management.
    Ms. Baldwin. The Army domain structure and portfolio management 
process will follow published DOD standards. These standards will 
enable the Army's portfolio to serve as a subset of the larger DOD 
portfolio. The Single Army Financial Enterprise architecture ensures 
the Army's financial business systems and processes comply with the DOD 
Business Enterprise Architecture. 
    Mr. Greco. The Department of the Navy participates in a senior 
working group developing a Department of Defense directive governing 
portfolio management within all components. In this group, we are 
sharing the portfolio management experiences of our department of the 
Navy functional area managers.
    Mr. Montelongo. Senator Ensign, the Air Force is fully engaged and 
integrated with DOD-wide portfolio management efforts.
    In order to ensure Air Force integration with DOD BMMP efforts, the 
Secretary of the Air Force and Chief of Staff chartered a CIPT. The 
CIPT membership includes MAJCOM representation and business domain 
representatives mirroring the DOD BMMP domains where we are full 
partners with our DOD and Service colleagues in five areas: human 
resource management, acquisition, accounting and finance/strategic 
planning and budgeting, logistics, and installations and environment. 
Together, we are working through these domains to promote and achieve 
broad BMMP goals. As part of this effort, the Air Force provides DOD 
architectural information to support their analysis and thereby 
contributes to a federated set of interrelated architectures. After 
needs for new solutions are defined through internal Air Force 
analysis, the Air Force works with the appropriate DOD BMMP domains to 
coordinate the most appropriate solution. The Air Force portfolio is 
also coordinated with DOD and is a subset of the DOD portfolio.
    An excellent example of a department-wide, integrated solution is a 
project being developed under the DOD BMMP and consistent with our 
Enterprise Architectures is the Defense Enterprise Accounting and 
Management System (DEAMS). The current Air Force accounting system has 
been with us since the early 1960s. DEAMS is well-positioned to replace 
a number of antiquated Air Force and U.S. Transportation Command 
(USTRANSCOM) systems with a new commercial off-the-shelf (COTS) finance 
and accounting system that will process and record all budgetary, 
accounting, and vendor pay transactions; we will use this opportunity 
to perform business process reengineering and implement industry best 
practices throughout the Air Force. As an approved BMMP pilot project, 
DEAMS is being developed by a joint Air Force, USTRANSCOM, and DFAS 
team based outside of Scott Air Force Base and demonstrates a 
continuing trend toward DOD-wide--rather than component-specific--
business and operational systems. The DEAMS Executive Steering Group 
includes representation from the Air Force, Army, Navy, OSD, and DFAS; 
therefore, the program has joint oversight.

    12. Senator Ensign. Ms. Baldwin, Mr. Greco, and Mr. Montelongo, if 
you are developing Service-specific solutions, how will you address the 
potential hundreds of interfaces you will need to build between your 
own solutions, the other Services, and the various DOD-wide systems?
    Ms. Baldwin. Our solution, the General Fund Enterprise Business 
System, focuses on the implementation of a Chief Financial Officer 
Council certified commercial off-the-shelf enterprise resource planning 
system. This solution will be implemented in compliance with the 
Department's business enterprise architecture. Implementing an off-the-
shelf product in compliance with the Department's business enterprise 
architecture facilitates the efficient exchange of data between the 
other Services and various DOD-wide systems.
    Mr. Greco. The Business Enterprise Architecture (BEA) should guide 
us not only as we employ systems to pursue our own mission 
requirements, but also should point out the areas where we share data 
or requirements with other components. This should lead to better 
support and use of end-to-end processes across the Department of 
Defense. In addition, our consolidated Enterprise Resource Planning 
implementation within the Navy should significantly reduce the numbers 
of intra-departmental interfaces required.
    Mr. Montelongo. Senator Ensign, your question is an important one 
for the DOD and Services. In the Air Force, we are aggressively working 
this area both in actively supporting DOD initiatives, along with the 
other Services, and working Air Force initiatives.
    Within DOD, the Air Force is a strong and involved participant in 
ongoing DOD efforts to provide a net-centric operating environment that 
will both increase data/information sharing among DOD organizations and 
greatly reduce the many one-to-one interfaces among our current 
systems. A critical component of this environment, referred to as the 
DOD Global Information Grid (GIG), is a common set of Net-Centric 
Enterprise Services (NCES) that will help ensure data interoperability 
within DOD and the Services. In addition, the DOD BEA is an important 
initiative in providing the blueprint (along with Air Force 
architectures) to transition to common processes and data requirements, 
reducing both numbers of systems and numbers of interfaces.
    Within the Air Force, we continue our commitment to reduce business 
system interfaces for gains in both information technology (IT) 
efficiency and more effective support to the warfighter. We are using 
architecture to better help us document our business processes and 
information requirements, particularly those that require intra-domain 
or external interfaces. This architecture, the Air Force Operational 
Support Enterprise Architecture (OSEA), documents our business and 
combat support operations and is ``federated'' both externally and 
internally. The federated approach ensures that the Air Force 
enterprise is properly aligned with the DOD BEA and other external 
architectures; and that the Air Force is internally aligned from the 
enterprise to the domains to the programs/systems.
    A major tenet of federated architectures is the identification of 
system interfaces for our integrated operational processes supported by 
multiple domains (e.g.; finance, logistics, and personnel). For each 
interface, we will define the business processes involved, identify the 
points in the processes where the data is requested or used, identify 
the exchange flow, identify the data exchanged, the business rules to 
exchange the data, and the controls on the process. Currently, the Air 
Force is defining the interfaces needed to implement Enterprise 
Resource Planning (ERP) solutions such as DEAMS and DIMHRS. 
Additionally, the Air Force is currently working with the DOD BMMP to 
expand the federated architecture approach across DOD. This will 
provide the same insight into interfaces among the Services and other 
DOD components.
    Defining process/system interfaces is important work, but the full 
benefits--efficiency and improved support--of these actions aren't 
realized until we actually reduce the large number of system 
interfaces. The Air Force plan is to use available and emerging 
technological solutions to accomplish this. The Air Force will fully 
implement the foundational IT solutions provided by the GIG, DOD BEA, 
and other DOD actions. The Air Force will maximize the use of 
architectures to guide us as we both implement ERPs to reduce the 
number of current systems/applications and fully exploit the advantages 
of the Global Combat Support System-Air Force (GCSS-AF) technical 
framework. The framework endorses the separation of data from its 
producing system/application and thereby supporting a general move to a 
data centric (basis for net centricity). All Air Force published data 
will be stored in the Air Force's Electronic Data Warehouse, called the 
Air Force Knowledge Service (AFKS), and serve as the source for Air 
Force authoritative enterprise data. All DOD components will have 
access to the data in AFKS as needed. A complementary technology 
solution is the recently developed Air Force Enterprise Service Bus 
(ESB). The ESB allows each system to publish data to subscribed users 
based on a set of business rules. The data exchanged in an interface is 
broadcasted to all users based on the agreement of the subscription. 
The ESB will be fully integrated with the AFKS. These solutions, when 
fully implemented, will eliminate the need for most individual point-
to-point solutions and reduce the overall cost of IT development, 
operation, and maintenance.

    13. Senator Ensign. Ms. Jonas, it seems that the Services each have 
their own architectures and are moving forward with a number of 
Service-specific solutions. Is the DOD architecture driving solutions 
or is it simply capturing what each of the Services are doing and 
trying to somehow piece the jigsaw puzzle together?
    Secretary Jonas. The BEA provides the overall framework for other 
architectures to follow, and is the basis of the Department's business 
transformation. The BEA also provides that information (e.g., required 
capabilities and priorities, rules, regulations, standards, integrated 
schedule requirements) needed by the military departments and agencies 
to execute their own programs in a manner that achieves 
interoperability throughout the Department. The BEA was collaboratively 
built by teams of cross-Business Mission Area (BMA) subject matter 
experts to provide an overall framework for the BMA. Within this 
context, the military departments continue to add appropriate levels of 
detail needed by their own execution programs.
    DOD will comply and take full advantage of the provisions of the 
NDAA to effectively support the Department's transformation efforts in 
support of the warfighter. We have adopted a federated approach to 
develop and maintain the BEA and the transition plan to guide 
modernization of the BMA.
    This federated approach allows a number of organizations throughout 
DOD to develop and maintain a BMA-focused architecture and an 
associated transition plan at each level of management responsibility. 
This suite of integrated products will provide a coherent view of the 
DOD BMA modernization efforts while permitting each military department 
and agency to maintain a tailored, dedicated focus on mission specific 
solutions to achieve the overall BMA transformation goals and 
objectives.

    14. Senator Ensign. Ms. Jonas, Ms. Baldwin, Mr. Greco, and Mr. 
Montelongo, please provide the committee with concrete details of what 
each Service (and, for Ms. Jonas, the Department as a whole) plans to 
accomplish within the next 6 months in the area of financial management 
reform.
    Secretary Jonas. As requested by the committee, the Department 
provided information on December 10, 2004 (attached below), that 
identifies significant improvement efforts that will be completed by 
June 2005. 
      
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    Ms. Baldwin.
    1. The Army is currently developing cost estimates for meeting open 
requirements of the Chief Financial Office (CFO) Strategic Plan. 
Calculating these costs will enable the functional proponent 
responsible for a particular requirement to budget properly and will 
set a cost benchmark by which to measure our performance in meeting the 
goals of the plan.
    2. The Army will assign responsibility to specific persons for the 
completion of each task identified in the strategic plan. The CFO Plan 
delegates 1,183 actionable and specific tasks to 22 functional Army 
business entities and DOD activities. Establishing a definite and 
personal level of accountability is the best way to ensure that all of 
these tasks are accomplished.
    3. The Army's CIO will formalize an information system governance 
structure and establish a portfolio management process. Many of the 
Army's business domains have achieved considerable success in 
implementing effective portfolio management. Institutionalizing the 
governance and portfolio management process, the Army will establish a 
distinctive level of accountability for this important effort.
    4. The Army will complete the validation and categorization of its 
financial management business systems. The process will assess 
functional, technical and cost information, which will enable us to 
identify and retire underperforming systems.
    5. The Army will continue efforts to improve its soldier-pay 
processes. To that end, the Army established in November the Army 
Soldier Personnel and Pay Council. The council links the pay and 
personnel communities with the common goal of ensuring that every 
soldier is paid on time and in the correct amount. The assistant 
secretaries for financial management and for manpower and reserve 
affairs co-chair the council, whose membership also includes the 
sergeant major of the Army and executives from DFAS, DIHMRS, personnel, 
and operations. Additionally, the Army intends to develop specific 
performance metrics that will enable us to isolate and to remediate 
problem areas in the delivery of timely and accurate pay to our 
soldiers. Finally, this council will ensure the Army's readiness for 
DIHMRS implementation.
    6. Finally, the Army will assert Fund Balance With Treasury, a 
$89.3 billion general fund balance sheet line item, as ready for audit 
assessment. Assertion is the first step in a rigorous process 
culminating in full audit of this line item. This effort complies with 
the Department's management assertion process and enables an 
independent assessment for audit readiness.
    Mr. Greco. We will focus on specific improvements and, where 
necessary, refinements, to our system transition plans and the related 
Financial Improvement Plan (FIP). Improvements will be descriptive and 
measurable.
    Using our Systems Transition Plan, we intend to:

         Validate our detailed baseline of DON business systems 
        in each functional area portfolio for both Navy and Marine 
        Corps systems. Review, and where necessary, formalize 
        information systems governance structures.
         Ensure the appropriate reviews/certification actions 
        are completed or scheduled for the systems in this baseline by 
        OSD domains or approval authorities.
         Use this baseline to ensure visibility in fiscal year 
        2006 budget justification, consistent with NDAA guidance.
         Use this baseline to develop initial projected 
        ``sunset'' dates with associated successor system(s) or 
        possible alternatives.
         Provide initial estimates for resources required for 
        transition plan implementation.
         Under our departmental FIP, we intend to:
         Establish command level programs to develop a 
        validation baseline to support future audit preparations.
         Develop and initiate a plan for the U.S. Marine Corps 
        to prepare stand-alone financial statements, serving as a pilot 
        for similar departmental efforts.
         Integrate Systems Transition Plan into the FIP and 
        clearly indicate events within the plan that are dependent on 
        future systems and evaluate cost/benefit of changing current 
        systems, depending on ``sunset'' dates as well as other BMMP 
        criteria.
         Complete the assertion process on the following 
        financial statement lines: environmental liabilities, other 
        assets, other liabilities, and Navy Working Capital Fund (NWCF) 
        debt.
         Integrate current DOD metrics into a Level II 
        scorecard to be assess command level progress.
         Establish new cost/schedule baseline following 
        incorporation of the above actions.

    Mr. Montelongo. Senator Ensign, at your request, we've prepared a 
summary of our Air Force plans for the next 6 months in the area of 
business management reform, of which financial management is a key 
element. This is consistent with the Department of Defense summary that 
you received under separate cover. As I mentioned earlier in my written 
statement to the subcommittee, there's more to enterprise 
transformation than just financial management and more to financial 
management excellence than just modern IT systems. Lasting and true 
change occurs when we take an integrated approach to improve our 
people, our processes, and systems. That's what we've been doing and, 
with your support, will continue to do. We intend to build on our 
successes and drive change while moving forward. Meanwhile, through all 
of our efforts, the global war on terrorism remains our top priority.
    Looking ahead, we will achieve the following milestones during the 
next 6 months:
    1. The Air Force, as the executive agent for the Department of 
Defense, will continue project plan implementation of the DEAMS. It 
will replace our old, non-interoperable family of accounting systems, 
which still use 1960s-era technology. We are on schedule to complete 
software and systems integrator selections, both scheduled to be 
completed by June 2005.
    2. The Financial Information Resource System (FIRST) continues 
spiral development as a budget systems replacement. Spiral 1 of the 
Budget Formulation module is scheduled for deployment to users for 
testing in February 2005. This first spiral will transform the current 
legacy information into a ``to-be'' data structure and provide storage 
in a data warehouse environment. Design and coding efforts for Spiral 2 
will be ongoing and scheduled to be completed by June 2005.
    3. FIRST is also providing an Automated Funds Management (AFM) 
capability. Over the next 6 months, the AFM team will finalize the 
requirements gathering for Phase II (funds distribution to major 
commands) to include data interface requirements. Final operating 
capability for Phase II is 12 months out and is managed under a well-
defined program plan.
    4. Regarding non-appropriated fund accounting, we are looking 
forward to our upcoming milestone now scheduled for June 2005, which 
will achieve phased contractor off-the-shelf shared service center 
implementation at five test sites in the Air Force and achieve flat-
file interface of three point-of-sale (POS) systems. Our goal of 
beginning the test by March 2005 slipped 90 days due to platform 
errors. The platform errors have been corrected.
    5. In data warehousing efforts, we will publish a coordinated 
concept of operations (CONOPs) and functional requirements diagrams as 
well as implement (in coordination with GCSS-AF) our risk-reduction 
activities. This will validate our ability to use an enterprise service 
bus (ESB) and standard tools to extract, translate, and load (ETL) data 
from an existing interface into the AFKS.
    6. We will complete the migration of the last 5 percent of our 
financial management web content to the Air Force portal on the 
internet. Altogether, data warehousing will provide us with a single, 
authoritative source for information, easily interoperable with other 
systems and processes, and make data retrieval more efficient, 
therefore saving time and effort.
    7. With respect to the Air Force Information Reliability and 
Integration (AFIR&I) Action Plan (a.k.a., Financial Improvement Plan), 
we have assigned accountability to specific offices for the completion 
of more than 2,000 tasks. We consider this to be the best way to ensure 
that all associated tasks are completed in a timely and efficient 
manner.
    8. We will complete validation of the cost estimates for meeting 
each of the required tasks in our AFIR&I. This will strengthen our 
budget justification for resources to complete our transformation 
effort.
    9. We will continue to link process steps and associated compliance 
rules and requirements in the Department of Defense BEA Enterprise 
Business Process Model (EBPM) to the deficient process steps identified 
in our AFIR&I Action Plan. Where resolution of deficiencies is 
dependent on future systems or modifications to current systems, we 
will begin evaluating cost/benefit of changing current systems in 
relationship to ``sunset'' dates and other BEA criteria.
    10. Utilizing the Department's structured management assertion 
process, we will prepare, review, and submit for approval three 
financial statement line items for assessment and audit:

          a. Appropriations received ($112 billion/88 percent of 
        General Fund Budgetary Resources)
          b. Net transfers ($29,000 General Fund)
          c. Fund balance with Treasury ($61 billion/25 percent General 
        Fund Assets).

    11. The Commanders' Integrated Product Team (CIFT), led by the AF/
XI with the AF-CIO as the vice chair, will have an implementation plan 
for the mandates Congress laid out in the National Defense 
Authorization Act (NDAA) for Fiscal Year 2005 for portfolio management 
of information resources. The Air Force is preparing for full 
implementation by the October deadline.
    12. We will validate the methodology used to link funding with 
performance metrics and capabilities and refine our approach where 
needed. Additionally, we will expand the performance-based budgeting 
methodology to areas beyond the pilot programs. We anticipate these 
efforts will enable the clear articulation of linkages between funding 
and outcomes in the 2007 President's budget.
    13. In January, drawing from industry best practices, we have begun 
implementation of our new service delivery model, which is designed to 
significantly increase self-service capability for personal finance 
issues by leveraging web technologies, streamlining processes, and 
establishing multi-channel service delivery. Among other tasks, 
implementation teams will identify the customer service requirements 
for consolidated back office operations, identify internal control 
issues for resolution, and define the current working environment for 
our unit level resource advisors. Information technology requirements 
will also be defined to support a center of expertise for cost and 
economic analysis that will provide greater analytical capability for 
our wings.
    14. We will implement a pilot program to enhance the use of 
electronic tools in the combat zone, thus speeding transactions and 
reducing manual effort.
    15. We will take the first steps to restructure our education and 
training program to produce a more comprehensive and integrated set of 
experiences that will equip our workforce with sophisticated financial 
skills and capabilities.
    These 15 programs address personnel, systems, metrics, and 
processes with a clear focus on improving financial services delivery, 
strengthening financial management, and achieving auditable financial 
statements. The end result will be an encompassing integrated business-
operating environment providing relevant, actionable information for 
our decisionmakers.

    15. Senator Ensign. Mr. Walker, Ms. Jonas, Ms. Baldwin, Mr. Greco, 
and Mr. Montelongo, what suggestions can you provide the committee for 
possible congressional action to assist the Department's financial 
reform efforts?
    Mr. Walker. We suggest two congressional actions to assist DOD in 
its business transformation efforts. First, continued oversight 
hearings by this subcommittee and others are vital in underscoring the 
importance of DOD's business transformation and holding DOD accountable 
for its performance in doing so.
    Second, we propose two legislative actions to improve the 
likelihood of successful business transformation at DOD. The first 
legislative action is the creation of a full-time executive level II 
position for a Chief Management Official who would serve as the Deputy 
Secretary of Defense for Management. This position would provide the 
sustained executive leadership essential for addressing key stewardship 
responsibilities, such as strategic planning, performance and financial 
management, and business systems modernization, in an integrated 
manner. In addition, we suggest that all approval authorities, as 
designated under provisions of the new legislation,\6\ be assigned to 
the chief management official. This official, whose performance should 
be based on measurable individual goals linked to overall 
organizational goals, would chair the Defense Business Systems 
Management Committee required by the act. Cognizant business area 
approval authorities would also report to Congress through the chief 
management official and the Secretary of Defense on applicable business 
systems that are not compliant with review requirements and to include 
a summary justification for noncompliance. Moreover, the chief 
management official's measurable progress and achievements could be 
reported to Congress at least annually to serve as the basis for more 
informed oversight.
---------------------------------------------------------------------------
    \6\ Pub. L. No. 108-375, Sec. 332.
---------------------------------------------------------------------------
    The second legislative action is to assure that the approval 
authorities responsible and accountable for business system investments 
under the new legislation \7\ are given direct control of DOD 
appropriations for business system investments. It is important to note 
that this action may require review of the various statutory 
authorities for the military Services and other DOD components and 
should be contingent upon the readiness of the approval authorities' to 
perform their roles and responsibilities. Nonetheless, we believe that 
control over the funds would not only improve the capacity of the 
designated DOD approval authorities to fulfill their responsibilities, 
but also increase transparency and accountability, and minimize the 
highly parochial approach to systems development that exists today. In 
our view, if these legislative and oversight actions are not taken, the 
Department's overall business transformation efforts are likely to 
fail.
---------------------------------------------------------------------------
    \7\ Pub. L. No. 108-375, Sec. 332.
---------------------------------------------------------------------------
    Secretary Jonas. At this time, we do not have any additional 
suggestions or requests for congressional action, but we appreciate the 
committee's involvement on this critical issue and look forward to 
working closely with Congress to make sure that our entire business 
transformation effort is implemented in the most efficient and 
effective manner possible.
    Ms. Baldwin. We recognize the importance of transforming our 
financial enterprise and share the same vision as Congress. This is a 
huge undertaking in a large and complex environment, which requires 
patience and careful planning if we are going to do the job right. We 
ask Congress to help by conveying the importance of business 
transformation to the Army's uniformed and civilian leaders. Timely, 
reliable, accurate financial information is vital to the warfighter, 
and is critical to producing sound business decisions. Integrated 
information systems, like those being implemented by the Service 
components in collaboration with BMMP, will provide the warfighter with 
quality information they can use to make strategic and business 
decisions. Congressional help in spreading this important message will 
ensure support from our senior leaders.
    Mr. Greco. From the Department of the Navy's perspective, a quick 
and clear resolution of the requirements in Section 352 of the National 
Defense Authorization Act for Fiscal Year 2005 would help most. We 
clearly understand the intent of this language and are committed to 
only investing DON resources in measurable and sustainable improvements 
in current financial processes. These improvements I will also take 
into consideration the current systems environment and future 
transition plans. For example, development of audit validation packages 
for business processes relating to our funds balance with the U.S. 
Treasury, while included in our overall Financial Improvement Plan, 
also are specifically required by both the Chief Financial Officer Act 
(CFOA) and the Federal Financial Managers Improvement Act. We have 
explicitly committed resources in our budget to support these types of 
meaningful improvements. I believe that these improvements are 
consistent with your objectives as stated during the hearing. 
Clarification of this provision would ensure that we are using 
resources consistent with congressional intent.
    Finally, we thank you for your interest and support. Your interest 
will help me convey the importance of the required actions and how they 
relate to the larger Department of Navy mission. Your continued support 
for the required resources, invested in meaningful financial reform, is 
also critical.
    Mr. Montelongo. Thank you for the opportunity to provide 
suggestions for congressional action assisting our efforts at financial 
reform. Your continued support of financial reform efforts will boost 
our governance capability and assist us in better linking all the 
elements of our program. I thank you and request your continued support 
for our investments in this program. We ask that any ``agreed-to'' 
migratory solutions be funded, not with a blank check but, rather, 
based on a projection of sufficient funds to resource a complete 
effort.
    To expedite system implementation, I request you require the 
Department of Defense to establish a consistent set of review criteria 
for Defense Business Systems Management Committee (DBSMC) system 
certification and set a 30-day approval/disapproval time limit for 
DBSMC certification. In turn, I recommend you task GAO and the 
Department of Defense Inspector General (DODIG) to establish and commit 
to materiality standards and guidelines in the audit process.
    This will clarify the ground rules early and facilitate the audit 
process. Another mechanism that will move the ``clean opinion'' process 
along is to require the GAO, DODIG, and DOD management to use the 
Department's Audit Committee as an arbiter to resolve disputes in the 
audit process.
    Finally, I ask that you invite all of us--the OSD and Service 
Comptrollers--back to participate in future hearings on this topic. We 
share your vision, commitment, and passion to have a total operations 
support system (including financial management) that is every bit as 
transformed, modern, and sophisticated as the warfighting concepts and 
systems we support!
                                 ______
                                 
               Questions Submitted by Senator Carl Levin
   comprehensive business enterprise architecture and transition plan
    16. Senator Levin. Mr. Walker and Ms. Jonas, do you still believe, 
as you did 3 years ago, that DOD needs a comprehensive business 
enterprise architecture and transition plan to guide the transformation 
of its business systems? If so, when can we expect to see such an 
enterprise architecture and transition plan?
    Mr. Walker. We continue to believe DOD needs a well-defined 
enterprise architecture and transition plan to guide and constrain its 
business system modernization efforts. Research by us and others, as 
well as our experience in reviewing major system modernization programs 
over the last 10 years, show that attempting modernization efforts 
without an enterprise architecture results in systems that are 
duplicative, are not interoperable, require costly rework to interface, 
and do not optimally support mission operations. DOD's existing systems 
environment, which has, for example: (1) little standardization across 
the Department, (2) multiple systems performing the same tasks, (3) the 
same data stored in multiple systems, and (4) manual data entry into 
multiple systems, is the product of not having such an architecture. 
Having and using an enterprise architecture to guide and constrain 
systems modernization programs is a Federal requirement and a 
recognized best practice of successful public and private sector 
organizations.
    For any organization, development of an enterprise architecture, to 
include a transition plan, is a major undertaking that requires the 
application of disciplined program management structures and practices. 
These include effective planning to, among other things, establish 
reliable milestones for delivering clearly defined architecture 
products that meet established measures of quality. As we have 
reported, DOD has yet to develop such plans, and thus has yet to 
establish a reliable plan for delivery of its business enterprise 
architecture.
    Secretary Jonas. Yes. The BEA provides the Department with the end-
to-end perspective of business mission area (BMA) vision, functions, 
processes, data, roles and responsibilities, IT systems, and technical 
design standards and constraints. It includes the information necessary 
to ensure information interoperability within the BMA and across the 
warfighter and intelligence mission areas.
    Because DOD elected to pursue a phased approach, with financial 
management as the first priority, the BEA documents DOD financial and 
related business rules, activities, processes, controls, functions, 
roles, data, and policies. The BEA provides an integrated, actionable 
view of the BMA and facilitates effective collaboration among many 
critical communities of interest to devise business process 
reengineering (BPR) initiatives, and support informed, well-integrated, 
capabilities-based decisionmaking for sound IT investment planning 
through effective DOD Portfolio Management (PfM).
    The transition plan provides a roadmap for how the Department will 
migrate from its current inventory of business systems and operations 
to achieve the modernized end state documented in the BEA.
    The goal of the Business Management and Modernization Program is to 
comply with the provision of the Ronald W. Reagan National Defense 
Authorization Act for Fiscal Year 2005 (P.L. 108-375), which requires 
the Department to complete an enterprise architecture and transition 
plan that is ``sufficiently defined to effectively guide, constrain, 
and permit implementation of interoperable defense business system 
solutions,'' by September 30, 2005. The BEA and transition plan will 
continue to be updated and adjusted as investment decisions are made, 
to support the Department's business transformation goals.

    17. Senator Levin. Mr. Walker and Ms. Jonas, in the absence of such 
an enterprise architecture and transition plan, are the individual 
efforts of the three military Services a positive contribution to the 
overall financial management of the Department, or are these efforts 
counterproductive?
    Mr. Walker. Although the efforts of the three military Services, if 
managed effectively, could result in improvements in their respective 
business operations, they are unlikely to result in corporate solutions 
to DOD's numerous problems, and thus fall short of the goals 
established by DOD's business management modernization program. It is 
important to note that DOD's stovepiped, duplicative, and nonintegrated 
systems environment evolved over time as DOD components--each receiving 
their own funding--developed narrowly focused parochial system 
solutions to their own business problems. Unless individual DOD 
component efforts incorporate many of the key elements for successful 
reform highlighted in my testimony, such as an enterprise architecture 
and transition plan, they may actually hinder the business 
transformation envisioned by the Secretary of Defense. We are currently 
reviewing the Navy's ERP, which we plan to report on in August 2005.
    Secretary Jonas. The efforts of the military Services are positive, 
not counterproductive; the BEA was collaboratively built by teams of 
cross-business domain and mission area subject matter experts and is 
designed to address systemic problems in DOD business and financial 
management. The BEA effort is closely linked with ongoing efforts by 
the military departments to correct improve financial management 
processes, described in the financial management transformation plan. 
Both efforts support the development and execution of a comprehensive 
Transition Plan for the Business Mission Area.
    The Financial Management Transformation Plan is designed to layout 
those initiatives and milestones necessary to correct selected military 
department financial reporting deficiencies which preclude DOD from 
producing auditable financial statements. For example, actions 
necessary to correct some financial reporting deficiencies are simply 
correction of procedural failures to comply with existing policy and 
accounting standards that the military departments can remedy with 
better internal controls. Other deficiencies result from lack of 
adequate training. Still other deficiencies are linked to faulty or 
incomplete financial transaction processing, which occurs in feeder 
systems, outside of financial IT systems, and which the components can 
repair or redesign in accordance with the broader business processes 
represented in the BEA, and in accordance with the milestones laid out 
in the business mission area transition plan. The BEA and military 
department actions represented in the financial management 
transformation plan are complimentary in working towards achieving 
improved financial management throughout DOD.
                                 ______
                                 
             Questions Submitted by Senator Daniel K. Akaka
              financial management and accounting systems
    18. Senator Akaka. Mr. Walker, to address financial reporting 
deficiencies in DOD's current systems, each of the military departments 
is working to develop a new financial management system. At this point, 
it appears that the military department's efforts are focusing 
primarily on financial management and accounting systems, to the 
exclusion of so-called ``feeder'' systems that support the Department's 
acquisition, logistics, human resources, installations, and other 
programs. The Navy effort, which appears to be the farthest along at 
this point, also excludes substantial parts of the Department of the 
Navy, such as depots, shipboard systems, and the entire Marine Corps. 
Do you believe that this approach has been appropriately coordinated at 
the DOD level, or are we at risk of repeating the kind of stovepiped 
solutions that have led to problems in the past?
    Mr. Walker. We believe that DOD components have not appropriately 
coordinated all of their reform efforts with DOD. This serves to 
contribute, at least in part, to DOD's continued risk of stovepiped 
business system modernization decisions and investments that do not 
result in integrated corporate solutions. For example, in September 
2004 we reported \8\ that financial improvement plans developed by key 
DOD components, and provided to the DOD Comptroller, were not clearly 
linked to DOD's business management modernization program and lacked 
sufficient details to consistently identify whether a proposed 
corrective action included a manual workaround or business system 
enhancement or replacement. In addition, in May 2004 we reported \9\ 
that neither the Army's Logistics Modernization Program nor the Defense 
Logistics Agency's (DLA) Business Systems Modernization (BSM) were 
directed toward providing corporate solutions to the Department's 
longstanding weaknesses in inventory and logistics management areas, 
such as total asset visibility. Rather, both projects were focused on 
stovepiped areas of operations within the Army and Defense Logistics 
Agency.
---------------------------------------------------------------------------
    \8\ GAO-04-910R.
    \9\ GAO, DOD Business Systems Modernization: Billions Continue to 
Be Invested with Inadequate Management Oversight and Accountability, 
GAO-04-615 (Washington, DC: May 27, 2004).

    19. Senator Akaka. Mr. Walker, what is your view of the impact that 
this piecemeal approach is likely to have on the Department's long-term 
ability to produce timely, accurate data for management decisions?
    Mr. Walker. In our opinion, while piecemeal approaches may result 
in marginal improvements within narrowly defined business areas or DOD 
components, they are also likely to result in the continued 
proliferation of nonintegrated, nonstandardized, stovepiped solutions. 
As a result, we believe they will fail to significantly improve the 
Department's ability to produce timely and accurate information for 
informed management decisions. For that reason, we continue to believe 
that a successful business transformation effort should have a 
Department-wide focus, rather than a continuation of a DOD component 
based approach.

    20. Senator Akaka. Ms. Jonas, what are your views on this issue of 
financial management and accounting systems?
    Secretary Jonas. Senator Akaka, it is imperative that we accomplish 
real change in DOD financial management that strengthens our ability to 
manage critical DOD resources to enhance the security of our Nation. To 
this end, it is critical that the military Departments' efforts to 
improve IT support for financial management include ``feeder,'' as well 
as financial and accounting systems, so that the real transactions of 
doing the daily business of DOD to support warfighters are properly and 
automatically executed on time, every time. To accelerate 
transformation within DOD, we have implemented several e-Government 
system initiatives within the Acquisition community that are standards 
across the Federal Government. In addition, our I Logistics community 
is pursuing several initiatives using COTS products to improve the 
physical tracking of inventory items, such as the Converged Navy 
Enterprise Resource Planning System and DLA's Business System 
Modernization. The Installations and Environments community teamed with 
the Army to ensure its real property inventory requirements are 
incorporated into the General Fund Enterprise Business System. The 
Department is moving ahead with implementing enterprise-wide ``feeder'' 
system solutions in the area of procurement (the Standard Procurement 
System), in the area of military personnel (Defense Integrated Military 
Human Resource System), and in the area of travel with the Defense 
Travel System. The Department's approach has been coordinated at the 
DOD level and continues to be reviewed to ensure alignment with the 
Department's transformation objectives.

                                domains
    21. Senator Akaka. Mr. Walker, you recommend in your testimony that 
business systems modernization money be appropriated directly to the 
DOD ``domains'' and that they, rather than the military departments, be 
made responsible and accountable for systems investments within their 
business areas. At present, however, it appears that the DOD domains 
may not even have the institutional capacity to conduct the 
comprehensive review and oversight of business modernization spending 
required by current law. Do you believe that the DOD domains currently 
have the institutional capability that would be needed to handle direct 
appropriation of appropriations for all systems investments within 
their business areas? If not, how would the domains go about building 
this capability?
    Mr. Walker. Based upon our reviews of DOD's efforts to develop an 
enterprise architecture and control business system investments, as 
well as our reviews of select component efforts to develop and 
implement business systems, we believe that DOD does not yet have the 
capability, either at the department level, including the domains, or 
across all components to ensure that integrated corporate solutions are 
developed. This is necessary in order to improve DOD's ability to 
produce timely, accurate, and complete data for management 
decisionmaking. DOD and the domains have recently begun to implement 
changes in their management policies and processes that are intended to 
comply with the recently enacted legislation.\10\ As a result, it is 
too soon to assess the impact of these oversight and accountability 
changes, as required by the legislation, on the Department's ability to 
oversee and monitor business system investments. However, we continue 
to advocate that business domains' (approval authorities') control 
related funds once they are ready to effectively execute this control. 
This would enhance transparency and the capacity of DOD's designated 
approval authorities to fulfill their responsibilities, as required 
under the act, and minimize the parochial approach to systems 
development that exists today. We plan to work with DOD in its efforts 
to build the domains' capacity to effectively execute their roles and 
responsibilities.
---------------------------------------------------------------------------
    \10\ Pub. L. No. 108-375, Sec. 332.

    22. Senator Akaka. Ms. Jonas, Ms. Baldwin, Mr. Greco, and Mr. 
Montelongo, what are your views on this issue of domains?
    Secretary Jonas. The Department of Defense created business 
domains, an industry best practice, to assign accountability to the 
appropriate subject matter experts for single-source interpretation of 
rules, regulations, and requirements that must be instantiated in DOD 
policy and business IT systems. The business domains oversee business 
transformation by devising key reengineered business practices 
regardless of traditional organizational boundaries, in close 
coordination with the military Departments and defense agencies. The 
business domains have a strong oversight role in the Department's 
current investment review and acquisition oversight processes. The 
Ronald W. Reagan NDAA for Fiscal Year 2005 requires the Department to 
establish approval authorities and investment review boards that are 
closely aligned with the boundaries of functional responsibility of the 
current business domain structure. We intend to review our current 
domain structure, and modify it as necessary, when implementing the 
provisions stipulated in the NDAA for Fiscal Year 2005 to ensure that 
we maintain an effective process that allows adequate oversight of 
business transformation activities in close coordination with the 
military departments and defense agencies. It is important that we 
maintain and strengthen the role the business domains have performed in 
providing subject matter expertise within clearly defined boundaries, 
to guide the DOD business transformation effort. However, we recognize 
the urgent need to consolidate, streamline, and standardize the 
oversight and administrative functions of the OSD business domains, as 
an integral part of standing up the governance processes required by 
the NDAA for Fiscal Year 2005.
    Ms. Baldwin. The adoption of domains and institutionalization of 
information technology portfolio management add value to the management 
and control of the Department's information technology programs. Under 
the Defense Business System Management Council (DBSMC), DOD is 
establishing investment review boards responsible for reviewing and 
approving IT investments. The investment review boards, established at 
the DOD level within each domain, will prioritize and review 
investments in accordance with appropriate requirements. The DBSMC will 
serve as the final arbiter of conflict between business missions when 
all other avenues of resolution have failed. The DBSMC will also 
coordinate the continual alignment of domain efforts to ensure 
achievement of broad DOD business transformation goals. The intent is 
for the investment review boards to leverage existing acquisition 
program oversight structures, and not invent new oversight 
requirements.
    Mr. Greco. I support the organizational construct and the mutual 
goals of the Business Management Modernization Program domains. The 
domains need to continue to streamline and speed up their systems 
assessments as well as investment approvals. Some delegation of 
approval authority to the components may be required to ameliorate the 
volume of reviews, ensuring more timely approvals.
    Mr. Montelongo. In my opinion, the dollars should continue to come 
to the Services. The primary reason for this position is that the 
Services are held responsible for training, organizing, and equipping 
the force. The Air Force is organized to meet these responsibilities 
and effectively manage its resources. For example, Air Education and 
Training Command is the lead agent for the Air Force in preparing and 
developing airmen; the Air Force MAJCOMs organize and develop ready 
units for the joint commanders; Air Force Materiel Command is the lead 
agent in equipping and supplying Air Force units; and, the Air Staff 
structure is in place to oversee these operations. We believe the role 
of the Department of Defense domain owners, on the other hand, is to 
provide architectural standards and interfaces. Domains can exercise 
oversight and ensure cross-domain integration, and propose adjustments 
to Service budgets for alignment with domain objectives.
    The real issue is how the work gets done and who is accountable. 
Investment decisions must remain with the Services because they own the 
requirements and will be held accountable if capability is not 
delivered on time to support mission accomplishment.

                         human capital planning
    23. Senator Akaka. Mr. Walker, you state in your prepared statement 
that one of the keys to successful reform of DOD's financial management 
systems is ``addressing human capital issues, such as the adequacy of 
staff levels, skills, and experience available'' to address the 
Department's problems. You go on to state your strong support for 
initiatives to modernize DOD human capital policies, including a 
properly developed and implemented National Security Personnel System. 
However, human capital flexibility won't do the Department much good in 
the absence of systematic planning on how that flexibility will be used 
to address issues such as the staff levels, skills, and experience of 
the DOD workforce. Last June, GAO released a report titled: ``DOD 
Civilian Personnel: Comprehensive Strategic Workforce Plans Needed.'' 
In that report, you found that none of DOD's workforce plans ``included 
analyses of the gaps between critical skills and competencies'' between 
the current workforce and the workforce that DOD will need in the 
future. Without such gap analyses, you said, DOD will have difficulty 
designing strategies to hire, develop, and retain the workforce it 
needs. Could you comment on the need for better strategic human capital 
planning at DOD and its relationship to persistent management problems 
at the Department--like financial management and acquisition 
management--that continue to appear on your government-wide high-risk 
list?
    Mr. Walker. We have reported that whether agencies have the 
institutional infrastructure in place to make effective use of the new 
human capital authorities is a critical question for consideration in 
granting broad-based exemption from current law. An essential element 
of this infrastructure is a human capital planning process that 
integrates the agency's human capital policies, strategies, and 
programs with its program goals and mission, and desired outcomes. More 
effective human capital planning would be a key step towards resolving 
DOD's persistent management problems. For example, inadequate staffing 
and training contributed to DOD's inability to deliver timely and 
accurate pay to mobilized Army National Guard and Reserve soldiers, and 
inadequate investigative and adjudicative workforces contributed to 
hindering the reduction of security clearance backlogs. The keys to 
successful reform must include (1) a human capital planning process 
that assures that personnel have the necessary skills, experience, and 
responsibilities and authority to implement the plan and (2) 
implementation of results oriented performance measures and systems 
that link institutional, unit, and individual personnel goals, 
measures, and expectations.

              steps to upgrade department business systems
    24. Senator Akaka. Ms. Baldwin, Mr. Greco, and Mr. Montelongo, I 
would appreciate if each of the comptrollers of the three military 
departments would provide information about specific steps that have 
been taken, since the initiation of the business enterprise 
architecture in July 2001, to upgrade their business systems. In 
particular, I would appreciate if you would: identify each specific 
legacy system that your Service has terminated as a result of the 
business systems modernization program, and the date on which it was 
terminated; identify each specific legacy system that your Service 
plans to terminate in the next 24 months, and the target date for 
terminating the system; provide specific examples of significant 
changes that your Service has made to its business operation processes 
and systems, to improve the reliability of data for decisionmakers; and 
provide specific examples of significant corrective actions that your 
Service has taken to address deficiencies in areas such as 
environmental liabilities, property, plan and equipment, material in 
the possession of contractors, and inventory valuation.
    Ms. Baldwin. Since initiation of the business systems modernization 
program, we have terminated the State Accounting and Budget 
Reservations System, formerly operated by the Army National Guard. This 
system was terminated in January 2004.
    We plan to terminate 25 systems with another 34 marked for possible 
termination as part of our General Fund Enterprise Business System 
(GFEBS) program. The 25 systems to be terminated are shown in the table 
below. The GFEBS program will conduct a business case analysis on the 
34 additional systems to decide on their termination. The dates in the 
table below are tentative dates--the integration of the systems will 
begin in 2006, and the detailed integration and termination schedule 
will be determined in the program initiation phases (post-award).

------------------------------------------------------------------------
                     System Name                        Termination Date
------------------------------------------------------------------------
Fadtool..............................................        August 2008
MS Access dat........................................        August 2008
ATLAS................................................        August 2008
Government Transportation System (GTS)...............        August 2008
DARS.................................................        August 2008
IPAC Wizard..........................................        August 2008
Standard Finance System (STANFINS)...................        August 2008
Web Commitment Account System (WebCAS)...............        August 2008
Installation Supply Buffer...........................        August 2008
STARS One Pay........................................        August 2008
Defense Joint Accounting System (DJAS)...............        August 2008
ACQUILINE/PR Web.....................................           May 2009
Operational Data Store...............................           May 2009
OLRV.................................................           May 2009
ARCS.................................................           May 2009
PARSS................................................           May 2009
Army Shared Knowledge-Financial Management (ASK-FM)..           May 2009
PROBE................................................           May 2009
AVPRAT...............................................           May 2009
SCRT.................................................           May 2009
Commercial Accounts Processing System (CAPS).........           May 2009
SLAD.................................................           May 2009
CRP..................................................           May 2009
Standard O&M R&D System (SOMARDS)....................           May 2009
VPIS.................................................           May 2009
------------------------------------------------------------------------

    The Army has made significant progress to correct deficiencies in 
reporting equipment, inventory, and environmental liabilities. These 
improvements include:

          Defense Property Accountability System (DPAS) 
        Implementation--DPAS is an automated and integrated property 
        and financial system used to account for Army installation 
        equipment that captures accounting and depreciation data, and 
        provides full visibility of Army's capital assets. In fiscal 
        year 2001, we implemented DPAS to 216 Army sites.
          Accounting for Military Equipment--Effort to establish, 
        issue, and implement Army guidance based upon OUSD(ATL) 
        business rules to account for military equipment on the Army's 
        balance sheet.
          Accounting for Internal Use Software--Identifies, values, and 
        accounts for all business software products used throughout the 
        Army for recording on the Army's balance sheet.
          Accounting for Government Furnished Equipment (GFE)--Army-
        wide effort to establish visibility and financial reporting of 
        GFE in the custody of contractors. Proof of concept completed 
        in April 2004. Full implementation targeted for the end of 
        fiscal year 2006. 
          Real property data clean-up in the Army National Guard 
        (ARNG)--Effort to implement standard operating procedures for 
        accurate real property accountability throughout the ARNG state 
        real property offices.
          Property Book Unit Supply Enhanced--Web-based, fully 
        interactive property accountability system for deployable Army 
        units. Provides major improvement to operational readiness, 
        timely and accurate information flow, and asset visibility 
        including forward operations.
          Environmental Liabilities Process Improvements--The Army 
        Environmental Center developed the ``Cost to Complete Handbook 
        for Environmental Liabilities'' to address the material 
        weaknesses surrounding the reporting for Environmental 
        Liabilities on the Army's balance sheet. The Army also 
        continues to refine cost estimating tools to ensure that 
        environmental liability estimates are complete and supported.

    Mr. Greco. The comprehensive nature of your question would require 
an answer of great length. When the Department of the Navy develops its 
business systems transition plan, the lifespan of each system will be 
enumerated, and this plan will be provided to the committee this year 
upon completion. As I mentioned in my prepared statement, the ERP 
pilots and ultimately converged ERP represent the cornerstone for our 
Business Systems Modernization Program. This program has affected, and 
will continue to impact, the current legacy systems environment. For 
example, I have attached a spreadsheet comprising three tabs: Tab 1 is 
a tentative forecast of systems to be terminated within the next 2 
years as converged ERP is deployed; Tab 2 is a list of systems already 
retired as ERP pilots were developed and used; and, the third tab is a 
list of systems which will be employed by fewer users as converged ERP 
is implemented.
    Finally, implementing ERP will mean changing business processes to 
the maximum extent possible to take advantage of best practices 
embodied in this off-the-shelf software. For example, Naval Air Systems 
Command's ERP pilot automated manual processes such as engineering 
change proposal approvals, reducing their processing time from 87 to 25 
days.
      
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    
      
    Mr. Montelongo. Senator Akaka, your question covers a number of 
areas. To address the first two parts of your question concerning 
system termination, I have attached a spreadsheet listing the business 
systems that have been terminated or will be terminated over the next 
24 months. The text below addresses the latter two parts of your 
question concerning significant changes the Air Force has made to its 
business operation processes, and corrective actions being taken 
addressing deficiencies in areas such as environmental liabilities, 
property, plant and equipment, material in the possession of 
contractors and inventory valuation.
Business Operation/System Process Improvements
    The Air Force has made significant changes to its business 
operation processes and systems to improve data reliability. The DOD 
and Air Force have made great strides developing a formal framework to 
deliberately modernize not just our financial systems, but also our 
business management systems infrastructure. From the very beginning, 
the Air Force has played a strong, collaborative, and involved role 
with our DOD and Service colleagues to develop products like the DOD 
BEA and serve in domains and governance committees. This is a key point 
because architecture lays out the fundamental standards and guidelines 
that describe how an enterprise operates in an integrated fashion.
    The Air Force created its own BEA and linked it to the DOD BEA. The 
Air Force BEA, now called the operational support enterprise 
architecture, focuses on the activities and processes that provide 
business support to Air Force warfighters. It also gives the Air Force 
the ability to define, evaluate, and improve these processes in a 
cross-functional environment. Because these aligned architectures form 
the basis for business and operational integration, we can employ 
modern tools like ERP systems with greater confidence than ever. 
Additionally, ERP systems are maturing (through greater scalability, 
interoperability, and flexibility), to include the unique requirements 
of the Department.
    Our ``ERP readiness'' has increased due to the Air Force and DOD 
move toward netcentricity and data sharing--doing more of the 
fundamental and foundational tasks that facilitate enterprise 
integration. In this area, the Air Force has developed a common 
technical framework for providing warfighting and supporting activities 
with timely, accurate, and trusted combat support and business 
information. The technical framework has been developed under our Air 
Force portion of the DOD Global Combat Support System (GCSS). Within 
GCSS-AF, the Air Force portal (our gateway to applications and 
information) is designed as the standard user interface to Air Force 
support data and functions. The Air Force portal includes personalized, 
role-based access and single sign-on information for over 100 
capabilities within combat support and business areas that have been 
reengineered to be self-service accessible to our airmen both at home 
and deployed. We see tangible evidence of this in the logistics, human 
resources and personal finance functions, where we have greatly 
improved service delivery capability to the warfighter.
    A key part of the technical framework is a common Air Force-wide 
enterprise data warehouse, AFKS. Incrementally, the Air Force is moving 
data locked in our legacy systems to AFKS to provide an integrated 
platform for storing, processing, and managing enterprise data. With 
AFKS, airmen can now rapidly access authoritative information and 
perform ad hoc queries, dramatically reducing the time to perform 
critical support functions. For all these reasons, we are now 
pragmatically poised for the next stage to achieve the enterprise 
business and systems integration we all seek.
Business Process Improvement Examples
    An excellent example of an ERP project being developed is the 
DEAMS. DEAMS will replace a number of antiquated Air Force and 
USTRANSCOM systems with a new COTS finance and accounting system that 
will process and record all budgetary, accounting, and vendor pay 
transactions. We are using this opportunity to perform business process 
re-engineering and implement industry best practices throughout the Air 
Force. An approved pilot project, DEAMS is being developed by a joint 
Air Force, USTRANSCOM, and DFAS team and demonstrates a continuing 
trend toward DOD-wide--rather than component-specific--business and 
operational systems. The DEAMS Executive Steering Group includes 
representation from the Air Force, Army, Navy, OSD, and DFAS and thus 
the program has joint oversight.
    Another modernization effort underway is the development of the 
Expeditionary Combat Support System (ECSS). ECSS is a COTS-based system 
that will enable the eLog21 future logistics vision by leveraging an 
ERP system as its primary system component. ECSS will leverage an 
integrated data environment to provide standardized reporting, 
eliminate data credibility issues and time inefficiencies, and provide 
total visibility across the supply chain, vastly improving readiness 
and mission capability.
    In support of the DOD acquisition domain and Air Force business 
modernization objectives, we have developed a list of applications that 
support acquisition and are mapping those to specific processes within 
the acquisition architecture. The acquisition architecture has 
continued to evolve from a procurement-centric to an acquisition-wide 
perspective to help support this process. We are developing this 
business architecture for acquisition in concert with Army, Navy, and 
OSD, and are developing a joint strategy for the development of DOD-
wide enterprise solutions for required acquisition capabilities. In 
addition, the Air Force has begun to integrate the monitoring of major 
acquisition programs through a single tool, the System Metric and 
Reporting Tool (SMART). This application consolidates both automated 
and manual inputs to create a single integrated look at individual 
programs as well as portfolios of programs. SMART contains data on all 
programs on the Air Force's Acquisition Program List.
    The Air Force has begun to implement part of its Enterprise 
Architecture for Procurement (EAP) through commodity councils as a 
complementary strategic sourcing effort. A commodity council is a 
cross-functional group of contracting and product/service experts who 
come together to define future need for a product or service, analyze 
the market, and develop and implement an enterprise-wide strategy to 
meet that need. While each commodity is different, the process used to 
develop and implement the enterprise strategy is the same. The EAP is 
directly tied to the Air Force Material Command Purchasing and Supply 
Chain Management effort and is coordinated with other Air Force 
architecture efforts. We plan to provide desktop access to negotiated/
established contracting vehicles and business intelligence to almost 
8,500 contracting professionals. This will move contracting personnel 
toward becoming strategic business advisors, versus tactical buyers.
    The Air Force Civil Engineering (CE) community has taken the first 
crucial steps toward modernizing the Automated Civil Engineer System 
(ACES) by instituting working groups to accomplish business process 
models. The result of these meetings will be fully developed, 
streamlined business process models for all functionalities within 
ACES. These models will be vital to the design of the future CE 
Automated Information System, which will include a single physical 
database, enabling all ACES subsystems to be fully integrated, share 
data standards, and implement compatible business rules. Additionally, 
ACES is planned to consolidate more than 250 engineering, explosive 
ordnance disposal, housing, readiness, and real property databases into 
one centralized database.
    The Air Force continues work on the Enterprise Environmental, 
Safety, and Occupational Health-Management Information System (EESOH-
MIS). EESOH-MIS is planned to transform and consolidate over 24 
multiple environmental, safety, and occupational health stove-piped 
systems into one integrated solution set. EESOH-MIS is planned as a 
single enterprise database hosted on the Global Combat Support System-
AF framework, integrating software and database requirements for civil 
engineering, medical, and safety personnel and eliminating redundant 
reporting. The system uses process-centric design and a single 
integrated database to share the 60 percent common data set across the 
ESOH functions, allowing standardized business processes to be 
institutionalized across the AF. EESOH is being developed to include 
CFO requirements as identified in the CFO ``Bluebook.''
    In June 2001, the Air Force deployed Military Personnel Data System 
(MilPDS), a COTS solution for military personnel processing that 
eliminated the legacy mainframe system. From the onset, MilPDS had 
problems due to lack of engineering discipline, poorly programmed 
resources, and haphazard training. This resulted in substandard 
performance; the interface with the pay system being one of the most 
noted. To further assess the program, the AF CIO and the AF/DP asked 
the Software Engineering Institute (SEI) at Carnegie Mellon to conduct 
a review and provide recommendations for meeting customer needs, 
stabilizing MilPDS, and planning for future systems. The SEI review was 
completed in October 2002, and addressed recommendations such as: 
better use of COTS for human resource management; improved software 
development controls; an institutionalized requirements process; and 
structured user and technical training.
    After the SEI review, we implemented the recommendations through a 
series of actions. We established a systems program office for 
personnel data systems, managed in the same manner and discipline as 
major weapons systems, including acceptance testing of final products 
before deployment of changes or modifications. We also established a 
centralized requirements office that serves as a focal point for 
personnel data systems requirements and human resources information 
technology initiatives. We provided improved training, established a 
structured process for capturing and maintaining systems documentation, 
and are continuing a business process re-engineering effort via a human 
resources lab for an integrated personnel pay solution--Defense 
Integrated Military Human Resources System (DIMHRS).
    We are continuing efforts to transform personnel management via the 
Personnel Service Delivery (PSD) program. The customer-focused 
integrated service delivery system is comprised of three key elements: 
the Air Force portal, an integrated contact center, and front-line 
support cadre. Through use of the portal, customers can access 
personnel services 24 hours a day, 7 days a week. The integrated 
contact center provides a single telephone number to customers as an 
alternative to access personnel services. Finally, front-line support 
cadre provides a single integrated customer service center at bases or 
deployed locations, with a leaner, reduced footprint. The PSD program 
reduces manpower requirements by 1,500 over 5 years, enabling an 
estimated net savings of $342 million over the FYDP. The savings of 
1,200 military and 300 civilian authorizations has already been 
programmed to offset the cost of the PSD initiative. Once fully 
developed and implemented, PSD will provide new and improved 
capabilities to create a seamless service delivery system for all 
customers.
    The Air Force also established a Personnel Information Technology 
Management Board. This board serves as the clearinghouse for all Air 
Force personnel IT issues. New requirements that drive fiscal or human 
resources are now vetted through this Board and the AF Personnel CIO.
    The examples described above are a sample of our significant 
achievements. Since 2001, the Air Force has terminated 58 systems. Of 
the 58, 25 systems were terminated in fiscal year 2001, 16 in fiscal 
year 2002, 11 in fiscal year 2003, and 6 in fiscal year 2004. We plan 
to terminate 5 systems in fiscal year 2005, and 16 additional systems 
between fiscal year 2005 and fiscal year 2007. Please see the attached 
spreadsheet for more detailed information addressing the first two 
parts of your question.
      
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
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               Questions Submitted by Senator Mark Dayton
                          add-on armor funding
    25. Senator Dayton. Ms. Baldwin, I want to ensure that the Army has 
sufficient force protection funding for personnel in Iraq. Do you have 
sufficient funding to meet all of your requirements for High-Mobility 
Multipurpose Wheeled Vehicle (HMMWV) add-on armor kits and add-on armor 
for the Heavy Expanded Mobility Tactical Truck (HEMTT), Heavy Equipment 
Transports (HET), and the Family Medium Tactical Vehicles (FMTV)?
    Ms. Baldwin. As of November 18, 2004, the Army funded 13,782 
HMMWVs; 1,704 FMTVs; 1,595 HEMTTs; 871 palletized load systems (PLS); 
626 M915 1,659 M939 5-ton trucks; 372 M969 fuel tankers; and 665 HETs 
add-on armor kits. These kits have been demonstrated to provide an 
effective level of force protection against small arms and improvised 
explosive devices for troops traveling in convoys and on patrol. 
Additional emerging requirements are being addressed in a request for 
reprogramming for the near-term and subsequently in the fiscal year 
2005 supplemental request for the long-term. This will ensure 
sufficient force protection funding for personnel in Iraq.

                         defense travel system
    26. Senator Dayton. Ms. Jonas, I have concerns with the Defense 
Travel System (DTS). I wrote to your predecessor, Mr. Lanzillotta, in 
April seeking answers about DTS, but 4 months later I received a reply 
saying there were no problems with DTS. By this time, however, Mr. 
Lanzillotta had left the Pentagon to work for Northrop Grumman. What 
was Mr. Lanzillotta's role in the December 24, 2003, decision to 
declare DTS fully operational and deployed, even though it was 
functioning at only a few hundred of the 11,000 worldwide travel sites 
the contract required to be operational?
    Secretary Jonas. On December 24, 2003, the ASD(NII), John Stenbit, 
authorized the Department to enter DTS into the Production and 
Deployment Phase. This decision is required before a system can be 
deployed worldwide. The memorandum did not declare that DTS was 
deployed; rather, it provided permission to deploy. Mr. Stenbit's 
decision memorandum notes that the Under Secretary of Defense 
(Comptroller), Mr. Zakheim, had certified that the system was being 
developed in accordance with the BEA and that it was consistent with 
the BEA and the DOD Business Enterprise Architecture Transition Plan. 
As Mr. Zakheim's deputy, Mr. Lanzillotta would have participated in 
that certification.

    27. Senator Dayton. Ms. Jonas, did Mr. Lanzillotta request in early 
2004 to disqualify himself from any contact with Northrop Grumman while 
continuing to serve as Acting Comptroller?
    Secretary Jonas. Mr. Lanzillotta recused himself from matters 
affecting Northrop Grumman on January 13, 2004.

    28. Senator Dayton. Mr. Walker, the GAO is currently conducting an 
audit of DTS in response from inquiries from myself, Senator Coleman, 
Senator Grassley, and at least three House Members. When can we expect 
to receive an interim report and briefing from your staff?
    Mr. Walker. We plan to provide a briefing to your staff in February 
2005 on the status of our work, followed by a written report in the 
fall of 2005.
                                 ______
                                 
           Questions Submitted by Senator E. Benjamin Nelson
  defense financing and accounting service and forward compatible pay
    29. Senator Ben Nelson. Ms. Jonas, I understand that the Defense 
Financing and Accounting Service (DFAS) is developing an interim pay 
system, called Forward Compatible Pay (FCP) because the current pay 
system is no longer maintainable. What is DFAS doing to make sure that 
this new system, the FCP, will meet all the needs of the Reserve 
component so there is no loss in capability and is compatible with 
existing input systems from the Army and Air National Guard?
    Secretary Jonas. Pay requirements for the Reserve component, 
National Guard, and active-duty components have been reviewed by the 
Joint Compensation Working Group comprising members from all the 
military Services and the Defense Finance and Accounting Service. FCP 
development teams have carefully documented all requirements to 
configure the FCP system. For the majority of the input systems, there 
will be minimal change. The FCP system will take input data from the 
current systems with only minor changes where additional data is 
needed. The FCP Program Office has been working with Army Personnel 
Command and Army Reserve Command as owners of the input systems to 
ensure they are in agreement on any required changes. The FCP Program 
Office has focused on the Army since it is the first military Service 
to deploy the FCP system. Follow on planning and meetings will focus on 
the Air Force and Navy system owners.

    30. Senator Ben Nelson. Ms. Jonas, will DFAS provide the required 
training to each component, active and Reserves for all the branches 
Army, Navy, Air Force, and Marines, as well as the Army and Air 
National Guard?
    Secretary Jonas. Yes. DFAS will provide training to the Army, Navy, 
and Air Force active, Reserve, and Guard components. The training will 
be comprised of formal classroom training, Web Based Training (WBT), 
and Computer Based Training (CBT). The curriculum has been developed, 
the initial training schedule has been finalized, the training 
environment is being initiated, and the first course will be delivered 
February 2005. The Marine Corps will not be transitioned to the FCP 
system because the Marine Corps Total Forces System (MCTFS) is an 
integrated personnel and pay system. The Marines will transition to the 
DIMHRS when it is available.

    31. Senator Ben Nelson. Ms. Jonas, is there a test plan to ensure 
FCP performs as advertised?
    Secretary Jonas. Yes. The FCP test plan has several phases of 
testing to include system integration test, system qualification test 
(an end to end test), system acceptance test (user test), and the 
operational test and evaluation (OT&E). The OT&E is performed by an 
independent testing agency. For the FCP system, the independent agency 
performing the OT&E is the Joint Interoperability Test Command (JITC).

    32. Senator Ben Nelson. Ms. Jonas, will there be a period of time 
when both the old and new systems are operating to make sure there is 
no gap in vital pay support to our mobilized members?
    Secretary Jonas. The FCP system will be deployed in phases as 
indicated below. The legacy military payroll system will be operating 
until all FCP deployment phases are complete. FCP deployment planning 
includes a back-out and recovery plan which will permit resumption of 
legacy system processing for members deployed to FCP if needed.
    The FCP will be deployed to the military Services in the following 
phases:

         Initial deployment to 1,500 Army Reserve/Guard members 
        in March 2005, with an active Army battalion added to the 
        limited deployment in May 2005, during this period the old 
        system will be maintained in parallel,
         Full deployment of the remainder of Army active, 
        Guard, and Reserve in July 2005,
         Full deployment to the Air Force in November 2005, and
         Full deployment to the Navy in March 2006.

              accounting and reporting replacement systems
    33. Senator Ben Nelson. Ms. Jonas, in the early 1990s DFAS 
inherited many antiquated accounting and reporting systems that were 
Service-specific. What progress has been made to develop DOD 
replacement systems that meet both financial analysis needs and 
reporting requirements?
    Secretary Jonas. Senator Nelson, since the early 1990s, the 
Department has been modifying its systems, where there is a business 
case to do so, in order to improve their financial analysis and 
reporting capabilities. In addition, the Secretary established the BMMP 
to develop enterprise standard financial analysis and reporting 
requirements. Through collaboration with the other business domains, 
the Financial Management Domain has imbedded financial rules and 
internal controls into the other business domain processes to help 
ensure financial transaction data is generated and reported correctly 
at the source of the transaction.
    The Department has adopted the U.S. Treasury's standard chart of 
accounts and begun implementing this into current systems, where 
feasible, to help with standard categorization and reporting of data, 
thereby improving the Department's ability to perform analysis on the 
data. To assist in implementing this standard chart of accounts, a 
transaction library has been developed documenting which accounts must 
be updated for various types of transactions. Complimentary to this 
effort is the development of a Standard Financial Information Structure 
(SFIS), which will be the Department's comprehensive financial data 
structure to support requirements for budget, cost/performance 
management, and external reporting across the DOD enterprise. It is a 
means for categorizing financial information in a standard way to 
support financial management analysis and reporting functions.
    To the extent there is a business case to do so, the Department is 
implementing these procedural changes into the existing systems to 
improve its analysis and reporting capabilities today. Longer term 
solutions to continue the improvement are part of the Department's 
roll-out of Joint Financial Management Improvement Program compliant 
COTS products, such as the Navy's ERP, the Army's General Fund 
Enterprise Business Solution, the Air Force's Defense Enterprise 
Accounting and Management System, and DLA's Business System 
Modernization. Each of these solutions have a financial analysis and 
reporting function that must comply with the standard financial rules 
and internal controls and incorporate the SFIS and standard chart of 
accounts prior to receiving Comptroller certification and subsequent 
funding at the milestone decision points.

    34. Senator Ben Nelson. Ms. Jonas, how will these be implemented by 
each of the Services, for their active, Guard, and Reserve components?
    Secretary Jonas. Senator Nelson, each of the Services is developing 
a transition plan to include a deployment schedule implementing the new 
solutions across the Service, to include Guard and Reserve units. For 
example, the Army's Request for Proposal on the General Fund Enterprise 
Business System includes the following language: ``The resulting system 
shall provide web based, online, real-time transaction and information 
capability and be accessible to the active Army, Army National Guard 
(ARNG), and United States Army Reserve (USAR).'' Release 1.3 will 
replace the Army's Standard Accounting and Finance System, including 
the ARNG and USAR. As another example, the Air Force plans to convert 
Guard and Reserve units with each base. The Defense Enterprise 
Accounting and Management System Version 1.1 at Scott Air Force Base 
will include the 131st Fighter Wing, 932nd Airlift Wing, and 183rd 
Fighter Wing.

       financial information across military (``.mil'') networks
    35. Senator Ben Nelson. Ms. Jonas, I understand there are problems 
sending financial information (pure accounting as well as military pay) 
information across various military (``.mil'') networks. What progress 
has been made to allow ``.mil'' to ``.mil'' communications between 
networks such as between the active components (Army and Air) networks 
and National Guard (Army and Air) networks?
    Secretary Jonas. There are problems sending and receiving financial 
information, but the problems are generally not caused by network 
communication issues. In most cases, they are caused by system-to-
system and data exchange compatibility issues. Improving data exchanges 
across systems is a key objective of the BEA. Improving 
interoperability and legitimate access to data is the objective of the 
DOD policy requiring netcentric design of IT systems.
    DOD has in place a defined process to assure that systems 
undergoing significant improvement must be compliant with the BEA, 
which specifies the rules and regulations that must be implemented in 
IT business systems. DOD uses this same certification process to assure 
that the Department's policy on interoperability is properly 
implemented in IT business systems.

                    financial managers integrity act
    36. Senator Ben Nelson. Ms. Jonas, the CFO Act of 1990 and related 
legislation requires audited annual financial statements prepared in 
accordance with generally accepted accounting principles. The Services 
need financial management reform to provide better financial 
information and improve the public confidence in DOD as good stewards 
of public funds. What progress has been made in financial reporting to 
meet the requirements of the Financial Managers Integrity Act to 
produce auditable financial statements?
    Secretary Jonas. The Department continues to make progress in 
complying with the requirements of the CFO Act of 1990 to produce 
auditable financial statements. Again this year, nearly 50 percent of 
the Department's total liabilities received an unqualified audit 
opinion. Six of the Department's subordinate entities received an 
unqualified audit opinion and the Medicare Eligible Retiree Health Care 
Fund received a qualified opinion. Additionally, in fiscal year 2004, 
the Department received favorable audit results on our investments and 
Federal Employees Compensation Act liabilities reported on the balance 
sheet along with our appropriations received that are reported on the 
statement of budgetary resources. To more effectively focus our 
corrective actions, I have selected four financial focus areas for 
fiscal year 2005, military equipment, real property, environmental 
liabilities, and health care data. One common aspect of these four 
areas is that improvement is not entirely dependent on systems 
solutions and, therefore, we can achieve near-term victories.

             reserve components in future financial systems
    37. Senator Ben Nelson. Ms. Jonas, we all know that never before in 
our Nation's history have the Reserve components been so heavily tasked 
and utilized for missions around the world as they are today. For 
instance, it is my understanding that past audits and investigations by 
GAO have revealed that hundreds of the mobilized Army National Guard 
members had at least one pay problem associated with their 
mobilization. What is DOD going to do in the future to ensure that the 
Reserve components are included in the design and implementation of 
future financial systems and not an afterthought?
    Secretary Jonas. Senator Nelson, the Services and OSD are acutely 
aware of the need to ensure whatever financial systems are fielded, any 
unique requirements of the Reserve components are included. Recent 
events have shown us the necessity of having a fully integrated force 
of active, Guard, and Reserve members utilizing the same systems, both 
warfighting and business.
    To the specific issue of military pay, the Department is developing 
the DIMHRS for all members of the Armed Forces to ensure a fully 
integrated personnel and pay system. The lack of an integrated pay and 
personnel system has been the source of many of the pay issues cited in 
GAO reports.
    Part of the Business Management Modernization Program effort is 
standardizing the Department's accounting and finance process and data 
requirements. This standardization will apply to all future system 
implementations that generate or record financial transactions, to 
include DIMHRS. With the noted exception of the Reserve pay legacy 
systems, the financial systems being used by the Reserves are the same 
as those used by the Active-Duty Forces. As previously stated, the 
Services plan to transition off the old legacy systems and replace them 
with the future financial systems, including those utilized in support 
of the Reserves.

           defense integrated military human resource system
    38. Senator Ben Nelson. Ms. Baldwin, DIMHRS is scheduled for 
implementation beginning with the Army in fiscal year 2005. Will the 
integrated personnel and pay actions be fully functional at that time?
    Ms. Baldwin. My understanding is that initial DIMHRS fielding to 
the Army will begin in March 2006, and that integrated personnel and 
pay actions will be functional at that time. The Under Secretary of 
Defense for Personnel and Readiness (USD P&R) is the lead for DIMHRS 
and can provide better details on DIMHRS functionality and schedule.

    39. Senator Ben Nelson. Ms. Baldwin, will one transaction update 
both the personnel and pay records simultaneously?
    Ms. Baldwin. My understanding is that the personnel and pay 
integration within DIMHRS means those personnel updates will result in 
the simultaneous and automatic update of pay based on the initial 
processing of any personnel actions affecting pay. The USD P&R is the 
lead for DIMHRS and can provide better details on DIMHRS functionality.

    40. Senator Ben Nelson. Ms. Baldwin, is there a test plan to ensure 
there is not a repeat of the pay problems the Air Force encountered 
when Military Personnel Data System was implemented a couple of years 
ago, realizing that the lack of testing caused major military pay 
problems within the Air Force?
    Ms. Baldwin. The DIMHRS office, under the USD P&R, assures me that 
DIMHRS will be properly tested before fielding begins.

    [Whereupon, at 4:45 p.m., the subcommittee adjourned.]

                                 
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