[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
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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
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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.
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\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:
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\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.
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\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.
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\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.
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\31\ GAO-04-615.
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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\
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\32\ GAO, Chemical and Biological Defense: Improved Risk Assessment
and Inventory Management Are Needed, GAO-01-667 (Washington, DC: Sept.
28, 2001).
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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.
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\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).
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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.
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\38\ GAO-04-910R.
\39\ GAO-04-615.
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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.
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\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.
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\42\ GAO, Financial Management: DOD's Metrics Program Provides
Focus for Improving Performance, GAO-03-457, (Washington, DC: Mar. 28,
2003).
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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.
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\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).
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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.
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\44\ Department of Defense Appropriations Act, 2005, Pub. L. No.
108-287, Sec. 8141, 118, Stat. 951, 1003 (Aug. 5, 2004).
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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\
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\45\ Pub. L. No. 108-375, Sec. 332.
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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.
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\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).
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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.
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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.
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\1\ GAO-04-910R DOD Fiscal Year 2007 Audit Opinion
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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.
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\1\ Quoted from Michael Montelongo's 27 June 2001 testimony before
the Senate Armed Services Committee.
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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.
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\2\ Quoted from 24 March 2004 Hearing before the Senate Armed
Services Committee, Subcommittee on Readiness and Management Support.
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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\
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\3\ Quoted from the Air Force Financial Management Vision
Statement.
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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\
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\4\ Quoted from the Air Force Financial Management Vision
Statement.
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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.
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\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.
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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\
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\6\ General John Jumper, USAF, as quoted in Government Executive
Magazine, 19 March 2002 (http://www.govexec.com/dailyfed/0302/
031902db.htm).
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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.
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\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.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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.
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\6\ Pub. L. No. 108-375, Sec. 332.
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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.
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\7\ Pub. L. No. 108-375, Sec. 332.
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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]
______
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.]