[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]





      BUSINESS SYSTEMS MODERNIZATION AT THE DEPARTMENT OF DEFENSE

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

                                HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
                      FINANCE, AND ACCOUNTABILITY

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                              JUNE 8, 2005

                               __________

                           Serial No. 109-52

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                      http://www.house.gov/reform


                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
22-899                      WASHINGTON : 2005
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut       HENRY A. WAXMAN, California
DAN BURTON, Indiana                  TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota             CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana              ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio           DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania    DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee       DIANE E. WATSON, California
CANDICE S. MILLER, Michigan          STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio              CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California          LINDA T. SANCHEZ, California
GINNY BROWN-WAITE, Florida           C.A. DUTCH RUPPERSBERGER, Maryland
JON C. PORTER, Nevada                BRIAN HIGGINS, New York
KENNY MARCHANT, Texas                ELEANOR HOLMES NORTON, District of 
LYNN A. WESTMORELAND, Georgia            Columbia
PATRICK T. McHENRY, North Carolina               ------
CHARLES W. DENT, Pennsylvania        BERNARD SANDERS, Vermont 
VIRGINIA FOXX, North Carolina            (Independent)
------ ------

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

   Subcommittee on Government Management, Finance, and Accountability

              TODD RUSSELL PLATTS, Pennsylvania, Chairman
VIRGINIA FOXX, North Carolina        EDOLPHUS TOWNS, New York
TOM DAVIS, Virginia                  MAJOR R. OWENS, New York
GIL GUTKNECHT, Minnesota             PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana              CAROLYN B. MALONEY, New York
JOHN J. DUNCAN, Jr., Tennessee

                               Ex Officio
                      HENRY A. WAXMAN, California

                     Mike Hettinger, Staff Director
               Tabetha Mueller, Professional Staff Member
                         Nathaniel Berry, Clerk
            Adam Bordes, Minority Professional Staff Member


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 8, 2005.....................................     1
Statement of:
    Brinkley, Paul A., Special Assistant to the Under Secretary 
      of Defense, Acquisition Technology and Logistics, for 
      Business Transformation, U.S. Department of Defense........    47
    Kutz, Gregory D., Director, Financial Management and 
      Assurance, U.S. Government Accountability Office, 
      accompanied by Randy Hite, Director, Information Technology 
      Architecture and Systems Issues, U.S. Government 
      Accountability Office......................................     5
    Modly, Thomas, Deputy Under Secretary of Defense for 
      Financial Management, Office of the Under Secretary of 
      Defense (Comptroller), U.S. Department of Defense..........    36
Letters, statements, etc., submitted for the record by:
    Brinkley, Paul A., Special Assistant to the Under Secretary 
      of Defense, Acquisition Technology and Logistics, for 
      Business Transformation, U.S. Department of Defense, 
      prepared statement of......................................    49
    Kutz, Gregory D., Director, Financial Management and 
      Assurance, U.S. Government Accountability Office, prepared 
      statement of...............................................     8
    Modly, Thomas, Deputy Under Secretary of Defense for 
      Financial Management, Office of the Under Secretary of 
      Defense (Comptroller), U.S. Department of Defense, prepared 
      statement of...............................................    38
    Platts, Hon. Todd Russell, a Representative in Congress from 
      the State of Pennsylvania, prepared statement of...........     3

 
      BUSINESS SYSTEMS MODERNIZATION AT THE DEPARTMENT OF DEFENSE

                              ----------                              


                        WEDNESDAY, JUNE 8, 2005

                  House of Representatives,
Subcommittee on Government Management, Finance, and 
                                    Accountability,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2 p.m., in 
room 2247, Rayburn House Office Building, Hon. Todd Russell 
Platts (chairman of the subcommittee) presiding.
    Present: Representatives Platts, Gutknecht and Towns.
    Staff present: Mike Hettinger, staff director; Dan Daly, 
counsel; Tabetha Mueller, professional staff member; Jessica 
Friedman, legislative assistant; Nathaniel Berry, clerk; 
Geoffrey Hale, intern; Adam Bordes, minority professional staff 
member; and Jean Gosa, minority assistant clerk.
    Mr. Platts. A quorum being present, this hearing of the 
Government Reform Subcommittee on Government Management, 
Finance, and Accountability will come to order.
    On September 10, 2001, Secretary of Defense Donald Rumsfeld 
outlined his vision for a new DOD. He envisioned a dramatic 
transformation that would correct problems outlined in hundreds 
of studies and reports with a common theme: DOD's urgent need 
to modernize its management structure. From accounting to 
logistics, the computer systems and business processes that 
support the Department's operations are cumbersome, inefficient 
and hopelessly out of date.
    The world changed dramatically the day after Secretary 
Rumsfeld delivered that speech. Following the tragic events of 
September 11, 2001, the entire Federal Government reevaluated 
its missions and priorities, none more so than the Department 
of Defense.
    To the Department's credit, the push for management reform 
was not abandoned. In the face of shifting priorities, wars in 
Afghanistan and Iraq, and the largest deployment of National 
Guard and Reserve troops since World War II, the operational 
impact of management problems has become increasingly apparent. 
From pay problems to inadequate tracking of supplies, the need 
to improve management is more important than ever before, and 
it must be balanced against the urgent need to defend our 
Nation against new threats.
    Restructuring what amounts to the world's largest nonmarket 
economy would be enough of a challenge without the unique 
institutional constructs that have contributed to DOD's 
problems in the past. While the Secretary sets the tone from 
the top, each branch of the service, Army, Navy, Marine Corps, 
Air Force, has its own way of doing business, its own natural 
constituency, and its own appropriations, yet each branch 
cannot act alone. It is imperative that joint operations run 
smoothly, and that information flows freely among the service 
branches. This is the only way DOD can function as a cohesive 
unit.
    The vision behind Secretary Rumsfeld's plan is not a new 
idea. Several transformation efforts have come and gone at DOD 
since the 1980's, with billions spent on new computer systems 
that never performed as expected. This latest effort, however, 
the Business Management Modernization Program [BMMP], has made 
slow, though steady, progress, earning its share of criticism 
as well along the way. DOD officials have responded to critics 
with program improvements and a shift in focus, away from just 
balancing the books and toward the true goal of supporting the 
warfighter. Congress has a responsibility to guide and oversee 
this transformation every step of the way, to ensure that goals 
are clear, and that investments in computer systems are made 
wisely. This hearing is part of that ongoing oversight.
    We are pleased to have a panel of witnesses with a wealth 
of knowledge on this topic. First we're glad to again hear from 
Mr. Greg Kutz, Director of Financial Management and Assurance 
at the U.S. Government Accountability Office.
    Mr. Kutz, thank you for being here. And again, we 
appreciate your work and cooperation and assistance over my 
tenure as chairman.
    Mr. Kutz will be accompanied here today by Mr. Randy Hite, 
who is the Director of Information Technology Architecture and 
Systems Issues at GAO.
    We will also hear from officials representing the 
Department of Defense. We are pleased to have Mr. Thomas Modly, 
the Deputy Under Secretary of Defense for Financial Management, 
who will represent the Office of the Under Secretary of Defense 
Comptroller; and Mr. Paul Brinkley, Special Assistant to the 
Under Secretary of Defense, Acquisition, Technology and 
Logistics for Business Transformation, will testify on behalf 
of the Business Management Modernization Program.
    We appreciate all four of you being here, as well as the 
written testimonies that you have provided to us, and look 
forward to your testimonies here today in person.
    [The prepared statement of Hon. Todd Russell Platts 
follows:]

[GRAPHIC] [TIFF OMITTED] T2899.001

[GRAPHIC] [TIFF OMITTED] T2899.002

    Mr. Platts. I now yield to the ranking member, the 
gentleman from New York, Mr. Towns.
    Mr. Towns. Thank you, Mr. Chairman.
    Let me begin by saying thank you for holding this hearing 
on business modernization efforts at the Department of Defense. 
I would also like to welcome our witnesses from both DOD and 
GAO. I look forward to your testimony.
    Mr. Chairman, the chronic failure of system integration and 
maintenance at DOD has been a focal point of our subcommittee 
for some time now. Although many other Federal agencies have 
improved their financial management efforts, DOD continues to 
fail in demonstrating adequate financial accounting and 
internal control practices. The root cause of many failures is 
elusive, however, due to the stovepipe nature of many business 
systems, the complexity of maintaining so many financial 
management programs.
    Since 1995, GAO has designated the financial management 
system at DOD as high risk due to a system vulnerability making 
them targets for those three nasty words: waste, fraud and 
abuse. This has been the case for the last 9 years. The 
inspector general of the Department of Defense could not 
provide an opinion on the agency's 2004 financial statement. 
Lack of financial and internal control departmentwide remains 
the root cause of these failures.
    I will conclude, Mr. Chairman, by saying simply this: As we 
continue to allocate the necessary resources to support our 
troops abroad and at home, it is imperative to ensure that such 
funding is used effectively and appropriately.
    I thank you, Mr. Chairman, and ask that my entire statement 
be placed in the record.
    Mr. Platts. Without objection, so ordered.
    We will now proceed to our testimony. Our practice is to 
ask our witnesses to stand and be sworn in, and any others who 
will be assisting in your testimony, if they would like to 
stand and take the oath as well.
    [Witnesses sworn.]
    Mr. Platts. Thank you. You may now be seated. The clerk 
will note that all witnesses affirmed the oath, and we will now 
proceed.
    Mr. Kutz, we will begin with you. We are going to have a 5-
minute clock. From what we're told, we're in good shape, with 
votes not until later this afternoon; so if you need to go over 
a little bit, that's fine, but we do want to get to the Q and A 
as well and have a good exchange. You may begin.

 STATEMENT OF GREGORY D. KUTZ, DIRECTOR, FINANCIAL MANAGEMENT 
     AND ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE, 
  ACCOMPANIED BY RANDY HITE, DIRECTOR, INFORMATION TECHNOLOGY 
ARCHITECTURE AND SYSTEMS ISSUES, U.S. GOVERNMENT ACCOUNTABILITY 
                             OFFICE

    Mr. Kutz. Mr. Chairman and Representative Towns, thank you 
for the opportunity to be here to discuss DOD financial 
management and business systems modernization. My testimony has 
two parts; first, examples that demonstrate the need for 
reform, and second, the status of reform efforts and two 
suggestions for legislative action.
    First, DOD's financial management and related problems 
result in waste and inefficiency. Let me give you a few 
examples: Over $115 million wasted on unused airline tickets, 
the Navy paying for fraudulent calling card charges, and 
communications lines that had not been used for years; and as I 
testified yesterday before Chairman Shays and Ranking Member 
Waxman, hundreds of millions of dollars of waste associated 
with DOD giving away, selling for pennies on the dollar, or 
destroying inventory that's needed by our military forces.
    These problems also impact DOD's mission and have other 
consequences. Examples from prior testimony before this 
subcommittee include substantial problems accurately paying 
Army National Guard and Reserve soldiers that distracted them 
from their mission, caused financial hardships for their 
families, and has had a negative impact on retention; 
additional pay problems for injured Army Guard and Reserve 
soldiers that resulted in gaps in their pay and medical 
benefits; and travel reimbursement problems impacting hundreds 
of thousands of mobilized Army Guard soldiers. These examples, 
and others, clearly demonstrate the need for reform.
    My second point is the lack of sustained leadership, 
inadequate accountability and cultural resistance to change 
continues to impede reform efforts. DOD's stovepiped, 
duplicative systems contribute to the operational problems I 
discussed and will cost the taxpayers $13 billion in 2005. 
That's $35 million a day.
    Attempts to modernize DOD's business systems routinely cost 
more than planned, miss their schedules by years, and deliver 
only marginal benefits, or are terminated with no benefit at 
all.
    DOD continues to lack accurate data on the number and total 
cost of its business systems. For example, the reported number 
of business systems increased from about 2,300 in April 2003 to 
4,150 in March 2005. At the same time, the reported cost of 
these systems decreased by $6 billion. Without a handle on the 
number and cost of its business systems, it's not surprising 
that billions of dollars continue to be spent by the services 
on parochial stovepipe solutions.
    Development of a business enterprise architecture, which is 
critical to successful transformation, has not progressed well. 
In fact, after spending almost 4 years and over $300 million, 
DOD does not have an effective architecture program.
    DOD has recently taken steps to improve its transformation 
efforts consistent with the 2005 authorization act. For 
example, the Defense Business Systems Management Committee has 
been established to oversee modernization efforts. In addition, 
talented individuals like Mr. Brinkley and Mr. Modly are 
working full time on transformation efforts. Time will tell 
whether DOD's efforts will result in improvements in its 
operations.
    Although the 2005 authorization act is a step in the right 
direction, we believe additional legislation is necessary to 
provide a foundation for successful reform. Our testimony 
highlights proposals for a chief management official, and a 
more centralized control of the allocation and execution of all 
business systems appropriations.
    In conclusion, history shows that the status quo of part-
time, constantly changing leadership on business transformation 
will not succeed. Our legislative proposals do not guarantee 
successful transformation, but we believe they create a more 
favorable environment for true reform. With the fiscal 
challenges facing our Nation, and with the potential for 
billions of dollars of savings through successful 
transformation, these proposals should receive strong 
consideration.
    Mr. Chairman, that ends my statement. Mr. Hite and I will 
be happy to answer your questions.
    Mr. Platts. Thank you, Mr. Kutz.
    [The prepared statement of Mr. Kutz follows:]

    [GRAPHIC] [TIFF OMITTED] T2899.003
    
    [GRAPHIC] [TIFF OMITTED] T2899.004
    
    [GRAPHIC] [TIFF OMITTED] T2899.005
    
    [GRAPHIC] [TIFF OMITTED] T2899.006
    
    [GRAPHIC] [TIFF OMITTED] T2899.007
    
    [GRAPHIC] [TIFF OMITTED] T2899.008
    
    [GRAPHIC] [TIFF OMITTED] T2899.009
    
    [GRAPHIC] [TIFF OMITTED] T2899.010
    
    [GRAPHIC] [TIFF OMITTED] T2899.011
    
    [GRAPHIC] [TIFF OMITTED] T2899.012
    
    [GRAPHIC] [TIFF OMITTED] T2899.013
    
    [GRAPHIC] [TIFF OMITTED] T2899.014
    
    [GRAPHIC] [TIFF OMITTED] T2899.015
    
    [GRAPHIC] [TIFF OMITTED] T2899.016
    
    [GRAPHIC] [TIFF OMITTED] T2899.017
    
    [GRAPHIC] [TIFF OMITTED] T2899.018
    
    [GRAPHIC] [TIFF OMITTED] T2899.019
    
    [GRAPHIC] [TIFF OMITTED] T2899.020
    
    [GRAPHIC] [TIFF OMITTED] T2899.021
    
    [GRAPHIC] [TIFF OMITTED] T2899.022
    
    [GRAPHIC] [TIFF OMITTED] T2899.023
    
    [GRAPHIC] [TIFF OMITTED] T2899.024
    
    [GRAPHIC] [TIFF OMITTED] T2899.025
    
    [GRAPHIC] [TIFF OMITTED] T2899.026
    
    [GRAPHIC] [TIFF OMITTED] T2899.027
    
    [GRAPHIC] [TIFF OMITTED] T2899.028
    
    [GRAPHIC] [TIFF OMITTED] T2899.029
    
    [GRAPHIC] [TIFF OMITTED] T2899.030
    
    Mr. Platts. We're going to move to Mr. Modly with your 
statement, please.

 STATEMENT OF THOMAS MODLY, DEPUTY UNDER SECRETARY OF DEFENSE 
  FOR FINANCIAL MANAGEMENT, OFFICE OF THE UNDER SECRETARY OF 
       DEFENSE (COMPTROLLER), U.S. DEPARTMENT OF DEFENSE

    Mr. Modly. Thank you.
    Chairman Platts, Congressman Towns, I appreciate this 
opportunity to address your concerns about the Department's 
progress in the area of business systems modernization and 
improved financial management.
    Over the last several months, we as a Department have taken 
a significant step forward in our business transformation 
efforts, and I am grateful for the opportunity to discuss this 
progress with you here today.
    I was appointed to my current position as Deputy Under 
Secretary of Defense for Financial Management in February of 
this year. Prior to that appointment, I had been serving in the 
Department of Defense as the Executive Director of the Defense 
Business Board. This is a board of 20 distinguished private 
sector senior executives who have been providing advice and 
recommendations to the Secretary of Defense over the last 3 
years regarding transformational strategies over the 
Department's business mission.
    My experience with the Defense Business Board, as well as 
my own private sector experience, has been critical to building 
my understanding of the challenges we face as a Department. 
There is no larger or more complex organization in the world 
than the Department of Defense. However, lessons learned from 
other large and complicated entities can be still applied to 
good effect if we recognize the scale and scope of our 
challenges in our environment and are smart about the way we 
apply these lessons.
    As a Department, we have identified and are actively 
correcting the problems we have had in modernizing our business 
systems. We agree with the recommendations cited by the GAO in 
their recent report and all their other reports on this 
program, and we are taking specific action to address each 
individual recommendation.
    What is not apparent in the GAO report, however, is the 
progress that we have made and continue to make in transforming 
our business systems environment, and the broader progress we 
have made at transforming financial management across the 
Department of Defense.
    The contribution the Business Management Modernization 
Program [BMMP] has made to this progress is significant. Most 
importantly, we now have a much better overall understanding of 
our business systems environment and the many cross-
organizational interdependencies that must align to achieve 
those objectives. We have also established data standards and 
strategies for the interoperability of business and financial 
information, and we have established a process for centralized 
control over IT investment for business system modernization. 
These are significant accomplishments for an organization of 
the Department's size.
    Since assuming my current position in February of this 
year, I have been also working very closely with my colleague 
Paul Brinkley, who is here with me today, to shift the BMMP 
program from its previous architecture and discovery phases 
into a new phase. The program is now leveraging these 
foundational accomplishments of the last 3 years, and focusing 
on implementation and actual duty enterprise systems and 
standards.
    To reinforce this enterprise approach to transformation, we 
have established the Defense Business Systems Management 
Committee [DBSMC]. As a result, overall business transformation 
leadership now rests with the chairman of the DBSMC, who is the 
Deputy Secretary of Defense.
    Concurrent with the formation of the DBSMC, we also 
established investment review boards that will be required to 
approve all business systems investments in excess of $1 
million. This new government will ensure broad senior-level 
involvement in business systems modernization decisions across 
the Department of Defense.
    The BMMP program itself has also identified six key 
enterprise transformation priorities. Each priority has 
associated with it key programs and initiatives that support 
the achievement of improved business capabilities that improve 
warfighter support in 6, 12 and 18-month increments. The DBSMC 
will be actively engaged in monitoring measurable progress for 
each one of these priorities.
    Although the successful implementation of BMMP priorities 
will have a significant long-term impact on the business 
operations of the Department, BMMP is not the Comptroller 
organization's sole focus in our day-to-day efforts to improve 
DOD financial management. As an organization, we are committed 
to eliminating all other DOD deficiencies identified as high-
risk areas by the GAO, and we are developing a realistic plan 
to affirm that success through the financial audit process. 
This plan, which is currently being refined and integrated with 
the BMMP transition plan, already has key milestones that we 
expect to achieve by 2007, including a significant increase in 
the Department's balance sheet line items that we expect the 
auditors will determine have been accurately stated. We are 
refining this plan and integrating it with a systems transition 
plan to be delivered by the BMMP program in September.
    In closing, I would like to emphasize that systems 
improvements and reductions should not be viewed as the sole 
drivers of business transformation. DOD culture also must 
change, as well as many of our fundamental business processes. 
Such change is being driven from the top through active 
engagement of both the Secretary of Defense and the Acting 
Deputy Secretary of Defense. The Acting Deputy in particular is 
asserting his leadership of the DBSMC in support of this new 
alignment of BMMP, and through a thorough review of our 
business systems investments and priority programs.
    Senior leadership is engaged and committed, and our success 
will be a direct result of broad cooperation, collaboration, 
integration and cultural change across the Department.
    Thank you, Mr. Chairman, Congressman Towns, and I look 
forward to the committee's questions.
    Mr. Platts. Thank you, Mr. Modly.
    [The prepared statement of Mr. Modly follows:]

    [GRAPHIC] [TIFF OMITTED] T2899.031
    
    [GRAPHIC] [TIFF OMITTED] T2899.032
    
    [GRAPHIC] [TIFF OMITTED] T2899.033
    
    [GRAPHIC] [TIFF OMITTED] T2899.034
    
    [GRAPHIC] [TIFF OMITTED] T2899.035
    
    [GRAPHIC] [TIFF OMITTED] T2899.036
    
    [GRAPHIC] [TIFF OMITTED] T2899.037
    
    [GRAPHIC] [TIFF OMITTED] T2899.038
    
    [GRAPHIC] [TIFF OMITTED] T2899.039
    
    Mr. Platts. Mr. Brinkley.

 STATEMENT OF PAUL A. BRINKLEY, SPECIAL ASSISTANT TO THE UNDER 
SECRETARY OF DEFENSE, ACQUISITION TECHNOLOGY AND LOGISTICS, FOR 
      BUSINESS TRANSFORMATION, U.S. DEPARTMENT OF DEFENSE

    Mr. Brinkley. Chairman Platts, Congressman Towns, thank you 
for the opportunity to appear before you to discuss the 
Department's business systems modernization and business 
transformation initiatives.
    I'm Paul Brinkley, Special Assistant to the Under Secretary 
of Defense for Business Transformation. I recently joined the 
Department from private industry, and I'm responsible for the 
leadership of the Department's business transformation 
initiatives, and specifically the Business Management 
Modernization Program.
    Successful business transformation initiatives in the 
private sector have the following characteristics: They improve 
the ability of the organization to service their customer, they 
leverage the managerial structure of the organization to ensure 
accountability, and they focus on end-to-end business process 
improvement, breaking down barriers to appropriate information 
access.
    The BMMP program was created to achieve a clean department-
wide financial audit by modernizing and simplifying the complex 
business system environment present across the DOD. The scope 
of the efforts to date has been DOD-wide, focusing on 
establishing a business system architecture for all tiers of 
the Department's operation. As a result of this work, we've 
established data standards and business rules that, when fully 
deployed, will enable visibility and valuation of key assets 
through their life cycle, greatly benefiting the warfighting 
mission, in addition to our financial management objectives.
    I've had the opportunity to lead business transformation 
within multinational corporate environments resulting from 
merger and acquisition activity. These initiatives involve the 
efforts of thousands of people who spoke different languages, 
worked in highly varied corporate and national cultures, using 
different financial currencies. They often did not initially 
share a collective view of the goals of the corporation; yet I 
have witnessed such organizations come together to achieve 
remarkable change by aligning their effort to a shared mission.
    It is difficult to drive a change in business systems when 
the incentive to the end user is a high-level financial 
objective or a net reduction in IT systems. In my time at the 
Department, it has become clear that at each tier of the 
organization, there is a passionate desire to support the 
warfighters in their critical national security mission and to 
do other things to make their job easier and to keep them safe.
    Our realignment of the BMMP requires that business systems 
modernization investments directly enable business process 
improvements that measurably support the warfighting mission. 
Streamlined business processes are, by their very nature, more 
financially transparent and are reliant on a smaller number of 
modernized business systems. If multinational corporations 
striving to improve their quarterly financial performance could 
come together to achieve transformed business operations, I'm 
confident we can achieve far greater improvements in the 
Department of Defense as long as we focus on servicing the 
customer, and our valued customer is the warfighter.
    To achieve this, we have structured the program to 
prioritize business system modernization investments based on 
their impact to our core business missions. These missions are 
exhibited. Additionally, we have exhibited a tiered 
accountability model for the Department's transformation 
effort. In the large multinational corporate environment, each 
level of the organization is responsible for defining clear 
transformation goals and objectives associated with their own 
tier of responsibility. The seams or interfaces between each 
layer are clearly defined to ensure that information can flow 
upward to support rapid decisionmaking at the appropriate 
level. We're adopting this approach in our realignment of the 
BMMP. This approach aligns business transformation to take 
advantage of the existing management structure of the 
Department.
    Finally, we have taken advantage of the new management 
structures established by the fiscal 2005 NDAA to 
institutionalize appropriate senior management engagement in 
this critical effort. As Tom indicated, Acting Deputy Secretary 
England is fully engaged in leading the Defense Business 
Systems Management Committee, which is meeting monthly and is 
providing full support to the realignment and the execution of 
the BMMP.
    In September, as required by the fiscal year 2005 NDAA, we 
will deliver a revised business enterprise architecture and a 
corresponding transition plan and acquisition program baseline. 
These products will reflect the realignment of the BMMP, and 
they will ensure that we're providing ongoing institutionalized 
improvement to our business processes that benefit the 
warfighter, while also continuously improving our financial 
transparency and reducing our systems' complexity.
    In closing, Mr. Chairman, I thank you for the opportunity 
to testify before the committee about business systems 
modernization, and would be happy to answer any questions you 
and the members of the committee may have today.
    Mr. Platts. Thank you, Mr. Brinkley.
    [The prepared statement of Mr. Brinkley follows:]
    
[GRAPHIC] [TIFF OMITTED] T2899.040
    
    [GRAPHIC] [TIFF OMITTED] T2899.041
    
    [GRAPHIC] [TIFF OMITTED] T2899.042
    
    [GRAPHIC] [TIFF OMITTED] T2899.043
    
    [GRAPHIC] [TIFF OMITTED] T2899.044
    
    [GRAPHIC] [TIFF OMITTED] T2899.045
    
    [GRAPHIC] [TIFF OMITTED] T2899.046
    
    [GRAPHIC] [TIFF OMITTED] T2899.047
    
    [GRAPHIC] [TIFF OMITTED] T2899.048
    
    Mr. Platts. We will proceed to questions. And we have been 
joined by Mr. Gutknecht from Minnesota. Glad to have you here 
as part of the hearing.
    We will try to stay roughly at 5 minutes per Member with 
numerous rounds to have a good exchange.
    Mr. Kutz, I'll begin with you and Mr. Hite. As we try to 
provide effective oversight of the ongoing efforts at DOD, now, 
we are 4 years in with hundreds of millions of dollars 
expended, what would you suggest are maybe the best benchmarks 
that we should set or be looking at to assess the progress 
being made? How can we be effective in our oversight 
responsibility? Certainly your work has helped us identify 
things that we need to be watching, but what benchmarks do you 
think are going to be most helpful?
    Mr. Kutz. Let me start with operational things, and then 
Mr. Hite can talk about information technology. For 
operational, let's use the military pay, the hearings that 
we've had with you on those issues, and certainly there's 
benchmarks there for things that they can do in the short term 
with human capital, and in the long term with the business 
systems.
    They have done a lot of work, in that area in particular, 
in trying to improve the situation for the soldiers; however, 
the big concern is are they going to ever be able to deliver a 
reengineered system that they call DIMHRS, which is supposed to 
provide the integrated pay and personnel functionality 
necessary to support these soldiers in kind of a more world-
class payroll and personnel-type situation.
    So certainly you would want to see some progress 
operationally in actual military pay, the ability to reconcile 
their fund balance or their checkbook, and the ability to make 
their disbursements on time and other types of things. And 
they're working on those things from a human capital and a 
process perspective, but the systems modernization part has 
been very, very difficult and has not been as successful, I 
would say.
    Mr. Hite. Mr. Chairman, I would add to that, in doing your 
oversight, one of the things you want to do is fix 
accountability, fix accountability for outcomes. And it is the 
Department's responsibility to define what those outcomes are; 
heretofore it hasn't done a good job, but what the witnesses 
have told you is their intention to produce a set of 
commitments by September 30th in terms of what they intend the 
modernized set of systems to look like from an architectural 
standpoint, and how they intend to deliver on those through a 
transition process where new systems will be introduced, old 
systems will be retired. And to me, that would be the point of 
accountability. The commitments they make in those documents 
are what you want to judge them against. And the commitments 
that they make should not be multiyear commitments as much as 
they should be incremental commitments so, in fact, you can 
measure progress on an incremental basis through your 
oversight.
    Mr. Platts. So in essence, the benchmarks that they set 
year to year should be very defined so that we can make sure 
that we are making progress.
    Mr. Hite. Absolutely.
    Mr. Platts. As we go through here, I'm sure each answer 
will target at some specific examples, and I want to followup. 
I am going to try to stay on a theme, but right away, Mr. Kutz, 
you gave an example, I think one of the challenges. You 
mentioned, DIMHRS, as an example of trying to get more 
accountability with the pay issue, which we've tried to focus 
on because of the quality of life for our courageous men and 
women in uniform. My understanding of your testimony was that 
even if DIMHRS is successful in coming on board, it will 
replace 113 of 713 current human resource systems out there. So 
there are still 600 more that aren't yet addressed.
    Mr. Kutz. There are a number. I don't know those numbers, I 
haven't memorized those numbers, but I know there are a number 
of systems that remain even after DIMHRS is implemented, if 
it's implemented.
    Mr. Platts. Is that an example of us taking--trying to take 
a step forward at the Department, in your opinion, but in the 
long term not making a lot of progress because we're addressing 
113, but there are 600 that are still going to be out there.
    Mr. Kutz. Well, certainly if DIMHRS replaced 113 and 
provided the kinds of capabilities that they have planned, that 
would be a step forward. No one could doubt that. But the fact 
that there are a lot of other systems out there--and the other 
thing that we've reported on, there appeared to be other 
investments that they were making that were duplicative with 
DIMHRS, and that would be the bigger concern is that DIMHRS is 
supposed to provide capabilities A, B and C, and we saw money 
being potentially spent on duplicative systems also trying to 
provide those same capabilities. And that's the longstanding 
problem that they've had is making investments in multiple 
systems that do the very same thing.
    Mr. Platts. As you reference in your testimony, there are 
now over 4,000 systems out there not coordinating with each 
other.
    Mr. Kutz. And that's a moving target. I mean, that's the 
number it was an as of February or March of this year. And I 
know they're continuing to try to refine their estimates and 
determine what are and aren't systems, but, yes, that's a large 
number of systems.
    Mr. Platts. Mr. Kutz, you said in your oral testimony that 
we are here 4 years, $300 million plus, and the Department does 
not yet have an effective enterprise architecture. How would 
you describe what they do have 4 years and $300 million later. 
Do we have a foundation?
    Mr. Hite. At this juncture I would say--and I would quote 
the DOD witnesses where they said they have a better 
understanding of the complexity of what they're dealing with.
    In terms of the foundational artifacts, the models upon 
which to build on, I think we're at a point where we have very 
little utility and a lot of investment to show for it. So we 
certainly aren't in a position where we've got value 
commensurate with cost and time that has gone into this. And I 
think what the DOD witnesses are describing is a--they describe 
a realignment or restructuring of their efforts. And what 
they're talking about is narrowing the focus, narrowing the 
scope of what's going to be dealt with on a DOD-wide basis from 
an architecture standpoint and what the services are going to 
be allowed to pursue separately.
    So I think we're at a point now where what we've done up to 
this point hasn't produced a whole lot of value, and we're 
trying to salvage what we have, and I think there is very 
little to salvage.
    Mr. Platts. I want to yield to the ranking member, but give 
the Department a chance to respond on that specific question.
    Expanding on your statement of where you think the 
Department is after 4 years and $300 million, I want to say 
that I appreciate both of you in coming to the Department from 
the private sector.
    I also appreciate that you've been in your position, Mr. 
Modly, maybe 4 months or so. I imagine, given the complexities, 
you are just getting yourself situated to understand what the 
challenge is. And Mr. Brinkley, you've been there a little 
longer. But the fact that you have come from the private sector 
to public service, we're grateful for that, and we want you to 
succeed. But I would be interested in your frank assessment of 
how you would characterize where we are. What do we have after 
4 years and hundreds of millions of dollars?
    Mr. Modly. Sir, my assessment would be--and I don't take 
issue with anything Randy said on that point. I think that 
there are elements of what we paid for over the last several 
years that we will definitely use, will definitely be 
leveraged, and will definitely be critical to the 
transformation efforts going forward. There are other elements 
that, in my candid assessment and my colleague's candid 
assessment, we probably won't be able to leverage.
    But I would say that the value of the last 3 years is 
broader and less tangible, and that is, having the opportunity 
to work across a Department and understand what it's going to 
take to actually get this done is a huge discovery process that 
we needed to go through as a Department, and we understand that 
now. We have developed some very key enterprise standards that 
we are going to implement, such as a standard financial 
information structure, which is an--essentially a common 
financial language. To put it in context, every different 
financial system within the components of the Department speaks 
a different language, they code financial information in 
different ways. Getting to a process and to a consensus across 
this organization in terms of what that common language will be 
is very difficult. We have concluded that, and we're starting 
the phase of implementing that starting this month.
    So this is an evolutionary process. I think we have some 
value; we're trying to figure out what exactly that is, and 
what we can leverage going forward. In terms of the 
deliverables that we're going to have in September, we feel 
very confident that what we will deliver in September will 
allow us to transform along the key priorities of the program. 
And in terms of measuring that--which I think is another point 
that was made--measuring our progress based on the number of 
systems that go away to me, coming from private sector--and I 
think Paul would agree--is not a valid way to measure whether 
or not we're getting value.
    What we've asked all of our enterprise priority leaders to 
do is to determine 6 months, 12 months, 18 months from now what 
will we see in terms of improved business operations because of 
the implementation of these systems. We don't want them to 
think about, oh, we'll have a final operating capability on 
this system in 2 years. That doesn't tell me anything. I want 
to know what is it going to do to improve warfighter support, 
and that's really what we're focusing on.
    So if you want to hold us accountable, we will have those 
6, 12 months deliverables prepared in September. And we're 
holding our teams accountable to that, and we should be held 
accountable to that as well.
    Mr. Platts. Mr. Brinkley, do you want to add anything?
    Mr. Brinkley. I get choked up on the topic of architecture.
    The only thing I would add is that you made the point in 
your introductory statement, and Mr. Kutz reinforced it, the 
effectiveness of an architecture is a direct measure of how 
useful it is, how you can implement it.
    When we talk about what we can use and not use in the 
architecture effort to date, a big delineator for Tom and I is 
what we have, given the managerial structure of the Department 
and the appropriation process used to fund systems initiatives 
in the Department, the ability to rapidly deploy and implement. 
And defining the scope of the effort so that it is clearly 
aligned and not in conflict with the managerial structure of 
the Department so that we can put in place accountability for 
implementation, as Tom mentioned, the data standards that 
ensure interoperability for materiel management, that ensure 
the ability to cascade financial information up the Naval rapid 
decisionmaking. Those are things that we are very much 
empowered to do at the top level of the Department. And so the 
architecture effort is focused on those things because they 
translate into direct benefit.
    So this discussion of what has been useful and not been 
useful has a lot to do with what can we use and rapidly deploy. 
And that's where we want the future architecture effort to 
focus, as opposed to more of the discovery--as Tom described 
it--effort that's taking place today.
    Mr. Platts. Would it be accurate to say that what you're 
seeking to do now is to have a more realistic architecture as 
opposed to an idealistic architecture?
    Mr. Brinkley. That's correct, one that is not in conflict, 
as I mentioned earlier. It may be an interesting thing to try 
to forecast the ability to put all of our logistics operations 
on three or four systems when we currently have 2,000, but it's 
not a very relevant topic in terms of our ability to quickly 
transform logistics. That is a good example.
    So focusing on data standards that, regardless of whether 
we have 2,000 logistic systems or 1 logistics system, they 
enable us to interoperate and communicate and act as a single 
enterprise to support joint warfighting, that's a very powerful 
and deliverable objective. And it also translates very well 
into a benefit to the joint warfighting mission of the 
Department.
    Mr. Platts. You've given me some additional followups, but 
I do want to yield to my ranking member, Mr. Towns, and I will 
come back to you on that same issue.
    Mr. Towns.
    Mr. Towns. Thank you very much, Mr. Chairman.
    Let me begin with you, Mr. Kutz. You mentioned that 
legislation is necessary. Could you be more specific in terms 
of exactly what you're talking about?
    Mr. Kutz. Yeah. We had two proposals in our testimony, one 
is--which we talked about at prior hearings before this 
subcommittee--is a chief management official, or Deputy 
Secretary for Management, which would be a level two political 
appointment, Senate confirmation, that would have a 7-year 
renewable appointment term, that would be the transformation 
focal point for the Department full time. And that's within one 
of the reasons we believe that we've had trouble transforming 
is you have part-time leadership that has not been sustained 
over more than a couple of years, and so one of the potential--
and again, it isn't the only solution, but we believe it would 
provide a stronger foundation for a transformation to be 
successful.
    The other one has to do with the way that the business 
systems modernization and overall business system 
appropriations are controlled and appropriated from a budget 
and execution standpoint. Right now there are a lot of people 
that get money to spend on the business systems, and there's 
not a whole lot of corporate oversight or control over that, so 
that's how you sometimes get multiple systems being developed 
at the same time that do the same thing. And that's how you get 
to the thousands and thousands of systems is because different 
people have gotten money to implement systems without a whole 
lot of corporate oversight.
    Mr. Towns. Let me ask you, Mr. Modly, do you feel that 
legislation is necessary?
    Mr. Modly. No, sir, I don't believe that legislation is 
necessary. The legislation----
    Mr. Towns. Is that because you're new?
    Mr. Modly. The department is still trying to react to the 
legislation from last year. But honestly, sir, at this point I 
don't think that legislation that Greg is talking about is 
necessary.
    We received some very strong language in the NDAA Act from 
last year that established the Defense Business Systems 
Management Committee. And in my view and in the Department's 
view, that does address some of the concerns that Greg 
mentioned. One is the issue of investment control over systems 
investments. We are now required by law to review and approve 
any business system investment over $1 million, and so we've 
established investment review boards to do just that. Those 
have to be approved by the Defense Business Systems Management 
Committee. That committee is chaired by the Deputy Secretary of 
Defense, and vice-chaired by a level two political appointee, 
the Under Secretary of Defense for Acquisition Technology and 
Logistics.
    So in my view, I think that this governance that was 
imposed in the law last year should be given a chance to work. 
I think we can make it work. In terms of senior level 
engagement, Paul and I are actively engaged in this program 
daily. So I believe that we have an opportunity here, with the 
law as it is, and an acting Deputy Secretary who, quite 
frankly, is very interested in business transformation and is 
very involved in working with us, to move this program forward.
    Mr. Towns. You know, when you look at the examples that 
were given, you know, they make you wonder, I mean, when you 
look at just travel alone, I think alone was $150 million; is 
that correct?
    Mr. Kutz. $115 million of unused airline tickets; is that 
the example?
    Mr. Towns. Yes.
    Mr. Kutz. Yes.
    Mr. Towns. I mean, so you're saying now that the type of 
system that will be implemented will be reviewed by this group, 
and they will make a decision as to whether it comes in or not? 
I mean, explain to me----
    Mr. Modly. Sir, every system that will be invested in in 
the Department of Defense for business management will be 
reviewed by this investment review committee; that is the role 
of this new investment review process.
    The specific instance of the $115 million in unused airline 
tickets is a problem. It is a combination of a systems problem 
and a business process problem and a training problem. It's not 
simply dependent upon a systems problem. We have taken 
aggressive corrective action to address that, and I would be 
happy, for the record, to submit specifically what we've done 
to address the unused airline ticket issue.
    However, this is not--solving the business management of 
the Department is not just relying on a systems approach. There 
won't be one system, there will be multiple systems across the 
Department. Also, what we want to be able to do is to have a 
rational approach to understanding what those systems are, do 
they make sense, do they fit into the architecture that we've 
established at the high level for the Department? And that's 
what this new governance committee is allowing us to do. In the 
past, Greg is right, that has not taken place in the 
Department.
    Mr. Towns. Let me just go back here.
    Mr. Kutz, if DOD proceeds with the business enterprise 
architecture, some very difficult decisions will have to be 
made on which systems are turned off. What are some of these 
issues, and what can the Congress do to assist in this matter? 
I hear you posing a proposal and all that, but it seems to me 
that more help is needed.
    Mr. Kutz. Well, I think one of the issues is going to be--
it's similar to the BRAC issue where you've got a lot of 
contractors and a lot of systems involved. To the extent you do 
end up having less system somewhere--and that may not be the 
right way to judge this, but ultimately if you are successful 
with transformation, you may not have 4,000 systems, you may be 
able to replace all the travel systems with the defense travel 
system, for example.
    There are contractors out there that have business and jobs 
and all those types of things associated with the systems that 
are going to be terminated, and so--and I think in the past 
when the Department has tried to terminate those systems, they 
have gotten some pressure from the Congress, from their 
constituents, on those types of issues. So realistically that 
could be something you need to help them with respect to being 
able to streamline and provide end-to-end solutions in the 
Department for the various issues we talked about today.
    Mr. Towns. Right. Thank you.
    Mr. Modly, according to GAO's testimony, there were 30 
systems valued at $243 million that were modernized in 2004, 
but failed to be reviewed by the Comptroller's Office. Can you 
offer us any explanation as to why these systems were not 
reviewed?
    Mr. Modly. Yes, sir. The requirement for the Comptroller to 
review systems investments over $1 million was imposed by a 
Comptroller memorandum in an enforcement of a law from the 
fiscal year 2003 act. We did not have, at the time of that law, 
an infrastructure within OSD to perform that. So it's been a 
process of discovery, as I mentioned before, first of all 
understanding where the systems are, then getting a message to 
the system's owners that they needed to submit for 
certification. So I would candidly admit that in that first 
year we missed some systems, we did not get them all. We are 
trying to get better at that process.
    One of the motivators behind our work on the development of 
these new investment review boards [IRB's] is to create a 
system that provides visibility and understanding where all 
these systems are that we need to get certified so we don't 
have that problem again. We are also streamlining the process. 
What happened in the past is that program managers would submit 
their systems for certification, and they ended up getting lost 
in a series of different bureaucratic processes in the 
Department. One of the key elements of making these IRBs work 
is ensuring that we have a very streamlined process, a standard 
set of questions and a standard for determining whether or not 
these systems are compliant. We will do much better in the 
future on those.
    Mr. Kutz. Could I add to that? Because I think one of the 
other problems is that for them to even know which systems have 
obligations of $1 million or more requires a data call. They do 
not have systems and processes in place to automatically be 
able to figure out who is obligating over $1 million. That gets 
back to all the pots of money that are out there for systems 
investments. And so they don't have an automated way to even 
determine after the fact who obligated money for systems 
modernizations. So I'm not sure how they will ever solve it 
until they're able to deal with that, because otherwise it's an 
honors system.
    Mr. Towns. Mr. Chairman, I know my time is up, but I sure 
hate ending on that note, but go ahead.
    Mr. Platts. We'll come back to you.
    Mr. Gutknecht.
    Mr. Gutknecht. Well, thank you, Mr. Chairman, and thank you 
for having this hearing.
    You know, a few years ago we had some scandals in the 
corporate community, and the Congress responded, and some might 
even say we overreacted by passing Sarbanes-Oxley. And among 
other things, we require the CEOs now to sign off on their 
financial statements.
    In a sense, we are the board of directors here, the 
Congress is the board of directors of this massive company 
called the Department of Defense. And it is troubling to me, as 
just one Member, that this Department, for as long as I've been 
here, I think, cannot pass an audit.
    I guess if I were to boil it down to one simple--maybe not 
so simple question, is can the Department of Defense pass an 
audit today? And if not, when do you think they will be?
    Mr. Modly. Is that directed to the GAO----
    Mr. Gutknecht. Anybody who has a mic.
    Mr. Modly. I can take this, sir, absolutely.
    I would say in my professional opinion that the Department 
could pass an audit today if it had enough money and enough 
resources to do it. That means having the ability to trace 
every single transaction, understand the manual processes that 
are required to bring information up to the corporate level. 
But understand, sir, that we have 59 separate entities that 
have to submit financial statements in order for us to give a 
clean opinion. I don't think that it's a wise use of the 
taxpayers dollars, and we're talking billions of dollars in 
order to be able to do that.
    One of the things that we're trying to do with the BMMP 
program is over time drive that cost of audit curve down by 
increasing financial visibility and traceability through both 
systems and standards, so that at some point in the next 
several years we will be able to make those investments to do 
the manual work-arounds required to get a clean opinion. That 
is our position.
    So I think we could get one. I believe it would cost in 
excess of $1 billion to do it in a year, and I don't think that 
is a wise use of taxpayers dollars to do it.
    There is a difference--let me also state that there is a 
difference between being accountable and having that 
accountability affirmed in a clean audit opinion. And I 
understand the way that the private sector requires clean audit 
opinions for their financial statements. In our case, we can 
still show that we're accountable, we can still show that we 
can trace where the money is going into certain programs and 
how it's being spent and not necessarily pass the technical 
qualifications by an audit. But I will say that the 
Department's goal is to get a clean audit opinion. BMMP is a 
process and a program that is helping to drive us toward that.
    Mr. Kutz. Let me add a few things. The kind of audit he's 
talking about they call a ``shoe box audit'' where basically 
management can't account for everything on their own, so they 
throw all the records in a shoe box and have the auditors sort 
everything out. That's honestly what they call it. And so I 
don't know how many years that would take or how many billions 
of dollars, or if it's even feasible.
    But right now they don't have a realistic, feasible plan as 
to how to get an audit, and really that's not the goal. The 
goal is to provide world-class mission support to the 
warfighter. I think we agree with them on that issue. But you 
have lots of issues with human capital, the business systems we 
talked about here today, and I don't believe they're anywhere 
close to being able to pass an audit. Certain parts of the 
Department have been able to pass an audit, but not the ones 
that are very systems-reliant and that have significant human 
capital issues.
    Mr. Gutknecht. Well, could you reduce that to a couple of 
sentences that I could explain that to my constituents in? And 
I'm serious about this. And it's not just the Department of 
Defense, we have a lot of departments that can't pass audits 
right now. And on one hand--and we have business people in our 
districts who say, wait a second, you know, I have to sign off 
on this, and if it's not right, I can go to jail. I mean, how 
come the government isn't held at least as accountable as I am? 
And so what I heard is a lot of, you know, systems technospeak 
here, but that still doesn't quite answer the question.
    And my real concern is this--one other concern, and that is 
that we sort of have a pattern around here, every year there 
are some hearings like this or there are studies or reports 
that come out--and I'll pick on a different department for a 
minute, the Department of Education can't pass its audit. And 
so when it comes time for their appropriation, ultimately the 
Congress decides, well, I guess we're just going to have to 
give them more money. And to a lot of our constituents that 
really doesn't pass muster.
    So are you telling us that in 3 years or 5 years--and I 
would remind you that we won World War II in 3\1/2\ years. The 
Department of Defense can do things it wants to do when it 
wants to do them, but this has never been a very high priority, 
in my opinion. I mean, if this were a high priority, we would 
have this problem solved today. And I guess I'm really trying 
to find out what do we do to put a little fire under the folks 
down there to really make this a high priority.
    Mr. Modly. Sir, let me say that a couple of years ago the 
Comptroller of the Department of Defense put a stretch goal out 
there of trying to achieve a clean opinion by 2007. And 
financial improvement plans were developed to support that 
process, and these are plans that have to be developed through 
all the services and all the agencies, etc. We were prohibited 
by law this past year, in NDAA language in section 352, from 
spending any money on those plans until such time as we got our 
transition plan delivered and we got the architecture 
delivered.
    So some of our inability in the last couple of years--or in 
the last year at least--has been constrained by the Congress's 
restrictions on us spending money on its work.
    Mr. Kutz. Let me just give you one of the causes real 
quickly, because I think----
    Mr. Gutknecht. Can I just go back? So section 352--so when 
the bill comes up this year, some of us ought to pay attention 
to that section, because I don't remember that being debated on 
the House floor.
    Mr. Modly. Sir, we were restricted from spending any money 
on the midterm financial improvement plans which were designed 
to get a clean opinion by 2007.
    Mr. Gutknecht. OK. Thank you.
    Mr. Platts. Thank you, Mr. Gutknecht. I would like to 
comment on the issue of priority. I think one of the challenges 
here is that we thankfully do have a Secretary who, as I 
referenced in his statement on September 10th--who has made 
this a priority, the challenges we're dealing with, almost 50 
years' worth of actions and decisions that have complicated the 
ability to fulfill Secretary Rumsfeld's priority in any faster 
or timely sense because we're trying to undo decades of poor 
management decisions, and I think that's what you're trying to 
get our hands around to go forward.
    You did touch on, though, I think, the reason the 
limitation was placed on DOD is that rather than spending money 
on trying to get a clean audit that would result, in essence, 
in this heroic effort to get an audit that would not really 
benefit us in the sense of changing the practices of DOD is 
that we would be better focused on trying to improve the 
processes and the internal controls that would then generate 
the clean audit, cleans books that can be audited.
    And then you--Mr. Modly, you said that you were not able to 
get a clean audit today without a huge effort, and the merits 
of that would not be very wise to go forward with. How about in 
trying to get closer and closer to an audit regarding internal 
controls, which gets to that foundation that we're talking 
about, is that something that----
    Mr. Modly. Yes, sir. That's a very good question. And what 
we're doing now, as we're working on our transition plan for 
systems and understanding that better and looking at the 
deliverable for September, we are concurrently with that 
developing this comprehensive audit plan or audit readiness 
financial improvement plan for the entire Department so that we 
understand what are the system's dependencies and when do we 
expect those to be ready, and understanding how the audit 
process will marry up with that over time.
    We have, within that initial look, an opportunity not to 
take heroic measures, and yet make substantial progress between 
now and 2007, if you look at line items, and getting favorable 
opinions on certain line items.
    Right now if you look at our balance sheet, on our asset 
side we have basically clean opinion on 16 percent of our 
assets and about 49 percent of our liabilities. We think we can 
take that number to about 62 percent of our assets by 2007, and 
about 53 percent of our liabilities by 2007, and that is by 
focusing on business process improvement, not taking heroic 
measures, getting things ready for audit, and having the 
auditors take a look at them and giving us a favorable look at 
those pieces.
    So we do have an incremental approach. We all agree, sir, 
with you that this is critical to our credibility with the 
taxpayers and our accountability with the taxpayers, so we're 
not abandoning that process; however, we want to make sure 
we're doing it in a way that is concurrent with the process of 
improving how we're doing our business, not just to be able to 
have an opinion that a year later we can't sustain.
    Mr. Platts. That's been the focus of this committee not 
just with DOD, but across the board, in working with GAO is to 
get in place those processes that year in or year out you're 
able to have effective management information, and not just at 
the end of the year to try to get a clean audit, but you have 
those systems in place. And while, one, I appreciate your 
frankness in that 2007 is not doable for a true clean opinion, 
your willingness to share that--and maybe only being there 4 
months, your willingness to be more frank. But I think that's 
good because, quite frankly, I would rather, if we have to, 
wait until 2008 or 2009 or 2010 because we truly are getting to 
the root of the problem rather than just trying to come up with 
what looks like but really doesn't address the problems.
    I do want to go back on the issue of the million dollars, 
the approval process. You referenced the 2003 legislation and 
then the 2005, and in your testimony you talk about this 
requirement. We did have it in law in 2003 as well, but as GAO 
pointed out, hundreds of millions of dollars was expended on 
systems improvements that were not approved. I want to better 
understand the cause. You reference not having a system in 
place to get the word out. I'm not certain why even in a 
blanket departmentwide e-mail that says, here is a new law, 
anybody that's looking at systems improvement, this is a law 
that we need to comply with. What efforts were made to get the 
word out? Because I guess what I'm trying to get to is why 
should I feel comfortable that because of the 2005 law, we are 
actually going to see approval occur or funds not being spent 
versus the hundreds of millions of dollars that were spent 
despite the 2003 law being in place?
    Mr. Modly. I'm going to let Mr. Brinkley answer that 
because he's been very closely involved with the new IRB 
process.
    Mr. Brinkley. First of all, the 2005 NDAA includes the 
motivator of Antideficiency Act violation, in the event that 
funds are obligated without the fund approval. That serves as a 
motivator, obviously.
    To speak to why we feel more confident now than we did in 
2003, there are two reasons. One, as Randy mentioned, you were 
relying a bit on an honor system in something very new. In the 
Office of the Secretary of Defense, traditionally the majority 
of its responsibilities are policy setting and regulation to 
policy. And when the Department declares that organization is 
now going to take an active role in business systems management 
and business systems oversight, you're creating a need for a 
set of skills, a set of managerial acumens that don't exist, or 
did not exist at the time at the Department level, and the 
Department needed time to put that in place; communicate 
effectively with the different functional communities, 
logistics, acquisition, finance and personnel across the 
Department; establish those channels of communication so that 
the awareness was completely embedded across the Department at 
many different tiers.
    So we are confident, and again, given the language in the 
NDAA and the effort to date to establish those managerial 
disciplines that did not exist before at the DOD level, that we 
will have a much more effective review process going forward.
    Mr. Platts. Mr. Kutz, your thoughts on that? The change 
from the 2003 requiring it and your investigation finding all 
those approvals, your assessment of whether we're at a point 
where we are likely to be more successful and not repeating 
itself.
    Mr. Kutz. We haven't looked at whether we're more likely 
going forward. I do believe that a little more teeth in it with 
the Antideficiency Act for an obligation over a million that's 
not approved provides a little bit more incentive for people 
not do it, but it is still the Department of Defense, and there 
are a lot of Antideficiency Act issues that they had over the 
years, so that may not even deter people from being honorable 
in coming forth with the information, because again, I think 
they don't have--I'm still not aware, I never heard them say 
they have a system where they can systematically go in and 
identify all obligations over $1 million related to IT that 
would tell them for sure they got everything.
    Mr. Platts. That was going to be my followup is to have an 
actionable violation, you have to know about it, and you only 
knew about it here because of GAO going in and doing a review. 
And as best possible, I think in your report or your statement 
you are not even sure you found everything that is out there.
    Mr. Kutz. We relied on a data call.
    Mr. Platts. Right. So again, it's a good faith effort of 
what was done or not. So what are you trying to do to better 
ensure that you are crossing the Ts, dotting the Is, that this 
isn't going to continue to go on?
    Mr. Brinkley. We indicated in our report to Congress in 
March, and to reiterate here, the NII organization, the CIO's 
organization within the Department, has published a policy 
establishing a single repository for defense business systems 
across the Department of Defense and has set firm dates for 
getting the information about our business systems inventory--
Mr. Kutz referenced the 4,000 systems, the 2,000 systems--to 
get that inventory accurate, to get it in a single repository 
so that as we assess modernization investment, it's done off of 
a base of information as opposed to a strict honor system. So 
we are moving to address that, and we're working with the NRI 
organization to make sure that repository is fully populated 
and exercised.
    Mr. Platts. One followup, and then I will yield to Mr. 
Towns.
    We've talked in this committee a number of times about 
consequences, and one of the challenges in Federal Government 
is lack of consequences. Regarding those expenditures that were 
over $1 million and not appropriately approved, has there been 
any investigation into how many, if any--I will assume there 
were--were done with knowledge of the other tier requirement, 
and what consequences were suffered by those who made the 
expenditures contrary to Federal law? Because that goes to that 
issue. And my constituents say, I've got to follow the law back 
home, and if I am speeding, I'm going to get a ticket. If the 
Federal employees violate the law, what happens? Is there any 
knowledge base there?
    Mr. Modly. Sir, I'm going to have to investigate that and 
get back to you on that. I don't know for certain, I was with 
the Department in 2003, but with the Defense Business Board, 
and I was not actively engaged in the certification process. 
I'll investigate that.
    Mr. Platts. If you could followup, and I would be 
interested in was there anyone held accountable for expending 
funds contrary to Federal law because of not having the 
Comptroller's approval for expenditure? Mr. Kutz, from your 
report, I don't know that you're aware of any consequences.
    Mr. Kutz. I'm not aware of. And we do a lot of fraud, 
waste, and abuse-type allegations in the DOD, and that is one 
of the issues that no one is ever held accountable for things 
even more severe than what we are talking about here, so that 
leaves an environment that even if they get caught they know 
nothing is going to happen.
    Mr. Platts. I want to go back to that environment issue and 
the consequences. I'm going to yield to Mr. Towns. I know you 
have a time crunch.
    Mr. Towns. You know, thank you Mr. Chairman. And let me 
tell you, you guys are a breath of fresh air, I want you to 
know, Mr. Brinkley and Modly, you really are. And I say that in 
a sincere way. But I'm not sure how you're going to get a 
handle on this, because as I understand it, many agencies place 
extensive reliance to contract and support to prepare financial 
statements. How does this impact on an agency like yours in 
building and sustaining a long-term financial management 
reform? I know--are there human capital needs? This is just not 
clear to me.
    Do you really have enough people to do this? Are you--I 
mean someone, something, is missing here and I'm not sure what 
it is.
    Mr. Modly. We absolutely do not have enough people in the 
Department of Defense to do the audit work that is required to 
get a clean opinion. And so we do rely on contract personnel to 
help us with that.
    Not only do we not have the skills, we don't have the sheer 
volume of people that we need, so we do rely heavily on a 
contractor base to help us with both preparing for audit 
opinions or preparing our financial improvement plans, but also 
in actually executing those. So we are heavily reliant on our 
contractor base to get a lot of this work done.
    Mr. Towns. That makes it more difficult to get a handle on 
it.
    Mr. Modly. I think it requires a level of managerial 
expertise within DOD that Mr. Brinkley and I are really trying 
to upgrade by bringing in some more people into the government 
who have that level of experience and have that level of 
expertise to help manage the contractor base; and that is a 
long term challenge that we have, but we are exercising use of 
special hiring authorities, etc., to bring in more people that 
have broad experience within the private sector doing this type 
of work. As stated before, the Department's never had a clean 
financial opinion for the entire Department, and the government 
itself is challenged in that way. So having a cadre of people 
in the Department who really know what it takes to get it done 
is a challenge, and so we're trying to bring more people in 
from the outside but bring them in as government employees 
rather than as pure contractors, so we can have people inside 
the Department that can manage that contractor base so we can 
get that done.
    Mr. Kutz. I would agree. That is a critical element here of 
when they come up with this plan they are developing, human 
capital is probably more important than anything else, because 
without the human capital the systems are not going to happen, 
the audits are not going to happen, and the transformation is 
not going to happen. And the market is fairly tight right now 
to bring in the financial people. We are competing for the very 
same financial people, and IT people like Mr. Hite, that they 
might be competing for out there. And the market is tight. 
There is a lot of consulting firms and accounting firms and 
others that are competing for that same group of talent, 
particularly in the Washington, DC, area. I think it is a 
little easier to compete for talent outside the Washington, DC, 
area in the Federal environment, and I think they found that 
also in the field.
    Mr. Towns. Thank you very much Mr. Chairman. I yield back.
    Mr. Platts. Thank you, Mr. Towns, I appreciate your 
participation.
    I want to come back to the issue of the environment of the 
Department, and I think we are fortunate to have Secretary 
Rumsfeld and somebody who, on September 10th and even despite 
the attacks of the 11th, has maintained his commitment to this 
transformation on the business side of it. If we do better with 
how we manage the Department, we are going to do better with 
how we support the warfighter, and I think that is what this is 
all about, is in the end we saved $150 million that was lost on 
unused tickets, plane tickets. That is $150 million that is 
either in quality of life for soldiers and their families or to 
equipment, armor, whatever it might be.
    You mentioned, Mr. Modly, in your testimony, that you and 
Mr. Brinkley are working together, in kind of shifting the 
focus of the business management modernization program into 
this implementation phase. And in essence, the way I read it, 
is trying to sell the merits of it; that to get that buy-in 
within the Department, that if we do this, there is going to be 
benefit all around to everybody, especially to our mission in 
supporting that warfighter. How do you think that is going? How 
is that sales effort going as you try to change that mentality 
over there?
    Mr. Modly. I'm getting a little tired of having to go with 
him everywhere.
    But other than that, it's been very effective, sir. We try 
to go out as often as we can together to show that finance and 
Acquisition, Technology, and Logistics [AT&L]--and AT&L is 
really where a lot of these business transactions happen, that 
is where they occur. And the culture of the Department is not 
to value the financial information that comes out of that 
transaction. We are trying to go out and communicate together 
that the program is an enterprise program. We tell our people, 
think about the enterprise, don't think about your silo. It is 
the whole purpose behind shifting the focus more horizontally, 
looking at end-to-end processes and looking at the customer as 
being the warfighter.
    So for us it has been very effective, and we are going to 
continue to do it as long as we possibly can, because that 
message has to go to a very, very large organization. It is not 
just he and I, but it is the people that work for us, and the 
people that work for those people, that have to also start 
communicating at that level. So as long as we stay engaged in 
our level, I think that helps reinforce that message.
    Mr. Hite. Mr. Chairman, if I can add to that, we talked 
about the business enterprise architecture up to this point and 
the modernization program and what we have after 4 years. I 
think one of the root causes for how little we have thus far 
has been the absence of an effective communications strategy to 
achieve that buy-in. So I would applaud these efforts and raise 
them up as keys to success for the modernization program.
    Mr. Platts. Mr. Hite, that leads to a question for all of 
you, and especially starting with our DOD officials and the 
topic of chief management officer. I agree with Mr. Towns' 
statement that you're a breath of fresh air in your frankness 
and your approach on this issue. The worry is that a year from 
now, you for whatever reason choose to do something else, and 
we are always starting over. And that when we get this 
commitment, get the leadership--Secretary England, who I think 
the world of and who has served us so admirably in a number of 
positions in the last 4 years, very difficult times, has always 
stepped forward when asked to, and doing a great job, but that 
worry about turnover personnel and then we lose that momentum. 
That is what I see the CMO being about is ensuring that there 
is a continuity. And I want to make sure I understood from your 
testimony, that your statements here today and the position of 
the Department is not supportive of legislative CMO position; 
is that accurate?
    Mr. Modly. That's correct sir.
    Mr. Brinkley. That's correct, sir.
    Mr. Platts. Maybe, I don't mean specifically as proposed in 
the Senate bill and what is associated with that legislation, 
but do you agree that having a more permanent position that we 
know is going to be across administrations and long term, maybe 
would help to, you know, change some of the mindset, the 
environment in the Department; that if everyone says, well, 
hey, Congress really means it this time, they have created this 
new position, it is a 7-year term, 5-year term, 10-year term, 
whatever it may be, but we really need to do this, is there a 
hope--is that a legitimate hope if we go that route.
    Mr. Brinkley. I'll respond. I think the formal position of 
the Department is that there is great risk in separating 
business activity from the warfighting activity through 
dividing the Deputy Secretary's responsibilities in that 
manner. He gave a more formal response to that, and that was 
the crux of it. If you think about a world in which we're 
moving to performance-based logistics and we're having contract 
business resource support delivering value into theater, 
directly to the warfighter--and all of our theme today has been 
about clearly articulating the benefits of business process 
reengineering to the warfighter--anything that creates a 
separation of the warfighting activity of the Department from 
the business activity of the Department, works counter to what 
we're trying to drive home, which is the very real fact that 
these things are entirely complementary, and they're supportive 
and they are going to get more supportive as we move into new 
arrangements with the defense industry base. So that is one 
response in terms of why that particular proposal is not 
appealing to the Department.
    We are working to establish continuity in the program. Tom 
and I talk all the time. People are constantly asking us the 
same point you made: What happens when you guys go? I want to 
talk about that in a moment, but specifically we have 
established the BMMP as ACAT 1 acquisition program of special 
interest to the Department of Defense that, in and of itself, 
with a program baseline, creates a continuity that extends 
beyond resource turnover at the senior level as well as even 
administration turnover. So we are taking advantage of that.
    We are continuing looking at ways, as Tom mentioned, people 
to bring in, private sector, for termed and extended 
appointments and permanent career positions within the 
Department to contribute and provide continuity and to create a 
critical mass of leadership that understands the importance of 
this and has experience actually engaging in effective business 
transformation activity.
    But the most important point I want to focus on here today 
is that the leadership issue is a significant challenge for the 
Department, but we can put that leadership in place and there 
has been leadership in place in the past, and past efforts of 
the Department have not succeeded to its full extent because 
the mission of the Department did not require it to succeed. We 
have a moment in time here where the needs of joint warfighting 
are making it extremely apparent that continuing to execute our 
business operations as independent entities--and those 
independent entities are the drivers of the siloed 
information--is no longer sustainable; that the rapid 
requirements, the speed of decisionmaking necessary to meet the 
warfighting challenges of the 21st century drive and create an 
absolute need for us to execute effective business 
transformation.
    So whether Tom and I are here in the long term or our 
replacements are here in the long term, that mission will trump 
all other aspects of leadership. That is the sufficient 
condition for effective business transformation, and the 
leadership is something we're also addressing. I think that is 
the missing ingredient that has not been present in prior 
efforts that were more focused on systems streamlining and 
financial management. The mission itself is completely in 
alignment with the need, and I'm confident given that fact that 
we are going to be successful as we go forward.
    Mr. Platts. The point of having these efforts hand in hand, 
under one deputy secretary, are well stated in that ideal 
world. Earlier I asked about a realistic approach versus an 
idealistic approach, and if Secretary England doesn't mind 
spending 48 hours a day on doing both, I agree. But the 
challenges, the way I see the Department, the benefits of a 
CMO, is that it is not realistic because of what we're 
demanding day to day in that warfighting side; that general 
operation of the Department, that appropriate necessity, 
whoever is the Secretary, whoever is the Deputy Secretary, 
their focus is what battles are we fighting today and do our 
troops have what they need and the support. And, you know, it 
doesn't allow them to give the time that we need on the 
modernization effort. That is why in concept supporting the 
GAO's position and legislation that has now been introduced, 
you know, we need to look at the specifics maybe, but is that--
trying to be realistic, it is just not humanly possible, I 
don't think, given the magnitude of the challenge.
    The fact that we have two of you sitting here, not one, 
kind of makes the case that you're partners in this from, you 
know, financial and the logistics and, working together makes 
the point that it is, for one person, you know, it really isn't 
going to work. And so the--you know, the thought of a CMO is 
one that I think we need to look at.
    Mr. Kutz, I don't know if GAO has taken a specific position 
with the Senate bill.
    Mr. Kutz. Yes, we support the Senate bill. As you said, we 
believe that there are two jobs here and one has never been 
filled. The one job of the Deputy Secretary is to do policy and 
military transformation. The other one, business 
transformation, always takes a second seat. And you discussed 
the reality. The reality is when the administration came in, 
they thought they were going to be able to spend a lot of time 
on transformation, and then September 11th happened; and guess 
what?
    Mr. Platts. If we were back in the nineties, we might have 
had some conflicts, but not global engagements. We might have 
been able to do it with the same commitment from an 
administration that we have today. If we had that in a more 
peaceful time, one person maybe could have overseen both.
    Mr. Kutz. Right. It is that constant turnover you 
mentioned. I've been at this for 4 or 5 years, and there's been 
about a dozen or more hearings and we have probably had eight 
or nine sets of witnesses. And, you know, at some point in time 
Mr. England--and he is a perfectly capable person, I think the 
Comptroller General thinks he could probably do this job if it 
was full time for 7 or more years. And the question is, will it 
be full time and will it be 7 or more years? It does not appear 
to us that will be the case. And will he be able to come to 
hearings like this and be held accountable to Congress? Is he 
going to come to 10 or 12 hearings in a row and represent the 
Department as their representative for business transformation? 
I doubt it. I think he will have more important things in his 
view.
    We will see. We do support the legislation.
    Mr. Platts. What are the specific criteria that you think 
are most critical to a CMO position being effective and worth 
pursuing?
    Mr. Kutz. Certainly the executive level 2 position, No. 3 
in the Department, Deputy Secretary for Management, 7-year 
renewable term. Someone with private sector and potentially 
government experience with successful transformation of large 
complex organizations. And so those are some of the kinds of 
things that are in this legislation specifically and we 
certainly support that.
    Mr. Platts. If I remember from your testimony, Mr. Modly, 
you fulfill those requirements I think, right?
    Mr. Modly. I think.
    Mr. Platts. The business and the government experience. And 
in essence what you're doing, but we want you to do at a higher 
level and do it more full time.
    Mr. Modly. I'm not looking for a job right now. I'm 
perfectly happy where I am, but would say that what is more 
important, I believe, in the transformation is not whether we 
create a new position, it is important for senior level 
direction and continuity. I agree with the objectives, and if 
the objectives can be cast properly up front, and those clear 
requirements of what we are trying to accomplish can be cast 
properly up front, transformation falls to the people who are 
three, four, five, six, seven levels below us, and so we have 
to change the overall culture of the Department and we have to 
seed the organization with people who have had experience 
across broad industries and understand what it takes to get 
this kind of thing done. And I'm not sure you solve that 
necessarily with one person--with one person at the top.
    Mr. Kutz. Can I just address that culture thing just for a 
minute? If you look at GAO, we have the Comptroller General for 
15 years. We know he is not going away. And fortunately we're 
confident he is doing a good job, but the transformation is 
going to be a 15-year transformation. We know he is not going 
away. In the Department of Defense and other Federal agencies, 
we know 2 years is your window; you know these people are going 
to turn over constantly. And you know that nothing is going to 
last that long. And that is really, if you look at some of the 
efforts over time, that is the reality of what is going to 
happen.
    Mr. Platts. I think that is where we are trying to jibe the 
two statements, is that I agree that effort at that five or six 
levels down--and you take Mr. Kutz's comment if you are five or 
six levels down and, you know, it is your system, you know that 
you created it, you really don't want to change it because you 
like it, it works for you, even if it doesn't work in a bigger 
sense, they think, well, I can just sit this out. Well, you can 
spend some money but you're going to be gone, you know, the 
higher up, in a year or 2 years and, you know, we will still be 
here. And I think that is part of that; it is a combination of 
your two statements. It is critical as at those lower-level 
staff, but for them to take it seriously they need to know that 
a person telling them to do it is going to be there and going 
to hold them accountable long term, not just in the short term. 
And I think that is where trying to mesh that permanency----
    Mr. Platts. The department transfers the responsibility 
from Comptroller to AT&L, and that this is going to maybe allow 
you to better support this transformation process. Can you 
expand why that is going to be the case? Why in the current 
environment is that going to work better?
    Mr. Modly. There were three primary reasons driving the 
shift over. The first one was as you look across the 
Department, we understand this concept of where the 
transactions start; 2,000 of those 4,000 systems are logistics-
oriented systems. So it made sense to shift it over for that 
reason.
    The second reason was if you looked at the composition of 
the Defense Business Systems Management Committee [DBSMC], the 
second-ranking person on that committee is the Under Secretary 
for Acquisition, Technology and Logistics [AT&L], not the 
Comptroller. The Under Secretary for AT&L is a level 2 
political appointee, as is the Deputy Secretary of Defense. So 
the Deputy Secretary as the chair, it made sense for the vice 
chairman of that committee to be AT&L, and therefore for the 
program to shift to that higher level. So it was an elevation 
essentially of the program management to a higher level in the 
Department consistent with what the GAO has said.
    The third reason is due to program management and control 
over spending. We are taking these key priority initiatives and 
making specific effort, as Paul mentioned, to designate BMMP as 
an ACAT 1 program. We're going to centralize the funding for 
all those key programs within the BMMP office, and that made 
sense to do that under the AT&L because they have all the 
acquisition discipline. They essentially write the acquisition 
discipline for the Department.
    I don't know if Paul wants to comment on that any more.
    Mr. Brinkley. No, just to reinforce. And I think you asked 
the question earlier about the two of us being here together, 
and Tom alluded to the fact that we seem to do road shows 
frequently.
    There are two elements to this. The program and the 
accountability for the execution of the program is within AT&L, 
reporting to myself. So there is no lack of clarity about 
accountability now for execution and success. But the cultural 
change we're trying to drive--and again if there were a CMO at 
the top of the Department, I'm sure he would potentially add to 
cultural change, or not.
    But Tom and I and our subsidiary organizations are very 
focused on driving home again the fact that financial 
management discipline is complementary to clean, streamlined, 
business processes. It is not part of the awareness of the 
Department. It is not part of its culture.
    To the discussion earlier, the Department doesn't deliver 
quarterly financial results, and the quality of those quarterly 
financial results are not requisite for its success or failure 
in its core mission. So over those 50 years of systems being 
created, there is no embedded awareness that a financial focus 
is or is not complementary to executing our primary mission in 
terms of delivering material to warfighters.
    So we will continue to drive this, you know, call upon each 
other to reinforce that message. But the accountability for the 
program is here, and for the reasons he cited.
    Mr. Platts. And, you know, my referencing your both being 
here is a positive. The fact that you are here, I think, is an 
example of what I see as progress, of moving forward, and that 
we actually start getting to implementation. And, you know, we 
have been trying to identify the problems in the systems and 
what is out there, but that you actually now are moving 
forward, and your partnership in essence is about action, and 
that we end up improving the systems ultimately for the benefit 
of the warfighter out there.
    Let me ask you about a specific case that was highlighted 
as one of the examples by GAO. Mr. Towns mentioned the airline 
tickets as an example of the waste of dollars. The one specific 
I would like to focus on is to what the current status is, is 
more really more about the quality of life and how we support 
these courageous Americans. And it deals with the injured 
Reserve component soldiers who, apparently because of glitches 
in our tracking of our management personnel systems, have 
routinely been bumped off of full-time Active Duty status, 
which makes them ineligible for their continuing Medicare.
    And the one example was, I think, a special ops soldier 
injured in Afghanistan, who, over a 12-month period, was 
knocked out of his Active Duty status numerous times, totaling 
$12,000 in lost pay and delays in getting medical treatment for 
him and his family.
    What has been done with that specific focus of injured 
soldiers and the fact that we do right by them?
    Mr. Modly. First of all, those types of incidents are--as a 
former Active Duty military member and I have friends and 
relatives who are in that theater, it is embarrassing. And we 
try everything we can to keep that from happening.
    What happened in that particular instance and those 
instances in general was that as Reserve units came back from 
the theater and they had injured soldiers, soldiers within 
hospitals, they deactivated the unit, which automatically 
caused the stop in pay, and they didn't account for the 
soldiers who were in the hospitals.
    We are now actively monitoring all the soldiers in all the 
hospitals to ensure that they have an advocate to ensure that 
their pay is taken care of, and my understanding is that we 
have had very, very few, in the past several months, instances 
of any problems with pay with regard to injured soldiers.
    Mr. Platts. I know that is the case because it certainly is 
embarrassing. It is maybe more so; it is demoralizing and just 
unacceptable, given the courage of these men and women. And one 
of the finest privileges I have had is to visit wounded at 
Landstuhl, as well as in theater in Iraq and Afghanistan, and 
if there is a group of Americans who we need to do right by, it 
is to they and their families.
    I also thank you for your own service. I'm not sure who 
else on the panel were former military, but we appreciate your 
service and we're blessed because of you and others who have 
and are wearing the uniform.
    We touched on the broad areas that I hoped to address here 
today. One of the challenges for our committee and for me as 
chairman, is I'm asked in my district ``well, what exactly does 
your committee do and how do you do it?'' It is more of an 
oversight committee. Our effort is to try to keep the focus on 
issues and keep everyone's attention and keep the eye on the 
ball and hopefully advance that ball down the field.
    That is what today's hearing is again about, specifically 
related to DOD, with the systems, with GAO and with the efforts 
of you two and your colleagues at the Department, that we 
advance the ball down the field, specifically. And maybe again, 
most importantly for DOD, because of the importance of your 
mission to the defense of our Nation, and in that it is about 
doing right by those men and women who are out there defending 
our Nation. We'll continue to work with each of you, both at 
the GAO and at the Department.
    One of the things I want to offer is that I'm not here to 
play ``gotcha,'' and, when we find things that are wrong, we 
want to make sure those errors are corrected and also learned 
from. It sounds like, as in the case of the injured, that there 
is a new approach being taken to ensure that we learn from that 
mistake or mistakes, to be part of this team of all of us 
working together. Because it is just so evident that if we have 
success in this effort--and it is not exciting necessarily, 
except for those of us who like to balance their checkbooks, it 
is exciting; to most, maybe it is not. But it certainly is 
critical to the operation of the Federal Government and 
specifically to the defense of our country because when we are 
debating whether we can afford this new military equipment, you 
know, this new technology, or the costs associated in how we 
compensate and provide for our men and women and their 
families, every dollar we save by more efficient operation is 
dollars that are then available for better equipment, for 
better pay, better housing, whatever it may be, a quality of 
life.
    This certainly is an area that we cannot let up on and we 
must succeed. And if it takes us 2 years or 5 years in the end, 
we just need to do it. I think the approach you're taking is--I 
wrote down at one point when you talked about it, and I forget, 
Mr. Modly or Mr. Brinkley, which one of you said it, you're not 
really interested in how many systems, whether you have 2,001, 
but are you achieving the necessary improvements, are you doing 
the job? In essence an outcome-based approach.
    Although I'm still a bit worried if we're duplicating too 
many systems, but outcomes is what we need to be about and how 
we achieve those outcomes. I think you're on the right track in 
your efforts and I wish you great success.
    I hope you will also turn to GAO because, Mr. Kutz and Mr. 
Hite and others, they have a history, you know, a wealth of 
knowledge that I think would benefit each of you in your new 
positions as you go forward; and what maybe has been tried in 
the past, that they can share with you, and again you can have 
an opportunity to learn from the errors of the past.
    So we'll keep the record open for 2 weeks for any 
additional information, such as specifically any consequences 
from the violations of the law in the past. Again, I thank each 
of our witnesses, thank the staff on both sides for all the leg 
work, and this hearing stands adjourned.
    [Whereupon, at 3:30 p.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
follows:]

[GRAPHIC] [TIFF OMITTED] T2899.049

[GRAPHIC] [TIFF OMITTED] T2899.050

[GRAPHIC] [TIFF OMITTED] T2899.051

[GRAPHIC] [TIFF OMITTED] T2899.052

                                 
