[Senate Hearing 109-364]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-364
 
 DEPARTMENT OF DEFENSE BUSINESS TRANSFORMATION AND FINANCIAL MANAGEMENT
                             ACCOUNTABILITY

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

                                HEARING

                               before the

            SUBCOMMITTEE ON READINESS AND MANAGEMENT SUPPORT

                                 of the

                      COMMITTEE ON ARMED SERVICES
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                            NOVEMBER 9, 2005

                               __________

         Printed for the use of the Committee on Armed Services


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                      COMMITTEE ON ARMED SERVICES

                    JOHN WARNER, Virginia, Chairman

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

                    Charles S. Abell, Staff Director

             Richard D. DeBobes, Democratic Staff Director

                                 ______

            Subcommittee on Readiness and Management Support

                     JOHN ENSIGN, Nevada, Chairman

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


                                  (ii)

  
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                            C O N T E N T S

                               __________

                    CHRONOLOGICAL LIST OF WITNESSES

Department of Defense Business Transformation and Financial Management 
                             Accountability

                            november 9, 2005

                                                                   Page

Krieg, Hon. Kenneth J., Under Secretary of Defense for 
  Acquisition, Technology, and Logistics.........................     4
Jonas, Hon. Tina W., Under Secretary of Defense (Comptroller)....    10
Hite, Randolph C., Director of Information Technology, 
  Architecture, and System Issues, Government Accountability 
  Office.........................................................    14

                                 (iii)


DEPARTMENT OF DEFENSE BUSINESS TRANSFORMATION AND FINANCIAL MANAGEMENT 
                             ACCOUNTABILITY

                              ----------                              


                      WEDNESDAY, NOVEMBER 9, 2005

                           U.S. Senate,    
                  Subcommittee on Readiness
                            and Management Support,
                               Committee on Armed Services,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:00 p.m., in 
room SR-232A, Russell Senate Office Building, Senator John 
Ensign (chairman of the subcommittee) presiding.
    Committee members present: Senators Ensign, Thune, Akaka, 
and Bayh.
    Majority staff members present: William C. Greenwalt, 
professional staff member; Ambrose R. Hock, professional staff 
member; Gregory T. Kiley, professional staff member; Thomas L. 
MacKenzie, professional staff member; and Derek J. Maurer, 
professional staff member.
    Staff assistants present: Micah H. Harris and Benjamin L. 
Rubin.
    Committee members' assistants present: D'Arcy Grisier and 
Alexis Bayer, assistants to Senator Ensign; Darcie Tokioka, 
assistant to Senator Akaka; and William K. Sutey, assistant to 
Senator Bill Nelson.

       OPENING STATEMENT OF SENATOR JOHN ENSIGN, CHAIRMAN

    Senator Ensign. Good afternoon.
    The Readiness and Management Support Subcommittee meets 
today to receive testimony on the Department of Defense's (DOD) 
business transformation and financial management efforts. We 
are honored today to have with us the Under Secretary of 
Defense for Acquisition, Ken Krieg; the Comptroller of the 
Department of Defense, Tina Jonas; and the Director of 
Information Technology for the Government Accountability Office 
(GAO), Randy Hite. I welcome all of you.
    This is the fourth hearing in the past 2 years on the 
business systems and financial management of the Department of 
Defense that Senator Akaka and I have held as chairman and 
ranking member of this subcommittee. At the first hearing on 
financial management, we committed to holding frequent hearings 
to gauge the progress made. Sadly, from that first hearing to 
today, only Senator Akaka and I are the same key participants. 
Though, to be fair, the Comptroller General of the United 
States, David Walker, did wish to be here, but is traveling 
overseas. He has assured us that he will make the next hearing 
on this subject.
    I understand that people move on in government service and 
that changeover can be a positive thing, but the continued lack 
of accountability, the multiple plans for change over the years 
that are never implemented, and the hundreds of millions of 
dollars wasted are a disservice to the American taxpayer. They 
deserve better.
    Senator Akaka and I remain committed to continuing these 
hearings, and I hope I can get the same commitment from the 
witnesses here today.
    As I said, not all change is bad. Just prior to the last 
hearing in April, a new team took over primary responsibility 
for the Department's business transformation and financial 
management reform. The effort is now being led by Deputy Under 
Secretary of Defense Paul Brinkley and Deputy Under Secretary 
Tom Modly under the direction of Secretary Krieg and Secretary 
Jonas.
    At first, my staff and I were skeptical that this was just 
one more attempt at rearranging the deck chairs on the Titanic. 
However, in carefully watching their progress over the past 8 
months, I am encouraged by their efforts.
    On September 30, 2005, a new road map for business systems 
transformation and improved financial management accountability 
was delivered to Congress. The Enterprise Transition Plan 
contains realistic time lines and matches plans to resources. 
This plan was delivered on time, and it contains more detail 
and meaningful metrics than previous efforts.
    Last month a new organization was created under the Under 
Secretary of Defense for Acquisition, run jointly by Mr. 
Brinkley and Mr. Modly, called the Business Transformation 
Agency. This agency is expected to provide consistency in DOD's 
business transformation efforts, minimize redundancies in its 
business systems, and reduce overhead for the Department. 
Rather than creating a new bureaucracy, the agency is expected 
to shift resources from existing business processes and system 
modernization into a unified, focused organization. Mr. 
Brinkley and Mr. Modly are to be commended for their hard work 
to date, and I look forward to continuing the partnership with 
the Department and the GAO and hearing more about the progress 
from our witnesses.
    While progress has been made, much still needs to be done. 
One area that continues to concern me is jointly managed 
programs--programs shared among the individual Services. These 
programs pose significant management challenges. Many of these 
programs are to be directly managed by the Business 
Transformation Agency. While centrally managing these programs 
seems to be the right direction, I hope the witnesses will go 
into greater detail as to how we can be assured that such joint 
programs are adequately managed and funded.
    Thank you again for taking the time to prepare written 
testimony and to appear before the subcommittee today, as 
previously agreed. We will hear opening statements from Under 
Secretary of Defense for Acquisition, Secretary Krieg; and 
Comptroller of the Department Defense, Secretary Jonas; and the 
Director of Information Technology for the GAO, Mr. Hite.
    To our witnesses, your prepared statements will be made 
part of the record. Therefore, I urge you to keep your oral 
statements fairly short in order to allow sufficient time for 
questions and really a discussion.
    But first, I would like to turn to my ranking member, 
somebody I have grown in admiration for in the years that we 
have spent together on this committee, and I really enjoy our 
working relationship.
    Senator Akaka.

              STATEMENT OF SENATOR DANIEL K. AKAKA

    Senator Akaka. Thank you very much, Mr. Chairman. The 
feeling is mutual, and I look forward to continuing to work 
with you on this issue, as well as others, having to do with 
readiness. I have enjoyed working with you, and we have been 
working well together.
    I thank you for holding these hearings on the shortcomings 
of the financial management systems. This is a subject of vital 
importance to the Department and to this committee because 
without timely, accurate financial information, our senior 
military and civilian leaders will continue to be severely 
handicapped in making day-to-day management decisions and 
ensuring that taxpayer dollars are well spent.
    Over the first 4 years of this administration, senior DOD 
officials promised us that they were making a serious effort to 
address this problem. Unfortunately, as we learned at last 
year's hearing, despite spending some $200 million on the 
project to transform the Department's business operations, the 
Department failed to take even the most basic steps to rectify 
this problem. I remain deeply distressed that the Department 
appears to have wasted the better part of 4 years on a dead-end 
path that will yield no positive results for the Department or 
for the taxpayers. But, I look forward with the chairman in 
trying to find solutions and to bring that about.
    I would like to note that I am also the ranking member on 
the Oversight of Government Management Subcommittee where the 
subcommittee's chairman, Senator Voinovich, and I have been 
holding investigative hearings on DOD programs and on the GAO's 
high risk list, including business modernization.
    Since the time of last year's hearing, Secretary Gordon 
England has brought new focus to defense management issues in 
his new role as Deputy Secretary of Defense and has brought in 
a team to work on fixing the Department's business systems. 
This team, under the leadership of Paul Brinkley and Tom Modly, 
has been a breath of fresh air. Instead of spending millions of 
dollars on consultants as did their predecessors, Mr. Brinkley 
and Mr. Modly have started to break down the problem into 
manageable steps and work their way through them.
    The Business Enterprise Architecture and Transition Plan 
that we received from them on September 30 is just the first 
step. The GAO indicates that the Architecture and Transition 
Plan is still far from complete. It only partially addresses 
the key requirements spelled out in our legislation. Months of 
work still lie ahead for the Department to develop a more 
mature Architecture and Transition Plan that will provide the 
necessary detail to address its financial problems, and once 
that Architecture and Transition Plan is in place, it will take 
years to implement it.
    Nonetheless, this document is a step in the right 
direction. At least now we appear to have a sound foundation 
upon which we can start building.
    I believe that the most important step Congress can take 
now is to institutionalize the process that finally seems to be 
going in the right direction. Too many times we have seen a new 
administration come in and scrap the work of its predecessor, 
condemning DOD to start from scratch. I am sure I speak for the 
chairman. We all like Secretary England and believe he will do 
his best to improve the management of the Department. We are 
pleased by what we have seen from Mr. Brinkley and Mr. Modly. 
But these are individuals. They are not institutions. To be 
successful, we need to develop structures that will remain in 
place from one administration to the next. That is why I 
believe we have done the right thing in codifying the Defense 
Systems Business Management Committee.
    In addition, I believe we should do what we can to 
institutionalize the new Business Transformation Agency 
established by the Department last month and support the 
Comptroller General's recommendation to establish a new Deputy 
Secretary for Management at the Department of Defense level. 
The chairman has played a huge part in bringing this about.
    In this effort, the Senate yesterday agreed to an amendment 
offered by Senator Byrd, myself, Senator Ensign, the chairman 
of this subcommittee, and Senator Lautenberg calling for two 
federally funded research and development centers to conduct 
independent studies of the feasibility and advisability of 
establishing a Deputy Secretary of Defense for Management, 
whose responsibility it would be to serve as the chief 
management officer of the Department of Defense.
    There are some who are uncertain as to the necessity of 
this position, and those studies will examine the impact that 
creating such a position would have on the management of the 
Department. I am very pleased that the Senate has agreed to 
further review this matter.
    I look forward to the testimony of today's witnesses and 
will continue to work with the chairman. Thank you very much, 
Mr. Chairman.
    Senator Ensign. Thank you, Senator Akaka.
    We would be pleased to receive your testimony now, 
Secretary Krieg.

STATEMENT OF HON. KENNETH J. KRIEG, UNDER SECRETARY OF DEFENSE 
           FOR ACQUISITION, TECHNOLOGY AND LOGISTICS

    Mr. Krieg. Thank you, Senator. Chairman Ensign, Senator 
Akaka, Senator Bayh, thank you for the opportunity to speak to 
you today about the progress with business transformation and 
financial management.
    I am very proud of the progress we have made since my 
predecessor, Mike Wynne, spoke to you all 6 months ago. On 
September 30, 2005, as you noted, Mr. Chairman, we published 
the Department of Defense Enterprise Transition Plan and 
delivered it to both the House and the Senate. This plan 
represents the first time the Department has delivered a plan 
in layman's terms that allows the public to see exactly how we 
are investing their tax dollars to modernize our business 
information operations. This plan shows how we are supporting 
the warfighter while improving financial accountability to the 
taxpayer.
    Publishing this plan is the first of five key actions we 
have taken to restructure the Department's business 
transformation efforts over the last 6 months. This plan tells 
you what we are doing. It lays out costs, milestones, and goals 
for transforming the way we do business.
    On September 30, we also published our Business 
Architecture, which includes data standards and business rules 
for the Department. The architecture shows how we are going to 
begin carrying out the plan. In other words, the two provide at 
least an initial blueprint for our systems and business 
processes to ensure they support the goals identified in the 
plan.
    The third action in restructuring is the establishment of 
four business systems investment review boards, each aligned to 
a functional business mission. The investment review board 
reviews all business systems investments in excess of $1 
million to make sure they are in line with our plan and the 
architecture. Investment review is where we test our 
investments to ensure that they are moving us toward the goals 
outlined in our plan.
    Our fourth action establishes accountability for 
successfully executing our investment programs. As you noted, 
with the recent creation of the Business Transformation Agency, 
we have established an accountable organization for DOD-level 
business systems investment. These investments in business 
improvements will impact the entire Department as opposed to 
the specific Service or agency-wide improvements, which are 
also part of the Enterprise Transition Plan. The agency creates 
a Department-wide accountable organization that collaborates 
with Services and agencies that remain responsible for 
investments impacting their organizations.
    I would also note that I guess we have announced that Major 
General Butch Pair will join that group as a defense business 
systems acquisition executive, in my vernacular the sort of 
joint Peace Enforcement Operation (PEO), joint program 
executive officer, who is responsible for looking at those 
executive-wide, Department-wide systems and development to make 
sure that they are being run well by their program managers, 
that they meet the needs of the various parts of the enterprise 
that are part of it. It is part of your question of how we will 
do these joint enterprise programs better. Butch comes to us 
from Transportation Command (TRANSCOM), having been out as a 
combatant commander recently, so he will have that voice of the 
customer as he comes in to do his job.
    Finally, we come to our fifth action, enforcement. As 
required by Congress in the NDAA for Fiscal Year 2005--and also 
a good idea--we established the Defense Business Systems 
Management Committee. Since the last report to this committee, 
we have fully exercised the committee under the leadership of 
Deputy Secretary of Defense Gordon England. Once a month, we 
meet at the senior management level, and so part of what is 
happening is the senior management is getting engaged in this 
activity. It is not just an action of staff. This committee, 
chaired by the Deputy Secretary and vice chair by me in my 
role, was created to ensure that we were part of the process 
and that we had accountability in doing this work.
    These five critical actions have been completed since our 
last meeting with the subcommittee and represent, I believe, a 
vast improvement over prior efforts at managing business 
systems modernization and transformation.
    I appreciate the continued attention and tenacity of the 
chairman and ranking of this committee that you have shown to 
this issue. I know that you have been frustrated by work that 
we have done. However, I believe that by allowing us the time 
and resources to focus and correctly position this 
transformation effort, we can be positioned for success in the 
future. I believe your tenacity has paid off.
    But we are far from done, as you noted, and in chapter 4 of 
the Enterprise Transition Plan, we begin to lay out the next 
steps of activity. Much of it revolves around the challenge of 
implementing programs successfully. Some of the challenge 
revolves around getting the various integrated activities to 
work together. Finally, some of the work revolves around 
thinking through the broad-scale metrics that will link the 
various efforts together to create customer success.
    Before I close my remarks, I would like to thank my 
colleagues at the GAO for their participation both in this 
effort and in the broader work that we are doing in terms of 
the high-risk management efforts. As Senator Akaka knows, 
against the high-risk issues that are a part of the 
Department's purview, we have developed a template of work 
between the Department, between GAO, and between the Office of 
Management and Budget (OMB) to try to put together an action 
plan which we are responsible for implementing, that attempts 
to go and implement the kinds of changes necessary. But the GAO 
has been a very supportive partner in helping us think through 
that process.
    Lastly I would like to note the hard work of both Paul 
Brinkley and Tom Modly over the last 6 or 7 months. Often 
working against great adversity, they have done great work to 
put us in a position for success, and I thank them for that 
work.
    We look forward to continuing to work on this project, to 
work with the GAO and with this committee, as we move forward. 
Thanks for your time, and I will be happy to take any questions 
you might have.
    [The prepared statement of Mr. Krieg follows:]

              Prepared Statement by Hon. Kenneth J. Krieg

    Chairman Ensign, Senator Akaka, and members of the committee: Thank 
you for the opportunity to appear before you today to discuss the 
Department's progress in the areas of business transformation and 
financial management. My primary focus in Acquisition, Technology and 
Logistics (AT&L) is on the customer--the warfighter of both today and 
tomorrow. Customers expect our acquisition community to deliver the 
capabilities they need to defend America and its interests, not only 
today, but into the future. In doing so, we must also provide timely 
information and analysis to assist Secretary Rumsfeld in his efforts to 
balance resources against requirements. As stewards of the American 
taxpayer, those of us in the acquisition community have a 
responsibility to wisely invest and manage the hard-earned tax dollars 
of our citizens to enhance and expand our national defense capability. 
To ensure that the American people stay informed, we must make sure 
that Congress is well informed of our efforts.
    As part of our Quadrennial Defense Review (QDR), the Secretary 
directed General Duncan McNabb and me to lead a review of our 
acquisition and other business processes to ensure they are capable of 
meeting customer needs. To improve our ability to acquire capability 
efficiently, I have identified a number of key principles I believe we 
must follow:

         First, we must understand and define success in terms 
        of the customers' success. In other words, we must be 
        successful in the customers eyes, not simply our own.
         Second, we must align authority, responsibility, and 
        accountability--all conceived in a joint context with 
        associated standards. This will facilitate delegation of 
        authority and decentralization of execution, while ensuring 
        accountability consistent with identified standards.
         Third, we must base our decisions on authoritative 
        data captured in a comprehensive management information 
        approach linked not only to acquisition, but also to 
        requirements, and the Planning, Programming, Budgeting, and 
        Execution system. This will help us to achieve insight and 
        clarity, and honestly balance risks at the portfolio level to 
        get the best value for the taxpayer.
         We must develop policy that allows even greater 
        agility so we can acquire, mature, transition, and field 
        advanced technology in ever shorter cycle times.

    Finally, we must accept the fact that our acquisition environment 
is in constant change and our acquisition system must also change 
consistent with that dynamic. Change is not the exception; it is a 
constant that we must manage. History has proven to us that those that 
respond to changing conditions survive and succeed and those that don't 
will inevitably fail. I am very much aware of that fundamental lesson 
and will do all I can to develop an acquisition system capable of 
responding to the rapidly changing world we live in. We must ensure 
that the Department's business operations must be more flexible and 
adaptable than ever in order to effectively support our warfighters 
with the information and resources they need, when they need them.

                      SENIOR LEADERSHIP OVERSIGHT

    In February of this year, the Defense Business Systems Management 
Committee (DBSMC) was established to oversee Department-wide business 
transformation efforts. The DBSMC is chaired and actively led by the 
acting Deputy Secretary of Defense and includes senior leaders, both 
civilian and military, from across the Department. I sit on this 
committee as the vice-chairman, and I can say to you that the 
Department's senior leadership is fully engaged in making real, 
measurable progress in transforming our business operations. This 
committee meets to set the business information and process priorities 
for the Department; it discusses and evaluates how to organize and 
integrate efforts to produce results across functional and hierarchical 
structures; and to review and approve investment certifications. While 
much work remains to be done, the senior leadership represented on the 
committee is committed to ensuring that transformation of our business 
operations remains a top priority.
    In addition, I have appointed the Deputy Under Secretary of Defense 
for Business Transformation who reports directly to me as the Under 
Secretary of Defense (AT&L) and the Comptroller has appointed the 
Deputy Under Secretary of Defense for Financial Management--who reports 
directly to her to serve in a joint capacity, overseeing defense 
business transformation efforts on a daily basis. These key steps, as 
well as the acting Deputy Secretary's active involvement, ensure 
executive leadership and oversight of our transformation efforts at the 
most senior levels of the Department.

                      SIGNIFICANT PROGRESS TO DATE

    This year the Department has made significant progress in the 
evolution of its business transformation efforts. First, with the 
establishment of the Defense Business Systems Management Committee 
(DBSMC), we have continual oversight of business systems modernization 
efforts. Second, investment control is now exercised by a series of 
Investment Review Boards, led by the appropriate Under Secretaries of 
Defense and guided by a consistent set of policies and procedures. 
Finally, I'm pleased to say, that on September 30, 2005 the DBSMC 
delivered the Departments' Business Enterprise Architecture v3.0, to 
guide and constrain business capability development and investment, and 
Enterprise Transition Plan, which outlines the Department's priorities 
and initiatives supporting transformation.
    To guide transformation going forward, the DBSMC established the 
Defense Business Transformation Agency (BTA) to support the DBSMC and 
Principal Staff Assistants in their efforts to define Department-wide 
business transformation goals and objectives. This organization 
includes a Defense Business Systems Acquisition Executive (DBSAE) to 
manage the execution of identified programs delivering Department-wide 
capabilities.

                           INVESTMENT CONTROL

    Responsibility for driving business transformation decisions within 
the five core business missions of the Department's Business Mission 
Area is assigned to the appropriate Under Secretary of Defense as 
Principal Staff Assistants (PSAs) to the Secretary. The PSAs have 
established Investment Review Boards (IRBs) that form the 
decisionmaking bodies for the Core Business Missions. Using standard 
procedures and guidelines, and with representation from the relevant 
Services, defense agencies, and combatant commands, each IRB assesses 
modernization investments relative to their impact on end-to-end 
business process improvements supporting warfighter needs and makes 
recommendations to the DBSMC for systems certification approvals.
    There are currently four IRBs, including two that I directly 
oversee as Under Secretary of Defense (AT&L). The first combines Weapon 
Systems Lifecycle Management and Materiel Supply and Services 
Management Mission Area Leadership in order to ensure that, when we are 
reviewing business system investments that provide capabilities in 
areas of acquisition of weapon systems, we consider all the impacts and 
issues across the lifecycle, and from the factory to the foxhole. The 
Deputy Under Secretary of Defense for Business Transformation chairs 
this IRB for me, and it includes senior leadership from my staff, the 
Joint Staff and the Deputy Commander of United States Transportation 
Command (USTRANSCOM). The second IRB under my purview is the Real 
Property and Installations Lifecycle Management IRB. This IRB reviews 
all business systems that provide business capabilities used to manage 
the Department's Real Property and Installations. It is chaired for me 
by my Deputy Under Secretary of Defense for Installations and 
Environment, and membership includes the Joint Staff, Services, and the 
DOD CIO. The remaining IRBs are overseen by my peers, Tina Jonas, who 
chairs the IRB for Financial Management and Dr. David Chu, the Under 
Secretary of Defense for Personnel and Readiness, who chairs the IRB 
for Human Resources Management.
    On June 3, 2005, the Department issued IRB policy guidance that 
incorporated the National Defense Authorization Act for Fiscal Year 
2005-required governance structure and outlined standard procedures to 
ensure consistency and compliance. This policy outlines a standard 
certification process, and provides a standard certification template 
and certification criteria and reporting.
    To date, the IRBs have reviewed more than 180 business systems 
certification packages received from the Services, Defense Agencies, 
USTRANSCOM, and the five Business Mission Areas leaders and recommended 
approval of those certification requests. The investment dollars 
reviewed to date totals approximately $3.3 billion.

      BUSINESS ENTERPRISE ARCHITECTURE/ENTERPRISE TRANSITION PLAN

    With the release of the Business Enterprise Architecture v.3.0 
(BEA) and the Enterprise Transition Plan (ETP) on September 30, 2005, 
the Department has a clearly defined blueprint and roadmap to guide its 
transformation efforts. Within both the BEA and ETP, these efforts are 
focused and framed at the DOD Enterprise level around six strategic 
Business Enterprise Priorities (BEPs): Personnel Visibility, 
Acquisition Visibility, Common Supplier Engagement, Materiel 
Visibility, Real Property Accountability, and Financial Visibility. 
These BEPs represent those areas where increased focus will bring the 
most dramatic and immediate positive impact on the Core Business 
Missions of the Department of Defense.
    Within the overall plan, we have identified these enterprise 
priorities for such measurable program and business capability 
deliverables spread over the next several years. They will provide 
enduring improvements to the Department's business infrastructure, 
benefiting the warfighter through integration of enterprise business 
processes, reducing system redundancies, and continuously improving 
financial visibility.

          ESTABLISHMENT OF THE BUSINESS TRANSFORMATION AGENCY

    A key to success of our business transformation efforts going 
forward will be centralized management and coordination of the 
corporate level of capabilities determined to be corporate-level, while 
allowing freedom to manage within the Services and Agencies.
    The Acting Deputy Secretary and the Defense Business System 
Management Committee approved the establishment of a defense agency to 
lead and coordinate business transformation efforts across the 
Department of Defense (DOD).
    The BTA shifts the existing resources working on business process 
and system modernization into a unified, focused organization. In doing 
this, the Department is encouraging further collaboration, and 
achieving centralized visibility to investments in DOD-wide business 
modernization efforts. The agency will be responsible for supporting 
and integrating the work of the OSD principal staff assistants in the 
areas of business process re-engineering, core business mission 
activities and Investment Review Board (IRB) matters, as determined by 
the DBSMC.
    Another responsibility of the agency will be the execution of those 
programs that make up the corporate level of shared services provided 
to the entire Department. These programs will no longer be managed by 
disparate executive agents across the Department, but by the Defense 
Business Systems Acquisition Executive (DBSAE) within the agency

                           THE NEXT 6 MONTHS

    Over the next 6 months, the central focus of the Department's 
business transformation efforts will be shifting towards execution and 
delivery. With the establishment of the Business Transformation Agency 
and institution of the Defense Business Systems Acquisition Executive, 
we will begin to focus efforts on delivering DOD Enterprise 
capabilities outlined in the Enterprise Transition Plan (ETP). We will 
continually monitor progress of programs and initiatives described in 
the ETP, looking for opportunities to accelerate delivery of specific 
capabilities that will allow us to affect the transformation of the 
Department's business operations faster.
    Additionally, in order to better gauge the success of our efforts 
across the Department, we will be initiating a comprehensive metrics 
program. This will allow the Department to monitor performance of how 
each of our end-to-end core business missions is improving warfighter 
support, reducing costs, improving financial stewardship, and enabling 
better informed decisions. This program is currently in development and 
will be rolled out with the next update of the Enterprise Transition 
Plan that we plan to deliver at the end of the second quarter in 2006 .

              GAO CONTRIBUTIONS TO BUSINESS TRANSFORMATION

    I would like to recognize the contributions made by the GAO in 
working with us to identify and address many issues related to Business 
Transformation. The GAO made many recommendations over the past few 
years regarding architecture, investment control and the governance of 
the Department's business transformation effort. We have incorporated 
many of these recommendations into our programs and products and 
believe the vast majority of their issues are addressed in the 
Department's new Business Transformation governance and investment 
review structures and newly issued Business Enterprise Architecture and 
Enterprise Transition Plan. Additionally, with the establishment of the 
Business Transformation Agency, the Department has taken an important 
step towards ensuring continuity and consistency of leadership for DOD 
Business Transformation. We look forward to a continued, healthy dialog 
with the GAO.

                     GAO HIGH RISK AREAS WITHIN DOD

    All but one of the Department's High Risk Areas fall under my 
purview. The Acting Deputy Secretary asked me to track the progress on 
each High Risk Area goal and milestone and provide him with periodic 
updates on our progress. I am committed to aggressively addressing the 
High Risk Areas under our purview. The respective Department leads have 
collaborated with both the Office of Management and Budget (OMB) and 
GAO staff to develop plans and identify appropriate milestones and 
metrics to reduce risks in these areas critical to DOD, and I provided 
those to OMB this fall. Likewise, I have committed to the acting Deputy 
Secretary to monitor the milestones and metrics for progress for each 
area and will begin quarterly review this month.

                               CONCLUSION

    All the progress I've just described demonstrates the level of 
commitment the Department's senior leadership has toward business 
transformation. The Department has established clear and specific 
management responsibility, accountability, and control over overall 
business transformation-related activities and applicable resources. In 
addition, we have developed a clear and integrated strategic plan for 
business transformation with specific goals, measures, and 
accountability mechanisms to monitor progress, including a well-defined 
blueprint, our business enterprise architecture. We have put in place a 
comprehensive and integrated business transformation plan; and are 
moving to centralize the people with the needed skills, knowledge, 
experience, responsibility, and authority to implement the plan within 
the Business Transformation Agency. The Enterprise Transition Plan 
documents program and capability milestones that will measure our 
performance and that link institutional, unit, and individual 
performance goals and expectations to promote accountability for 
results. These actions collectively demonstrate the Department's 
commitment to Business Transformation and Business Systems 
Modernization.
    In closing, Mr. Chairman, thank you for the opportunity to testify 
before the committee about our Business Transformation efforts. I would 
be happy to answer any questions you and the members of the committee 
may have.

    Senator Ensign. Secretary Jonas.

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

    Ms. Jonas. Sir, as you have noted, my statement is 
submitted for the record, so I will try to be brief.
    Under Secretary Krieg has articulated a number of things 
that have already been put in place. I would like to focus a 
little bit on what we are going to be doing over the next month 
or so that pertains more clearly to the financial management 
area and some of the progress we have made there.
    We hope next month to be submitting to you what we believe 
is the third piece of this effort, which is a plan called the 
Financial Improvement and Audit Readiness (FIAR) plan. Just as 
Tom and Paul have done great work, sitting behind me is Terri 
McKay, who is my Deputy Chief Financial Officer. She has been 
hard at work with a number of other financial professionals to 
put this plan together.
    But primarily, this will be the foundation for improved 
financial management across the Department, and I have some 
things in the testimony that you can look at, but let me just 
outline a few things for you today.
    We think that we have measurable progress already achieved 
by the draft plan that we have together. We are focusing on the 
various financial statement line items and the 11 material 
weaknesses that we have, including--for example--military 
equipment. This has been a very perplexing problem. Valuation 
of military equipment has been a longstanding issue for the 
Department and with government accounting, and we have made 
substantial progress on the valuation there. Fully, 96 percent 
of our equipment has been valued at this point, and we expect 
to finish the last 4 percent this year. So that is a 
significant achievement.
    We are working on real property that represents 7 percent 
of our assets, or $78 billion. We are also working on our 
Medicare Eligible Retiree Health Care Fund liabilities and our 
environmental liabilities. We have made great progress in those 
areas as well.
    For example, we expect to be able to work toward an 
unqualified opinion on the Medicare Eligible Health Care Fund 
liabilities that will lead us to 78 percent of our total 
liabilities will be unqualified. So that would be a significant 
achievement, and we are working toward that.
    On our environmental liabilities, we have identified and 
estimated the future cost of cleaning up to be $17.1 billion, 
or 27 percent of the Department's total environmental 
liabilities. We are ready for auditors to verify those numbers.
    We are also working with the Marine Corps. We want to use 
the Marine Corps as a model as to how we might gain a better 
understanding of the challenges that are going to be involved 
in preparing for and auditing an entire Service.
    So those are some of the things that we are doing. As I 
said, we hope to have the complete plan to you next month 
sometime, but this is really a third leg for us in the 
financial community, a very important piece of what we need to 
do.
    We have also been undertaking some other improvements in 
the area of day-to-day operations, including pay. We have 
established the Personnel Pay Council. When I visited this 
committee last, there were a number of issues related to pay. 
The two communities that deal with this, the financial 
community and the personnel and readiness community, have 
gotten together and we are resolving a number of issues there. 
We put in additional internal controls, and reviewed a number 
of accounts, and have prevented a lot of overpayments to date 
and are correcting issues related to Reserve and mobilization 
issues.
    So we believe we have made a lot of progress, as Ken 
articulated, over the last 6 months, but we hope to continue 
making progress. I just wanted to let you know what we expect 
to be working on in the next 6 months.
    [The prepared statement of Ms. Jonas follows:]

                Prepared Statement by Hon. Tina W. Jonas

    Mr. Chairman, members of the committee, thank you for the 
opportunity to update you on the progress the Department has made in 
business transformation and financial management.
    I would also like to thank the members of the committee for your 
continued strong support of the men and women of America's Armed Forces 
and their families.
    Since our last hearing on April 13, 2005, we have made clear and 
measurable progress in improving the financial management of the 
Department of Defense.

             A COMPREHENSIVE PLAN IS IN PLACE AND UNDERWAY

    Today, a comprehensive plan for business transformation and 
financial management improvement is in place and underway.
    The plan has three major components, two of which were described in 
some detail by Under Secretary of Defense Krieg. The Business 
Enterprise Architecture is the blueprint that details how all of the 
various systems will work together. The Enterprise Transition Plan 
details how we will develop and implement new financial management 
systems and standards, when systems will come on line, and how they 
will talk to one another.
    The Financial Improvement and Audit Readiness Plan, which I expect 
to provide to you at the end of next month, takes the information 
related to systems and couples it with the financial improvement plans 
of the military Services to create a single roadmap for financial 
management improvement and, ultimately, auditability.
    Already, we are actively using the Financial Improvement and Audit 
Readiness Plan to eliminate our financial management material weakness, 
and to establish higher standards of financial discipline and control.

           THE FINANCIAL IMPROVEMENT AND AUDIT READINESS PLAN

    The Financial Improvement and Audit Readiness Plan provides a 
foundation for improved financial management across the entire DOD 
organization.
    Using the Financial Improvement and Audit Readiness Plan we:

         Identify the actions necessary to resolve our 
        financial management weakness;
         Outline the steps necessary to complete those actions; 
        and we will
         Analyze the effects of those actions to ensure they 
        are producing the intended result.

    In the near term, the Financial Improvement and Audit Readiness 
Plan will focus on needed improvements in four key areas:

         Military Equipment (which represents 27 percent of all 
        assets);
         Real Property (which represents 7 percent of all 
        assets);
         Military Retiree Eligible Health Care Fund Liabilities 
        (which represents 29 percent of all liabilities);
         Environmental Liabilities (which represents 4 percent 
        of all liabilities).

    Improvements in these areas will produce financial statements that 
more accurately depict the value of our assets and liabilities. Greater 
accuracy, in turn, will enable better business decisions and better 
support of Defense operations.

              MEASURABLE PROGRESS IN ALL FOUR FOCUS AREAS

    Measurable progress in all four focus areas has already been 
achieved--most significantly in the area of military assets.
Military Equipment
    Military equipment alone represents 27 percent of our assets. To 
date, we have calculated the value of 96 percent of all military 
equipment programs--everything from combat vehicles to ships to 
aircraft. Ninety-six percent, and we expect to complete the remaining 4 
percent by the end of 2005.
    This is especially significant because the Department has never 
before had an accurate valuation of its military equipment. Because of 
this work, we will soon have a baseline value of one of the most 
important assets on our balance sheet.
    Progress in the other focus areas is proceeding with the full 
cooperation of the Services, whose individual improvement plans are 
integrated and managed through the Financial Improvement and Audit 
Readiness Plan.
Real Property
    Longstanding issues regarding the best way to value real property 
assets have now been resolved, and the process of identifying and 
accurately reporting the value of real property assets is now moving 
forward. We have defined key milestones for establishing the value of 
real property assets, as well as the actions that must be taken 
throughout the Department to achieve an accurate picture of this 
category of assets.
Military Retiree Eligible Health Care Fund Liabilities
    We have now received a qualified audit opinion on Military Retiree 
Eligible Health Care Fund liabilities for the third year in a row. We 
established procedures to reconcile outstanding issues, and defined 
timelines for implementing those procedures throughout the Department. 
Once those improvements are validated, we will have an unqualified 
opinion on 78 percent of our total liabilities.
    As with military assets, a more accurate picture of liabilities 
also enables better business decisions, and better support of defense 
operations.
Environmental Liabilities
    Environmental liabilities are the next largest liability after 
Military Retiree Eligible Health Care Fund liabilities. Environmental 
liabilities are the costs we expect to pay in the future to clean up or 
dispose of hazardous materials. Without an accurate estimate of future 
costs, it is difficult to calculate the amount of funding required to 
meet our clean up responsibilities.
    We continue to make steady progress in both identifying and 
estimating the future cost of DOD's environmental liabilities. We are 
now ready for audit verification of $17.1 billion or 27 percent of the 
Department's total environmental liabilities, and we continue to make 
steady progress on estimating the cost of the rest.
Preparing the Way for Audits of the Military Services
    In addition to the four focus areas, another near-term objective of 
the Financial Improvement and Audit Readiness Plan is achieving a 
sustainable clean audit opinion for the Marine Corps. To achieve this 
goal we are focusing on all of the balance sheet items in the Marine 
Corps, using the Corps as a crucible for gaining a better understanding 
of the challenges involved in preparing for, and auditing, an entire 
military service.
    To help us reach this goal, the Marine Corps has already eliminated 
more than 600 different business processes, and replaced them with one 
standardized set of 57 business processes--thereby greatly simplifying 
day-to-day financial management operations.
    These three major components--the Business Enterprise Architecture, 
the Enterprise Transition Plan, and the Financial Improvement and Audit 
Readiness plan--put us firmly on the path to business transformation 
and improved financial management.

            IMPROVEMENTS IN DAY-TO-DAY FINANCIAL MANAGEMENT

    While we are working on near- and long-term solutions, we are also 
solving day-to-day problems that cannot wait. For example, military 
pay.
Personnel and Pay Council
    We established the Personnel and Pay Council to help eliminate 
problems and delays in resolving pay issues.
    Composed of senior executives from Offices of Personnel and 
Readiness and Comptroller at the Deputy Under Secretary level, the 
Council provides a forum for resolving policy or procedural issues.
Improper Vendor Payments
    The Department has also aggressively addressed the problem of 
improper vendor payments. Application of a DFAS-Internal Review process 
allowed us to recoup $119 million in duplicate payments in fiscal year 
2003, and $30 million in fiscal year 2004. Fiscal year 2005 data is 
currently being compiled.
Military Pay
    In addition,

         We trained and certified technicians at all 26 
        mobilization sites to handle war-time pay issues for mobilized 
        Guard and Reserve members.
         We automated the way records are updated to reduce 
        human error, and instituted a process to review the accuracy of 
        records on a regular basis.
         We trained the finance teams that regularly assist 
        finance personnel in theater. Reserve and Guard Finance units 
        are now fully trained before they deploy.
         We also regularly sent teams to military hospitals to 
        ensure wounded soldiers do not face hardships related to pay or 
        government debt.
         We monitor wounded soldiers to ensure they receive the 
        right pay and entitlements, and
         We have suspended the automated collection of debts of 
        wounded soldiers until a case-by-case review can be conducted 
        by their Service.

    As a result of the Army's improvements, $2.8 million in entitlement 
overpayments were prevented, and over 1,700 pay accounts were corrected 
prior to the mobilization or demobilization of Guard and Reserve 
members to ensure that errors in personnel processing did not adversely 
impact actual pay.
Steady Progress
    The results of these, and many other dedicated efforts to improve 
DOD financial management practices, have borne fruit over the past 6 
months and, cumulatively, over the past 4 to 5 years. Much of this 
progress is the result of a more disciplined approach to good business 
practices.
    Over the past 6 months, I believe we have made solid progress in 
advancing our business transformation goals. As we continue down this 
road, I have no doubt that more improvement will follow. We look 
forward to reporting our progress in the coming months.
    Mr. Chairman, I thank you for the opportunity to discuss our 
progress in financial management, and on behalf of the Department of 
Defense, I thank the committee for its support.

    Senator Ensign. Mr. Hite.

    STATEMENT OF RANDOLPH C. HITE, DIRECTOR OF INFORMATION 
    TECHNOLOGY, ARCHITECTURE AND SYSTEM ISSUES, GOVERNMENT 
                     ACCOUNTABILITY OFFICE

    Mr. Hite. Thank you, Mr. Chairman. It is a pleasure to be 
here today to discuss DOD's efforts to comply with the National 
Defense Authorization Act for Fiscal Year 2005 and other 
matters relating to business systems modernization and overall 
business transformation.
    Before I summarize my statement, I would like to pass along 
Comptroller General Walker's personal regrets for not being 
able to be here today. He very much wanted to. He had a 
commitment outside the country that he could not change.
    But let me start by saying what the Comptroller General has 
stated many times, that DOD maintains unparalleled military 
capabilities. However, the Department has a long way to go 
before its business operations are on par with its warfighting 
operations.
    Almost 15 years ago, we first designated certain key DOD 
business areas as high-risk, and since then, we have added 
other areas to this list, to the point where today the 
Department is either fully or partially responsible for 14 out 
of the 25 high-risk areas we have across the Federal 
Government.
    The need to overhaul the Department's business operations 
and systems has long been recognized, and prior administrations 
have tried in vain to do so. In 2001, Secretary Rumsfeld 
launched the latest attempt, stating that successful 
improvements in this area could save the Department 5 percent 
of its annual budget, and for fiscal year 2006, that would be 
about $21 billion. At that time, the Secretary established the 
Business Management Modernization Program (BMMP), and since 
then we have issued a series of reports, testified many times 
on this program and weaknesses associated with it, and we have 
made a number of recommendations. Our most recent reports, 
which we issued around the time of this last hearing, were 
quite critical of the program at that time, observing that 
after investing about 4 years and $318 million on BMMP, the 
Department had very little show for it.
    So where is the DOD today with respect to business systems 
modernization and its more broad-based business transformation 
efforts? Has the Department made progress? What remains to be 
done?
    As requested, my statement will address these questions by 
focusing on three issues: first, whether the Department has 
satisfied the business systems modernization management 
requirements that are in the National Defense Authorization 
Act; second, whether the Department's newly established 
Business Transformation Agency (BTA) can help in modernizing 
the Department's business systems and operations; and third, 
whether the Department's efforts, relative to the act's 
requirements and this new agency, fill two overall business 
transformation needs that we have identified, those being the 
need for an integrated, strategic business transformation plan 
and the need for a chief management official.
    With respect to the first issue, let me preface my remarks 
by saying that my observations are based on our ongoing work. 
Nevertheless, having said that, I would submit that DOD has 
made more progress since the fiscal year 2005 act's passage 
than they had made in the prior 4 years combined. Six months 
ago, I would have described where the Department stood on this 
front as largely an empty glass, but today the glass could be 
described as half full.
    To illustrate, we reported that the version of the Business 
Enterprise Architecture (BEA) that existed 6 months ago was 
poorly developed and had little, if any, utility. We reported 
at that time that the Department did not even have a transition 
plan for implementing its target architectural environment. In 
contrast, the latest version of the BEA and the accompanying 
transition plan, while not yet sufficiently complete on several 
fronts, such as with respect to the BEA's integration and 
alignment with the military service and defense agency 
architectures, is nevertheless a good start and a reasonable 
foundation upon which to build.
    Similarly, 6 months ago, a corporate portfolio-based 
investment decision-making process was not in place, and today 
one has largely been established, although how effective this 
approach will ultimately be will depend on several important 
factors, such as the degree to which the military services and 
the defense agencies adopt this approach and the extent to 
which it is actually implemented on each and every business 
system investment.
    With respect to the second issue concerning the new BTA, 
let me first say that the name is a misnomer. The agency's 
immediate focus is on business systems modernization and not 
overall business transformation. In this regard, I believe that 
the BTA offers potential benefits if it is, among other things, 
properly organized, resourced, and empowered. While doing so 
for any new agency is a challenge, making it happen for the BTA 
by November 21, 2005, which is the date that DOD has committed 
to, is a challenge that will take more than the next 11 days to 
pull off.
    Other challenges to realizing this potential include making 
sure that it has the authority commensurate with its 
responsibilities relative to system investments that are 
controlled by military services and defense agencies and making 
sure that the agency's relationship with key system 
modernization players, such as the DOD chief information 
officer and the Defense Information Systems Agency, are clearly 
defined.
    With respect to the third issue concerning the Department's 
overall business transformation efforts, I would first say that 
the Department's leadership has clearly shown commitment to 
addressing the business transformation challenges it faces, and 
it has taken various steps toward this end. However, I would 
also reiterate two critical steps that Comptroller General 
Walker has said the Department needs to take, namely having a 
strategic plan for business transformation that serves to 
integrate the many people, process, and technology 
transformation activities going on and planned across the 
Department and establishing a chief management official (CMO) 
to provide focused, sustained leadership to the business 
transformation over a 7-year period. Neither the modernization 
management actions taken in response to the National Defense 
Authorization Act for Fiscal Year 2005 or the newly defined and 
established BTA satisfy those needs.
    In closing, let me commend the subcommittee for its active 
role in DOD's transformation efforts through both its 
legislative initiatives and its regular oversight of these. 
Further, let me say that this transformation will require at 
least 5 to 7 years to achieve. Under the hands-on leadership of 
the acting Deputy Secretary, Gordon England, DOD has recently 
begun taking some positive steps in this direction, 
particularly with respect to business systems modernization. 
However, I would describe DOD at this juncture as being in the 
first few miles of a business transformation marathon, meeting 
its considerable people, process, and technology change to 
effect before it will complete the race.
    To assist the Department as it moves forward, we encourage 
it to fully implement the recommendations that we have made, 
and we pledge to continue working constructively with the 
Department to make this happen.
    Mr. Chairman, members of the subcommittee, this concludes 
my statement. I would be happy to answer any questions you may 
have.
    [The prepared statement of Mr. Hite follows:]

                 Prepared Statement by Randolph C. Hite

    Mr. Chairman and members of the subcommittee: I appreciate the 
opportunity to be here today to discuss business systems modernization 
and overall business transformation at the Department of Defense 
(DOD)--two areas that are on our high-risk list of Federal programs and 
activities that are at risk of waste, fraud, abuse, or mismanagement 
and in need of broad-based transformation.\1\ At the onset, I would 
like to pass on Comptroller General Walker's gratitude to this 
subcommittee for your continued oversight of key government operations 
and management issues, including DOD's business transformation 
activities. The active role of this subcommittee is essential to 
ultimately assuring DOD's continued progress in business 
transformation, while enhancing public confidence in DOD's stewardship 
of the hundreds of billions of taxpayer funds it receives each year.
---------------------------------------------------------------------------
    \1\ GAO, High-Risk Series: An Update, GAO-05-207 (Washington, DC: 
January 2005).
---------------------------------------------------------------------------
    Given its size and mission, DOD is one of the largest and most 
complex organizations to effectively manage in the world. While DOD 
maintains military forces with significant capabilities, it continues 
to confront pervasive, decades-old management problems related to its 
business operations, including outdated and ineffective systems and 
processes that support these forces. At a time when DOD is challenged 
to maintain a high level of military operations while competing for 
resources in an increasingly fiscally constrained environment, DOD's 
business area weaknesses continue to result in reduced efficiencies and 
effectiveness that waste billions of dollars every year. Of the 25 
areas on our 2005 high-risk list, 8 are DOD programs or operations and 
6 are government-wide high-risk areas for which DOD shares some 
responsibility. These areas touch on all of DOD's major business 
operations. In some cases, such as DOD's financial management, weapons 
acquisition, and business systems modernization areas, we have been 
highlighting high-risk challenges for a decade or more.
    This year we added DOD's overall approach to business 
transformation to our list of high-risk areas because (1) DOD's 
business improvement initiatives and control over resources are 
fragmented; (2) DOD lacks a clear and integrated business 
transformation plan and investment strategy; and (3) DOD has not 
designated an appropriate level senior management official--such as a 
chief management official (CMO)--with the authority to be responsible 
and accountable for overall business transformation reform and related 
resources. In particular, GAO has suggested the need for a chief 
management official \2\ to provide the sustained top-level leadership 
and accountability needed by DOD to better leverage plans, processes, 
systems, people and tools to achieve the needed transformation.
---------------------------------------------------------------------------
    \2\ S.780, 109th Cong., 1st Sess. introduced in the U.S. Senate on 
April 15, 2005, would create a statutory Chief Management Officer.
---------------------------------------------------------------------------
    Many past administrations have tried to address the deficiencies we 
have identified at DOD, with the latest attempt being launched in 2001 
when Secretary Rumsfeld outlined a vision for transforming the 
department that called for dramatic changes in management, technology, 
and business practices. At that time, the Secretary established the 
Business Management Modernization Program (BMMP) to effect this change. 
Since then, we have reported a litany of program weaknesses and made 
scores of recommendations. Our latest reports on this program, which 
were issued about the same time as this subcommittee's last oversight 
hearing in April 2005 on DOD business transformation and financial 
accountability, were quite critical of the program, observing that 
after investing about 4 years and $318 million on the BMMP, the 
department had made very little progress.
    To its credit, Congress, and this subcommittee in particular, has 
become increasingly focused on improving DOD's business operations by 
holding several oversight hearings, such as this one, and enacting 
legislation. The recent requirements in the Ronald W. Reagan National 
Defense Authorization Act for Fiscal Year 2005 aimed at strengthening 
DOD's management of its business systems modernization efforts--
developing a business enterprise architecture and transition plan, and 
establishing system investment management structures and processes--are 
particularly important ingredients to addressing DOD's business systems 
modernization high-risk area. The act requires GAO to review and report 
on this transition plan within 60 days of its approval by the Secretary 
of Defense.
    Senior administration leaders and advisors--including the Secretary 
of Defense, the acting Deputy Secretary of Defense, the Deputy Director 
of the Office of Management and Budget (OMB), various senior level 
officials, and members of the Defense Business Board--have demonstrated 
a commitment to addressing DOD's business management weaknesses. OMB 
and DOD are working together to develop a plan to improve supply chain 
management that could place the department on the path toward removal 
of this area from our high-risk list. For example, OMB and DOD are also 
consulting GAO as they develop action plans for other high-risk areas 
as well as a business architecture and related enterprise transition 
plan. Further, DOD has taken actions intended to comply with the act by 
establishing system investment review structures and processes, and it 
has also established a Business Transformation Agency to bring 
increased management focus to its business systems modernization area.
    Today, I would like to provide our preliminary perspectives on (1) 
DOD's efforts to satisfy the business systems modernization 
requirements in the National Defense Authorization Act for Fiscal Year 
2005; (2) the Business Transformation Agency's potential to help 
strengthen business systems modernization; and (3) whether DOD efforts 
to establish management structures and its business enterprise 
transition plan provide the leadership and planning needed to effect 
business transformation.
    My statement is based upon our ongoing assessment of DOD's efforts 
to comply with the 2005 defense authorization act, as required under 
the act. As such, the statement provides our preliminary views on DOD's 
efforts. It is also based on our analysis of DOD's enterprise 
transition plan relative to our published work on successful 
organizational transformation efforts and each of DOD's high risk 
areas, as well as analysis of DOD's directives establishing the Defense 
Business Transformation Agency, our previous reports and testimonies, 
and discussions with DOD senior executives. Our work was performed in 
accordance with U.S. generally accepted government auditing standards.

                                SUMMARY

    In summary, let me reiterate what Comptroller General Walker has 
stated on many occasions--transforming the department's business 
operations is an absolute necessity given the long-term fiscal outlook, 
and accomplishing this transformation will require sustained and 
persistent leadership for at least 5 to 7 years. The department, under 
the leadership of Acting Deputy Secretary England, recently began 
taking some positive steps in this direction, particularly with respect 
to the business systems modernization management changes called for in 
the National Defense Authorization Act for Fiscal Year 2005, as well as 
with certain other DOD high-risk areas. As of today, our preliminary 
work suggests that progress has been made in complying with the 
provisions in the act, but more needs to be done. DOD agrees, and it 
intends to do more. With respect to DOD's compliance with the 
authorization act's requirements, we will be issuing a full report to 
this and other defense congressional committees by November 25, 2005.
    In addition, DOD's Business Transformation Agency offers potential 
benefits relative to the department's business systems modernization 
efforts if the agency can be properly organized, resource, and 
empowered to effectively execute its roles and responsibilities and is 
held accountable for doing so. The agency faces several challenges, 
including standing up a functioning acquisition organization within a 
short period of time. As DOD moves forward with implementing this 
agency, it will be important for it to address these issues.
    Furthermore, DOD has taken several actions intended to advance 
transformation, such as establishing management structures like the 
Business Transformation Agency, and developing the enterprise 
transition plan. While these steps are positive, their primary focus 
appears to be on business system modernization. Business transformation 
is much broader and encompasses planning, management, structures, and 
processes related to all key business areas. As DOD continues to evolve 
its transformation efforts, critical to successful reform are sustained 
leadership, structures, and a clear strategic and integrated plan that 
encompass all major business areas. We, therefore, continue to believe 
that a CMO position along with an integrated strategic plan for the 
overall business transformation effort, remain essential ingredients 
for better ensuring that overall business transformation is 
successfully implemented and sustained.

                               BACKGROUND

    DOD is one of the largest and most complex organizations in the 
world to manage effectively. While DOD maintains military forces with 
unparalleled capabilities, it continues to confront pervasive, decades-
old management problems related to its business operations--which 
include outdated systems and processes--that support these forces. 
These management weaknesses cut across all of DOD's major business 
areas, such as human capital management; the personnel security 
clearance program; support infrastructure management; financial 
management; weapon systems acquisition; contract management; supply 
chain management; and last, but not least, business systems 
modernization. All of these DOD areas are on our high-risk list.
    For years, DOD has attempted to modernize its business systems, and 
we have provided numerous recommendations to help guide its efforts, 
including a set of recommendations to help DOD develop and implement an 
enterprise architecture (or modernization blueprint) and establish 
effective management controls. To achieve successful transformation, we 
have also recommended the need for a CMO, and a strategic integrated 
action plan for the overall business transformation effort.
Enterprise Architecture and Information Technology Investment 
        Management Are Critical to Achieving Successful Systems 
        Modernization
    Effective use of an enterprise architecture, or modernization 
blueprint, is a hallmark of successful public and private 
organizations. For more than a decade, we have promoted the use of 
architectures to guide and constrain systems modernization, recognizing 
them as a crucial means to a challenging goal: agency operational 
structures that are optimally defined in both the business and 
technological environments. Congress has also recognized the importance 
of an architecture-centric approach to modernization: the E-Government 
Act of 2002,\3\ for example, requires OMB to oversee the development of 
enterprise architectures within and across agencies.
---------------------------------------------------------------------------
    \3\ The E-Government Act of 2002, Pub. L. No. 107-347, Sec. 101(a), 
116 Stat. 2899, 2903-05, (Dec. 17, 2002), Sec 44 U.S.C. Sec. 3602 (e), 
(f).
---------------------------------------------------------------------------
    In brief, an enterprise architecture provides a clear and 
comprehensive picture of an entity, whether it is an organization 
(e.g., a Federal department) or a functional or mission area that cuts 
across more than one organization (e.g., financial management). This 
picture consists of snapshots of both the enterprise's current or ``As 
Is'' environment and its target or ``To Be'' environment. These 
snapshots consist of ``views,'' which are one or more architecture 
products (models, diagrams, matrices, text, etc.) that provide logical 
or technical representations of the enterprise. The architecture also 
includes a transition or sequencing plan, based on an analysis of the 
gaps between the ``As Is'' and ``To Be'' environments; this plan 
provides a temporal roadmap for moving between the two that 
incorporates such considerations as technology opportunities, 
marketplace trends, fiscal and budgetary constraints, institutional 
system development and acquisition capabilities, the dependencies and 
life expectancies of both new and ``legacy'' (existing) systems, and 
the projected value of competing investments. Our experience with 
Federal agencies has shown that investing in information technology 
(IT) without defining these investments in the context of an 
architecture often results in systems that are duplicative, not well 
integrated, and unnecessarily costly to maintain and interface.\4\
---------------------------------------------------------------------------
    \4\ See, for example, GAO, Homeland Security: Efforts Under Way to 
Develop Enterprise Architecture, but Much Work Remains, GAO-04-777 
(Washington, DC: Aug. 6, 2004); DOD Business Systems Modernization: 
Limited Progress in Development of Business Enterprise Architecture and 
Oversight of Information Technology Investments, GAO-04-731R 
(Washington, DC: May 17, 2004); and Information Technology: 
Architecture Needed to Guide NASA's Financial Management Modernization, 
GAO-04-43 (Washington, DC: Nov. 21, 2003).
---------------------------------------------------------------------------
    A corporate approach to IT investment management is also 
characteristic of successful public and private organizations. 
Recognizing this, Congress developed and enacted the Clinger-Cohen Act 
in 1996,\5\ which requires OMB to establish processes to analyze, 
track, and evaluate the risks and results of major capital investments 
in information systems made by executive agencies.\6\ In response to 
the Clinger-Cohen Act and other statutes, OMB developed policy for 
planning, budgeting, acquisition, and management of Federal capital 
assets and issued guidance.\7\ We have also issued guidance in this 
area,\8\ in the form of a framework that lays out a coherent collection 
of key practices that, when implemented in a coordinated manner, can 
lead an agency through a robust set of analyses and decision points 
that support effective IT investment management. This framework defines 
institutional structures, such as investment review boards, and 
associated processes, such as common investment criteria. Further, our 
investment management framework recognizes the importance of an 
enterprise architecture as a critical frame of reference for 
organizations making IT investment decisions: specifically, it states 
that only investments that move the organization toward its target 
architecture, as defined by its sequencing plan, should be approved 
(unless a waiver is provided or a decision is made to modify the 
architecture). Moreover, it states that an organization's policies and 
procedures should describe the relationship between its architecture 
and its investment decisionmaking authority. Our experience has shown 
that mature and effective management of IT investments can vastly 
improve government performance and accountability, and can help to 
avoid wasteful IT spending and lost opportunities for improvements.
---------------------------------------------------------------------------
    \5\ The Clinger-Cohen Act of 1996, 40 U.S.C. sections 11101-11704. 
This act expanded the responsibilities of OMB and the agencies that had 
been set under the Paperwork Reduction Act, which requires that 
agencies engage in capital planning and performance and results-based 
management. 44 U.S.C. Sec. 3504(a)(1)(B)(vi) (OMB); 44 U.S.C. 
Sec. 3506(h)(5) (agencies)
    \6\ We have made recommendations to improve OMB's process for 
monitoring high-risk IT investments; see GAO, Information Technology: 
OMB Can Make More Effective Use of Its Investment Reviews, GAO-05-276 
(Washington, DC: Apr. 15, 2005).
    \7\ This policy is set forth and guidance is provided in OMB 
Circular No. A-11 (section 300) and in OMB's Capital Programming Guide, 
which directs agencies to develop, implement, and use a capital 
programming process to build their capital asset portfolios.
    \8\ GAO, Information Technology Investment Management: A Framework 
for Assessing and Improving Process Maturity, GAO-04-394G (Washington, 
DC: March 2004).
---------------------------------------------------------------------------
Recent Reviews of DOD's Business System Modernization Efforts Have 
        Raised Concerns
    Since 2001, we have regularly reported \9\ on DOD's efforts to 
(among other things) develop an architecture and to establish and 
implement effective investment management structures and processes. Our 
reports have continued to raise concerns about the department's 
architecture program, the quality of the architecture and the 
transition plan, and the lack of an investment management structure and 
controls to implement the architecture. Our most recent reports, which 
were issued in the third and fourth quarters of fiscal year 2005,\10\ 
made the following points:
---------------------------------------------------------------------------
    \9\ GAO, Information Technology: Architecture Needed to Guide 
Modernization of DOD's Financial Operations, GAO-01-525 (Washington, 
DC: May 17, 2001); DOD Business Systems Modernization: Improvements to 
Enterprise Architecture Development and Implementation Efforts Needed, 
GAO-03-458 (Washington, DC: Feb. 28, 2003); Information Technology: 
Observations on Department of Defense's Draft Enterprise Architecture, 
GAO-03-571R (Washington, DC: Mar. 28, 2003); Business Systems 
Modernization: Summary of GAO's Assessment of the Department of 
Defense's Initial Business Enterprise Architecture, GAO-03-877R 
(Washington, DC: July 7, 2003); DOD Business Systems Modernization: 
Important Progress Made to Develop Business Enterprise Architecture, 
but Much Work Remains, GAO-03-1018 (Washington, DC: Sept. 19, 2003); 
DOD Business Systems Modernization: Limited Progress in Development of 
Business Enterprise Architecture and Oversight of Information 
Technology Investments, GAO-04-731R (Washington, DC: May 17, 2004).
    \10\ GAO, DOD Business Systems Modernization: Billions Being 
Invested without Adequate Oversight, GAO-05-381 (Washington, DC: Apr. 
29, 2005); DOD Business Systems Modernization: Longstanding Weaknesses 
in Enterprise Architecture Development Need to Be Addressed, GAO-05-702 
(Washington, DC: July 22, 2005).

         DOD had not established effective structures and 
        processes for managing the development of its architecture.
         DOD had not developed a well-defined architecture. The 
        products that it had produced did not provide sufficient 
        content and utility to effectively guide and constrain ongoing 
        and planned system investments.
         DOD had not developed a plan for transitioning from 
        the ``As Is'' to the ``To Be'' architectures.
         DOD did not have an effective department-wide 
        management structure for controlling its business investments.
         DOD had not established common investment criteria for 
        system reviews.
         DOD had not included all reported systems in its 
        fiscal year 2005 IT budget request.
         The Under Secretary of Defense (Comptroller) had not 
        certified all systems investments with reported obligations 
        exceeding $1 million, as required by the National Defense 
        Authorization Act for Fiscal Year 2003.\11\
---------------------------------------------------------------------------
    \11\ Bob Stump National Defense Authorization Act for Fiscal Year 
2003, Pub. L. No. 107-314, Sec. 1004, 116 Stat. 2458, 2629-2631 (Dec. 
2, 2002).

    Our recommendations to DOD provide a comprehensive roadmap for 
addressing these problems. DOD has largely agreed with the 
recommendations and as we recently reported, has defined a framework 
intended to do so.
Successful Business Transformation Requires Sound Strategic Planning 
        and Sustained Leadership
    In testimony before this subcommittee earlier this year, 
Comptroller General Walker emphasized that there are three key elements 
that DOD must incorporate into its business transformation efforts to 
successfully address its systemic business challenges.\12\ First, these 
efforts must include an integrated strategic business transformation 
plan, including an enterprise architecture to guide and constrain 
implementation of such a plan. Second, control of system investments is 
crucial for successful business transformation. Finally, a CMO is 
essential for providing the sustained leadership needed to achieve a 
successful and lasting transformation effort. The CMO would not assume 
the day-to-day management responsibilities of other DOD officials nor 
represent an additional hierarchical layer of management but would lead 
DOD's overall business transformation efforts. Additionally, a 7-year 
term would also enable the CMO to work with DOD leadership across 
administrations to sustain the overall business transformation effort.
---------------------------------------------------------------------------
    \12\ See GAO, Defense Management: Key Elements Needed to 
Successfully Transform DOD Business Operations, GAO-05-629T 
(Washington, DC: Apr. 28, 2005).
---------------------------------------------------------------------------
  dod's efforts to comply with national defense authorization act for 
fiscal year 2005 indicate progress and a foundation upon which to build
    As defined in section 332 of the National Defense Authorization Act 
for Fiscal Year 2005,\13\ DOD is required to satisfy several conditions 
relative to its approach to managing its business systems modernization 
program. Generally speaking, DOD is required to do the following:
---------------------------------------------------------------------------
    \13\ Ronald W. Reagan National Defense Authorization Act for Fiscal 
Year 2005, Pub. L. No. 108-375, Sec. 332, 118 Stat. 1811, 1851-1856 
(Oct. 28, 2004) (codified in part at 10 U.S.C. Sec. 2222).

    1. By September 30, 2005, develop a business enterprise 
architecture that meets certain requirements.
    2. By September 30, 2005, develop a transition plan for 
implementing the architecture that meets certain requirements.
    3. Identify each defense business system proposed for funding in 
the budget submissions for fiscal year 2006 and subsequent years, and 
for each system, among other things, identify whether funding is for 
current services or business systems modernization.
    4. Take a number of actions regarding the review and approval of 
investments, including delegating responsibility for business system 
review and decisionmaking to designated approval authorities,\14\ 
establishing investment review boards and supporting process that 
employ common steps and criteria, and obligating funds for Defense 
Business System Modernizations after October 1, 2005, only for systems 
that have been certified and approved.
---------------------------------------------------------------------------
    \14\ Approval authorities include the Under Secretary of Defense 
for Acquisition, Technology, and Logistics; the Under Secretary of 
Defense (Comptroller); the Under Secretary of Defense for Personnel and 
Readiness; and the Assistant Secretary of Defense for Networks and 
Information Integration/Chief Information Officer of the Department of 
Defense. These approval authorities are responsible for the review, 
approval, and oversight of business systems and must establish 
investment review processes for systems under their cognizance.
---------------------------------------------------------------------------
    The act also requires us to assess DOD's efforts to comply with the 
act within 60 days after approval of the business enterprise 
architecture and transition plan. On September 28, 2005, the acting 
Deputy Secretary of Defense approved Version 3.0 of the business 
enterprise architecture and approved the associated enterprise 
transition plan. Accordingly, we are currently in the process of 
conducting our assessment, and we plan by November 25, 2005, to issue a 
report containing the results of our assessment to defense 
congressional committees, as specified in the act. As agreed, this 
statement contains only preliminary observations based on our ongoing 
work, meaning that these observations may change as we conclude our 
ongoing assessment.
    For purposes of this statement, we have grouped the act's 
requirements, and our preliminary observations, into four categories: 
business enterprise architecture, enterprise transition plan, fiscal 
year 2006 budget submission, and investment review and approval.
Business Enterprise Architecture Requirements
    The act requires that DOD develop, by September 30, 2005,\15\ a 
business enterprise architecture. According to the act, this 
architecture must satisfy three major requirements:
---------------------------------------------------------------------------
    \15\ Ronald W. Reagan National Defense Authorization Act for Fiscal 
Year 2005, Pub. L. No. 108-375, Sec. 332, 118 Stat. 1811, 1851-1856 
(Oct. 28, 2004) (codified in part at 10 U.S.C. Sec. 2222).

    1. Include an information infrastructure that, at a minimum, would 
---------------------------------------------------------------------------
enable DOD to

         comply with all Federal accounting, financial 
        management, and reporting requirements;
         routinely produce timely, accurate, and reliable 
        financial information for management purposes;
         integrate budget, accounting, and program information 
        and systems; and
         provide for the systematic measurement of performance, 
        including the ability to produce timely, relevant, and reliable 
        cost information.

    2. Include policies, procedures, data standards, and system 
interface requirements that are to be applied uniformly throughout the 
department.
    3. Be consistent with OMB policies and procedures. According to 
DOD, this version is intended to provide a blueprint to help ensure 
near-term delivery of needed capabilities, resources, and materiel to 
the warfighter. To do so, this version focused on six Business 
Enterprise Priorities (see table 1), which DOD states are short-term 
objectives to achieve immediate results. According to the department, 
these priorities will evolve and expand in future versions of the 
architecture.


                 TABLE 1: BUSINESS ENTERPRISE PRIORITIES
------------------------------------------------------------------------
       Business Enterprise Priority                  Description
------------------------------------------------------------------------
Personnel Visibility......................  Providing access to
                                             reliable, timely, and
                                             accurate personnel
                                             information for warfighter
                                             mission planning.
Acquisition Visibility....................  Providing transparency and
                                             access to acquisition
                                             information that is
                                             critical to supporting life-
                                             cycle management of the
                                             department's processes for
                                             delivering weapon systems
                                             and automated information
                                             systems.
Common Supplier Engagement................  Aligning and integrating
                                             policies, processes, data,
                                             technology, and people to
                                             simplify and standardize
                                             the methods that DOD uses
                                             to interact with commercial
                                             and government suppliers.
Materiel Visibility.......................  Improving supply chain
                                             performance.
Real Property Accountability..............  Acquiring access to real-
                                             time information on DOD
                                             real property assets.
Financial Visibility......................  Providing immediate access
                                             to accurate and reliable
                                             financial information that
                                             will enhance efficient and
                                             effective decisionmaking.
------------------------------------------------------------------------
Source: DOD.

    In addition to focusing version 3.0 on these priorities, according 
to DOD, the department also limited the extent to which the 
architecture was to address each priority, focusing on four questions:

         Who are our people, what are their skills, and where 
        are they located?
         Who are our industry partners, and what is the state 
        of our relationship with them?
         What assets are we providing to support the 
        warfighter, and where are these assets deployed?
         How are we investing our funds to best enable the 
        warfighting mission?

    To produce a version of the architecture within the above scope, 
DOD created 12 of the 23 recommended products included in the DOD 
Architecture Framework--the structural guide that the department has 
established for developing an architecture.\16\ These 12 products 
included all 7 products that the framework designates as essential.\17\ 
For example, one essential product is the Operational Node Connectivity 
Description, which is a graphic showing ``operational nodes'' 
(organizations) and including a depiction of each node's information 
exchange needs.
---------------------------------------------------------------------------
    \16\ The Department of Defense Architecture Framework recommends 
that the architecture include 23 of the 26 possible architecture 
products to meet the department's stated intention to use the 
architecture as the basis for department-wide business and systems 
modernization.
    \17\ DOD, Department of Defense Architecture Framework, Version 
1.0, Volume 1 (August 2003) and Volume 2 (February 2004).
---------------------------------------------------------------------------
    Our preliminary work suggests that Version 3.0 of DOD's business 
enterprise architecture may partially satisfy the major conditions 
specified in the act. For example, Version 3.0 could enable DOD's 
compliance with many but not all Federal accounting, financial 
management, and reporting requirements. To this end, the architecture 
includes the Standard Financial Information Structure (SFIS) and the 
Standard Accounting Classification Structure (SACS), which together 
could allow DOD to standardize financial data elements necessary to 
support budgeting, accounting, cost/performance management, and 
external reporting. Both SFIS and SACS are based upon mandated 
requirements defined by external regulatory entities, such as the 
Treasury, OMB, the Federal Accounting Standards Advisory Board, and the 
Joint Financial Management Improvement Program.\18\ Moreover, SFIS has 
in turn been used to develop and incorporate business rules in the 
architecture for such areas as managerial cost accounting, general 
ledger, and federally owned property. Business rules are important 
because they explicitly translate important business policies and 
procedures into specific and unambiguous rules that govern what can and 
cannot be done.
---------------------------------------------------------------------------
    \18\ JFMIP was a joint and cooperative undertaking of the 
Department of the Treasury, GAO, the Office of Management and Budget 
(OMB), and the Office of Personnel Management (OPM), working in 
cooperation with each other and other Federal agencies to improve 
financial management practices in the Federal Government. Leadership 
and program guidance were provided by the four Principals of JFMIP--the 
Secretary of the Treasury, the Comptroller General of the United 
States, and the Directors of OMB and OPM. Although JFMIP ceased to 
exist as a stand-alone organization as of December 1, 2004, the JFMIP 
Principals will continue to meet at their discretion.
---------------------------------------------------------------------------
    However, it is not apparent that the architecture provides for 
compliance with all Federal accounting, financial, and reporting 
requirements. For example, it may not contain the information needed to 
achieve compliance with the Treasury's United States Standard General 
Ledger \19\ or a strategy for achieving this compliance.
---------------------------------------------------------------------------
    \19\ The United States Standard General Ledger provides a uniform 
Chart of Accounts and technical guidance to be used in standardizing 
Federal agency accounting.
---------------------------------------------------------------------------
    As another example, Version 3.0 may partially enable DOD to produce 
timely, accurate, and reliable financial information for management 
purposes. Specifically, according to the architecture financial 
information is to be produced through (1) SFIS, which can support data 
accuracy, reliability, and integrity requirements for budgeting, 
financial accounting, cost and performance management and external 
reporting across DOD, and (2) a ``Manage Business Enterprise 
Reporting'' system function, which is intended to support the reporting 
of financial management and program performance information, including 
agency financial statements.
    However, timely, accurate, and reliable information depends, in 
part, on using standard definitions of key terms, which the 
architecture does not appear to include in all cases. For example, in 
Version 3.0 of the architecture, terms such as ``balance forwarded'' 
and ``receipt balances'' were not defined in the integrated dictionary 
although these terms were used in process descriptions. In the absence 
of standardized definitions, components (military services, defense 
agencies, and field activities) may use terms and definitions that a 
locally meaningful but which cannot be reliably and accurately 
aggregated to permit DOD-wide visibility, which is critical to 
achieving DOD's stated business enterprise priorities. This inability 
to aggregate has historically required DOD to create information for 
management purposes using inefficient methods, such as data calls and 
data conversions, that have limited the information's reliability and 
timeliness.
    Our preliminary work also suggests that Version 3.0 may partially 
satisfy the act's requirement that it be consistent with OMB policies 
and procedures. For example, Version 3.0 appears to include information 
flows and relationships, as required by OMB guidance. OMB guidance also 
requires the architecture to describe the ``As Is'' and ``To Be'' 
environments and a transition plan; however, Version 3.0 does not 
include an ``As Is'' environment. Without this element, DOD would not 
be able to develop a gap analysis identifying performance shortfalls, 
which as discussed in the next section critical input to a 
comprehensive transition plan. In addition, OMB guidance requires that 
the architecture include, among other things a description of the 
technology infrastructure; such a description is not apparent in 
Version 3.0, in that it does not identify such needed technology 
components as wide-area networks, databases, and telecommunications. 
Similarly, Version 3.0 does not appear to include a security 
architecture, although OMB guidance require agencies to incorporate 
security into the architecture of their information and systems to 
ensure the security of agency business operations.
    Version 3.0 may also contain other limitations. For example, it may 
not yet be fully integrated with the enterprise transition plan. In 
particular, we are currently attempting to determine why 21 system 
identified in the architecture are not included in the ``Master List of 
Systems and Initiatives'' in the transition plan (the master list 
serves as the baseline of currently planned--``To Be''--systems that 
begin to address the transformational objectives of the program). In 
addition, DOD has itself disclosed certain limitations. For example, it 
reported that the architecture is not adequately linked to the 
component \20\ architectures and transition plans. This omission is 
particularly important given the department's newly adopted federated 
approach to developing and implementing the architecture. In addition, 
according to DOD, the architect be improved to better designate 
enterprise data sources, business services, and IT infrastructure 
services, such as enterprise data storage. This is important because 
each of these greatly affects to scope and design of specific systems.
---------------------------------------------------------------------------
    \20\ DOD components include the military services, defense 
agencies, and field activities.
---------------------------------------------------------------------------
    According to DOD officials, the department is taking an incremental 
approach to developing the architecture and meeting the act's 
requirements. Accordingly, they said that Version 3.0 was appropriately 
scoped to provide for that content which could be produced in the time 
available to both lay the foundation for fully meeting the act's 
requirements and provide a blueprint for delivering near-term 
capabilities and systems to meet near-term business enterprise 
priorities. Based on these considerations, they asserted that Version 
3.0 fully satisfies the intent of the act.
    We support DOD's taking an incremental approach to developing the 
business enterprise architecture, as we recognize that adopting such an 
approach is both a best practice and a prior GAO recommendation. In 
addition, our preliminary work suggest Version 3.0 may provide a 
foundation upon which to build a more complete architecture. 
Nevertheless, the real question that remains is whether this version 
contains sufficient scope, detail, integration, and consistency to 
serve as a sufficient frame of reference for defining a common vision 
and transition plan to guide and constrain system investments.
Enterprise Transition Plan
    The act requires that DOD develop, by September 30, 2005, a 
transition plan for implementing its business enterprise architecture. 
According to the act, this plan must meet three conditions:

          1. Include an acquisition strategy for new systems that are 
        expected to be needed to complete the defense business 
        enterprise architecture.
          2. Include listings of the legacy systems that will and will 
        no part of the target business systems environment, and a 
        strategy for making modifications to those systems that will be 
        included.
          3. Include specific time-phased milestones, performance 
        metrics, and a statement of the financial and nonfinancial 
        resource needs.

    On September 28, 2005, the Acting Deputy Secretary of Defense 
approved the transition plan. Our preliminary work on this plan the 
plan appears to include elements of an acquisition strategy for new 
systems and describe a high-level approach for modernizing department's 
business operations and systems. Further, it includes detailed 
information on about 60 business systems (ongoing programs) that are to 
be part of the ``To Be'' architectural environment, as well as an 
acquisition strategy for each system. However, the plan does not appear 
to be based on a top-down capability gap analysis between the ``As Is'' 
and ``To Be'' architectures that describes capability and performance 
shortfall and clearly identifies which system investments (such as the 
60 identified programs) are to address these shortfalls. This is 
important because a transition plan is to be an acquisition strategy 
that recognizes timing and technological dependencies among planned 
systems investments, as well as such other considerations as market 
trends and return on investment.
    Similarly, our preliminary work suggests that the plan identifies 
some of the legacy systems that are to be replaced by ongoing programs 
(for example, it identifies the Defense Cash Accountability System as a 
target system and lists several legacy systems that it would replace), 
and it provides a list of legacy systems that will be modified to 
provide capabilities associated with the target architecture 
environment. However, the plan's listings of legacy systems that will 
and will not be part of the target architecture do not appear to be 
complete. For example, the plan identified 145 legacy systems that 
would be migrating to one target system (the Expeditionary Combat 
Support System), but other DOD documentation \21\ shows that this 
target system includes over 659 legacy systems, suggesting that 514 
systems may not be accounted for.
---------------------------------------------------------------------------
    \21\ DOD, Expeditionary Combat Support System Sources Sought 
Synopsis (May 10, 2004).
---------------------------------------------------------------------------
    Finally, the plan appears to include some of the required 
information on milestones, performance metrics, and resource needs. The 
plan includes key milestone dates for the 60 systems/programs 
identified (such as the Defense Travel System), but it does not show 
specific dates for terminating or migrating many legacy systems (such 
as the Cash Reconciliation System), and but it does not include 
milestone dates for some ongoing programs (such as the Navy Tactical 
Command Support System). Similarly although the plan includes 
performance metrics for some systems,\22\ it does not include for each 
system measures and metrics, focused on benefits or mission outcomes 
that can be linked to the plan's strategic goals. In addition, 
according to program officials, the resource needs in the transition 
plan for some programs are not current, as these needs are reflective 
of the fiscal year 2006 budget, which was developed before a recent 
reevaluation of how these programs will fit into the ``To Be'' 
environment.
---------------------------------------------------------------------------
    \22\ For example, for DOD's military personnel and pay system, the 
Defense Integrated Military Human Resources System (DIMHRS), the plan 
cites a goal of reducing manual workarounds for military pay by 9 
percent.
---------------------------------------------------------------------------
    Our preliminary work also suggests that in addition to the 
limitations just described, the plan may be missing relevant context 
and be inconsistent with the architecture in various ways. For example, 
it identifies 60 systems as target systems (for example, the Defense 
Cash Accountability System), but the ``To Be'' architecture appears to 
include only 23 of these. In addition, the plan includes a list of 66 
systems that are characterized as nonpriority enterprise or component 
programs that will be part of the target architecture, but the target 
architecture does not appear to identify all these systems.
    According to DOD officials, the transition plan is evolving, and 
any limitations will be addressed in future iterations of the plan. 
They also stated that the department has taken an incremental approach 
to developing a transition plan, and that the plan, as constrained by 
the scope of Version 3.0 of the architecture, satisfies the intent of 
the act's requirements.
    As with the architecture, we support an incremental development 
approach. Moreover, this plan represents DOD's first ever enterprise 
transition plan, and thus constitutes progress. However, questions 
remain as to whether it is of sufficient scope and content to 
effectively and efficiently manage the disposition of the department's 
existing inventory of systems or to sequence the introduction of 
modernized business operations and supporting systems.
Fiscal Year 2006 IT Budget Submission
    The National Defense Authorization Act for Fiscal Year 2005 
specifies information that the department is to incorporate in its IT 
budget request for fiscal year 2006 and each fiscal year thereafter. 
Generally, the act states that each budget request for business systems 
must:

          1. Identify each defense business system for which funding is 
        being requested.
          2. Provide information on all funds, by appropriation, for 
        each business system, including funds by appropriation 
        specifically for current services (Operation and Maintenance) 
        and systems modernization (Procurement; Research, Development, 
        Test, and Evaluation; and Defense Working Capital Fund).
          3. Identify the designated approval authority for each 
        business system.

    On the basis of our preliminary work, it appears that DOD's fiscal 
year 2006 IT budget submission may partially satisfy these conditions. 
For example, although the fiscal year 2006 budget may not identify each 
business system for which funding is requested, DOD is taking steps to 
ensure that subsequent fiscal year budget requests are more 
comprehensive. This situation arose because DOD's fiscal year 2006 
budget submission was submitted in February 2005, when the department 
did not yet have a single inventory of all of its business systems. As 
a result, DOD officials could not guarantee that all business systems 
were included in the submission. Currently, the department is updating 
its single database for its inventory of business systems, as we had 
recommended,\23\ which is scheduled to be completed by September 30, 
2006. Finally, DOD officials stated that the fiscal year 2007 IT budget 
submission will be derived from a separate DOD authoritative IT budget 
database.
---------------------------------------------------------------------------
    \23\ GAO, DOD Business Systems Modernization: Billions Continue to 
Be Invested with Inadequate Management Oversight and Accountability, 
GAO-04-615 (Washington, DC: May 27, 2004).
---------------------------------------------------------------------------
    There may be additional areas of uncertainty regarding the 
completeness of DOD's IT budget submission. One source of uncertainty 
is inconsistencies in the way that DOD classifies systems: as business 
systems or as national security systems.\24\ For example, as we 
previously reported,\25\ DOD reclassified 56 systems in its fiscal year 
2005 budget request from business systems to national security systems, 
resulting in a decrease of approximately $6 billion in the fiscal year 
2005 budget request for business systems and related infrastructure. 
Similarly, in the fiscal year 2006 submission, 13 systems previously 
classified as business systems were reclassified as national security 
systems, and 10 systems previously classified as national security 
systems were reclassified as business systems. We understand that DOD 
is currently reviewing its reclassifications.
---------------------------------------------------------------------------
    \24\ National security systems are intelligence systems, 
cryptologic activities related to national security, military command 
and control systems, and equipment that is an integral part of a weapon 
or weapons system or is critical to the direct fulfillment of military 
or intelligence missions.
    \25\ GAO-05-381.
---------------------------------------------------------------------------
    Our preliminary work also indicates that DOD may not have ensured 
that budget requests for all business systems identify the type of 
funding--by appropriation--being requested and whether the funding was 
for current services or modernization. In the fiscal year 2006 budget 
submission, systems identified are categorized by type of funding 
(appropriation) being requested and whether the funding is for current 
services or modernization; however, not all systems may be 
identifiable. In particular, it is not clear what is covered by one 
funding type or category referred to as ``All Other.'' For fiscal year 
2006, this category totaled about $1.2 billion and included, for 
example, about $22.6 million specifically for financial management. 
According to DOD officials,\26\ this category in the IT budget includes 
system projects that do not have to be identified by name because they 
fall below the $2 million reporting threshold for budgetary purposes.
---------------------------------------------------------------------------
    \26\ GAO-04-615.
---------------------------------------------------------------------------
Investment Review and Approval Requirements
    The National Defense Authorization Act for Fiscal Year 2005 
specifies actions that the department is to take regarding the review 
and approval of investments in business systems. Generally, the act 
sets up three requirements for the department:

         Delegate the authority and accountability for defense 
        business systems to designated approval authorities within the 
        Office of the Secretary of Defense.
         By March 15, 2005, require each approval authority to 
        establish an investment review process to review the planning, 
        design, acquisition, development, deployment, operation, 
        maintenance, modernization, and project cost benefits and risks 
        of all defense business systems for which the approval 
        authority is responsible.
         Effective October 1, 2005, obligate funds for a 
        defense business system modernization project with total cost 
        exceeding $1 million after the approval authority designated 
        for that system certifies to the Defense Business Systems 
        Management Committee (DBMSC) that the system project meets 
        specific conditions that are called for in the act, and the 
        certification by the approval authority is approved by the 
        DBSMC.

    On the basis of our preliminary work, it appears that DOD has 
satisfied some aspects of these conditions, and is potentially in the 
process of satisfying other aspects. First, on March 19, 2005, the 
Acting Deputy Secretary of Defense issued a memorandum that delegated 
the authority for the review, approval, and oversight of planning, 
design, acquisition, deployment, operation, maintenance, and 
modernization of the department's business systems. Designation of 
these approval authorities is consistent with the act. Further, our 
research and evaluations, as reflected in the guidance that we have 
issued, shows that clear assignment of senior executive investment 
management responsibilities and accountabilities are key aspects of 
having an effective institutional approach to IT investment management.
    Second, DOD has established investment review structures and 
processes, including a hierarchy of investment review boards with 
representation from across the department, as well as a standard set of 
investment review and decisionmaking criteria for these boards to use 
to ensure compliance and consistency with the business enterprise 
architecture. Further, the DBSMC was chartered in February 2005 as the 
highest ranking system modernization governance body, as required by 
the act.\27\ Further, DOD has designated the chair and membership of 
the boards consistent with the act, and all but one of designated 
approval authorities have established investment review boards for 
their areas of responsibility, which the act requires each to do. The 
one approval authority that does not appear to have established a 
review process is the Assistant Secretary of Defense (Networks and 
Information Integration)/Chief Information Officer.
---------------------------------------------------------------------------
    \27\ See 10 U.S.C. Sec. 186.
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    To support its investment review structures, DOD has also 
established investment review processes that include, among other 
things, the use of business enterprise architecture compliance 
procedures, common decision criteria, threshold criteria to ensure 
appropriate levels of review and accountability. Notwithstanding these 
investment review structures and processes, it remains uncertain to 
what extent DOD components have established similar investment review 
bodies and will adopt common investment review and decisionmaking 
processes. DOD components are expected to establish their own 
structures and processes. Under the department's concept of ``tiered 
accountability,'' significant responsibility and accountability for 
business system investments is to reside with the military services and 
defense agencies. The extent to which the components establish and 
consistently implement common investment management structures and 
processes is important, because doing so is a best practice. Without 
such structures and processes, investment decisions could potentially 
perpetuate the existence of overly complex, error-prone, nonintegrated 
system environments and limit introduction of corporate solutions to 
longstanding business problems.
    Finally, our preliminary work indicates that the department is in 
the process of ensuring that defense business system modernizations 
\28\ costing greater than $1 million are certified and approved in 
accordance with the act. Specifically, the department has identified 
210 systems with costs greater than $1 million, thus requiring 
certification and approval. Of these 210, DOD reports that 166 were 
certified and approved in accordance with the act before September 30, 
2005. This means that 44 were not, and according to the act, the 
department cannot make further obligations for any of these other than 
with funding left over from previous fiscal years, until they are 
certified and approved.
---------------------------------------------------------------------------
    \28\ The term `defense business system modernization' is defined in 
10 U.S.C. Sec. 2222(j)(3) as ``(A) the acquisition or development of a 
new defense business system; or (B) any significant modification or 
enhancement of an existing defense business system (other than 
necessary to maintain current services).''
---------------------------------------------------------------------------
    One potential issue with regard to the department's system 
certification and approval efforts to date is whether it has identified 
all business system modernizations with costs greater than $1 million. 
Doing this requires, among other things, proper classification of 
systems as national security systems or as business systems. If a 
business system is improperly classified, it may not be reviewed, 
certified, and approved in accordance with the act. As stated earlier, 
questions persist regarding whether the department has properly 
classified all business systems as such.
    Another potential issue is whether DOD has followed the act's 
criteria for DBSMC review and approval in all of the aforementioned 166 
systems. Specifically, it appears that the DBSMC approved the 
certification of at least six business systems in August 2005 that had 
been previously reviewed in accordance with earlier criteria;\29\ 
however, the current criteria under the act do not provide for the 
DBSMC to approve a certification based upon such previous 
certification. According to DOD officials, these six systems will go 
through the current review process no later than February 2006. In 
addition to these six, DOD officials told us that several other systems 
investments, which were certified and approved on the grounds that they 
were mission essential,\30\ will also be resubmitted for DBSMC 
approval.
---------------------------------------------------------------------------
    \29\ The six systems were reviewed under the criteria set forth in 
the National Defense Authorization Act for Fiscal Year 2003.
    \30\ See 10 U.S.C. Sec. 2222 (a)(1)(C).
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  DOD'S BUSINESS TRANSFORMATION AGENCY COULD HELP STRENGTHEN SYSTEMS 
MODERNIZATION MANAGEMENT AND OVERSIGHT IF IT IS EFFECTIVELY IMPLEMENTED

    On October 7, 2005, DOD established the Business Transformation 
Agency (BTA) to advance defense-wide business transformation efforts in 
general but particularly with regard to business systems modernization. 
BTA reports directly to the vice chair of the DBMSC.\31\ Among other 
things, BTA includes an acquisition executive who is to be responsible 
for 28 DOD-wide business projects, programs, systems, and initiatives. 
In addition, the BTA is to be responsible for integrating and 
supporting the work of the Office of the Secretary of Defense (OSD) 
principal staff assistants, who include the approval authorities that 
chair the business system investment review boards.
---------------------------------------------------------------------------
    \31\ The vice chair of the DBSMC is the Under Secretary of Defense 
for Acquisition, Technology and Logistics.
---------------------------------------------------------------------------
    In our view, BTA offers potential benefits relative to the 
department's business systems modernization efforts, if the agency can 
be properly organized, resourced, and empowered to effectively execute 
its roles and responsibilities, and if it is held accountable for doing 
so. In this regard, the agency faces a number of challenges as 
described below.
    According to DOD, this agency is expected to have a functioning 
acquisition organization by November 21, 2005. While such a timeline is 
daunting in and of itself, it is particularly challenging given that 
DOD is estimating up to 12 months to establish a permanent director. 
Moreover, there are numerous key acquisition functions that would need 
to established and made operational to effectively assume 28 DOD-wide 
projects, programs, systems, and initiatives, and our experience across 
the government shows that these functions can take considerable time to 
establish.
    Among other things, the agency is to be responsible for ensuring 
consistency and continuity across the department's core business 
missions with respect to, for example, business process reengineering 
and related business system matters. While the agency should be able to 
accomplish this relative to the DOD-wide efforts that it can control, 
it does not appear to have the requisite authority to carry out this 
responsibility relative to DOD component system investments, which it 
does not have investment control over. At best, the agency will be able 
to support the DBMSC in its efforts to ensure such consistency and 
continuity.
    As currently structured, the agency does not include support to an 
OSD principal staff assistant and approval authority--the Assistant 
Secretary of Defense for Networks Integration and Infrastructure, who 
is responsible for DOD information technology infrastructure, such as 
wide-area networks, local-area networks, telecommunications, and 
security services. In addition, the agency's relationship to the 
Defense Information Systems Agency, which is also responsible for 
certain DOD-wide system capabilities and services, is not specified. As 
the department moves forward with implementing this new agency, it will 
important for it to address these issues.

 EFFECTIVE DOD BUSINESS TRANSFORMATION WILL REQUIRE BROADER FOCUS THAN 
RECENTLY LAUNCHED BUSINESS SYSTEMS MODERNIZATION MANAGEMENT STRUCTURES 
                             AND ACTIVITIES

    For DOD to successfully transform its overall business operations, 
it will need senior level management accountability, a comprehensive 
and integrated business transformation plan that covers all of its key 
business functions; people with needed skills, knowledge, experience, 
responsibility, and authority to implement the plan; an effective 
process and related tools; and results-oriented performance measures 
that link institutional, unit, and individual performance goals and 
expectations to promote accountability for results. Over the last 3 
years, GAO has made several recommendations that if implemented 
successfully could help DOD move forward in establishing the means to 
successfully address the challenges it faces in transforming its 
business operations. For example, as the Comptroller General testified 
before this subcommittee earlier this year, DOD needs a full-time CMO 
position, created through legislation, with responsibility and 
authority for DOD's overall business transformation efforts.\32\ The 
CMO must be a person with significant authority and experience who 
would report directly to the Secretary of Defense. Given the nature and 
complexity of the overall business transformation effort, and the need 
for sustained attention over a significant period of time, this 
position should be a term appointment and the person should be subject 
to a performance contract.
---------------------------------------------------------------------------
    \32\ S.780, 109th Cong., 1st Sess. introduced in the U.S. Senate on 
April 15, 2005, would create a statutory Chief Management Officer.
---------------------------------------------------------------------------
    The Secretary of Defense, Acting Deputy Secretary of Defense, and 
other senior leaders have clearly shown commitment to business 
transformation and addressing deficiencies in the Department's business 
operations. As I discussed earlier, DOD has taken several actions, 
including setting up the DBSMC, publishing a business enterprise 
transition plan and most recently, establishing the Business 
Transformation Agency. Moreover, DOD is examining various aspects of 
its business operations as part of the ongoing Quadrennial Defense 
Review. While these management structures and plan are positive steps, 
their primary focus, at this point, appears to be on business systems 
modernization. Clearly, maintaining effective and modern business 
systems is a key enabler to transformation. However, business 
transformation is much broader and encompasses not only the supporting 
systems, but also the planning, management, organizational structures, 
and processes related to all DOD's major business areas. Such areas 
include support infrastructure management, human capital management, 
financial management, weapon systems acquisition, contract management, 
planning and budgeting, and supply chain management. Recognizing that 
DOD is continuing to evolve its efforts to plan and organize itself to 
achieve business transformation, critical to the success of these 
efforts will be management attention and structures that focus on 
transformation from a broad perspective and a clear strategic and 
integrated plan that, at a summary level, addresses all of the 
department's major business areas. This strategic plan should contain 
results-oriented performance measures that link institutional, unit, 
and individual goals, measures and expectations, and would be 
instrumental in establishing investment priorities and guiding the 
department's resource decisions.
    Finally, the lynchpin to ensure successful business transformation 
is the presence of strong and sustained executive leadership with 
appropriate responsibility, authority, and accountability. The central 
authority we had envisioned to allow for strong and sustained executive 
leadership over DOD's business management reform efforts is a full-
time, executive-level II position for a CMO, who would serve as the 
Deputy Secretary of Defense for Management. This position would divide 
and institutionalize the functions of the Deputy Secretary of Defense 
by creating a separate Deputy Secretary of Defense for Management. As 
we envision it, the CMO would feature a term of office that spans 
administrations, which would serve to underscore the importance of 
taking a professional, nonpartisan, institutional, and sustainable 
approach to the overall business transformation effort. As I understand 
it, DOD's position is that the acting Deputy Secretary of Defense, who 
also serves as the chair of the DBSMC, has the requisite position, 
authority, and purview to perform the functions of a CMO. Under the 
acting Deputy's leadership, DOD expects to be able to demonstrate 
progress towards achieving business reform. Comptroller General Walker 
continues to believe a CMO is necessary to provide the sustained 
leadership needed to achieve true business transformation. In light of 
DOD's position, we would encourage the subcommittee to require DOD to 
periodically report on its efforts, including describing the specific 
goals and measures against which it is measuring its progress in 
achieving business reform.
    In closing, the department as made important progress in the last 6 
months in establishing the kind of business systems modernization 
management capabilities that our research and evaluations show are 
essential to a successful modernization program--namely, an 
architecture, a transition plan, and system investment decisionmaking 
structures and processes. But more needs to be done to complete each of 
these areas, and most importantly, to ensure that they are reflected in 
how each and every business system investment is managed. While the new 
business transformation agency can help get this done, much remains to 
be accomplished before this agency is functioning as intended. Beyond 
systems modernization, overall business transformation remains a major 
challenge. The creation of a CMO position, and the development of a 
strategic transformation plan to integrate and guide the department's 
people, process, and technology change initiatives, would go a long way 
in helping the department meet this challenge.
    Mr. Chairman and members of the subcommittee, this concludes my 
prepared statement. I would be happy to answer any questions you may 
have at this time.

    Senator Ensign. I thank all the witnesses for their 
testimony. This is, far and away, the most encouraging news 
that we have had as far as this subcommittee on this subject 
since we have been having these hearings, although the bar was 
pretty low before. [Laughter.]
    I should not have probably said that last part. I should 
have just left a good compliment because we should reward 
people with praise when they deserve that praise, and I 
certainly think that all of you deserve kudos, job well done, 
up to this point. Having said that, we all know the ship is 
very, very difficult to turn, and we are just making that first 
slow turn, but at least now we are making a slow turn to head 
in the right direction.
    So I just want you to know Senator Akaka and I on this 
subcommittee, while we have been bird-dogging this issue, will 
continue to because it is so absolutely critical for the 
warfighter and the taxpayer that we get these systems right. 
Those taxpayer dollars out there--people are talking how do we 
build enough ships, how do we build enough war planes, how do 
we equip our warfighters the right way. If budgets are getting 
tight, with all of the various things that we are going 
through, and the more efficient that the Department of Defense 
can use those tax dollars, the better off that we can all be. A 
lot of the money that we all know right here does not help any 
warfighter. It is just wasted. It is wasted in bureaucratic 
nonsense, and we just need better systems so that we are not 
wasting that kind of money.
    With that as just a quick introduction, let me address a 
few questions. Secretaries Krieg and Jonas, while with the 
Enterprise Transition Plan the scope is limited and has content 
limitations, and under an incremental approach to developing 
the architecture, later versions will add the missing scope and 
content, if you could maybe just address what are the 
Department's plans for achieving full compliance with the 
congressional requirements as laid out in the 2005 defense 
authorization bill?
    Mr. Krieg. I will start. Senator, we decided that the best 
thing to do was to get started.
    Senator Ensign. Also, how long do you think it might take 
to fully comply with the 2005 DOD?
    Mr. Krieg. I do not know if I can answer that question 
because I do not know if I fully understand the implications of 
what complying means, since complying is often in the eyes of 
the beholder.
    But our notion was to begin to lay a framework and a 
structure. We have the overall Enterprise Transition structure 
laid out. You can see how the major services fit inside it. You 
can see how several of the large agencies fit inside it. There 
are more agencies to include, as we go through it. There is 
more depth in the linkages as we go through it. But our plan is 
that every 6 months, we will bring out a new version that will 
continue to add both breadth of content and depth of content. 
We felt that was much better than writing you a note saying 
give us another 6 months and we will come back to you because 
this was the fundamental framework. We saw this as the 
beginning point to begin getting everybody to look at it. So I 
would say it will probably take several 6-month periods to get 
it fully scoped out, to get all of the agencies participating 
so that you can see from 360 degrees.
    But I will also note that it is very interesting. In 
Defense Business Systems Committee meetings, we can now see 
senior managers who see the same program from different places. 
Nordy Swartz at TRANSCOM will tell you he needs Defense 
Enterprise Accounting and Management System (DEAMS), his 
financial management system, in order to build the enterprise 
that he wants. The Comptroller will tell you DEAMS is one of 
the key programs to build a basis to be able to do the kind of 
financial management that she needs. The Air Force will tell 
you we are relying now on Nordy Swartz to begin to build out 
their capability.
    So I think my long answer to your short question is we see 
the framework. It will take us several 6-month periods to build 
it out, but we think the direction is correct.
    Ms. Jonas. As I laid out in my short statement, clearly we 
owe you the FIAR plan which I indicated we will have to you, 
hopefully, next month. We are working on that, working toward 
that. So that is a key piece for us.
    I would just echo that this Defense Business Management 
Council has been a terrific addition to our efforts to get the 
Department on track, and it is really taken as a very serious 
meeting. That has been so beneficial to all of us, and the 
acting Deputy Secretary's leadership on this has been critical.
    I think one of the problems faced by the fellow that had my 
job previously, Dov Zakheim, was that many of the financial 
transactions that we have to have a handle on start in logistic 
systems. They start in systems that are owned by somebody else. 
So it was kind of difficult for us to be pushing the rest of 
the Department. What Ken has outlined for you is a leadership 
that has now come to the view that there is substantial 
business benefit to implementing these systems. It is not just 
for the sake of a clean opinion, and we are seeing improvements 
in that area.
    I agree with you, sir, on your comments with respect to the 
defense budgets. We have to make the best use of every dollar 
that we have. I cannot do that as Comptroller without 
sophisticated financial tools, and I will not have those until 
I can get some of the systems in place that we are trying to 
pursue here.
    Senator Ensign. My time has expired. I just want to make 
one quick comment. It is fairly unrelated to what we are 
talking about today, but it is along the same lines of 
financial accountability and doing the best with the taxpayers' 
dollars. Secretary Krieg, I am going to be asking you to make 
sure that Phil Grone meets with us on an issue that the Federal 
Government really does not do now. It is starting to happen a 
lot more in construction. This has to do with military 
construction.
    The private sector is starting to use more and more the 
idea of construction management and a third party doing 
construction management. There is software and it is all 
accountable. They are web-based programs. There are several 
companies out there right now that produce the software and 
there are companies out there that use that software. There are 
time lines laid out. Who is supposed to deliver what, when, 
where? It would seem to me that all governmental entities could 
benefit from this, but obviously, the DOD with the massive 
amount that we spend on construction every year and perhaps 
even the principles could be transferred over to other areas.
    But the beautiful thing about this is that there is already 
commercially available software out there, and what I would 
like to do is work with the DOD on trying to come up with 
legislative language that would require this type of a third-
party entity to be on all the construction projects because for 
a very small fee, you can hold down the costs tremendously. It 
can all be web-based. Therefore, the accountability is out 
there for all of the public to see.
    So I look forward to working with you. I just wanted to lay 
that out today and let you know that it is an area that we want 
to pursue.
    Senator Akaka.
    Senator Akaka. Thank you very much, Mr. Chairman.
    Secretary Krieg and Secretary Jonas, as I indicated in my 
opening statement, I am pleased by the work of Mr. Brinkley and 
Mr. Modly and what they have done as they took over the 
Department's business systems transformation effort. As I also 
indicated, I remain concerned that the entire effort appears to 
remain dependent on two people.
    My question to you is, what steps have you taken or 
somebody taken there to empower Mr. Brinkley and Mr. Modly to 
ensure that they have the authority that they need to get the 
job done? I am asking that question because in the past this 
concern by people who have been in these positions has been 
they really did not have the authority. So that is my question 
to you. What steps have been taken to give them this kind of 
authority?
    Mr. Krieg. First of all, their authority emanates from the 
Deputy Secretary, from me, and from Tina. We spend a lot of 
time with them and spend a lot of time with their folks going 
through things. So they have a lot of support and a lot of 
backing to do what they do. I think, as you noted, the fact 
that this exists when it did not exist 6 months ago is a 
testament to their ability to use that authority.
    Second, I would note that while the two often do feel, I 
think, that they are a pair of lone rangers out working 
together on hard issues, they will also be the first to tell 
you that there are a lot of people in the Department who are 
seeing this come together and are bringing their capabilities 
and resources together. Part of what we decided we needed to do 
was put the formal structures in, so formal structure of the 
Defense Business Systems Management Committee, formal structure 
of the investment review boards. Tina chairs one. I chair two 
of them. David Chu chairs one. So they are integrated into the 
approach. The creation of the agency was to formalize 
management relationships to continue driving this forward, take 
it out of the ad hoc, move it into the formal structure. So I 
think what you are seeing is the Department in transition to 
institutionalize the approach going forward.
    Ms. Jonas. If I could just add to that, Senator Akaka. I am 
sure Tom and Paul would be the first to admit they have a 
significant team of people behind them. I would love to be able 
to submit the names of the people who have been helping put 
this effort together. It is not just a two-man show. They would 
be the first to admit it because they could not do what they do 
without the additional people. David Fisher and Radha Sekar 
come to mind. I have mentioned Terri McKay.
    But behind Tom, Paul, Terri, and all others are thousands 
of dedicated career financial professionals in our area who are 
committed to this and have been really waiting for the kind of 
leadership we are trying to provide to make the kind of 
progress we are making. I think we have a very proud community 
of financial professionals in the Department, and your interest 
helps us with them. Their morale is hugely boosted when they 
know they are making progress. These are things that frustrate 
them on a day-to-day basis. So lack of proper controls on 
things, wastefulness are all things that pain a lot of people, 
and they are all very encouraged, I think, by the work that, as 
a team, we have all done to try to get to this point. We have 
to carry that through.
    We appreciate the support of Congress on this. This is 
hugely beneficial to us to sort of charge up our work force on 
the need for this.
    Mr. Krieg. Can I note one more thing? Congress gave us the 
authority, I think in the last National Defense Authorization 
Act, to go out and hire highly qualified experts from civilian 
life to come in for a limited term, to bring their skills in. 
We have hired or are in the process of hiring a number of 
people who have real systems integration and real business 
systems development experience and 15-20 years of experience in 
the private sector into the Government under the highly 
qualified expert legislation that you gave us either last year 
or the year before. So that has been extremely helpful.
    Senator Akaka. I am also, as I mentioned in my statement, 
concerned about institutionalizing the process. So my question 
to you, if you want to answer both, what additional steps do 
you think Congress or the Department should take to 
institutionalize the process started by Mr. Brinkley and Mr. 
Modly?
    Ms. Jonas. I think clearly the establishment of the BTA is 
that we are looking for a career professional to ultimately 
direct that. Ken talked about Butch Pair who is coming in as a 
senior military commander to help carry that along. But I think 
really as we make progress, the Department itself, the military 
services will start to see the business benefit, the 
efficiency, and that will continue to drive a lot of change.
    We have focused on a number of things in the financial 
area, and let me just give you a small example because it is a 
good example. When we started out, we were paying interest 
penalties to contractors because we were not paying on time. 
That is just a basic waste of funds, and it also irritated the 
contractors because they were not getting paid on time. We have 
driven that down to next to nothing. It is a savings of just 
under $50 million a year just because we have gotten better at 
that process. That is one small example of what we have been 
able to do.
    But the Department is seeing better the benefit of 
implementing systems and automating. One of the things we did 
on pay recently was we automated some functions which 
eliminated 800,000 manual transactions. That is a lot. It means 
that we can eliminate the lack of timeliness and inaccuracy and 
the rework.
    So with the structure that we have put in place, with your 
help, the help of this committee specifically, and your 
guidance and leadership, we have that in place. We have a 
career professional that we are looking for. We have a career 
military officer in place. I think we are starting to get some 
momentum. We have a plan that can be followed.
    Ken, you might want to add, but I just think that it is the 
momentum and the success and the results of all this that are 
going to be most important to the Department in continuing the 
effort.
    Senator Akaka. Secretary Krieg, would you have an addition?
    Mr. Krieg. The only thing I know is I think you have given 
us plenty of authority. We have authority. We need to 
implement. So I would say the challenge for the next year, 6 
months or a year, is does the performance track against what we 
have laid out, does the second iteration of this in 6 months 
and the iteration behind that begin to show more. I think we 
have the authority. I think you have given us plenty of 
authority. We have to execute it.
    Senator Akaka. Thank you for your response.
    Ms. Jonas. Could I just thank you for one other thing? This 
committee, I believe, provided authority to hire Certified 
Public Accountants (CPAs), and because of that we have been 
able to increase the number of CPAs substantially. We have gone 
from 152 to 203 in the Department under me. So the pride, the 
professionalism is really important to our efforts. So again, 
we thank you for all the things that you have done. You took a 
little bit of a cut against our ability to audit in your mark. 
We hope you would maybe take a look at that. But we appreciate 
all the effort you have made on our behalf. It has made a huge 
difference.
    Senator Akaka. Thank you.
    Mr. Hite. Senator Akaka, if I could add just one point to 
that. Frankly, the legislation that this committee has put 
through has institutionalized most of these processes, most of 
the structures that are in place now. So congratulations on 
doing that.
    The one area that remains is to what extent are these 
Institutional Review Boards (IRBs), these investment review 
boards, and this consistent approach to conducting the business 
of these IRBs going to be adopted by the military services and 
the component defense agencies. I understand the intention is 
that that will occur, but that is a to-be-done.
    Mr. Krieg. Well, can I note that?
    Mr. Hite. Certainly.
    Mr. Krieg. In this last review, the Services and the 
agencies actually reviewed them before they came to the IRB, 
and we are still working on the exact numbers to understand it. 
But something north of 40 systems were scrubbed out at the 
Service and agency level because they said it does not meet the 
requirements of the review. So we put them in the chain of 
command in order to make them responsible, not have this be a 
centrally managed million dollar level review, but put the 
chain of command into it, and then oversee it at the enterprise 
level. As soon as we have it, we will submit to you the exact 
numbers.
    Mr. Hite. I appreciate that comment. That is true. My point 
deals more with using a consistent process throughout the 
component agencies and the military services. I do not doubt 
that reviews were done, and they were done by entities within 
those component organizations. Are we using consistent 
processes, top to bottom, for making these investment decisions 
throughout the Department? That is a to-be-done.
    Senator Akaka. Thank you, Director Hite. Thank you, Mr. 
Chairman.
    Senator Ensign. Thank you.
    We will go to Senator Bayh next, just right after I remind 
Secretary Krieg that I just asked the staff to write down your 
last comment about we have given you plenty authority and now 
you just have to do it. [Laughter.]
    Mr. Krieg. I am sure I will hear that one again, will I 
not? [Laughter.]
    Senator Bayh. Are witnesses allowed to amend and revise? 
[Laughter.]
    I would like to thank all of you for your service. 
Secretary Jonas, my questions are going to be, I think, 
exclusively directed to you and they have to do with the 
Defense Finance and Accounting Service (DFAS) process and the 
allocation of additional jobs in Indianapolis vis-a-vis 
Cleveland, Ohio.
    Lee Krushinski; what role, if any, will he play in making 
these decisions?
    Ms. Jonas. I have not talked to Lee about it. Zack Gaddy is 
the Director of the DFAS. He has been the one that has 
exclusively put forward a base realignment and closure (BRAC) 
plan.
    Senator Bayh. Will he continue to be the one exclusively in 
charge of this?
    Ms. Jonas. Of course, now that the provisions are accepted 
and have been adopted, he will brief me on that plan. I have 
not been briefed on the plan yet.
    Senator Bayh. That did not respond to my question. Will Mr. 
Krushinski play any role in this going forward?
    Ms. Jonas. I will have to talk to Zack about it. I will ask 
him.
    Senator Bayh. So you do not know.
    Ms. Jonas. I will find out, sir, and get back with you on 
that. Zack Gaddy is the Director of DFAS, and so he is the one 
who has laid out the plan.
    Senator Bayh. The reason I ask is Mr. Krushinski is from 
Cleveland, Ohio, which you probably know.
    Ms. Jonas. Actually I did not know that.
    Senator Bayh. He is living there. Some of us would find it 
difficult to believe he could be completely objective if he is 
living in a community and he is making decisions about jobs 
being added or not being added in that community.
    Ms. Jonas. Yes, I understand, sir. We value, by the way----
    Senator Bayh. Again, nothing disparaging about him.
    Ms. Jonas. Sure.
    Senator Bayh. But human nature being what it is, it would 
just be very hard.
    Ms. Jonas. Yes. Sir, the BRAC process is very difficult and 
it is very tough on the various communities. I am committed to 
making sure that, whatever we do, it is objective and fair, and 
I think I may have corresponded with you to make sure that we 
are doing the right thing by all our DFAS employees. We have 
some terrific people, about 2,600 in Indianapolis. We have very 
important things there. I have heard from many of your 
delegation.
    Senator Bayh. We have room for 1,700 more.
    Ms. Jonas. I understand, sir, and it is a wonderful place 
to live. I am from the Midwest also. But I understand your 
concerns.
    Senator Bayh. I have a couple other questions here. I think 
we want the same things which are objectivity, transparency, we 
want what is right for the Department, what is right for the 
taxpayers, and not to allow parochial factors or extraneous 
factors or, God forbid, political factors to get involved in 
these kind of things. As I think we have had a chance to 
express before, we just feel the cost of space, the 
availability of space--there are a lot of objective factors 
that argue in favor of Indiana.
    Ms. Jonas. I understand.
    Senator Bayh. So forgive us if we are zealous in pointing 
some of these things out.
    You would agree that a Congressman's position on Central 
American Free Trade Agreement (CAFTA), for example, is 
something that should have no bearing on DFAS decisions.
    Ms. Jonas. I agree with that, yes.
    Senator Bayh. Rumors circulate around this town from time 
to time about things like that.
    Ms. Jonas. What I can promise you is that we will be fair 
and objective in our analysis. We want to be fair to the 
people. We have wonderful people in DFAS. They have been 
improving, as I mentioned. My deputy chief financial officer 
came from DFAS, Terri McKay, who is behind me. I am very 
committed to this work force. They are a great work force. They 
give great value to the Department. They want to continue to 
improve. As I say, I think the BRAC implementation will be 
difficult. It will be hard on families. It will be hard on 
communities. So we want to make sure that we are doing it 
objectively, fairly, and I am committed to working with you.
    Senator Bayh. I certainly agree with that, and we are both 
in agreement that CAFTA should have no bearing on this. Things 
get mentioned. I just want to make sure that that has not taken 
place. It would probably be above your pay grade anyway.
    Ms. Jonas. I think so.
    Senator Bayh. I just want to make sure that that has not 
happened and will not happen.
    Secretary Jonas, I think your position had been, and 
understandably, that you did not want to meet with the Indiana 
delegation until the process had come to a conclusion, that was 
today. When do you think we will have an opportunity to sit 
down with you and talk about these things?
    Ms. Jonas. I would be happy to come by your office any 
time, sir.
    Senator Bayh. With our complete congressional delegation?
    Ms. Jonas. Absolutely. I would be happy to do that, sir.
    Senator Bayh. I think that is all that I have. But again, I 
hope you will get back to me on Mr. Krushinski's status.
    Ms. Jonas. Certainly, and if there is any concern there at 
all, I will take care of it.
    Senator Bayh. Well, you can understand that.
    Ms. Jonas. Yes, sir, absolutely.
    Senator Bayh. I assume that other places would feel the 
same way if we had somebody from Indianapolis who was----
    Ms. Jonas. Any process has to be perceived as fair, and so 
we are committed to fairness and fairness by the work force and 
the communities that are involved.
    Senator Bayh. Great.
    Ms. Jonas. Thank you, Senator.
    Senator Bayh. Thank you. Thank you all.
    Senator Ensign. I guess this would be a bad time to inform 
Senator Bayh that those DFAS jobs are all moving to Nevada. 
[Laughter.]
    Senator Bayh. Well, we would like to see the criteria, Mr. 
Chairman.
    Senator Ensign. It was all objective.
    I have a question about the BTA for anyone who wants to 
jump in, including Mr. Hite, on this. The BTA, as currently 
structured, does not have complete representation of key 
agencies such as Defense Information Systems Agency (DISA) and 
the Assistant Secretary of Defense for Network and Integration 
Information. Maybe you can just comment. Are you comfortable 
with the lack of representation of such key agencies?
    Mr. Krieg. Those individuals are on the Defense Business 
Systems Management Committee (DBSMC). So both National 
Information Infrastructure (NII) and DISA sit at the table of 
the DBSMC.
    Senator Ensign. Of the?
    Mr. Krieg. Yes. Let me put it in English.
    Senator Ensign. That would be appreciated.
    Mr. Krieg. You all asked us to have a senior management 
group led by the deputy secretary to look at this issue over 
time, and that is the DBSMC. That includes me as vice chair, 
Tina, all of the people, including DISA and NII, meeting 
monthly to oversee the implementation of this. The BTA will do 
the day-to-day management and implementation. It will not have 
somebody from everywhere. It will not be that large, I hope. It 
will be driving the process integrating everybody's activity 
and using the DBSMC as its governance council, if you will, and 
using our authority to get its work done. So it is not meant to 
have everybody in it. I am not trying to make it a little 
inner-agency activity in its own right. It is going to have its 
own authority and its own activity, and it will work on issues 
that pertain to DISA and pertain to the NII.
    Senator Bayh. Obviously, you are comfortable with that.
    Mr. Hite, any comments that you have on it?
    Mr. Hite. Yes, sir. If you look at the way the organization 
of BTA has been set up, there are organizational functions 
there to support different principal staff assistants in the 
Office of the Secretary of Defense like Mr. Krieg. There is not 
one to support the Assistant Secretary of Defense for NII. So 
that is a missing element within their own organization 
structure. That Assistant Secretary, per the legislation, was 
to be a member of the DBSMC. It was to be an approval authority 
for business systems, which it has been designated by the 
Department as being. It was to establish an IRB for those 
systems that it is responsible for, which is largely 
information technology (IT) infrastructure and information 
assurance capabilities. It has not established that IRB, and so 
you see an absence of their playing in this from an IRB 
perspective and from representation by a function within the 
BTA.
    Senator Ensign. Okay, the structure may not be there. What 
is just your own personal opinion or GAO's opinion on this? Why 
do you think that that is not ideal or in the actual 
functioning of the BTA?
    Mr. Hite. Because the business systems that this 
organization is going to be responsible for, whether they be 
enterprise-level systems or component level systems, rely on 
that IT infrastructure, information assurance capabilities to 
execute. They run on the platforms that DISA and the DOD Chief 
Information Officer (CIO) are responsible for putting in place. 
They are an integral part to acquiring and deploying business 
systems. There is a relationship there. There is an absolute, 
necessary relationship there that is not explicit in the BTA 
currently.
    Senator Ensign. Go ahead, Secretary Krieg. I am just asking 
the questions.
    Mr. Krieg. I understand.
    I think what Mr. Hite is referring to--and I will be glad 
to work with him and get back to you with other details, but 
what he is describing is a physical and virtual infrastructure 
that is being built around the Department. Yes, the NII, as the 
CIO, sets standards for how communication will take place 
around that infrastructure. In my mind, as business managers 
and as business systems managers, we are customers of those 
kinds of standards as they come out, and they will participate 
actively in the work we do, and we will participate actively in 
the work they do, both to set up the infrastructure, which is 
obviously what they are in the lead of, and to do the 
information assurance/information protection role that they 
take a lead in.
    So, obviously, whatever systems we put in place, we will 
have to have the information assurance standards of the DOD. 
But I would view we are sort of a customer of their standard-
setting. Now, in this organization all customers participate in 
cross-organizational groups to sort through standards, but the 
CIO of the NII is an active participant in this work and we 
would expect that it will continue to be.
    Mr. Hite. We have wholehearted agreement that they should 
be an active participant in this. The only issue is whether or 
not they are recognized in the proposed structure of the BTA. 
They currently are not. But it seems like we have agreement 
that they should be.
    Senator Ensign. We will look forward to you all working 
together and getting back to us on it. How is that? Okay?
    Senator Akaka, any other questions?
    Senator Akaka. Yes, Mr. Chairman.
    I would like to direct this to Director Hite. In the past, 
the DOD has offered us financial management plans that did, at 
that time, little more than aggregate together programs that 
DOD components already had in progress, with little effort to 
ensure that these programs would address the underlying 
problems in the Department's systems and processes.
    My question is, do you believe that the Department has put 
in the hard work needed to review individual component plans 
and make sure that they are consistent with the DOD 
architecture and will provide the Department with the financial 
and business management information that it needs? Do you 
believe the Department has put in that what I call hard work 
needed?
    Mr. Hite. Two comments on that. With respect to the 
financial management improvement plans that Ms. Jonas 
mentioned--I think she referred to it as the FIAR plans--that 
plan is due out, I believe, in December. So we have not looked 
at it. So we do not have any comments at this time on that 
particular plan.
    But I can tell you, having looked at the architecture and 
the associated transition plan, that there is capability 
designed into the architecture to promote, for example, 
financial management-related data standards and sharing of 
financial management information that is accurate, reliable, 
and timely. That kind of capability is being built into the 
architecture which should drive investments in financial 
systems to move them toward that end. So I do see progress in 
this area based on the latest version of the architecture and 
the transition plan.
    Senator Akaka. What do you think more remains to be done to 
complete that? That is if the Department is doing it right. How 
much more needs to be done?
    Mr. Hite. There are additional steps that probably need to 
be taken around additional description of certain--well, let me 
start over again.
    One of the things, obviously, that needs to be done is 
having the architecture and having the blueprint for putting in 
place financial systems that are going to produce timely, 
accurate, and reliable information. But this is just the 
beginning. The real work is then taking the blueprint and 
translating it into actual, on-the-ground system 
implementations that operate and deliver promised capabilities. 
That is a huge step. That is the last 23 miles of the marathon 
that have to be done. So that is a huge yet-to-be-done. The 
architecture will help provide standards and structure around 
how that will happen.
    Senator Akaka. Secretary Krieg and Secretary Jonas, on BEA, 
GAO's testimony indicates that the latest version of the BEA is 
an improvement over prior versions and--I am quoting--``may 
provide a foundation upon which to build a more complete 
architecture.''
    However, GAO says that this version only partially 
satisfies the requirements of the NDAA for Fiscal Year 2005. 
For example, GAO says that the architecture does not provide 
all of the standardized definitions that are needed. It fails 
to include an as-is environment sufficient to identify 
performance shortfalls, and it is not fully integrated with the 
Enterprise Transformation plan.
    The first question is, do you agree with GAO's assessment 
that the architecture delivered on September 30 does not yet 
fully meet the requirements set forth in the NDAA for Fiscal 
Year 2005?
    Mr. Krieg. I think we asserted, when we sent it, that it 
was not a finally finished product, that we were not done, and 
we would not have any more work to do. Again, I will get back 
to you on the exact compliance because I cannot tell you that I 
know exactly what it means to comply. That being said, I full-
well admit that there is a lot of work left to be done in the 
architecture. But there is a lot of work to be done in 
implementation.
    Let me for a second, though, kind of push back at work on 
the as-is. We spent a long time trying to architect the as-is, 
and we tried to architect the as-is down several levels in the 
architecture. We found it very hard to say how things related 
to each other in the as-is, and we spent a lot of time and 
effort trying to explain how things that did not relate to each 
other related to each other. I think we found that further 
exploration of the as-is to prove that we were not doing well 
was a path we did not want to move down, and that is why we 
moved to this path.
    Now, we will work with GAO to see if there is a common 
ground on the as-is, but I will tell you architecting the as-
is--we spent a lot of money doing that. I am not sure what 
finishing the architecture for the as-is description will 
necessarily add to the other 23 miles of the marathon we have 
to run. So we will work that issue, obviously. They will make 
comments. We will reply to their comments and we will come back 
to you. But that is one concern I have as I look at that 
thought.
    Ms. Jonas. If I might, could I just address one thing? I 
think what we have in place is something that is very important 
to me as Comptroller and one of the concerns, I think, that was 
originally raised by GAO was the amount of investment. What 
systems were we investing in and why? Just as an example--we 
were going to address this a little bit earlier--216 systems 
were identified for certification this year. There were 182 
systems that were certified and approved by the DBSMC, for an 
investment value of $3.2 billion. There were 34 systems that 
were not certified, and we are not allowing funds to be 
obligated per the legislation. So that is very important. There 
were another 290 systems that were identified for phase-out.
    So I am not a technician or a software engineer. I do not 
know all the ins and outs about this Enterprise Architecture 
from a technical point of view, but from an investment point of 
view, I think we are substantially down the road to where we 
need to be to try to control some of the investments, and I 
think that is very important.
    Senator Akaka. Yes. You continue to mention the systems. In 
our discussions before, it was made clear to me that one huge 
problem that you have there is the number of systems.
    Ms. Jonas. Yes, sir.
    Senator Akaka. To try to bring that together is going to be 
very difficult, and you are suggesting that too.
    I just want to add to my questions. What steps are there 
that are left to come about to what we call full compliance 
with the statutory requirements?
    Ms. Jonas. I think the piece that I think we owe you from 
the financial point of view is this FIAR Plan, which is 
integrated with the Enterprise Transition Plan. So everything 
fits together. You have the BEA, which tells you what your as-
is looks like. You have the transition plan that tells you 
where you need to be, and then you have the audit piece that, 
from a financial point of view, tells us how it will all work 
to get us to resolving those 11 material weaknesses. We hope to 
be able to give that to you next month.
    Mr. Hite. Senator Akaka, I think what you are looking for 
here under this incremental approach to developing the 
architecture and transition plan which, by the way, we 
support--it is a best practice. We have recommended it. That is 
the way you approach these things. Frankly, you do it for major 
systems too. You develop them incrementally, but when you 
develop something incrementally, you have a plan that says what 
is the capability, what are the attributes of those increments 
that I am going to deliver by when. So one of the things we 
have looked for, relative to incrementally developing this 
architecture and incrementally developing this transition plan 
is where is that plan that says what these increments are going 
to contain. We have not seen that. That is what you are looking 
for. That is what you want to know in order to see where we are 
going to get to the end here.
    Senator Akaka. Mr. Chairman, what Mr. Hite mentioned is one 
of the concerns about the transition plan. GAO reports that the 
DOD transition plan represents progress and is a foundation 
upon which to build and also indicates that limitations appear 
to exist with respect to investment-specific performance 
outcome measures and metrics that are linked to strategic goals 
and outcomes, current resource estimates, and consistency with 
the architecture.
    I am particularly concerned by GAO's statement that the 
plan does not appear to be based on a capability gap analysis 
that describes capability and performance shortfalls and 
identifies which system investments will address these 
shortfalls.
    Again, do you agree with GAO's assessment that the 
transition plan delivered on September 30 does not yet fully 
meet the requirements set forth in last year's NDAA?
    Mr. Krieg. Senator Akaka, let me do this. Given that I have 
not read, nor has my staff read, the GAO's review of the plan, 
I do not want to try and make it up as we are having a 
conversation. I would like to go back and thoughtfully look at 
what they have said. They have not even delivered us a draft 
report yet to be able to comment on it. So I do not want to try 
to comment on the details of it until we have had a chance to 
go through it, understand what their views are, thoughtfully 
represent it, be able to come back to you and come back to them 
and say, here is what we agree with, here is what we do not 
agree with, here is how we need to resolve this.
    What we have tried to do in the other high-risk areas is to 
sit down and get a mutual understanding between and among the 
OMB, GAO, and DOD as to what we think the right path forward 
is, and I would anticipate we will do the same kind of thing 
here. We had to get this Enterprise Transition Plan down so 
that people would have something to talk about. So we are a 
little bit farther behind in the time scale than some of the 
other high-risk areas, but I would anticipate that is what we 
will do next. So if I may beg your indulgence, let me take 
their work, let us go through it and understand it. We will, 
obviously, be submitting back to GAO, but we will submit back 
to you as well for the record our appraisal of their concerns 
and where we think we need to go. Is that fair?
    Senator Akaka. Secretary Krieg has spoken. [Laughter.]
    Mr. Krieg. It was not that good. [Laughter.]
    Senator Ensign. Just one wrap-up question. Best guess 
estimate. What year will DOD be able to pass full financial 
audits? I want both of you to maybe be on the record on this.
    Ms. Jonas. Actually let me talk to this one. [Laughter.]
    Senator Ensign. The Comptroller has spoken. [Laughter.]
    Ms. Jonas. Wait till you get your budget mark. [Laughter.]
    I think one of the problems with the approach previously 
was that it was schedule-driven. If you look at most 
acquisition programs, one of the larger criticisms you will see 
from GAO is that things are schedule-driven as opposed to 
event-driven. There was great concern about the missile defense 
programs in past years, about them being schedule-driven as 
opposed to event-driven.
    I cannot tell you today when we will be able to get to that 
point. I can tell you that we are closer. I can tell you that I 
hope by 2009 we will have addressed a majority of our assets 
and liabilities issues. I raised today the Medicare Eligible 
Retiree Health Care Fund liabilities. I think we can make 
enormous progress on that. We have a qualified opinion on that, 
but if we can take these steps that I have outlined and will be 
outlined to you and the committee, we will have covered 78 
percent of our liabilities.
    We are working on, as I mentioned, the military valuation 
and other aspects that will allow us to get to 50 percent of 
our assets being clean.
    So we are working on it that way. We will be able to 
provide progress to the committee as we make the incremental 
progress. But I cannot tell you right now. So much of what we 
do and getting at these 11 material weaknesses depend on the 
success of the Department to get at these business systems. If 
it were in my control to be able to do this, we would have done 
it.
    Senator Ensign. That is one of the reasons I wanted 
Secretary Krieg to weigh in as well.
    Ms. Jonas. Okay. We will let him pipe in, but that is what 
I would say.
    Mr. Krieg. I will disappoint you terribly by not giving you 
a date.
    But let me tell you something I see happening because of 
the partnership we have going. I have several defense agencies 
that report to me, and the defense agency managers come in 
talking about getting to an auditable set of books not for the 
sake of the auditable set of books, but because they want to 
have the business management tools to understand what they need 
to do and how they need to make changes. The reason I note that 
is I think that is a culturally important step to take that the 
business owners are now increasingly owning getting to 
financial visibility because they want to run the business, not 
because someone tells them they need to have a clean audit.
    I cannot give you a date, but I think that is a huge change 
in the way senior management is looking at the problem.
    Senator Ensign. I actually would have been disappointed if 
you would have given me a date because it would have been 
wrong, and that would have been the first thing because I do 
not know that there is a way to predict it.
    I think you are exactly right. I think that it is a 
cultural--that the Services and the service chiefs and 
everybody have to buy in that this is not for bean counters, 
that this is not a bean-counting exercise, that this is 
actually practical tools that can actually make them have more 
dollars to do the things that they want to do and also be 
accountable to the taxpayers so everything is out in the open. 
That is the purpose for all of this.
    I am not one of those people that you just have systems in 
place just so you can check things off. That is not the purpose 
for doing this. The purpose for doing this is to ensure that 
our warfighter has the resources that they need and our 
taxpayer feels comfortable that we are using their money in the 
best possible way. That is the purpose for doing these.
    I want thank you. I think it has been a very, very 
productive hearing. We look forward, once again, to working 
with you between now and the next time we do these hearings.
    One last comment. Obviously, you saw the Byrd amendment 
yesterday. We will be following that very closely to find out 
if this continues to have progress. I will fight to make sure 
that you are allowed to go forward, and if not, then we may 
take a different route. But we will look forward to working 
with GAO, as well as the DOD, on that particular issue as we go 
forward.
    So thank you all very much for your excellent testimony.
    The meeting is adjourned.
    [Questions for the record with answers supplied follow:]

             Questions Submitted by Senator Daniel K. Akaka

           REVIEW AND APPROVAL OF BUSINESS SYSTEM INVESTMENTS

    1. Senator Akaka. Secretary Krieg and Secretary Jonas, the 
Department of Defense states that it has adopted a ``tiered 
accountability'' approach to system investment review, certification, 
and approval. Have the Department's military services and defense 
agencies established investment review structures and processes 
consistent with those at the Office of the Secretary of Defense level 
as part of this approach?
    Mr. Krieg. The Department adopted and successfully implemented the 
tiered accountability approach for Business System Investment reviews. 
Under this approach, program managers submit required certification 
documents to their designated pre-certification authority (PCA). For 
programs that are Service specific, the PCA resides in each respective 
Service. The PCA has the responsibility to review the submission on 
behalf of the Service and if they approve the effort, they prepare a 
certification recommendation and forward it to the appropriate Office 
of Secretary of Defense (OSD) level Investment Review Board (IRB). If 
the IRB approves the investment, then the OSD Certification Authority 
refers the investment to the Defense Business Systems Management 
Committee (DBSMC) for final approval.
    Due to the pre-certification requirement mentioned above, Services 
and defense agencies have processes and structures in place to review 
programs before they come forward to an OSD IRB. This allows for 
``tiered'' review by the Service or defense agency before the OSD 
review. The PCA is the individual accountable in the Service or defense 
agency for the decision to submit the package into the OSD review 
process. In some cases, after conducting their own pre-certification 
review, Services or defense agencies have elected not to forward 
systems to OSD because they were duplicative or merited further 
examination of capabilities.
    Ms. Jonas. Yes, in accordance with the Deputy Secretary of Defense 
memorandum dated March 19, 2005, subject: ``Delegation of Authority and 
Direction to Establish an Investment Review Process for Defense 
Business Systems,'' DOD Services and agencies have established PCAs and 
Investment Review processes. PCAs are headquarters-level approval 
authorities who are assigned accountability for business systems 
investments.

    2. Senator Akaka. Secretary Krieg and Secretary Jonas, when will 
this be accomplished?
    Mr. Krieg. In accordance with the Deputy Secretary of Defense 
memorandum dated March 19, 2005, subject: ``Delegation of Authority and 
Direction to Establish an Investment Review Process for Defense 
Business Systems,'' DOD Services and agencies have established PCAs and 
Investment Review processes.
    Ms. Jonas. This has already been accomplished. As of June 2, 2005, 
the DOD has adopted a ``tiered accountability'' approach to investment 
review, certification, and approval as required by the Investment 
Review Concept of Operations (CONOPs). A list of DOD Service and agency 
PCAs is attached.

----------------------------------------------------------------------------------------------------------------
                                                           PCA Name
            Component            ------------------------------------------------------------   Honorific/Title
                                         First          Middle Initial           Last
----------------------------------------------------------------------------------------------------------------
Air Force.......................  William...........  T.................  Hobbins...........  Lieutenant General
Army............................  Gary..............  L.................  Winkler...........  Principal
                                                                                               Director,
                                                                                               Governance,
                                                                                               Acquisition, and
                                                                                               Chief Knowledae
                                                                                               Office
Navy............................  David.............  M.................  Wennergren........  Chief Information
                                                                                               Officer
CPMS............................  Janet.............    ................  Hoffheins.........  Deputy Director,
                                                                                               HR Automated
                                                                                               Systems
DFAS............................  Audrey............    ................  Davis.............  Chief Information
                                                                                               Officer
DISA............................  John..............    ................  Garing............  Director for
                                                                                               Strategic
                                                                                               Planning and
                                                                                               Information
DISA............................  Diann.............    ................  McCoy.............  Component
                                                                                               Acquisition
                                                                                               Executive
DISA............................  Jimaye............    ................  Sones.............  Chief Financial
                                                                                               Executive
DLA.............................  Mae...............    ................  De Vincentis......
FMTT............................  Christine.........    ................  Wenrich...........
MDA.............................  James.............  E.................  Armstrong, Jr.....  Dr./Chief
                                                                                               Information
                                                                                               Officer
TRANSCOM........................  Paul..............  F.................  Capasso...........  Brigadier General
TRANSCOM........................  Virginia..........  L.................  Williamson........  Alternate PCA
                                                                                               (TRANSCOM)
----------------------------------------------------------------------------------------------------------------

                                 ______
                                 
               Questions Submitted by Senator Bill Nelson

                         MISREPRESENTING FUNDS

    3. Senator Bill Nelson. Secretary Jonas, a recent Defense Criminal 
Investigative Service (DCIS) investigation at U.S. Special Operations 
Command (USSOCOM) established that in 2002 the command's budget 
personnel, at the request of the OSD Comptroller's office, 
misrepresented the command's annual budget request by $20 million in 
order to ``hide'' or ``park'' funds that would be used by DOD for 
unspecified purposes later. Statements by DOD and USSOCOM budget 
professionals to DCIS investigators indicated that ``hiding'' or 
``parking'' money in the Department's budget request is a common and 
accepted practice. What is your interpretation of law with respect to 
willfully misrepresenting budget numbers or justification in the annual 
DOD funding request to Congress?
    Ms. Jonas. Federal law makes it unlawful to knowingly and willfully 
submit to Congress information relating to the Department's budget 
request that is materially false. The Department makes every attempt to 
ensure that the information we provide to Congress in connection with 
the budget request is accurate in all respects.

    4. Senator Bill Nelson. Secretary Jonas, what is your 
interpretation of DOD regulation, directive, and policy with respect to 
willfully misrepresenting budget numbers or justification in the annual 
DOD budget estimate submission or program objective memorandum?
    Ms. Jonas. The Department justifies its budget requests in 
accordance with the procedures prescribed by the OMB in OMB Circular A-
11. In addition, the Department has promulgated several directives and 
instructions defining its Planning, Programming, Budgeting, and 
Execution System (PPBES). The Department's internal budget process 
includes numerous reviews at multiple levels to ensure that all budget 
requests are accurate and complete.

    5. Senator Bill Nelson. Secretary Jonas, what specific action are 
you taking to determine the scope of the practice of misrepresenting 
the numbers or justifications in the Department's budget request?
    Ms. Jonas. It is my understanding that the Department of Defense 
Inspector General (DODIG) has reopened its audit regarding the matter. 
Once the DODIG has issued a report and made its recommendations, the 
Department will implement any recommendations resulting from the audit 
that will improve our process.

    6. Senator Bill Nelson. Secretary Jonas, what specific action are 
you taking to uncover and correct instances of misrepresenting numbers 
or justifications under current appropriated programs?
    Ms. Jonas. The DODIG is required to audit and investigate programs 
and activities of DOD organizations. The DODIG is currently looking 
into allegations of inappropriate budget practices at SOCOM. Once the 
DODIG has issued a report and made its recommendations, the Department 
will implement any recommendations resulting from the audit that will 
improve our process.

    7. Senator Bill Nelson. Secretary Jonas, what specific actions are 
you taking to ensure that misrepresenting budget request numbers or 
justifications will not be tolerated in the annual Department budget 
request to Congress?
    Ms. Jonas. The Department's budget justifications are reviewed for 
compliance with OMB Circular No. A-11.
    A review of all budget justifications submitted by the Services and 
DOD agencies is conducted prior to submission to the OMB and Congress.
                                 ______
                                 
                Questions Submitted by Senator Evan Bayh

                 DEFENSE FINANCE AND ACCOUNTING SERVICE

    8. Senator Bayh. Secretary Jonas, please provide details regarding 
the timetable for making final decisions regarding Defense Finance and 
Accounting Service (DFAS) consolidation, for implementing these 
changes, and where this process stands today.
    Ms. Jonas. The draft DFAS Base Realignment and Closure (BRAC) 
Business Plan was submitted to OSD BRAC Office on November 21, 2005, 
for review and comment. If approved, implementation will begin in 
January 2006. However, the availability of BRAC funding will influence 
the final implementation schedule.

    9. Senator Bayh. Secretary Jonas, we know the floors set by the 
BRAC Commission. What is the currently available capacity of each DFAS 
location to go above these floors?
    Ms. Jonas. Capacity exists at Cleveland, Columbus, and Indianapolis 
to meet the floors set by the BRAC Commission. Capacity, without 
construction at Cleveland is 2,262 full time equivalents (FTEs), 
Columbus is 2,930 FTEs, and Indianapolis is 3,800 FTEs. Minor 
renovation projects are needed to meet the mandated floors at Limestone 
of 600 FTEs and at Rome of 1,000 FTEs.

    10. Senator Bayh. Secretary Jonas, what criteria are being used to 
determine the future size and functions of each DFAS location?
    Ms. Jonas. The following criteria were used to determine the 
location and size of functions:

        1. Achieve economies of scale using the existing workforce by 
        aligning work where it is currently being performed.
        2. Ensure backup exists of critical functions to mitigate 
        risks.
        3. Optimize savings opportunities.
        4. The pace of implementation should address high attrition 
        rates.
        5. Meet BRAC 2005 staffing floors at the five sites:

                a. 1,500 FTEs at Cleveland, OH.
                b. 2,064 FTEs at Columbus, OH.
                c. 2,632 FTEs at Indianapolis, IN.
                d. 600 FTEs at Limestone, ME.
                e. 1,000 FTEs at Rome, NY.

    11. Senator Bayh. Secretary Jonas, what data (surveys, etc.) are 
available regarding the preference of DFAS employees for relocation to 
specific sites?
    Ms. Jonas. None. All DFAS employees will be offered the option to 
relocate to a continuing site and will receive Permanent Change of 
Station reimbursement.

    12. Senator Bayh. Secretary Jonas, does the DOD have any 
information on the cumulative impact that loss of experience will have 
on DFAS operations?
    Ms. Jonas. Historically, approximately 10-20 percent of the 
workforce will relocate as workload transitions. To mitigate the impact 
of the loss of experience, DFAS has developed a risk management plan 
that includes mitigation strategies such as advanced hiring, telework, 
workforce augmentation, and parallel operations during migration of 
customer work. These strategies have been successfully used during 
previous workload realignments.

    13. Senator Bayh. Secretary Jonas, are the 800 jobs that Director 
Gaddy has announced for DFAS-Indianapolis new jobs?
    Ms. Jonas. The projected jobs are additional permanent positions.

    14. Senator Bayh. Secretary Jonas, would the 800 new jobs be a 
permanent addition to the existing jobs, would they simply replace jobs 
that may be slated for elimination, or are they expected to be 
eliminated soon after they are added?
    Ms. Jonas. The projected jobs are additional permanent positions.

    [Whereupon, at 3:17 p.m., the subcommittee adjourned.]

                                 
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