[Senate Hearing 109-915]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-915
 
  DEPARTMENT OF DEFENSE BUSINESS SYSTEMS MODERNIZATION AND FINANCIAL 
                   MANAGEMENT ACCOUNTABILITY EFFORTS

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

                                HEARING

                               before the

            SUBCOMMITTEE ON READINESS AND MANAGEMENT SUPPORT

                                 of the

                      COMMITTEE ON ARMED SERVICES
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                           NOVEMBER 16, 2006

                               __________

         Printed for the use of the Committee on Armed Services



                     U.S. GOVERNMENT PRINTING OFFICE
36-059 PDF                 WASHINGTON DC:  2008
---------------------------------------------------------------------
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092104 Mail: Stop IDCC, Washington, DC 20402ï¿½090001


  

                      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)

  




                            C O N T E N T S

                               __________

                    CHRONOLOGICAL LIST OF WITNESSES

  Department of Defense Business Systems Modernization and Financial 
                   Management Accountability Efforts

                           november 16, 2006

                                                                   Page

Walker, Hon. David M., Comptroller General of the United States, 
  United States Government Accountability Office.................     6
Argodale, John, Deputy Assistant Secretary of the Army for 
  Financial Operations...........................................    30
Wennergren, David M., Chief Information Officer, Department of 
  the Navy.......................................................    33
Vonglis, John G., Principal Deputy Assistant Secretary of the Air 
  Force for Financial Management.................................    38

                                 (iii)


  DEPARTMENT OF DEFENSE BUSINESS SYSTEMS MODERNIZATION AND FINANCIAL 
                   MANAGEMENT ACCOUNTABILITY EFFORTS

                              ----------                              


                      THURSDAY, NOVEMBER 16, 2006

                           U.S. Senate,    
                  Subcommittee of Readiness
                            and Management Support,
                               Committee on Armed Services,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:31 a.m. in 
room SR-232A, Russell Senate Office Building. Senator John 
Ensign (chairman of the subcommittee) presiding.
    Committee members present: Senators Ensign, Thune, and 
Akaka.
    Committee staff member present: Leah C. Brewer, nominations 
and hearings clerk.
    Majority staff members present: Ambrose R. Hock, 
professional staff member; Gregory T. Kiley, professional staff 
member; Sandra E. Luff, professional staff member; Derek J. 
Maurer, professional staff member; and Stanley R. O'Connor, 
Jr., professional staff member.
    Minority staff members present: Peter K. Levine, minority 
counsel; and Michael J. McCord, professional staff member.
    Staff assistants present: David G. Collins and Benjamin L. 
Rubin.
    Committee members' assistants present: 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 morning. 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 to have with us 
again today the Comptroller General of the Government 
Accountability Office (GAO), David Walker. He is joined by 
representatives from three military departments: John Argodale, 
representing the Army; David Wennergren, representing the Navy; 
and John Vonglis, representing the Air Force.
    For the past 4 years this subcommittee has called hearings 
every 6 months on the status of business systems modernization 
and financial management reform within the DOD. At those 
hearings we have had very frank, open discussions on the lack 
of progress on business systems modernization and financial 
management accountability throughout the DOD and have discussed 
creating clear, definable milestones to track progress towards 
improving management and oversight. This hearing continues the 
subcommittee's promise to partner with the DOD. Under the able 
leadership of Senator Akaka in the next Congress and with the 
continued support of both of our staffs and especially Peter 
Levine on the Democratic side. I am confident that our record 
of strong and productive oversight will continue.
    I am proud to report that progress has been made over the 
last 4 years. The GAO has issued three consecutive reports 
citing important progress in the DOD's business system 
modernization efforts. The Comptroller General has publicly 
acknowledged the DOD's progress and approach taken to improve 
financial management. The Office of the Secretary of Defense 
(OSD) is reorganized and restructured to better oversee and 
control business systems and financial management.
    In September 2006, the DOD released the latest versions of 
its Enterprise Transition Plan (ETP) and Defense Finance 
Improvement and Audit Readiness Plan. These plans contain 
concrete goals that were met over the past year. DOD's ETP 
states among the most significant change in the past few years 
has been developing a culture of continuous improvement to 
encourage a mindset that says every 6 months things get better.
    While the subcommittee is encouraged by such stated 
progress we remain concerned over the pace and the direction of 
the individual Services' efforts. Each Service has embarked on 
massive Enterprise Resource Programs (ERPs), but with little 
progress or success. The DOD's overall approach may be 
progressing, but whether this translates into success at the 
Service level remains in question.
    Today's hearing is intended to turn the spotlight on the 
individual military departments and their efforts at business 
systems modernization and financial management. We hope to 
discuss how the Services ensure they maintain a culture 
conducive to change. Given OSD's emphasis on tiered 
accountability, we would like to hear how the Services hold 
themselves accountable, what metrics they are using, and what 
visibility those metrics have. If the Services are making 
progress we would like to know why their flagship modernization 
projects are almost universally behind schedule and over cost.
    This committee has written, and Congress has passed, 
several pieces of legislation to improve oversight and control 
over the past 4 years. Two recent examples include, requiring 
certification for new systems to meet DOD's overall ETP and 
more stringent reporting requirements for programs that exceed 
cost or schedule. We would like to hear the Services' thoughts 
on such legislation and any other suggestions that you may 
have.
    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 the 
Comptroller General first, then in order, the Army, Navy, and 
Air Force witnesses. To our witnesses, your whole prepared 
statements will be made part of the record, therefore I urge 
you to keep your oral statements short in order to allow 
sufficient time for questions.
    One last aside, due to scheduling conflicts and the 
subcommittee's desire to focus on the military departments, we 
were unable to accommodate having representatives from the OSD 
here today. However, Paul Brinkley and Tom Modly of the 
Business Transformation Agency (BTA) have provided a statement 
for the record and without objection I will have those inserted 
into the record at this time.
    [The joint prepared statement of Mr. Brinkley and Mr. Modly 
follows:]
    Joint Prepared Statement by Paul A. Brinkley and Thomas B. Modly
    Mr. Chairman, members of the subcommittee, thank you for the 
opportunity to provide information on the progress the Department of 
Defense (DOD) has made in the area of business systems modernization 
and improved financial management.
    Today, we operate in a dynamic national security environment that 
has changed dramatically over the past 5 years--and will continue to 
change. Our business transformation efforts are focused on daily, 
monthly, and annual improvements to the business mission area. This 
transformation is necessary because our current systems and processes 
are simply inadequate for today's challenges, let alone the more 
complex demands and uncertainties of the future. In our efforts, we 
have challenged the DOD to be intolerant of the bureaucratic processes 
that drive inefficiency and waste. We have implored our own staffs to 
embrace a customer focus that recognizes both the warfighter and the 
taxpayer. We are making progress.
    A significant accomplishment of our work to date has been the 
development and deployment of an integrated, transformational business 
architecture. This architecture, the Business Enterprise Architecture 
(BEA), has allowed us to establish clear benchmarks for the alignment 
of business systems to the DOD's future business environment. It has 
also allowed us to make important and measurable progress, as 
acknowledged by recent Government Accountability Office (GAO) reports. 
Additionally, in 2005, we published our Enterprise Transition Plan 
(ETP) to broadly and comprehensively communicate our transformation 
plans, and to provide senior management with a tool for monitoring 
progress against those plans. All significant milestones in the ETP are 
shown in 6, 12, and 18 month increments. The milestones in this plan 
are also integrated with significant milestones in the DOD's Financial 
Improvement and Audit Readiness (FIAR) plan. Specifically, financial 
audit milestones that are dependent upon new systems deployments are 
aligned with the systems milestones in the ETP.
    As we committed to this Congress and to this subcommittee, we have 
updated this plan every 6 months since its initial delivery in 
September 2005. Our most recent publication reflected success on over 
85 percent of the milestones detailed in the first version of the ETP. 
This performance by the DOD was the result of active engagement from 
the DOD's senior leadership--in particular Deputy Secretary of Defense 
Gordon England. We recognize that sustained leadership is important to 
continue meaningful progress and we believe that clear senior level 
governance through oversight bodies such as the Defense Business 
Systems Management Committee (DBSMC) are critical to sustaining the 
momentum of the last several years. The DBSMC has been particularly 
effective through its use of approval authority for systems investments 
that are consistent with the transformed business environment. 
Additionally, the DBSMC meets monthly to discuss, debate, and decide on 
the direction and strategy for business transformation across the 
enterprise, as well as ensuring an active monitoring of the 
implementation key initiatives in the ETP.

                      PROGRESS ACKNOWLEDGED BY GAO

    We have established and maintained a productive engagement with the 
GAO, working jointly to establish criteria and requirements to complete 
actions to close each of the 35 open recommendations that concern the 
DOD's business transformation efforts. To date we have officially 
closed 21 of 35 recommendations. Constructive dialogue continues around 
the remaining open recommendations and we believe that we will close 
these soon. Three consecutive GAO reports have recognized our progress 
and we believe that their feedback and dialogue with us has been very 
valuable. It is our desire to continue to work closely with GAO and 
this subcommittee as our work progresses. We will keep GAO and this 
subcommittee informed as to our plans and priorities regarding both the 
BEA and the ETP with the understanding that both tools will, and must, 
align to senior management direction by DOD. At this point in time, 
that direction requires few modifications to the existing BEA over the 
next 2 years. Our focus, instead, will be on only minor architectural 
refinements. In our view, such work will not require detailed oversight 
of architectural development and workforce planning as recommended by 
GAO. Nonetheless, we continue to value and welcome this subcommittee's 
interest and oversight of our overall business transformation efforts 
as we shift more of our focus away from architecture development and 
toward implementation of improved business systems and capabilities.

                     BUSINESS TRANSFORMATION AGENCY

    Over the past year, DOD has made significant progress in 
establishing focused leadership of business transformation through the 
creation of the Business Transformation Agency (BTA). The BTA 
consolidates the management of enterprise-level business systems and 
provides a single point of accountability for DOD business enterprise 
solutions, standards, and processes. We have taken steps to evaluate 
and rebaseline, where necessary, each enterprise business system 
program to ensure alignment with the overall strategy. This was done to 
ensure that when the DOD decides to deploy an enterprise business 
system that it receives high-level oversight, coordination, and 
attention. The Defense Integrated Military Human Resources System 
(DIMHRS) program is an example of an enterprise system that is now 
under the management of the BTA. Because of its significance to the 
overall management of our forces and their pay, the successful 
deployment of DIMHRS is a high priority for the BTA and our progress is 
monitored on a monthly basis by the DBSMC as chaired by the Deputy 
Secretary of Defense.
    Another priority within the BTA is enterprise integration; which 
involves supporting the integration of enterprise-level business 
capabilities such as Enterprise Resource Planning (ERP) systems, and 
how to implement them across complex organizational boundaries to 
support the joint warfighter. We continue to promote and implement the 
adoption of best practices for the implementation of ERP systems across 
the DOD enterprise and the Services and agencies, via collaborative 
engagement and participation in the acquisition process. Our ability to 
hire highly qualified experts (HQEs) in the BTA has significantly 
contributed to our progress in assuring standardization and mitigating 
the risk associated with such large IT implementations. We appreciate 
Congress' continued support for this special hiring authority. Rapid 
delivery of business capability also includes a responsive, agile 
acquisition process. Currently, the BTA is also engaged in an effort to 
reengineer our acquisition process for business systems in order to 
more closely resemble a private sector ``speed to value'' focus.

                         INVESTMENT MANAGEMENT

    Over the past 2 years, DOD has implemented new procedures to ensure 
that all investments in business systems modernization in excess of $1 
million receive a thorough review to ensure alignment with the BEA. All 
such investments have been approved by the DBSMC before funds were 
obligated in support of the specific modernization. In addition to this 
requirement, DOD has developed a Business Value Added (BVA) framework 
to help measure transformational progress (in terms of business 
outcomes) for the business investments we are making. Examples of these 
measures are: On-Time Customer Request, Cash-to-Cash Cycle Time, 
Payroll Accuracy, etc. Beginning this year, as systems receive their 
annual review and certification of compliance to the BEA, they also 
will be required to articulate (quantitatively and/or qualitatively) 
their respective contributions to specific BVA criteria.

       DEFENSE ENTERPRISE AND COMPONENT BUSINESS INTEROPERABILITY

    As DOD deploys the enterprise-level service delivery applications 
and standards, it has recognized the need for ensuring data 
interoperability both vertically and horizontally within DOD. As a 
result, we have developed the Defense Business Federation Strategy as a 
roadmap to manage business integration and interoperability between and 
among the multiple tiers of the organization. Defense business 
transformation is now focused on enabling components of the DOD 
enterprise to proceed with their mission-oriented transformation 
roadmaps while complying with corporate level enterprise integration 
standards. The federation strategy facilitates this process by 
establishing and coordinating linkages between the enterprise, 
component, and program business architectures. Implementing the 
federation strategy will enable business architectures and transition 
plans at component and program levels to align to the BEA and ETP while 
preserving their autonomy to define the required business capability 
improvements for their unique mission requirements.

   IMPLEMENTING BUSINESS CAPABILITIES: BUSINESS IMPACTS AND OUTCOMES

    As we have successfully built and deployed important tools, 
processes, and governance for managing our business transformation 
efforts, we have also focused on the rapid implementation/delivery of 
improved business capabilities. Some examples are as follows:

         In less than 90 days, successfully fielded a new theater 
        contracting system, established new contracting authority 
        alignment in Iraq, and is currently assessing contingency 
        contracting operations to ensure alignment to economic 
        development objectives in Iraq.
         In 21 days, fielded Integrated Voting Alternative Site 
        (IVAS)--a new tool for military members that provides a Web-
        based voting capability--even when deployed.
         Provided Congress with access to unclassified portions of 
        over 6,000 Selected Acquisition Reports (SARs) that encompass 
        some 89 programs.
         In 90 days, rapidly deployed new Iraq contingency contracting 
        capability that enhance the accuracy, accountability, and 
        visibility of procurement actions in theater.
         Completed the initial military equipment valuations for 
        approximately 1,100 warfighting assets, valued at over $300 
        billion.
         Enacted policies that require enterprise-wide compliance with 
        procedures for managing real property inventory. These policies 
        provide a structure that allows consistent and auditable real 
        property financial information to be collected on newly 
        acquired or upgraded property.
         Established Standard Financial Information Structure (SFIS) 
        which has enabling the creation of a Financial Management 
        Dashboard that provides visibility into the daily status of 
        funds. This has provided DOD the ability to maintain visibility 
        of funds used for both the global war on terror and Katrina 
        operations.

                               CONCLUSION

    Although we are pleased that we are showing progress in our 
business transformation efforts and that this progress has been 
recognized by our oversight bodies, we continue to push DOD to be 
dissatisfied with the current state of its business operations. 
Transformation of an entity the size of the DOD will likely never end, 
but it must be pushed forward by a shared sense of intolerance for the 
status quo. Large private sector organizations are constantly changing, 
adapting, and transforming themselves to adjust to rapidly changing 
commercial markets. DOD should be no different despite the fact that it 
is orders of magnitude greater in size and complexity than any other 
large commercial organization. We appreciate and value the support of 
Congress over the last several years as we have established new 
governance and discipline to our business transformation efforts. We 
are anxious to demonstrate that this support will reap benefits for 
both the taxpayers who fund our efforts and for the warfighters who 
defend this Nation. Mr. Chairman, we thank you and the members of the 
subcommittee for your continued support.

    Senator Ensign. Senator Akaka, I just want to say that this 
will be the last hearing that I will be the chairman of, and I 
look forward to your great leadership, you've been a great 
partner and it really has been, I think, kind of the model that 
your partner, Senator Danny Inouye and Senator Ted Stevens have 
over at the Senate Commerce Committee. They work so well 
together, as well as do our staffs, so I want to just 
compliment you on the great working relationship that we've had 
over the last 4 years and I look forward to continuing that 
relationship.
    Senator Akaka, do you have opening remarks?
    Senator Akaka. Yes, Mr. Chairman, thank you very much.

              STATEMENT OF SENATOR DANIEL K. AKAKA

    Senator Akaka. Mr. Chairman, I also want to say it has been 
a real pleasure to work with you on this subcommittee and our 
relationship has been phenomenal. Working with you has been 
really great and I think together we've accomplished a lot and 
your leadership has certainly been great for our country and 
for this subcommittee as well.
    I just want you to know that we'll certainly follow up on 
many of the things that you did and look forward to continuing 
to serve with you and again I want to thank you so much for 
working so well and doing such a great job here.
    Thank you very much for calling this hearing, Mr. Chairman, 
and for your commitment to oversight of financial management at 
the DOD. This is a subject of vital importance 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.
    Senator Ensign, you have been and have done the taxpayers a 
great service by scheduling these oversight hearings every 6 
months to ensure that the DOD doesn't lose focus on improving 
its financial management systems. I congratulate you on your 
reelection, Mr. Chairman, and look forward, as I said to be 
with you in the next Congress.
    At our last financial management hearing we applauded DOD's 
efforts to establish a new governance structure for business 
transformation, including the Defense Business Systems 
Management Committee (DBSMC), the BTA, and the Investment 
Review Boards (IRBs). Under the able leadership of Paul 
Brinkley and Tom Modly, the DOD has begun the development of a 
comprehensive business enterprise architecture (BEA) and 
transition plan to guide the DOD's business transformation. As 
we pointed out at that time, much work remained to be done. DOD 
still lacks an architecture and transition plan that is needed 
to provide the details in addressing its financial problems. 
Once that architecture transition plan are in place, it will 
take years to implement. I am particularly concerned by GAO's 
finding, that the enterprise architectures of the military 
departments are not mature.
    At this point it appears to me that the military 
departments: one, have not yet followed DOD's lead in 
establishing new government structures to address business 
transformation; two, have not yet developed comprehensive 
enterprise architectures and transition plans that plug into 
DOD's federated architecture in a manner that meets statutory 
requirements; and three, have instead relied on their old 
stovepipe structures to implement piecemeal reforms.
    With these concerns in mind, I thank our witnesses for 
agreeing to testify before this subcommittee and look forward 
to hearing their testimony. Thank you very much Mr. Chairman.
    Senator Ensign. Thank you. We'll start with Mr. Walker. 
Once again, I want to applaud you for work that you do for our 
Nation. I appreciate your being here today.

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

    Mr. Walker. Thank you Chairman Ensign and Senator Akaka. I 
appreciate the opportunity to be back before you. I want to 
congratulate both of you on your reelection and I also want to 
note for the record that this subcommittee was one of the 
shining stars in conducting oversight in this Congress. There 
weren't a whole lot, but this subcommittee was clearly one of 
them, and I want to compliment both of you for your dedication 
to this effort.
    It's a pleasure to be back before you to talk about the 
DOD's progress in connection with overall business 
transformation. As both of you know, the DOD represents 
directly or indirectly 14 of 26 high-risk areas on GAO's high-
risk list. Collectively these high-risk areas span most every 
major business operation within the DOD. DOD's business area 
weaknesses result in reduced efficiencies, ineffective 
performance, and inadequate accountability to Congress, but 
more importantly, billions of dollars are wasted each year that 
otherwise could help increase our readiness and support 
warfighters.
    This is a serious concern at a time of war. It's also a 
serious concern at a time of large and growing structural 
deficits driven largely by known demographic trends and rising 
healthcare costs.
    Nonetheless, I continue to believe that DOD's senior 
leadership is committed to transforming the DOD and, in fact, 
they have taken a number of steps to try to achieve business 
transformation. Indeed as you both know, Secretary Rumsfeld was 
very clear in his speech on September 10, 2001, in which he 
identified business transformation as a top priority under his 
tenure.
    At the same point in time we all know of the tragic events 
of September 11, 2001, just 1 day later, the resulting global 
war on terrorism, including our military operations in Iraq and 
Afghanistan. As a result, while progress has been made, I think 
most people would say, including Secretary Rumsfeld, not as 
much as he would have liked due to circumstances largely beyond 
his control.
    Congress, in part through the leadership of this 
subcommittee, passed legislation that codified many of prior 
recommendations that we made with regard to DOD's business 
systems modernization effort. Since then DOD has devoted 
significant human and financial resources and has made 
important progress in trying to address a number of the 
recommendations that we made.
    Their current approach, both as it relates to business 
system modernization as well as to the financial audit 
approach, are clearly superior to their prior approaches.
    As I've said on many occasions, it is absolutely critical 
that we be successful with regard to this business 
transformation effort. The stakes are too high not to be. I 
believe in order for us to be successful, a number of things 
are going to have to happen, and developing an overall 
strategic and integrated approach, including having persons 
that are responsible and accountable for making sure that key 
actions actually take place on time, within budget, and with 
appropriate quality. We are going to have to take a number of 
other steps in order to maximize the chance of success and 
avoid the kinds of problems that we've experienced in the past.
    The DOD spends about $16 billion a year on systems, and yet 
it has over 3,000 legacy, largely nonintegrated information 
systems that collectively do not provide timely, accurate, and 
useful information to make informed management decisions on a 
day-to-day basis. DOD has embarked upon an effort to deal with 
this, that will take years. I believe that one of the things 
that will be essential for business transformation to be 
successful and sustainable is for the DOD to have a Chief 
Operating Officer (COO) or Chief Management Official (CMO) with 
a proven track record of success who is focused full time on 
the 14 high-risk areas, who would have a term appointment, and 
a performance contract in order to maximize the chance that we 
can be successful. In my view, that's not a panacea, but if we 
don't do it, I doubt that we will be successful. Thank you, Mr. 
Chairman and Senator Akaka.
    [The prepared statement of Mr. Walker follows:]

               Prepared Statement by Hon. David M. Walker

    Mr. Chairman and members of the subcommittee: It is a pleasure to 
be back before this subcommittee to discuss the progress and challenges 
associated with the Department of Defense's (DOD) efforts to transform 
its business operations. Since the first financial statement audit of a 
major DOD component was attempted almost 20 years ago, we have reported 
that weaknesses in business operations not only adversely affect the 
reliability of reported financial data, but also the economy, 
efficiency, and effectiveness of DOD's operations. In fact, DOD 
currently bears responsibility, in whole or in part, for 14 of our 26 
high-risk areas.\1\ Eight of these are specific to DOD and include 
DOD's overall approach to business transformation, business systems 
modernization, financial management, the personnel security clearance 
process, supply chain management, support infrastructure management, 
weapon systems acquisition, and contract management. In addition, DOD 
shares responsibility for six government-wide high-risk areas. 
Collectively, these high-risk areas relate to most of DOD's major 
business operations which directly support the warfighter, including 
how they get paid, the benefits provided to their families, and the 
availability and condition of the equipment they use both on and off 
the battlefield.
---------------------------------------------------------------------------
    \1\ GAO, GAO's High-Risk Program, GAO-06-497T (Washington, DC: Mar. 
15, 2006). DOD shares responsibility for the following six government-
wide high-risk areas: (1) disability programs, (2) interagency 
contracting, (3) information systems and critical infrastructure, (4) 
information-sharing for homeland security, (5) human capital, and (6) 
real property.
---------------------------------------------------------------------------
    DOD's business area weaknesses result in reduced efficiencies, 
ineffective performance, and inadequate accountability to Congress and 
the American people, wasting billions of dollars each year at a time 
when DOD is competing for resources in an increasingly fiscally 
constrained environment. As a result, it is important that DOD get the 
most from every dollar it invests. Our Nation is not only threatened by 
external security threats, but also from within by growing fiscal 
imbalances due primarily to our aging population and rising health care 
costs. These trends are compounded by the near-term deficits arising 
from new discretionary and mandatory spending as well as lower revenues 
as a share of the economy. If left unchecked, these fiscal imbalances 
will ultimately impede economic growth, have an adverse effect on our 
future standard of living, and in due course affect our ability to 
address key national and homeland security needs. These factors create 
the need to make choices that will only become more difficult and 
potentially disruptive the longer they are postponed. Among these 
difficult choices will be decisions about the affordability and 
sustainability of the continued growth in defense spending. 
Furthermore, irrespective of the size of the defense budget, the 
taxpayers and warfighters deserve more effective management of DOD's 
overall resources.
    I continue to believe that DOD's senior leadership is committed to 
transforming the department and DOD has taken a number of positive 
steps to begin this effort. In fact, because of the impact of the 
Department's business operations on its warfighters, DOD recognizes 
now, more than ever, the need to transform its business operations and 
provide transparency in this process. Indeed, Secretary Rumsfeld was 
very clear in his speech on September 10, 2001, when he identified 
business transformation as a top priority. However, DOD's ability to 
focus on this priority was overshadowed by the events of September 11, 
2001, and the ensuing global war on terrorism, including military 
operations in Iraq and Afghanistan. Clearly, these events have required 
considerable emphasis and have become the Department's primary focus. 
As a result, progress on the full range of DOD's business 
transformation challenges has been inconsistent, focusing thus far on 
enterprise-wide transformation, with many challenges remaining 
concerning the transformation of the various military services and 
defense agencies.
    Congress, in part through the leadership of this subcommittee, 
passed legislation that codified many of our prior recommendations 
related to DOD business systems modernization.\2\ Since then, DOD has 
devoted substantial resources and made important progress toward 
establishing key management structures and processes to guide business 
systems investment activities, particularly at the enterprise, or 
department-wide, level. DOD's current approach is clearly superior to 
its prior approach; however, a number of formidable challenges remain.
---------------------------------------------------------------------------
    \2\ Ronald W. Reagan National Defense Authorization Act for Fiscal 
Year 2005, Pub. L. No. 108-375,  332 (2004) (codified in part at 10 
U.S.C.  186 and 2222).
---------------------------------------------------------------------------
    Last year when we testified before this subcommittee, we 
highlighted several of these formidable challenges.\3\ Today, I would 
like to provide my perspectives on actions DOD has taken to address 
these challenges and achieve business transformation through all levels 
of the Department over the past year. Specifically, I will discuss 
DOD's efforts to: (1) develop a comprehensive, integrated, 
enterprisewide business transformation plan and its related leadership 
approach; and (2) comply with legislation that addresses business 
systems modernization and improving financial management 
accountability. I will also discuss two sections of the recently 
enacted John Warner National Defense Authorization Act (NDAA) for 
Fiscal Year 2007 \4\ that address financial improvement and acquisition 
of all major automated information systems, and selected additional DOD 
high-risk areas that highlight the need for continued attention.
---------------------------------------------------------------------------
    \3\ GAO, Defense Management: Foundational Steps Being Taken to 
Manage DOD Business Systems Modernization but Much Remains to be 
Accomplished to Effect True Business Transformation, GAO-06-234T 
(Washington, DC: Nov. 9, 2005).
    \4\ John Warner National Defense Authorization Act for Fiscal Year 
2007, Pub. L. No. 109-364 (2006).
---------------------------------------------------------------------------
    My statement is based in large part on our previous reports and 
some of our current, ongoing efforts. Our work was performed in 
accordance with generally accepted government auditing standards.

                                SUMMARY

    I have stated on many occasions that transforming DOD's business 
operations is an absolute necessity given our Nation's current deficits 
and long-term fiscal outlook. In the past year, DOD has made progress 
in transforming its business operations, but continues to lack a 
comprehensive, enterprisewide approach to planning and decisionmaking 
needed to ensure successful transformation and address systemic 
business challenges. Within DOD, business transformation is broad, 
encompassing people, planning, management, structures, technology, and 
processes in several key business areas. While DOD's planning and 
management continues to evolve, it has yet to develop a comprehensive, 
integrated, enterprisewide plan that covers all key business functions, 
and contains results-oriented goals, measures, and expectations that 
link organizational and individual performance goals, while also being 
clearly linked to DOD's overall investment plans. Because of the 
complexity and long-term nature of business transformation, DOD also 
continues to need a chief management official (CMO) with significant 
authority, experience, and tenure to provide sustained leadership and 
integrate DOD's overall business transformation efforts. Without 
formally designating responsibility and accountability for results, 
reconciling competing priorities and prioritizing investments will be 
difficult and could impede DOD's progress in its transformation 
efforts.
    DOD continues to take steps to comply with legislative requirements 
aimed at improving its business systems modernization and financial 
management; however, much remains to be accomplished before the full 
intent of this legislation is achieved. In particular, DOD recently 
issued updates to both the business enterprise architecture and the 
transition plan, which while addressing several issues previously 
reported by us, are still not sufficiently complete to effectively and 
efficiently guide and constrain business system investments across all 
levels of the Department. Most notably, the architecture does not 
include DOD component architectures, and the plan does not include most 
component business system investments. To address these shortfalls, DOD 
recently issued a strategy for ``federating'' or extending its 
architecture to the military services and defense agencies. In our 
view, much remains to be accomplished before a well-defined federated 
architecture is in place, particularly given that we recently reported 
that the respective military service architecture programs are not 
mature. Nevertheless, DOD components are continuing to invest billions 
of dollars in thousands of new and existing business system programs. 
As we previously stated, the risks associated with investing in systems 
ahead of having a well-defined architecture and accompanying transition 
plan are profound and must be managed carefully, as must the wide 
assortment of other risks that our work has shown to exist on specific 
DOD business system investments. While not a guarantee, our work and 
research has shown that establishing effective system modernization 
management controls, such as an architecture-centric approach to 
investment decisionmaking, can increase the chances of delivering cost-
effective business capabilities on time and within budget. Further, 
with regard to legislation pertaining to its financial management 
improvement, DOD issued its Financial Improvement and Audit Readiness 
Plan and two updates in fiscal year 2006 to provide components with a 
construct for resolving problems affecting the accuracy and timeliness 
of financial information and an improved audit strategy for obtaining 
financial statement audit opinions.
    In addition, you asked for my comments on two sections of the 
recently enacted John Warner NDAA for Fiscal Year 2007.\5\ The first 
provision, section 321, seeks to ensure that the Department pursues 
financial management improvement activities only in accordance with a 
comprehensive financial management improvement plan that coordinates 
these activities with improvements in its systems and controls. I fully 
support the intent of this legislation, which is aimed at directing 
DOD's corrective actions toward achieving sustained improvements in its 
ability to provide timely, reliable, complete, and useful information. 
This is important not only for financial reporting purposes, but also, 
more importantly, for informed decisionmaking and oversight. Section 
321 is consistent with existing legislation, as well as recent actions 
taken by the Department. The second provision, section 816, establishes 
certain reporting and oversight requirements for the acquisition of all 
major automated information systems (MAIS),\6\ which if properly 
implemented could strengthen oversight of and accountability for 
business system acquisitions that fail to meet cost, schedule, or 
performance criteria. Therefore, I also support the purpose of this 
legislation.
---------------------------------------------------------------------------
    \5\ John Warner National Defense Authorization Act for Fiscal Year 
2007, Pub. L. No. 109-364 (2006).
    \6\ The committee originally asked GAO to comment on sec. 804 of 
the Senate bill, S. 2766, which, with some changes, has now been 
enacted as sec. 816.
---------------------------------------------------------------------------
    Ensuring effective transformation of other areas within DOD that we 
have identified as high risk will require continued attention and 
sustained leadership over a number of years to be successful. These 
other high-risk areas include DOD's weapon systems acquisition, 
contract management, supply chain management, personnel security 
clearance program, and support infrastructure management. In the area 
of weapon systems acquisition, recurring problems with cost overruns 
and schedule delays have resulted in a reduction of buying power of the 
defense dollar at a time when the Nation is struggling with a large and 
growing structural deficit. While DOD has made some progress in 
addressing its supply chain management problems, the Department faces 
challenges in successfully implementing its changes and measuring 
progress. While positive steps have been taken to address the financial 
costs, delays, and other risks associated with DOD's personnel security 
clearance program, problems with this program continue. Finally, much 
work remains for DOD to transform its support infrastructure to 
adequately fund and improve operations and achieve efficiencies while 
ensuring that infrastructure costs no longer consume a larger than 
necessary portion of DOD's budget.

                               BACKGROUND

    DOD is one of the largest and most complex organizations in the 
world. Overhauling its business operations will take many years to 
accomplish and represents a huge management challenge. Execution of 
DOD's operations spans a wide range of defense organizations, including 
the military services and their respective major commands and 
functional activities, numerous large defense agencies and field 
activities, and various combatant and joint operational commands that 
are responsible for military operations for specific geographic regions 
or theaters of operation. To support DOD's operations, the Department 
performs an assortment of interrelated and interdependent business 
functions--using more than 3,700 business systems--related to major 
business areas such as weapon systems management, supply chain 
management, procurement, health care management, and financial 
management. The ability of these systems to operate as intended affects 
the lives of our warfighters both on and off the battlefield. For 
fiscal year 2006, Congress appropriated approximately $15.5 billion to 
DOD, and for fiscal year 2007, DOD has requested another $16 billion in 
appropriated funds to operate, maintain, and modernize these business 
systems and associated infrastructure.
    Until DOD can successfully transform its operations, it will 
continue to confront the pervasive, decades-old management problems 
that cut across all of DOD's major business areas. Since our report on 
the financial statement audit of a major DOD component over 16 years 
ago,\7\ we have repeatedly reported that weaknesses in business 
management systems, processes, and internal controls not only adversely 
affect the reliability of reported financial data, but also the 
management of DOD operations. In March 2006,\8\ I testified that DOD's 
financial management deficiencies, taken together, continue to 
represent the single largest obstacle to achieving an unqualified 
opinion on the U.S. Government's consolidated financial statements. 
These issues were also discussed in the latest consolidated financial 
audit report.\9\ To date, none of the military services or major DOD 
components has passed the test of an independent financial audit 
because of pervasive weaknesses in internal control and processes and 
fundamentally flawed business systems.\10\
---------------------------------------------------------------------------
    \7\ GAO, Financial Audit: Air Force Does Not Effectively Account 
for Billions of Dollars of Resources, GAO/AFMD-90-23 (Washington, DC: 
Feb. 23, 1990).
    \8\ GAO, Fiscal Year 2005 U.S. Government Financial Statements: 
Sustained Improvement in Federal Financial Management Is Crucial to 
Addressing Our Nation's Financial Condition and Long-term Fiscal 
Imbalance, GAO-06-406T (Washington, DC: Mar. 1, 2006).
    \9\ Department of the Treasury, 2005 Financial Report of the United 
States Government (Washington, DC: Dec. 15, 2005).
    \10\ Although not major DOD components, the Military Retirement 
Fund received an unqualified audit opinion on its fiscal year 2005 
financial statements, and the DOD Medicare Eligible Retiree Health Care 
Fund received a qualified audit opinion on its fiscal year 2005 
financial statements.
---------------------------------------------------------------------------
    DOD's financial management problems are pervasive, complex, 
longstanding, deeply rooted in virtually all of its business 
operations, and challenging to resolve. The nature and severity of 
DOD's financial management business operations and system deficiencies 
not only affect financial reporting, but also impede the ability of DOD 
managers to receive the full range of information needed to effectively 
manage day-to-day operations. Such weaknesses have adversely affected 
the ability of DOD to control costs, ensure basic accountability, 
anticipate future costs and claims on the budget, measure performance, 
maintain funds control, prevent fraud, and address pressing management 
issues, including supporting warfighters and their families.
    Transformation of DOD's business systems and operations is key to 
improving the Department's ability to provide DOD management and 
Congress with accurate, timely, reliable, and useful information for 
analysis, oversight, and decisionmaking. This effort is an essential 
part of the Secretary of Defense's broad initiative to ``transform the 
way the Department works and what it works on.'' The savings resulting 
from an effective business transformation effort could be significant.

      DOD LACKS A FULLY DEVELOPED, COMPREHENSIVE, INTEGRATED, AND 
   ENTERPRISEWIDE APPROACH TO DECISIONMAKING AND SUSTAINED LEADERSHIP

    I would like to take a few minutes to briefly discuss two critical 
elements that are still needed at DOD to ensure successful and 
sustainable business transformation before turning to DOD's business 
modernization and financial management accountability improvement 
efforts. First, DOD needs a comprehensive, integrated, and 
enterprisewide plan to guide its overall business transformation 
efforts. Second, a CMO with the right skills and at the right level of 
the Department is essential for providing the leadership continuity 
needed to sustain the momentum for business transformation efforts 
across administrations and ensure successful implementation.
Comprehensive, Integrated, and Enterprisewide Business Transformation 
        Plan Not Fully Developed
    DOD has not fully developed a comprehensive, integrated, and 
enterprisewide strategy or action plan for managing its overall 
business transformation effort. The lack of a comprehensive, 
integrated, and enterprise-wide action plan linked with performance 
goals, objectives, and rewards has been a continuing weakness in DOD's 
overall business transformation efforts that I have been testifying on 
for years.\11\ I recognize that DOD's efforts to plan and organize 
itself to achieve business transformation are continuing to evolve. 
However, I cannot emphasize enough how critical to the success of these 
efforts are top management attention and structures that focus on 
transformation from a broad perspective and a clear, comprehensive, 
integrated, and enterprisewide plan that, at a summary level, addresses 
all of the Department's major business operations. This plan should 
cover all of DOD's key business functions; contain results-oriented 
goals, measures, and expectations that link institutional, unit, and 
individual performance goals and expectations to promote 
accountability; identify people with needed skills, knowledge, 
experience, responsibility, and authority to implement the plan; and 
establish an effective process and related tools for implementation and 
oversight. Such an integrated business transformation plan would be 
instrumental in establishing investment priorities and guiding the 
Department's key resource decisions.
---------------------------------------------------------------------------
    \11\ See for example, GAO, Department of Defense: Sustained 
Leadership is Critical to Effective Financial and Business Management 
Transformation, GAO-06-1006T (Washington, DC: Aug. 3, 2006); DOD's 
High-Risk Areas: Successful Business Transformation Requires Sound 
Strategic Planning and Sustained Leadership, GAO-05-520T (Washington, 
DC: Apr. 13, 2005); and DOD Financial Management: Integrated Approach, 
Accountability, Transparency, and Incentives Are Keys to Effective 
Reform, GAO-02-497T (Washington, DC: Mar. 6, 2002).
---------------------------------------------------------------------------
    While DOD has developed plans that address aspects of business 
transformation at different organizational levels, these plans have not 
been clearly aligned into a comprehensive, integrated, and 
enterprisewide approach to business transformation. As I will shortly 
discuss in more detail, DOD recently issued an enterprise transition 
plan (ETP) that is to serve as a road map and management tool for 
sequencing business system investments in the areas of personnel, 
logistics, real property, acquisition, purchasing, and financial 
management. As Business Transformation Agency (BTA) officials 
acknowledge, the ETP does not contain all of the components of a 
comprehensive and integrated enterprisewide transformation plan as we 
envision. BTA officials stated that, while the ETP is integrated with 
the Financial Improvement and Audit Readiness Plan,\12\ the ETP is not 
as integrated with other enterprisewide, high-risk area improvement 
plans, such as the Supply Chain Plan.\13\ However, BTA officials 
consider the ETP to be an evolving plan and are currently analyzing 
other enterprisewide plans aimed at improving and transforming DOD's 
business operations in order to improve the degree of alignment between 
those plans and the ETP. Finally, BTA officials indicate that the 
Department is moving toward a family of linked plans that could be used 
to guide and monitor business transformation, rather than one 
comprehensive plan that addresses all aspects of DOD's business 
operations.
---------------------------------------------------------------------------
    \12\ U.S. Department of Defense, Defense Financial Improvement and 
Audit Readiness Plan (Washington, DC: Sept. 30, 2006).
    \13\ U.S Department of Defense, DOD Plan for Improvement in the GAO 
High Risk Area of Supply Chain Management with a Focus on Inventory 
Management and Distribution, (Washington, DC: September 2006).
---------------------------------------------------------------------------
    To develop a family of linked plans, the ETP would also need to be 
aligned with the high-level Quadrennial Defense Review (QDR) strategic 
plan and its initiatives, which so far is not the case. For example, 
the QDR highlights the need for transforming the way the Department 
works and what it works on, but it does not contain supporting details 
such as key metrics, milestones, and mechanisms to guide and direct the 
business transformation effort. Moreover, the QDR's business 
transformation initiative, the Institutional Reform and Governance 
project, is not clearly aligned with the ETP. This initiative is 
intended to: (1) establish a common and authoritative analytical 
framework to link strategic decisions to execution, (2) integrate core 
decision processes, (3) and align and focus the Department's governance 
and management functions under an integrated enterprise model. Finally, 
the QDR and other DOD planning documents do not address the ongoing gap 
between wants, needs, affordability, and sustainability in what is 
likely to be a resource-constrained environment.
Sustained Leadership Is Needed
    While DOD has established leadership and oversight mechanisms to 
address transformation, DOD lacks the sustained leadership at the right 
level needed to achieve successful and lasting transformation. Due to 
the complexity and long-term nature of DOD's business transformation 
efforts, we continue to believe DOD needs a CMO to provide sustained 
leadership and maintain momentum. Without formally designating 
responsibility and accountability for results, choosing among competing 
demands for scarce resources and resolving differences in priorities 
among various DOD organizations will be difficult and could impede 
DOD's ability to transform in an efficient, effective, and reasonably 
timely manner. In addition, it may be particularly difficult for DOD to 
sustain transformation progress when key personnel changes occur. This 
position would elevate, integrate, and institutionalize the attention 
essential for addressing key stewardship responsibilities, such as 
strategic planning, enterprise architecture development and 
implementation, information technology management, and financial 
management, while facilitating the overall business management 
transformation effort within DOD.
    I would also like to articulate what this position would not do. 
The CMO would not be another layer in DOD's day-to-day management 
structure. Specifically, the CMO would not assume the responsibilities 
of the under secretaries of defense, the service secretaries, or other 
DOD officials for the day-to-day management of the Department, nor 
would the CMO supervise those officials in connection with their 
ongoing responsibilities. Instead, the CMO would be responsible and 
accountable for planning, integrating, and executing the overall 
business transformation effort. The CMO also would develop and 
implement a strategic plan for the overall business transformation 
effort. As required by Congress, DOD is studying the feasibility and 
advisability of establishing a CMO to oversee the Department's business 
transformation process. As part of this effort, the Defense Business 
Board, an advisory panel, examined various options and, in May 2006, 
endorsed this concept. The Institute for Defense Analyses is scheduled 
to issue a report on this issue before the end of this year. In 
addition, McKinsey and Company recently endorsed the CMO concept.
    The Secretary of Defense, Deputy Secretary of Defense, and other 
senior leaders have clearly shown a commitment to business 
transformation and addressing deficiencies in the Department's business 
operations. During the past year, DOD has taken additional steps to 
address certain provisions and requirements of the Ronald W. Reagan 
NDAA for Fiscal Year 2005, including establishing the Defense Business 
Systems Management Committee (DBSMC), which is intended to be DOD's 
primary transformation leadership and oversight mechanism, and creating 
the BTA to support the DBSMC, a decisionmaking body. However, these 
organizations do not provide the sustained leadership needed to 
successfully achieve the needed overall business transformation. The 
DBSMC's representatives consist of political appointees whose terms 
expire when administrations change.
    Furthermore, it is important to remember that committees do not 
lead, people do. Thus, DOD still needs to designate a person to provide 
sustained leadership and have overall responsibility and accountability 
for this effort. In addition, we testified in November 2005 \14\ that 
DOD's BTA offers potential benefits relative to the Department's 
business systems modernization efforts if the agency can be properly 
organized, given resources, and empowered to effectively execute its 
roles and responsibilities and is held accountable for doing so. 
However, the Department has faced challenges in making the BTA 
operational. For example, we previously testified that there are 
numerous key acquisition functions that would need to be established 
and made operational for the BTA to effectively assume responsibility 
for 21 DOD-wide projects, programs, systems, and initiatives, and our 
experience across the government shows that these functions can take 
considerable time to establish.\15\
---------------------------------------------------------------------------
    \14\ GAO, Defense Management: Foundational Steps Being Taken to 
Manage DOD Business Systems Modernization, but Much Remains to be 
Accomplished to Effect True Business Transformation, GAO-06-234T 
(Washington, DC: Nov. 9, 2005).
    \15\ According to DOD, 21 systems and initiatives have been 
transferred under the BTA as of Oct. 31, 2006.
---------------------------------------------------------------------------
    To assist the Department, the NDAA for Fiscal Year 2004 gives DOD 
the authority to hire up to 2,500 highly-qualified experts from outside 
the civil service and uniformed services without going through the 
normal civil service hiring system.\16\ Earlier this year, the BTA had 
yet to take advantage of this authority because of certain departmental 
obstacles concerning, for example, the roles that these experts could 
perform. However, it is our understanding that this is no longer the 
case, and to date the BTA has hired nine of these individuals. 
Moreover, we were told that the BTA has also obtained direct hiring 
authority from the Office of Personnel Management (OPM). The BTA's 
total projected end strength is 235 personnel. As of November 2006, the 
BTA had hired 128 personnel; agency officials anticipate hiring the 
remaining 107 personnel, including 16 additional highly-qualified 
subject experts by September 30, 2007.
---------------------------------------------------------------------------
    \16\ National Defense Authorization Act for Fiscal Year 2004, Pub. 
L. No. 108-136,  1101 (2003) (codified in part at 10 U.S.C.  9903).
---------------------------------------------------------------------------
    While achieving the BTA's initial staffing goals would represent a 
major accomplishment and is extremely important to its ability to 
perform its business transformation and business systems modernization 
roles and responsibilities, BTA human capital management is not a one-
time event but rather an essential BTA function that needs to be 
managed strategically. Our research shows that to be successful, 
organizations need to treat human capital as strategic assets--
continuously working to understand gaps between future needs and on-
board capabilities and establish plans for filling gaps through a 
combination of, for example, training, retention incentives, hiring, 
and performance-related rewards. By employing such an approach, the BTA 
can be better positioned to make sure that it has the right people, 
with the right skills, when it needs them not only today but in the 
future. The Deputy Under Secretary of Defense for Financial Management 
stated that the BTA is currently developing a human capital strategy 
that is expected to be completed by January 2007. It will: (1) provide 
for rotating staff between BTA and the DOD components to infuse talent 
into the BTA and to develop a change-oriented culture, (2) align 
individual and team performance to already established organizational 
mission outcomes, and (3) employ OPM's Human Capital Assessment and 
Accountability Framework and the DOD Human Capital Strategy.

DOD HAS MADE PROGRESS IN COMPLYING WITH BUSINESS SYSTEMS MODERNIZATION 
  AND FINANCIAL MANAGEMENT ACCOUNTABILITY LEGISLATION, BUT MUCH WORK 
                                REMAINS

    DOD has made important progress in complying with legislation 
pertaining to its financial management improvement and business systems 
modernization efforts. However, formidable challenges remain relative 
to extending the architecture and implementing its tiered 
accountability investment approach across the military services and 
defense agencies, and ensuring that DOD's thousands of business system 
investments are implemented on time and within budget and provide 
promised capabilities and benefits. The NDAA for Fiscal Year 2005 
contained provisions aimed at establishing some of the tools needed to 
accomplish this. As our evaluations of Federal information technology 
(IT) management and our research of successful organizations show, 
other tools necessary for successfully modernizing systems will also be 
needed.
    As we reported earlier this year,\17\ DOD also made important 
progress in complying with the NDAA for Fiscal Year 2005 pertaining to 
its business systems modernization. For example, on March 15, 2006, DOD 
released updates to its business enterprise architecture (Version 3.1) 
and its ETP. These updates added previously missing content to the 
architecture and transition plan, such as identifying an enterprisewide 
data standard to support financial management and reporting 
requirements. Other business system modernization management 
improvements were also apparent, such as increased budgetary reporting 
of business system investments and additional investment review 
controls.
---------------------------------------------------------------------------
    \17\ GAO-06-406T and GAO, Business Systems Modernization: DOD 
Continues to Improve Institutional Approach, but Further Steps Needed, 
GAO-06-658 (Washington, DC: May 15, 2006).
---------------------------------------------------------------------------
    More recently, DOD issued Version 4.0 of its business enterprise 
architecture and ETP. These latest versions provide additional content 
and clarity. For example, the transition plan now includes the results 
of ongoing analyses of gaps between existing business capabilities and 
needed capabilities. However, enormous challenges, such as extending 
the architecture across the military services and defense agencies, 
remain. To this end, the Department defined a conceptual strategy in 
September 2006, for federating the architecture \18\ and adopting a 
shared services orientation.\19\ While we believe that the concepts 
have merit and are applicable to DOD, much remains to be decided and 
accomplished before they can be implemented in a way to produce 
architectures and transition plans for each DOD component that are 
aligned with the Department's corporate view and that can guide and 
constrain component-specific investments.
---------------------------------------------------------------------------
    \18\ A federated architecture is an architecture that is composed 
of a set of coherent, but distinct, entity architectures. The entities 
or members of the federation collaborate to develop an integrated 
enterprise architecture that conforms to the enterprise view and to the 
overarching rules of the federation.
    \19\ A service-oriented architecture is an approach for sharing 
functions and applications across an organization by designing them as 
discrete, reusable, business-oriented services. These services need to 
be, among other things, (1) self-contained, meaning that they do not 
depend on any other functions or applications to execute a discrete 
unit of work; (2) published and exposed as self-describing business 
capabilities that can be accessed and used; and (3) subscribed to via 
well-defined and standardized interfaces instead of unique, tightly 
coupled connections. Such a service orientation is thus not only 
intended to promote the reduced redundancy and increased integration 
that any architectural approach is designed to achieve, but to also 
provide the kind of flexibility needed to support a quicker response to 
changing and evolving business requirements and emerging conditions.
---------------------------------------------------------------------------
    At the same time, DOD components continue to invest billions of 
dollars in new and existing business systems each year. This means that 
the risks of investing in these programs ahead of the federated 
architecture need to be part of investment approval decisions. As we 
have previously reported,\20\ investment decisionmaking based on 
architecture alignment is but one of many keys to success of any 
business system modernization. Other keys to the success in delivering 
promised system capabilities and benefits on time and within budget 
include having the right human capital team in place and following a 
range of essential program management and system and software 
acquisition disciplines. As I will discuss later, our experience in 
reviewing several DOD business system programs shows that these keys to 
success are not consistently practiced. While not a guarantee, our 
research of leading program management and system acquisition practices 
and evaluations of Federal agencies shows that institutionalization of 
a family of well-defined management controls can go a long way in 
minimizing business system modernization risks.
---------------------------------------------------------------------------
    \20\ GAO, DOD Systems Modernization: Planned Investment in the Navy 
Tactical Command Support System Needs to be Reassessed, GAO-06-215 
(Washington, DC: Dec. 5, 2005) and DOD Systems Modernization: Uncertain 
Joint Use and Marginal Expected Value of Military Asset Deployment 
System Warrant Reassessment of Planned Investment, GAO-06-171 
(Washington, DC: Dec. 15, 2005).
---------------------------------------------------------------------------
DOD Continues to Evolve Its Business Enterprise Architecture, but Much 
        Remains to Be Accomplished
    In May 2006,\21\ we reported on DOD's efforts to address a number 
of provisions in the NDAA for Fiscal Year 2005.\22\ Among other things, 
we stated that the Department had adopted an incremental strategy for 
developing and implementing its architecture, which was consistent with 
our prior recommendation and a best practice. We further stated that 
DOD had addressed a number of the limitations in prior versions of its 
architecture. For example, we reported that Version 3.1 of the 
architecture had much of the information needed, if properly 
implemented, to achieve compliance with the Department of the 
Treasury's United States Standard General Ledger,\23\ such as the data 
elements or attributes that are needed to facilitate information 
sharing and reconciliation with the Treasury. In addition, we stated 
that the architecture continued to specify DOD's Standard Financial 
Information Structure (SFIS) \24\ as an enterprisewide data standard 
for categorizing financial information to support financial management 
and reporting functions.
---------------------------------------------------------------------------
    \21\ GAO-06-658.
    \22\ Ronald W. Reagan National Defense Authorization Act for Fiscal 
Year 2005, Pub. L. No. 108-375,  332 (2004) (codified in part at 10 
U.S.C.  2222).
    \23\ The United States Standard General Ledger provides a uniform 
chart of accounts and technical guidance used in standardizing Federal 
agency accounting.
    \24\ SFIS is the Department's common financial business language.
---------------------------------------------------------------------------
    Despite this progress, we also reported \25\ that this version of 
the architecture did not comply with all of the legislative 
requirements \26\ and related best practices. For example, while 
program officials stated that analyses of the current architectural 
environment for several of the enterprise-level systems had occurred, 
the architecture did not contain a description of, or a reference to, 
the results of these analyses. The architecture also did not include a 
systems standards profile to support implementation of data sharing 
among departmentwide business systems and interoperability with 
departmentwide IT infrastructure. Program officials acknowledged that 
the architecture did not include this profile and stated that they were 
working with the Assistant Secretary of Defense (Networks and 
Information Integration) and Chief Information Officer to address this 
in future versions. We also reported that the architecture was not, for 
example, adequately linked to the military service and defense agency 
component architectures and transition plans, which we said was 
particularly important given the Department's stated intention to adopt 
a federated approach to developing and implementing the architecture.
---------------------------------------------------------------------------
    \25\ GAO-06-658.
    \26\ 10 U.S.C.  2222(d).
---------------------------------------------------------------------------
    In September 2006, DOD released version 4.0 of its architecture, 
which according to the Department, resolves several of the architecture 
gaps that were identified with the prior version. One example of a gap 
that DOD reports Version 4.0 is beginning to fill is the definition of 
a key business process area missing from prior versions--the planning, 
programming, and budgeting process area. In this regard, according to 
DOD, the architecture now includes departmental and other Federal 
planning, programming, and budgeting guidance (e.g., OMB Circular A-11) 
and some high-level activities associated with this process area. In 
addition, DOD reports that version 4.0 has restructured the business 
process models to reduce data redundancy and ensure adherence to 
process modeling standards (e.g., eliminated numerous process modeling 
standards violations and stand-alone process steps with no linkages). 
Despite these improvements, this version is still missing, for example, 
a depiction of the current environment (i.e., baseline of its current 
assets and current capabilities) that was analyzed against its target 
environment to identify capability gaps that the ETP is to address. 
Further, it does not include DOD component architectures (e.g., 
services and various DOD agencies) as distinct yet coherent members of 
a federated DOD business enterprise architecture.
DOD Plans to Federate Its Business Enterprise Architecture to the 
        Components
    Recognizing the need to address component architectures, DOD 
released its business mission area federation strategy and roadmap in 
September 2006, which is intended to define how DOD will extend its 
business enterprise architecture across the military services and 
defense agencies. According to DOD, the strategy will provide for 
standardization across the federation of architectures by, for example, 
introducing a consistent set of standards for determining the status 
and quality of the member (component and program) architectures, a 
standard methodology for linking member architectures to the 
overarching corporate architecture, the capability to search member 
architectures, and a common method to reuse capabilities described by 
these architectures.
    In the end, the strategy is intended to link related business 
mission area services or capabilities in the various architectures by 
establishing a set of configuration standards for architecture 
repositories. Further, the strategy is also intended to support the 
development of the interoperable execution of enterprise and component 
systems by defining and disclosing common services that can be shared 
and reused by these systems. (See fig. 1 for a simplified and 
illustrative conceptual depiction of DOD's federated business 
enterprise architecture.)
      
    
    
      
    The importance of extending the DOD business enterprise 
architecture to the military services is underscored by our recent 
findings about the military services' management of their respective 
enterprise architecture programs.\27\ Specifically, in August 2006, we 
released an assessment of Federal agency enterprise architecture 
programs' satisfaction of the elements in our Enterprise Architecture 
Management Maturity Framework (EAMMF).\28\ Our EAMMF is a 5-stage 
architecture framework for managing the development, maintenance, and 
implementation of an architecture and understanding the extent to which 
effective architecture management practices are being performed and 
where an organization is in its progression toward having a well-
managed architecture program. In short, the framework consists of 31 
core elements that relate to architecture governance, content, use, and 
measurement.\29\ These elements reflect research by us and others 
showing that architecture programs should be founded upon institutional 
architecture commitment and capabilities, and measured and verified 
products and results.
---------------------------------------------------------------------------
    \27\ GAO, Enterprise Architecture: Leadership Remains Key to 
Establishing and Leveraging Architectures for Organizational 
Transformation, GAO-06-831 (Washington, DC: August 2006).
    \28\ GAO-06-831.
    \29\ GAO, Information Technology: A Framework for Assessing and 
Improving Enterprise Architecture Management (Version 1.1), GAO-03-584G 
(Washington, DC: April 2003).
---------------------------------------------------------------------------
    With respect to the maturity of the military services' respective 
enterprise architecture programs, we found that the departments of the 
Air Force, the Army, and the Navy had not satisfied about 29, 55, and 
29 percent of the core elements in our framework, respectively. In 
addition, the Army had only fully satisfied 1 of the 31 core elements 
(3 percent). (See table 1 for the number and percentage of elements 
fully, partially, and not satisfied by each of the military Services).

    TABLE 1: NUMBER AND PERCENTAGE OF FRAMEWORK ELEMENTS FULLY, PARTIALLY, AND NOT SATISFIED BY THE MILITARY
                                                    SERVICES
----------------------------------------------------------------------------------------------------------------
                                                                       Fully         Partially
                        Military Services                            satisfied       satisfied     Not satisfied
                                                                   (percentage)    (percentage)    (percentage)
----------------------------------------------------------------------------------------------------------------
Air Force.......................................................         14 (45)          8 (26)          9 (29)
Army............................................................          1 (03)         13 (42)         17 (55)
Navy............................................................         10 (32)         12 (39)         9 (29)
----------------------------------------------------------------------------------------------------------------
Source: GAO.

    By comparison, the other major Federal departments and agencies 
that we reviewed had as a whole fully satisfied about 67 percent of the 
framework's core elements. Among the key elements that all three 
Services had not fully satisfied were developing architecture products 
that describe their respective target architectural environments and 
developing transition plans for migrating to a target environment, in 
addition to the following.

         The Air Force, for example, had not yet placed its 
        architecture products under configuration management to ensure 
        the integrity and consistency of these products and was not 
        measuring and reporting on the quality of these products.
         The Army, for example, had yet to develop effective 
        architecture development plans and had not developed 
        architecture products that fully described its current 
        architectural environment.
         The Navy, for example, had yet to describe its current 
        architectural environment in terms of performance and had not 
        explicitly addressed security in its architecture descriptions.

    Further, while the Services had partially satisfied between 8 and 
13 core elements in our framework, it is important to note that even 
though certain core elements are partially satisfied, fully satisfying 
some of them will not be accomplished quickly and easily. It is also 
important to note the importance of fully, rather than partially, 
satisfying certain elements, such as those that address architecture 
content, which can have important implications for the quality of an 
architecture and thus its usability and results.
    To assist the military services in addressing enterprise 
architecture challenges and managing their architecture programs, we 
recommended that the Services develop and implement plans for fully 
satisfying each of the conditions in our framework. The Department 
generally agreed with our findings and recommendations and stated that 
it plans to use our framework as one of the benchmark best practices as 
DOD components continuously work to improve enterprise architecture 
management maturity.
    Clearly, much remains to be accomplished to implement the federated 
strategy and create DOD's federated business enterprise architecture. 
One key to making this happen, which we have previously 
recommended,\30\ is having a business enterprise architecture 
development management plan that defines what will be done, when, by 
whom, and how it will be done to fully develop the architecture. Having 
and using such a plan is provided for in our EAMMF. Without one, the 
Department is less likely to effectively accomplish its intended 
architecture evolution, extension, and improvement efforts. According 
to BTA officials, they are in the process of addressing this 
recommendation. We currently have ongoing work for this committee and 
others looking at, among other things, how the Department plans to 
implement the federated strategy and the challenges that it faces in 
doing so.
---------------------------------------------------------------------------
    \30\ GAO-06-658.
---------------------------------------------------------------------------
DOD Continues to Improve Its Enterprise Transition Plan, but Needed 
        Improvements Remain
    DOD has taken a number of steps to improve its ETP and address some 
of the missing elements that we previously identified \31\ relative to 
the NDAA for Fiscal Year 2005's requirements and related transition 
planning guidance. For example, in May 2006, we reported that the 
transition plan included an initiative aimed at identifying capability 
gaps between the current and target architectural environments, and 
provided information on progress on major investments--including key 
accomplishments and milestones attained, and more information about the 
termination of legacy systems. However, we reported that it still did 
not identify, among other things, all legacy systems that will not be 
part of the target architecture, and it did not include system 
investment information for all the military services, defense agencies, 
and combatant commands.
---------------------------------------------------------------------------
    \31\ GAO-06-219.
---------------------------------------------------------------------------
    In September 2006, DOD released an updated revision to its ETP, 
which continues to include major investments--such as key 
accomplishments and milestones attained, as well as new information on 
near-term activities (i.e., within the next 6 months) at both the 
enterprise and component levels. For example, in an effort to improve 
visibility into personnel activities, DOD reported that, for the 
Defense Civilian Personnel Data System, it met the September 2006 
milestone to implement enterprisewide tools for use in advanced 
reporting and data warehousing, and that it has set a September 2008 
milestone for developing an implementation strategy for integrating 
modules supporting functionality that is currently provided by stand-
alone applications. In addition, the updated plan provides information 
on business priorities supported by systems and initiatives and aligns 
these priorities with a set of business value measures (e.g., on-time 
customer request, payroll accuracy). Specifically, for each business 
enterprise priority, the plan now identifies the business capability 
improvements (e.g., manage personnel and pay) necessary to achieve the 
business enterprise priority (e.g., personnel visibility) objectives 
and the metrics for measuring progress towards achieving these 
objectives. In addition, the plan now identifies the relationship 
between target systems, business capabilities, operational activities, 
and the system functions they provide and specific organizations that 
will or plan to use the system. Further, the transition plan now 
includes the initial results of ongoing analyses of gaps between its 
current and target environments for most of the business enterprise 
priorities, in which capability and performance shortfalls and their 
root causes are described and the architecture solution component (such 
as business rules and transformation initiatives and systems) that are 
to address these shortfalls are identified.
    However, the current transition plan is still missing important 
elements. Specifically, the plan does not yet include system investment 
information for all the defense agencies and combatant commands. In 
addition, the planned investments in the transition plan are not 
sequenced based on a range of activities that are critical to 
developing an effective transition plan. As we have previously 
reported,\32\ a transition or sequencing plan should provide a temporal 
investment roadmap for moving between the current and target 
environments, based on such considerations as technology opportunities, 
marketplace trends, institutional system development and acquisition 
capabilities, legacy and new system dependencies and life expectancies, 
and the projected value of competing investments. According to a BTA 
official responsible for the ETP, the transition plan investments have 
not been sequenced based on these considerations. Rather, the ETP is 
based on fiscal year budgetary constraints.
---------------------------------------------------------------------------
    \32\ GAO-06-658.
---------------------------------------------------------------------------
    Program officials stated that the next version of the plan will 
enhance performance metric tracking, improve the quality of system 
functional scope and organizational span information, better integrate 
component plans with enterprise plans, enhance federating plans for 
each business capability, and possibly add other components to the ETP. 
As the transition plan evolves and all system investments are validated 
against the architecture via capability gap analyses, the Department 
should be better positioned to sequentially define and manage the 
migration and disposition of existing business processes and systems--
and the introduction of new ones.
DOD Has Established Business Systems Investment Decisionmaking 
        Controls, but Full Implementation Remains Unclear
    To help improve the Department's control and accountability over 
its business systems investments, provisions in the NDAA for Fiscal 
Year 2005 directed DOD to put in place a specifically defined structure 
that is responsible and accountable for controlling business systems 
investments to ensure compliance and consistency with the business 
enterprise architecture. More specifically, the act directs the 
Secretary of Defense to delegate responsibility for review, approval, 
and oversight of the planning, design, acquisition, deployment, 
operation, maintenance, and modernization of defense business systems 
to designated approval authorities or ``owners'' of certain business 
missions.\33\ DOD has satisfied this requirement under the act. On 
March 19, 2005, the Deputy Secretary of Defense issued a memorandum 
that delegated the authority in accordance with the criteria specified 
in the act, as described above. Our research and evaluation of 
agencies' investment management practices have shown that clear 
assignment of senior executive investment management responsibility and 
accountability is crucial to having an effective institutional approach 
to IT investment management.\34\
---------------------------------------------------------------------------
    \33\ Approval authorities, including 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; the Assistant Secretary of Defense for Networks and 
Information Integration and Chief Information Officer of the Department 
of Defense; and the Deputy Secretary of Defense or an Under Secretary 
of Defense, as designated by the Secretary of Defense, are responsible 
for the review, approval, and oversight of business systems and must 
establish investment review processes for systems under their 
cognizance.
    \34\ GAO, Information Technology Investment Management: A Framework 
for Assessing and Improving Process Maturity, GAO-04-394G (Washington, 
DC: March 2004).
---------------------------------------------------------------------------
    The NDAA for Fiscal Year 2005 also required DOD to establish 
investment review structures and processes, including a hierarchy of 
investment review boards (IRBs), each with representation from across 
the Department, and a standard set of investment review and 
decisionmaking criteria for these boards to use to ensure compliance 
and consistency with DOD's business enterprise architecture. In this 
regard, the act required the establishment of the DBSMC--which serves 
as the highest ranking governance body for business system 
modernization activities within the Department. As of April 2006, DOD 
identified 3,717 business systems and assigned responsibility for these 
systems to IRBs. Table 2 shows the systems and the responsible IRB and 
component.

                         TABLE 2: DOD SYSTEMS AND INVESTMENT REVIEW BOARD AND COMPONENT
----------------------------------------------------------------------------------------------------------------
                                                                                   Defense
                                                                                   Finance      Other
          Investment Review Board             Air Force     Army        Navy         and       Defense    Total
                                                                                 Accounting   Agencies
                                                                                   Service
----------------------------------------------------------------------------------------------------------------
Financial Management.......................          67         161         148          72          35      483
Human Resources Management.................         164         320         174          20         114      792
Weapon System Life-Cycle Management and             780         730         406           1         168    2,085
 Materiel Supply and Service Management....
Real Property and Installations Life-Cycle           71         122          44           0          17      254
 Management................................
Other......................................          65           0          26           0          12      103
                                            --------------------------------------------------------------------
  Total....................................       1,147       1,333         798          93         346    3,717
----------------------------------------------------------------------------------------------------------------
Source: GAO analysis of DOD data.

    A key element of the Department's approach to reviewing and 
approving business systems investments is the use of what it refers to 
as tiered accountability. DOD's tiered accountability approach involves 
an investment control process that begins at the component level and 
works its way through a hierarchy of review and approval authorities, 
depending on the size and significance of the investment. Military 
service officials emphasized that the success of the process depends on 
them performing a thorough analysis of each business system before it 
is submitted for higher-level review and approval. Through this 
process, the Department reported in March 2006 that 226 business 
systems, representing about $3.6 billion in modernization investment 
funding, had been approved by the DBSMC--the Department's highest-
ranking approval body for business systems. According to the 
Department's March 2006 report, this process also identified more than 
290 systems for phase out or elimination and approximately 40 business 
systems for which the requested funding was reduced and the funding 
availability periods were shortened to fewer than the number of years 
requested. For example, one business system investment that has been 
eliminated is the Forward Compatible Payroll (FCP) system. In reviewing 
the program status, the IRB determined that FCP would duplicate the 
functionality contained in the Defense Integrated Military Human 
Resources System, and it was unnecessary to continue investing in both 
systems.\35\ A major reason the Department has thousands of business 
systems is that it has historically failed to consistently employ the 
range of effective institutional investment management controls, such 
as an architecture-centric approach to investment decisionmaking, that 
our work and research show are keys to successful system modernization 
programs. Such controls help to identify and eliminate duplicative 
systems and this helps to optimize mission performance, accountability, 
and transformation. They also help to ensure that promised system 
capabilities and benefits are delivered on time and within budget.
---------------------------------------------------------------------------
    \35\ According to the Department's fiscal year 2007 IT budget 
request, approximately $33 million was sought for fiscal year 2007 and 
about $31 million was estimated for fiscal year 2008 for FCP.
---------------------------------------------------------------------------
    Furthermore, the BTA reports that the tiered accountability 
approach has reduced the level of funding and the number of years that 
funding will be available for 14 Army business systems, 8 Air Force 
business systems, and 8 Navy business systems. For example, the Army's 
Future Combat Systems Advanced Collaborative Environment program 
requested funding of $100 million for fiscal years 2006 through 2011, 
but the amount approved was reduced to approximately $51 million for 
fiscal years 2006 through 2008. Similarly, Navy's Military Sealift 
Command Human Resources Management System requested funding of about 
$19 million for fiscal years 2006 through 2011, but the amount approved 
was approximately $2 million for the first 6 months of fiscal year 
2006. According to Navy officials, this system initiative will be 
reviewed to ascertain whether it has some of the same functionality as 
the Defense Civilian Personnel Data System. Funding system initiatives 
for shorter time periods can help reduce the financial risk by 
providing additional opportunities for monitoring a project's progress 
against established milestones and help ensure that the investment is 
properly aligned with the architecture and the Department's overall 
goals and objectives.
    Besides limiting funding, the investment review and approval 
process has resulted in conditions being placed on system investments. 
These conditions identify specific actions to be taken and when the 
actions must be completed. For example, in the case of the Army's 
Logistics Modernization Program (LMP) initiative, one of the noted 
conditions was that the Army had to address the issues discussed in our 
previous reports.\36\ In our May 2004 report, we recommended that the 
Department establish a mechanism that provides for tracking all 
business systems modernization conditional approvals to provide 
reasonable assurance that all specific actions are completed on 
time.\37\ In response, the Department has begun to track conditional 
approvals.
---------------------------------------------------------------------------
    \36\ GAO, DOD Business Systems Modernization: Billions Continue to 
Be Invested with Inadequate Management Oversight and Accountability, 
GAO-04-615 (Washington, DC: May 27, 2004 and Army Depot Maintenance: 
Ineffective Oversight of Depot Maintenance Operations and System 
Implementation Efforts, GAO-05-441 (Washington, DC: June 30, 2005).
    \37\ GAO-04-615.
---------------------------------------------------------------------------
    Despite DOD's efforts to control its investments to acquire new 
business systems or to enhance existing business systems, formidable 
challenges remain. In particular, the reviews of those business systems 
that have modernization funding of less than $1 million, which 
represent the majority of the Department's reported 3,717 business 
systems, are only now being started on an annual basis, and thus the 
extent to which the review structures and processes will be applied to 
the Department's 3,717 business systems is not clear. Given the large 
number of systems involved, it is important that an efficient system 
review and approval process be effectively implemented for all systems. 
As indicated in table 2, there are numerous systems across the 
Department in the same functional area. Such large numbers of systems 
indicate a real possibility for eliminating unnecessary duplication and 
avoiding unnecessary spending on the DOD's multiple business systems. 
In support of this subcommittee, we have work planned to address the 
extent to which these management controls are actually being 
implemented for both the enterprise-level investments and the thousands 
of other system investments that are being managed at the component 
level.
Key DOD Systems Still Face Challenges
    As we have previously testified and reported,\38\ DOD has not 
effectively managed a number of business system programs. Among other 
things, our reviews of individual system investments have identified 
weaknesses in such things as architectural alignment and informed 
investment decisionmaking, which are focus areas of the NDAA for Fiscal 
Year 2005 provisions. Our reviews have also identified weaknesses in 
other system acquisition and investment management areas--such as 
requirements management, testing, and performance management--where 
good management is crucial for the successful implementation of any 
given DOD business system. I will describe examples of the weaknesses 
that we have recently reported on for five system investments. The 
system investments are the Defense Integrated Military Human Resources 
System (DIMHRS), Defense Travel System (DTS), the Army LMP, the Navy 
Tactical Command Support System (NTCSS), and the Transportation 
Coordinators' Automated Information for Movements System II (TC-AIMS 
II). The weaknesses that we have found raise questions as to the extent 
to which the structures, processes, and controls that DOD has 
established in response to the NDAA for Fiscal Year 2005 are actually 
being implemented, and illustrate the range of system acquisition and 
investment management controls (beyond those provided for in the act) 
that need to be effectively implemented in order for a given investment 
to be successfully acquired and deployed.
---------------------------------------------------------------------------
    \38\ See, for example, GAO-06-234T.
---------------------------------------------------------------------------
    DIMHRS
    In 2005 we reported that DIMHRS--a planned DOD-wide military pay 
and personnel system--was not being managed as a DOD-wide investment, 
to include alignment with a DOD-wide architecture and governance by a 
DOD-wide body.\39\ In addition, we reported that DIMHRS requirements 
had not been adequately defined, and not all acquisition best practices 
associated with commercial component-based systems were being followed. 
Accordingly, we made a number of recommendations. In response, DOD has 
elevated the system to an enterprise investment under the BTA, and 
established a DIMHRS steering committee that is chartered to include 
representation from the services. The BTA has also hired a DIMHRS 
program manager, and the Army and the Air Force, while continuing to 
evaluate their respective requirements, have determined that the 
commercial software product selected for DIMHRS can be used under 
certain conditions. The Army expects to deploy DIMHRS in April 2008 and 
the Air Force plans to begin deployment in May 2008. The Navy, on the 
other hand, assessed both DIMHRS and the Marine Corps Total Force 
System (MCTFS) \40\ and determined that MCTFS would better meet its 
requirements. According to a Navy official, the DBSMC has directed the 
Navy to research MCTFS and to fully evaluate the cost implications of 
the MCTFS option, but has not granted the Navy permission to deploy 
MCTFS. We plan to evaluate DOD's implementation of our prior 
recommendations and the Navy's analysis of the merits of pursuing the 
MCTFS option.
---------------------------------------------------------------------------
    \39\ GAO, DOD Systems Modernization: Management of Integrated 
Military Human Capital Program Needs Additional Improvements, GAO-05-
189 (Washington, DC: Feb 11, 2005).
    \40\ MCTFS is the Marine Corps' integrated personnel and pay 
system.
---------------------------------------------------------------------------
    DTS
    In September 2006, we reported \41\ on limitations in the economic 
justification underlying DOD's decision to invest in DTS, which is 
intended to be the standard departmentwide travel system. Specifically, 
we found that two key assumptions used to estimate cost savings in the 
September 2003 DTS economic analysis were not based on reliable 
information. Additionally, we reported that DOD did not have 
quantitative metrics to measure the extent to which DTS is actually 
being used. Moreover, we found that DOD had not adequately defined and 
tested the system's requirements, an area of concern that was also 
discussed in our January 2006 report.\42\ These system acquisition 
management weaknesses introduce considerable risk to DOD's ability to 
deliver promised DTS capabilities and benefits on time and within 
budget. Although the September 2003 economic analysis was not based on 
supportable data, the Department's criteria do not require that a new 
economic analysis be prepared. DTS has already completed all of the 
major milestones related to a major automated system which require that 
an economic analysis be prepared or at least updated to reflect the 
current assumptions and the related costs and benefits. However, the 
NDAA \43\ for Fiscal Year 2005 requires the periodic review, but not 
less than annually, of every defense business system investment. 
Further, the Department's April 2006 guidance \44\ notes that the 
annual review process ``provides follow-up assurance that information 
technology investments, which have been previously approved and 
certified, are managed properly, and that promised capabilities are 
delivered on time and within budget.'' If effectively implemented, this 
annual review process provides an excellent opportunity for DOD 
management to assess whether DTS is meeting its planned cost, schedule, 
and functionality goals. Going forward, such a review could serve as a 
useful management tool in making funding and other management decisions 
related to DTS. We made recommendations to DOD aimed at improving the 
management oversight of DTS, including periodic reports on DTS 
utilization and resolution of inconsistencies in DTS's requirements. 
DOD generally agreed with the recommendations and described its efforts 
to address them.
---------------------------------------------------------------------------
    \41\ GAO, Defense Travel System: Reported Savings Questionable and 
Implementation Challenges Remain, GAO-06-980 (Washington, DC: Sept. 26, 
2006).
    \42\ GAO DOD Business Transformation: Defense Travel System 
Continues to Face Implementation Challenges, GAO-06-18 (Washington, DC: 
Jan. 18, 2006).
    \43\ Ronald W. Reagan National Defense Authorization Act for Fiscal 
Year 2005, Pub. L. No. 108-375,   332 (2004) (codified, in part at 10 
U.S.C.  186 and 2222).
    \44\ DOD, DOD IT Business Systems Investment Review Process: 
Investment Certification and Annual Review Process User Guidance (Apr. 
10, 2006).
---------------------------------------------------------------------------
    LMP
    In 2004 and 2005,\45\ we reported that the Army faced considerable 
challenges in developing and implementing LMP which is intended to 
transform the Army Materiel Command's logistics operations. In 
particular, we reported that LMP will not provide intended capabilities 
and benefits because of inadequate requirements management and system 
testing. These problems prevented the Tobyhanna Army Depot from 
accurately reporting on its financial operations, which, in turn, 
adversely impacts the depot's ability to accurately set prices. We 
found that the Army has not put into place an effective management 
process to help ensure that the problems with the system are resolved. 
While the Army developed a process that identified the specific steps 
that should be followed in addressing the problems identified, the 
process was not followed. We recommended improvements in the 
implementation of LMP as well as delaying implementation at the 
remaining four depots until problems encountered have been resolved. 
DOD concurred with all the recommendations. The Subcommittee has 
requested that we undertake a series of audits directed at DOD's 
efforts to resolve long-standing financial management problems over the 
visibility of its assets. Our first such audit is evaluating the Army's 
efforts in the area and will include follow-up work on LMP.
---------------------------------------------------------------------------
    \45\ GAO, DOD Business Systems Modernization: Billions Continue to 
Be Invested with Inadequate Management Oversight and Accountability, 
GAO-04-615 (Washington, DC: May. 27, 2004) and Army Depot Maintenance: 
Ineffective Oversight of Depot Maintenance Operations and System 
Implementation Efforts, GAO-05-441 (Washington, DC: June 30, 2005).
---------------------------------------------------------------------------
    NTCSS
    In December 2005,\46\ we reported that DOD needed to reassess its 
planned investment in the NTCSS--a system intended to help Navy 
personnel effectively manage ships, submarines, and aircraft support 
activities. Among other things, we reported that the Navy had not 
economically justified its ongoing and planned investment in the NTCSS 
and had not invested in the NTCSS within the context of a well-defined 
DOD or Navy enterprise architecture. In addition, we reported that the 
Navy had not effectively performed key measurement, reporting, 
budgeting, and oversight activities, and had not adequately conducted 
requirements management and testing activities. We conclude that 
without this information, the Navy could not determine whether the 
NTCSS as defined, and as being developed, is the right solution to meet 
its strategic business and technological needs. Accordingly, we 
recommended that DOD develop the analytical basis to determine if 
continued investment in the NTCSS represents prudent use of limited 
resources and we also made recommendations to strengthen management of 
the program, conditional upon a decision to proceed with further 
investment in the program. In response, DOD generally concurred with 
the recommendations.
---------------------------------------------------------------------------
    \46\ GAO, DOD Systems Modernization: Planned Investment in the Navy 
Tactical Command Support System Needs to be Reassessed, GAO-06-215 
(Washington, DC: Dec. 5, 2005).
---------------------------------------------------------------------------
    TC-AIMS II
    In December 2005,\47\ we reported that TC-AIMS II--a joint services 
system with the goal of helping to manage the movement of forces and 
equipment within the United States and abroad--had not been defined and 
developed in the context of a DOD enterprise architecture. Similar to 
DIMHRS and DTS, TC-AIMS II was intended to be an enterprise-level 
system. However, the Army--DOD's acquisition agent for TC-AIMS II--had 
pursued the system on the basis of an Army logistics-focused 
architecture. This means that TC-AIMS II, which was intended to produce 
a departmentwide military deployment management system, was based on a 
service-specific architecture, thus increasing the risk that this 
program, as defined, will not properly fit within the context of future 
DOD enterprisewide business operations and IT environments. In 
addition, the Army had not economically justified the program on the 
basis of reliable estimates of life-cycle costs and benefits, and as a 
result, the Army does not know if investment in TC-AIMS II, as planned, 
is warranted or represents a prudent use of limited DOD resources. 
Accordingly, we recommended that DOD, among other things, develop the 
analytical basis needed to determine if continued investment in TC-AIMS 
II, as planned, represents prudent use of limited defense resources. In 
response, DOD generally concurred with our recommendations and 
described efforts initiated or planned to bring the program into 
compliance with applicable guidance.
---------------------------------------------------------------------------
    \47\ GAO, DOD Systems Modernization: Uncertain Joint Use and 
Marginal Expected Value of Military Asset Deployment System Warrant 
Reassessment of Planned Investment, GAO-06-171 (Washington, DC: Dec. 
15, 2005).
---------------------------------------------------------------------------
DOD Issues Its Financial Improvement and Audit Readiness Plan
    A major component of DOD's business transformation effort is the 
defense Financial Improvement and Audit Readiness Plan (FIAR), 
initially issued in December 2005 and updated in June 2006 and 
September 2006, pursuant to section 376 of the NDAA for Fiscal Year 
2006.\48\ Section 376 limited DOD's ability to obligate or expend funds 
for fiscal year 2006 on financial improvement activities until the 
Department submitted a comprehensive and integrated financial 
management improvement plan to the congressional defense committees. 
Section 376 required the plan to: (1) describe specific actions to be 
taken to correct deficiencies that impair the Department's ability to 
prepare timely, reliable, and complete financial management 
information; and (2) systematically tie these actions to process and 
control improvements and business systems modernization efforts 
described in the business enterprise architecture and transition plan. 
Further, section 376 required a written determination that each 
financial management improvement activity undertaken is consistent with 
the financial management improvement plan and likely to improve 
internal controls or otherwise result in sustained improvement in DOD's 
ability to produce timely, reliable, and complete financial management 
information. DOD had to submit each written determination to the 
congressional defense committees. Section 321 of the NDAA for Fiscal 
Year 2007 extended the written determination provision beyond fiscal 
year 2006.\49\
---------------------------------------------------------------------------
    \48\ Pub. L. No. 109-163,  376, 119 Stat. 3136, 3213 (2006).
    \49\ Pub. L. No. 109-364,  321, 120 Stat. 2083 (2006).
---------------------------------------------------------------------------
    DOD intends the FIAR Plan to provide DOD components with a 
framework for resolving problems affecting the accuracy, reliability, 
and timeliness of financial information, and obtaining clean financial 
statement audit opinions. The FIAR Plan states that it prioritizes 
DOD's improvement efforts based on the following criteria: (1) impact 
on DOD financial statements, (2) ability to resolve longstanding 
problems, (3) need for focused DOD leadership attention to resolve the 
problem, (4) dependency on business transformation initiatives and 
system solutions, and (5) availability of resources. The FIAR Plan 
outlines the business rules and oversight structure DOD has established 
to guide financial improvement activities and audit preparation 
efforts. According to DOD, its June and September 2006 FIAR Plan 
updates were intended to: (1) begin identifying milestones that must be 
met for assertions about the reliability of reported financial 
statement information to occur on time, (2) develop greater consistency 
among components regarding their corrective actions and milestones, and 
(3) further describe how the FIAR Plan will be integrated with the ETP. 
In addition, the September 2006 update outlines three key elements for 
achieving financial management transformation: accountability, 
integration, and prioritization. Although the FIAR Plan states that it 
is integrated with DOD component-level financial improvement plans and 
the ETP, DOD officials have acknowledged that the level of integration 
between the two efforts is not complete and is still evolving.
    The FIAR Plan is a high-level summary of DOD's plans and reported 
actions to comply with financial management legislation and achieve 
clean financial statement audit opinions. We have reviewed the FIAR 
Plan and its updates and discussed the FIAR Plan with DOD and OMB. We 
cannot comment on specific focus areas or milestones because we have 
not seen any of the underlying component or other subordinate plans on 
which the FIAR Plan is based. However, we believe the incremental line 
item approach, integration plans, and oversight structure outlined in 
the FIAR Plan for examining DOD's operations, diagnosing problems, 
planning corrective actions, and preparing for audit represents a vast 
improvement over prior financial improvement initiatives.
    We continue to stress that the effectiveness of DOD's FIAR Plan 
will ultimately be measured by the Department's ability to provide 
timely, reliable, and useful information for day-to-day management and 
decisionmaking. Nonetheless, I would like to see DOD place greater 
emphasis on achieving auditability by 2012. If DOD is able to achieve 
this date, and other impediments to an opinion on the consolidated 
financial statements of the U.S. government are also addressed, an 
opinion for the Federal Government may also be possible by 2012. We 
look forward to working with DOD and the new DOD Inspector General, 
when appointed, in further developing DOD's audit strategy.

 LEGISLATION ENACTED TO ADDRESS DOD'S FINANCIAL MANAGEMENT WEAKNESSES 
             AND STRENGTHEN BUSINESS SYSTEMS ACCOUNTABILITY

    Lastly, you asked for my comments on two sections of the recently 
enacted John Warner NDAA for Fiscal Year 2007.\50\ The first provision, 
section 321, seeks to ensure that the Department pursues financial 
management improvement activities only in accordance with a 
comprehensive financial management improvement plan that coordinates 
these activities with improvements in its systems and controls. The 
second provision, section 816, establishes certain reporting and 
oversight requirements for the acquisition of all MAIS.\51\
---------------------------------------------------------------------------
    \50\ John Warner National Defense Authorization Act for Fiscal Year 
2007, Pub. L. No. 109-364 (2006).
    \51\ The committee originally asked GAO to comment on sec. 804 of 
the Senate bill, S. 2766, which, with some changes, has now been 
enacted as sec. 816.
---------------------------------------------------------------------------
Legislation Reiterates Need for Consistency between DOD's Financial and 
        Business Transformation Plans
    Section 321 of the John Warner NDAA for Fiscal Year 2007 extends 
beyond fiscal year 2006 certain limitations and requirements placed on 
DOD's financial management improvement and audit initiatives in section 
376 of the NDAA for Fiscal Year 2006. Specifically, section 321 of the 
act limits DOD's ability to obligate or expend any funds for the 
purpose of any financial management improvement activity relating to 
the preparation, processing, or auditing of financial statements until 
it has submitted to the congressional defense committees a written 
determination that each activity proposed to be funded is: (1) 
consistent with the DOD financial management improvement plan required 
by section 376 of the NDAA for Fiscal Year 2006, and (2) is likely to 
improve internal controls or otherwise result in sustained improvements 
in the ability of the Department to produce timely, reliable, and 
complete financial management information.
    I fully support the intent of legislation, such as section 321, 
which is aimed at directing DOD's corrective actions towards the 
implementation of sustained improvements in its ability to provide 
timely, reliable, complete, and useful information. This is imperative 
not only for financial reporting purposes, but more importantly for 
daily decisionmaking and oversight. Section 321 is consistent with and 
builds on existing legislation, in addition to section 376 of the NDAA 
for Fiscal Year 2006. For example, section 1008 of the NDAA for Fiscal 
Year 2002 \52\ currently requires DOD to limit resources used to 
prepare and audit unreliable financial information, thereby saving the 
taxpayers millions of dollars annually. In addition, the fiscal year 
2002 act requires DOD to report to congressional committees and others 
annually on the reliability of DOD's financial information and to 
provide a summary of improvement activities, including priorities, 
milestones, measures of success, and estimates of when each financial 
statement will convey reliable information. In my opinion, Congress has 
clearly articulated its expectation that DOD exercise prudence in its 
use of taxpayer money and focus only on those activities that will 
result in sustained improvements in its ability to produce timely and 
reliable financial management information.
---------------------------------------------------------------------------
    \52\ Pub. L. No. 107-107,  1008, 115 Stat. 1012, 1204 (Dec. 28, 
2001).
---------------------------------------------------------------------------
    It is evident that DOD intends to use its FIAR Plan, which it plans 
to update semiannually, as a tool for complying with legislative 
requirements regarding its financial improvement efforts. However, as 
is true with most large initiatives, a comprehensive and integrated 
plan, sustained leadership, results-oriented performance measures, and 
effective implementation will be key to successful reform.
Legislative Language Establishing Reporting Requirements for Major 
        Automated Information Systems Increases Oversight and 
        Accountability
    The provisions in section 816 of the John Warner NDAA for Fiscal 
Year 2007 provide for greater disclosure and accountability of business 
system investment performance, and thus facilitate greater oversight. 
More specifically, the legislation establishes certain reporting and 
oversight requirements for the acquisition of MAIS that fail to meet 
cost, schedule, or performance criteria. In general, a MAIS is a major 
DOD IT program that is not embedded in a weapon system (e.g., a 
business system investment). As such, we believe that the provisions 
can increase oversight and accountability. Therefore, I also support 
this legislation.

   SPECIFIC HIGH-RISK PROGRAM AREAS HIGHLIGHT THE NEED FOR CONTINUED 
              ATTENTION TO ENSURE EFFECTIVE TRANSFORMATION

    I would like to discuss the five remaining high-risk areas within 
DOD. These include weapon systems acquisitions and contract management; 
supply chain management; personnel security clearance program; and 
support infrastructure management.
DOD Weapon Systems Acquisitions and Contract Management
    Two interrelated areas are the management of DOD's major weapon 
systems acquisitions and its contracts. While DOD eventually fields the 
best weapon systems in the world, we have consistently reported that 
typically the programs take significantly longer, cost significantly 
more money, and deliver fewer capabilities than originally promised. 
DOD's new weapon system programs are expected to be the most expensive 
and complex ever and will consume an increasingly large share of DOD's 
budget. These costly current and planned acquisitions are running head-
on into the Nation's unsustainable fiscal path. In the past 5 years, 
DOD has doubled its commitment to weapon systems from $700 billion to 
$1.4 trillion, but this huge increase has not been accompanied by more 
stability, better outcomes, or increased buying power for the 
acquisition dollar. Rather than showing appreciable improvement, 
programs are experiencing recurring problems with cost overruns, missed 
deadlines, and performance shortfalls. A large number of the programs 
included in our annual assessment of weapon systems are costing more 
and taking longer to develop than estimated.\53\ It is not unusual to 
see development cost increases between 30 percent and 40 percent and 
attendant schedule delays. These cost increases mean DOD cannot produce 
as many weapons as intended nor can it be relied on to deliver to the 
warfighter when promised. This causes DOD to either cut back on planned 
quantities or capabilities, or to even scrap multibillion dollar 
programs, after years of effort. If these systems are managed with the 
traditional margins of error, the financial consequences can be dire, 
especially in light of a constrained discretionary budget.
---------------------------------------------------------------------------
    \53\ GAO, Defense Acquisitions: Assessments of Selected Major 
Weapon Programs, GAO-06-391 (Washington, DC: Mar. 31, 2006).
---------------------------------------------------------------------------
    It is within this context that we must engage in a comprehensive 
and fundamental reexamination of new and ongoing investments in our 
Nation's weapon systems. Success for acquisitions means making sound 
decisions to ensure that program investments are based on needs versus 
wants and getting promised results. In the commercial world, successful 
companies have no choice but to adopt processes and cultures that 
emphasize basing decisions on knowledge, reducing risks prior to 
undertaking new efforts, producing realistic cost and schedule 
estimates, and building in quality to deliver products to customers at 
the right price, time, and cost. However, this is not happening within 
DOD. The DOD has tried to embrace best practices in its policies and 
instill more discipline in setting requirements, among numerous other 
actions, but it still has trouble distinguishing wants from true needs. 
While DOD's acquisition policy supports a knowledge-based, evolutionary 
approach to acquiring new weapons, its practice of making decisions on 
individual programs often sacrifices knowledge and executability in 
favor of revolutionary solutions. In an important sense, success has 
come to mean starting and continuing programs even when cost, schedule, 
and quantities must be sacrificed.
    Our reviews have identified a number of causes behind the 
acquisition problems just described, but I would like to focus on 
three. The first I refer to as ``big A,'' or acquisition with a capital 
``A.'' What I mean by this is that DOD's funding, requirements, and 
acquisition processes are not working synergistically. DOD does not 
clearly define and stabilize requirements before programs are started. 
Our work has shown that DOD's requirements process generates more 
demand for new programs than fiscal resources can support. DOD 
compounds the problem by approving many highly complex and 
interdependent programs. Moreover, once a program is approved, 
requirements can be added along the way--significantly stretching 
technology, creating design challenges, exacerbating budget overruns, 
and enhancing accountability challenges. For example, in the F-22A 
program, after the program was started, the Air Force added a 
requirement for air-to-ground attack capability. In its Global Hawk 
program, after the start of the program, the Air Force added both 
signals intelligence and imagery intelligence requirements. Both 
programs have experienced serious schedule delays and significant unit 
cost increases. Customers often demand additional requirements fearing 
there may not be another chance to get new capabilities because 
programs can take a decade or longer to complete. Yet, perversely, 
these strategies delay delivery to the warfighter, often by years.
    The second cause I would refer to as ``little a'' or the 
acquisition process itself. DOD commits to individual programs before 
it obtains assurance that the capabilities it is pursuing can be 
achieved within available resources and time constraints. In 
particular, DOD routinely accepts high levels of technology risk at the 
start of major acquisition programs. Funding processes encourage this 
approach, since acquisition programs attract more dollars than efforts 
concentrating solely on proving out technologies. However, without 
mature technologies at the outset, a program will almost certainly 
incur cost and schedule problems. Only 10 percent of the programs in 
our latest annual assessment of weapon systems had demonstrated 
critical technologies to best practice standards at the start of 
development; and only 23 percent demonstrated them to DOD's 
standards.\54\ The cost effect of proceeding without completing 
technology development before starting an acquisition can be dramatic. 
For example, research, development, test and evaluation costs for the 
programs included in our review that met best practice standards at 
program start increased by a modest average of 4.8 percent more than 
the first full estimate, whereas the costs for the programs that did 
not meet these standards increased by a much higher average of 34.9 
percent more than the first full estimate. The bottom line is that 
these consequences are predictable and, thus, preventable. The third 
cause has to do with the lack of accountability. DOD officials are not 
always held accountable when programs go astray. Likewise, contractors 
are not always held accountable when they fail to achieve desired 
acquisition outcomes. In December 2005, we reported that DOD gives its 
contractors the opportunity to collectively earn billions of dollars 
through monetary incentives.\55\ Unfortunately, we found DOD programs 
routinely engaged in practices that failed to hold contractors 
accountable for achieving desired outcomes and undermined efforts to 
motivate contractor performance, such as:
---------------------------------------------------------------------------
    \54\ DOD's policy states technologies should be demonstrated in at 
least a relevant environment before a program enters system 
development; whereas, GAO utilizes the best practice standard that 
calls for technologies to be demonstrated one step higher--
demonstration in an operational environment.
    \55\ GAO, Defense Acquisitions: DOD Has Paid Billions in Award and 
Incentive Fees Regardless of Acquisition Outcomes, GAO-06-66 
(Washington, DC: Dec. 19, 2005); and Defense Acquisitions: DOD Wastes 
Billions of Dollars through Poorly Structured Incentives, GAO-06-409T 
(Washington, DC: Apr. 5, 2006).

         evaluating contractor performance on award-fee criteria that 
        are not directly related to key acquisition outcomes (e.g., 
        meeting cost and schedule goals and delivering desired 
        capabilities to the warfighter);
         paying contractors a significant portion of the available fee 
        for what award-fee plans describe as ``acceptable, average, 
        expected, good, or satisfactory'' performance, which sometimes 
        did not require meeting the basic requirements of the contract; 
        and
         giving contractors at least a second opportunity to earn 
        initially unearned or deferred fees.

    As a result, DOD has paid out an estimated $8 billion in award fees 
on contracts in our study population, regardless of whether acquisition 
outcomes fell short of, met, or exceeded DOD's expectations. For 
example, we found that DOD paid its contractor for a satellite 
program--the Space-Based Infrared System High--74 percent of the award 
fee available, $160 million, even though research and development costs 
increased by more than 99 percent, and the program was delayed for many 
years and was rebaselined three times. In another instance, DOD paid 
its contractor for the F-22A aircraft more than $848 million, 91 
percent of the available award fee, even though research and 
development costs increased by more than 47 percent, and the program 
had been delayed by more than 2 years and rebaselined 14 times. Despite 
paying billions of dollars in award and incentive fees, DOD has not 
compiled data or developed performance measures to validate its belief 
that award and incentive fees improve contractor performance and 
acquisition outcomes.
    Similarly, DOD officials are rarely held accountable when programs 
go astray. There are several reasons for this, but the primary ones 
include the fact that DOD has never clearly specified who is 
accountable for what, invested responsibility for execution in any 
single individual, or even required program leaders to stay until the 
job is done. Moreover, program managers are not empowered to make go or 
no-go decisions, they have little control overfunding, they cannot veto 
new requirements, and they have little authority over staffing. Because 
there is frequent turnover in their positions, program managers also 
sometimes find themselves in the position of having to take on efforts 
that are already significantly flawed.
    There are many other factors that play a role in causing weapons 
programs to go astray. They include workforce challenges, poor 
contractor oversight, frequent turnover in key leadership, and a lack 
of systems engineering, among others. Moreover, many of the business 
processes that support weapons development--strategic planning and 
budgeting, human capital management, infrastructure, financial 
management, information technology, and contracting--are beset with 
pervasive, decades-old management problems, including outdated 
organizational structures, systems, and processes. In fact, all of 
these areas--along with weapon systems acquisition--are on our high-
risk list of major government programs and operations.
    Our work shows that acquisition problems will likely persist until 
DOD provides a better foundation for buying the right things, the right 
way. This involves making tough trade-off decisions as to which 
programs should be pursued and, more importantly, not pursued, making 
sure programs are executable, locking in requirements before programs 
are started, and making it clear who is responsible for what and 
holding people accountable when these responsibilities are not 
fulfilled. These changes will not be easy to make. They require DOD to 
reexamine the entirety of its acquisition process and to make deep-
seated changes to the setting, funding, and execution of program 
requirements. In other words, DOD would need to revisit who sets 
requirements and strategy, and who monitors performance, and what 
factors to consider in selecting and rewarding contractors. It also 
involves changing how DOD views success, and what is necessary to 
achieve success. I am encouraged by DOD's recent efforts to improve the 
collaboration and consultation between the requirements and acquisition 
communities. The test of these efforts will be whether they produce 
better decisions. If they do, it is important that they are sustained 
by more than the force of personality.
    Buying major systems is not the only area where DOD needs to 
improve its acquisition practices. For example, DOD's management of its 
contracts has been on our high-risk list since 1992. Our work has found 
that DOD is unable to ensure that it is using sound business practices 
to acquire the goods and services needed to meet the warfighter's 
needs, creating unnecessary risks and paying higher prices than 
justified. In this regard, in a March 2005 report, we concluded that 
deficiencies in DOD's oversight of service contractors could place DOD 
at risk of paying the contractors more than the value of the services 
they performed.\56\ In June 2006, we reported that personnel at the 
Defense Logistics Agency were not consistently reviewing prices for 
commodities acquired under its Prime Vendor Program.\57\ We noted that 
until DOD provides sufficient management oversight, the program will 
remain vulnerable to the systemic pricing problems that have plagued it 
in the past. Earlier this year, we reported that the Army acquired 
security guard services under an authorized sole-source basis, despite 
recognizing that it was paying about 25 percent more than it had under 
contracts that had been previously awarded competitively.\58\ We 
recommended that the Army reassess its acquisition strategy to help 
make the best use of taxpayer dollars and achieve its desired outcomes. 
In other reports, we identified numerous issues in DOD's use of 
interagency contracting vehicles that contributed to poor acquisition 
outcomes.
---------------------------------------------------------------------------
    \56\ GAO, Contract Management: Opportunities to Improve 
Surveillance on Department of Defense Service Contracts, GAO-05-274 
(Washington, DC: Mar. 17, 2005).
    \57\ GAO, Defense Management: Attention is Needed to Improve 
Oversight of DLA Prime Vendor Program, GAO-06-739R (Washington, DC: 
June 19, 2006).
    \58\ GAO, Contract Security Guards: Army's Guard Program Requires 
Greater Oversight and Reassessment of Acquisition Approach, GAO-06-284 
(Washington, DC: Apr. 3, 2006).
---------------------------------------------------------------------------
    Until DOD devotes sufficient management attention to address these 
longstanding issues, DOD remains at risk of wasting billions of dollars 
and failing to get the goods and services it needs to accomplish its 
missions.
DOD Supply Chain Management
    Since the January 2005 update of the high-risk series, DOD has made 
some progress toward addressing supply chain management problems. With 
the encouragement of OMB, DOD has developed a plan to show progress 
toward the long-term goal of resolving problems and removing supply 
chain management from our list of high-risk areas within the 
Department. DOD issued the first iteration of the plan in July 2005 
and, since then, has regularly updated it. Based on our initial review 
of the plan, we believe it is a solid first step toward improving 
supply chain management in support of the warfighter. For example, 
DOD's plan identifies three key areas--requirements forecasting, asset 
visibility, and materiel distribution--that we believe are critical to 
DOD's efforts to improve supply chain management. The plan highlights 
selected DOD supply chain initiatives, including key milestones in 
their development. Within the last year, for example, DOD has made some 
progress in streamlining the storage and distribution of defense 
inventory items on a regional basis as part of its Joint Regional 
Inventory Materiel Management initiative. DOD has completed a pilot for 
this initiative in the San Diego region and, in January 2006, began a 
similar transition for inventory items in Oahu, Hawaii.
    Notwithstanding this positive first step, the Department faces 
challenges and risks in successfully implementing its proposed changes 
across the Department and measuring progress in resolving supply chain 
management problems. It will be important for DOD to sustain top 
leadership commitment and long-term institutional support for the plan; 
obtain necessary resource commitments from the military Services, the 
Defense Logistics Agency, and other organizations; implement its 
proposed initiatives across the Department; identify performance 
metrics and valid data to use in monitoring the initiatives; and 
demonstrate progress toward meeting performance targets. We have been 
holding monthly meetings with DOD and OMB officials to receive updates 
on the plan and gain a greater understanding of the ongoing 
initiatives. In addition, we are continuing to review the performance 
measures DOD is using to track the plan's progress in resolving supply 
chain problems and DOD's efforts to develop a comprehensive, 
integrated, and enterprisewide strategy to guide logistics programs and 
initiatives. DOD is working on a logistics road map, referred to as the 
``To Be'' road map, which provides a vision for future logistics 
programs and initiatives, including supply chain management; identifies 
capability gaps; and links programs with investments. However, the 
schedule for completing the initial road map has recently slipped. 
Until the roadmap is completed, we will not be able to assess how it 
addresses the challenges and risks DOD faces in its supply chain 
management efforts.
DOD Personnel Security Clearance Program
    DOD's personnel security clearance program is another area that we 
continue to assess because of the risks it poses. For over two decades, 
we have reported on problems with DOD's personnel security clearance 
program as well as the financial costs and risks to national security 
resulting from these problems. For example, at the turn of the century, 
we documented problems such as incomplete investigations, inconsistency 
in determining eligibility for clearances, and a backlog of overdue 
clearance reinvestigations that exceeded 500,000 cases. More recently 
in 2004, we identified continuing and new impediments hampering DOD's 
clearance program and made recommendations for increasing the 
effectiveness and efficiency of the program. These long-standing delays 
in completing hundreds of thousands of clearance requests for 
servicemembers, Federal employees, and industry personnel as well as 
numerous impediments that hinder DOD's ability to accurately estimate 
and eliminate its clearance backlog led us to declare DOD's personnel 
security clearance program a high-risk area in January 2005. Since 
then, we have issued a report and participated in four hearings that 
addressed issues related to DOD's program.\59\ Among other things, our 
September 2006 report showed that the 2,259 industry personnel granted 
eligibility for a top secret clearance in January and February 2006 had 
waited an average of 471 days. Also, our reviews of 50 of the cases for 
completeness revealed that required information was not included in 
almost all of the cases. While positive steps--such as: (1) the 
development of an initial version of a plan to improve security 
clearance processes government-wide and (2) high-level involvement from 
OMB--have been taken toward addressing the problems, other recent 
events such as DOD halting the processing of all new clearance requests 
for industry personnel on April 28, 2006, reveal continuing problems 
with DOD's personnel security clearance program.
---------------------------------------------------------------------------
    \59\ GAO, DOD Personnel Clearances: Additional OMB Actions Are 
Needed to Improve the Security Clearance Process, GAO-06-1070 
(Washington, DC: Sept. 28, 2006); DOD Personnel Clearances: New 
Concerns Slow Processing of Clearances for Industry Personnel, GAO-06-
748T (Washington, DC: May 17, 2006); DOD Personnel Clearances: Funding 
Challenges and Other Impediments Slow Clearances for Industry 
Personnel, GAO-06-747T (Washington, DC: May 17, 2006); DOD Personnel 
Clearances: Government Plan Addresses Some Longstanding Problems with 
DOD's Program, But Concerns Remain, GAO-06-233T (Washington, DC: Nov. 
9, 2005); and DOD Personnel Clearances: Some Progress Has Been Made but 
Hurdles Remain to Overcome the Challenges That Led to GAO's High-Risk 
Designation, GAO-05-842T (Washington, DC: June 28, 2005).
---------------------------------------------------------------------------
    Since 1997, GAO has identified DOD's management of its support 
infrastructure as a high-risk area because infrastructure costs 
continue to consume a larger than necessary portion of its budget. DOD 
officials have been concerned for several years that much of the 
Department's infrastructure is outdated, inadequately maintained, and 
that DOD has more infrastructure than needed, which impacts its ability 
to devote more funding to weapon systems modernization and other 
critical needs. Inefficient management practices and outdated business 
processes have also contributed to the problem.
    While DOD has made progress and expects to continue making 
improvements in its support infrastructure management, DOD officials 
recognize they must achieve greater efficiencies. To its credit, DOD 
has given high-level emphasis to reforming its support operations and 
infrastructure since we last reported on this high-risk area, including 
efforts to reduce excess infrastructure, promote transformation, and 
foster jointness through the 2005 base realignment and closure (BRAC) 
process. Also, DOD is updating its Defense Installations Strategic Plan 
to better address infrastructure issues, and has revised its 
installations readiness reporting to better measure facility 
conditions, established core real property inventory data requirements 
to better support the needs of real property asset management, and 
continued to modify its suite of analytical tools to better forecast 
funding requirements for installation management services. It has also 
achieved efficiencies through privatizing military family housing and 
demolishing unneeded buildings at military installations.
    Our engagements examining DOD's management of its facilities 
infrastructure indicates that much work remains for DOD to fully 
rationalize and transform its support infrastructure to improve 
operations, achieve efficiencies, and allow it to concentrate its 
resources on the most critical needs, as the following illustrates.

         In July 2005, we reported on clear limitations associated 
        with achieving DOD's projected $50 billion in savings from this 
        BRAC round. While DOD offered many proposed actions in the 2005 
        round, these actions were more related to business process 
        reengineering and realignment of various functions and 
        activities than base closures and actual facility reductions. 
        Moreover, sizable savings were projected from efficiency 
        measures and other actions, but many underlying assumptions had 
        not been validated and could be difficult to track over time. 
        We have ongoing work monitoring actions emanating from the 2005 
        BRAC process and assessing costs and savings from those 
        actions, and will be able to comment further on the status of 
        these initiatives over the next several years as implementation 
        actions progress.
         In June 2005, we reported that hundreds of millions of 
        operation and maintenance dollars designated for facilities' 
        sustainment, restoration, and modernization and other purposes 
        were moved by the services to pay for base operations support 
        (BOS) due in part to a lack of a common terminology across the 
        services in defining BOS functions, as well as the lack of a 
        mature analytic process for developing credible and consistent 
        requirements.\60\ While these funding movements are 
        permissible, we found that they were disruptive to the orderly 
        provision of BOS services and contributed to the overall 
        degradation of facilities, which adversely affects the quality 
        of life and morale of military personnel. In another report 
        issued in June 2005, we reported that many of DOD's training 
        ranges were in deteriorated condition and lacked modernization, 
        which adversely affected training activities and jeopardized 
        the safety of military personnel.\61\
---------------------------------------------------------------------------
    \60\ GAO, Defense Infrastructure: Issues Need to Be Addressed in 
Managing and Funding Base Operations and Facilities Support, GAO-05-556 
(Washington, DC: June 15, 2005).
    \61\ GAO, Military Training: Better Planning and Funding Priority 
Needed to Improve Conditions of Military Training Ranges, GAO-05-534 
(Washington, DC: June 10, 2005).
---------------------------------------------------------------------------
         In an April 2006 report, we identified several opportunities 
        for DOD and the services to improve their oversight and 
        monitoring of the execution and performance of awarded 
        privatized housing projects.\62\ We further reported that 36 
        percent of awarded privatization projects had occupancy rates 
        below expectations even though the services had begun renting 
        housing units to parties other than military families, 
        including units rented to single or unaccompanied 
        servicemembers, retired military personnel, civilians and 
        contractors who work for DOD, and civilians from the general 
        public. Factors contributing to occupancy challenges include 
        increased housing allowances, which have made it possible for 
        more military families to live off base thus reducing the need 
        for privatized housing, and the questionable reliability of 
        DOD's housing requirements determination process, which could 
        result in overstating the need for privatized housing.
---------------------------------------------------------------------------
    \62\ GAO, Military Housing: Management Issues Require Attention as 
the Privatization Program Matures, GAO-06-438 (Washington, DC: Apr. 28, 
2006).
---------------------------------------------------------------------------
         During recent visits to installations in the United States 
        and overseas, service officials continue to report inadequate 
        funding to provide both base operations support and maintain 
        their facilities. They express concern that unless this is 
        addressed, future upkeep and repair of many new facilities to 
        be constructed as a result of BRAC, overseas rebasing, and the 
        Army's move to the modular brigade structure will suffer and 
        the condition of their facilities will continue to deteriorate.
         We have also found that DOD's outline of its strategic plan 
        for addressing this high-risk area had a number of weaknesses 
        and warranted further clarification and specification. We have 
        met with OMB and DOD officials periodically to discuss the 
        Department's efforts to address this high-risk area.
          Through our monitoring of DOD activities between now and the 
        next several years for base closures and overseas basing, we 
        will be able to determine what other work needs to be done on 
        issues associated with DOD's management of its support 
        infrastructure, as well as provide a more complete assessment 
        of costs, savings, and overall benefits realized from the 
        Department's efforts to address these issues. Organizations 
        throughout DOD will need to continue reengineering their 
        business processes and striving for greater operational 
        effectiveness and efficiency. DOD will also need to develop a 
        comprehensive, long-range plan for its infrastructure that 
        addresses facility requirements, recapitalization, and 
        maintenance and repair, as well as to provide adequate 
        resources to meet these requirements and halt the degradation 
        of facilities and services.

    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. Thank you.
    Mr. Argodale.

 STATEMENT OF JOHN ARGODALE, DEPUTY ASSISTANT SECRETARY OF THE 
                 ARMY FOR FINANCIAL OPERATIONS

    Mr. Argodale. Chairman Ensign, Senator Akaka, my name is 
John Argodale and I'm the Deputy Assistant Secretary of the 
Army for Financial Operations. Thank you for the opportunity to 
address the Army's business systems modernization and financial 
management accountability results.
    My statement for the record addresses a variety of 
financial management improvement efforts the Army is 
undertaking, including systems modernization, enterprise 
architecture development, and activities designed to achieve an 
audit of our financial statements. I will focus my comments 
this morning on the modernization of our financial systems 
under the aegis of a program we call the General Fund 
Enterprise Business System (GFEBS).
    I brought some visual aids to help convey my comments. The 
first graphic displays the current system environment as 
captured in a single Army financial enterprise or safe 
architecture. We analyzed and classified the functional and 
technical attributes of 198 separate business systems across 
all business mission domains. All these systems interact with 
the financial system. In the afterview, the safe architecture 
documents the retirement of 112 systems. Ten systems need 
further review.
    The GFEBS program will subsume and eliminate 87 operational 
systems with 25 systems eliminated by other system 
modernization efforts. The remaining 76 systems will interact 
with GFEBS. The architecture also enabled us to classify and 
categorize each of the business systems in a single business 
system portfolio. The Army Chief Information Officer (CIO), as 
the precertification authority, is now able to administer our 
systems investments through the DOD's IRB using a discipline 
portfolio management process.
    To test the efficacy of our single Army financial 
enterprise architecture and other technical and functional 
requirements, we completed a live technology demonstration of 
the GFEBS software in support of one key module, real property 
inventory. Our fiscal year 2006 general fund balance sheet 
reports nearly $24 billion in real property at net book value. 
Real property is more than 10 percent of the Army's total 
assets.
    The technology demonstration included a business scenario 
involving processing a work order to perform real property 
maintenance. The current process graphic identifies the 10 
processes and 8 business systems required to complete a work 
order in the current environment. The technology demonstration 
proved that six of these eight systems can be eliminated by 
absorbing their functionality in GFEBS. Planning and approving 
the budget were not included in the technology demonstration 
scope, but will be part of the first GFEBS release.
    Finally, I understand the subcommittee is concerned with 
our ability to deliver a big system initiative on time and on 
budget. We plan to blueprint the entire system solution for 
GFEBS by May 2007. The solution blueprint guides software 
development and identifies additional opportunities to improve 
business processes. We will capture process improvements in our 
benefits realization model, and measure actual results against 
planned benefits as we deploy GFEBS.
    The arrows on the schedule indicate opportunities to assess 
the program status and make in-course corrections if necessary. 
For example, we plan to build, test, and deploy GFEBS in 
manageable increments. As we build each increment, we have 
opportunities to continuously address requirements and adjust 
our strategy for size, scope, and complexity. The objective is 
to continuously build and field capability to the Army, not to 
spend several years in development and deliver a big bang 
capability in the future.
    In summary, I want to thank the subcommittee for your 
involvement and emphasize that we share your objectives of 
modernizing business systems and improving financial management 
processes. Our systems and processes are not perfect. With your 
continued support, DOD's leadership, and oversight within the 
Army, we will improve our business systems and practices. Thank 
you.
    [The prepared statement of Mr. Argodale follows:]

                  Prepared Statement by John Argodale

    Chairman Ensign, distinguished members of the subcommittee, my name 
is John Argodale, and I am the Deputy Assistant Secretary of the Army 
for Financial Operations. Thank you for this opportunity to address the 
Army's business systems modernization and financial management 
accountability results.
    I want to stress that business systems modernization and financial 
management accountability are vital to the Army's success. To 
effectively man, equip, and train an Army at war, the Army must 
modernize financial systems and improve financial accountability. While 
we have achieved significant results over the last 12 months in 
modernizing our business systems and improving financial 
accountability, additional work is required.
    Improving the Army's financial accountability and modernizing 
business systems are challenging endeavors, which require a long-term 
commitment to ensure that enduring improvements are implemented. These 
efforts must be managed through a disciplined process that identifies 
the problems to be corrected, develops actions to correct the problems, 
assigns accountability for and a cost to implementing the corrective 
actions, informs leaders of results achieved, and enables in-course 
adjustments to adapt to changing situations.
    I believe that the Defense Business System Management Council 
(DBSMC) and Department of Defense's (DOD) Investment Review Board (IRB) 
offer the requisite disciplined processes to support this necessary 
transformation of our business systems. Through the governance 
processes established by the DBSMC and IRB, DOD has defined a set of 
consistent standards and practices that facilitates improvement 
activities. Building and maintaining system processes and architectures 
that are compliant with DOD's enterprise transition priorities and the 
Business Enterprise Architecture (BEA), are the central focus of the 
Army's development of future business capabilities.
    For example, the Army's General Fund Enterprise Business System 
(GFEBS) program management plan and Chief Financial Officer (CFO) 
Strategic Plan provide the framework for our financial improvement 
activities. The CFO Strategic Plan articulates the goals, objectives 
and tasks that must be achieved to provide reliable financial 
information. The GFEBS program management plan provides a disciplined 
process to modernize the Army's business systems and to improve 
business practices. I will discuss both plans and results achieved to 
date in greater detail.
    The GFEBS will modernize the Army's financial enterprise (funding, 
assets, and liabilities) using commercially available ERP software. The 
Army awarded the GFEBS contract in June 2005. The program has remained 
on schedule, on budget, and has delivered the results required since 
contract award. We passed our first major milestone in July 2006 with 
successful completion of a technology demonstration.
    This technology demonstration required the configuration and 
deployment of the commercial software in a live environment in support 
of one key module, real property management. The objective was to prove 
the software's capability to satisfy the Army's financial management 
requirements; to comply with DOD's BEA and the Federal Financial 
Managers' Improvement Act (FFMIA); and to operate and interact within 
the Army's existing technical infrastructure. The GFEBS technology 
demonstration delivered positive results in all areas, and demonstrated 
the ability to manage the Army's financial resources through a single 
enterprise resource program.
    Specifically, the technology demonstration identified methods to 
enhance the Army's real property management, proved the ability to 
implement Army-wide cost management practices, and enabled improved 
portfolio management of business systems. The demonstration also 
allowed the Army to reconcile nearly $3 billion in real property and 
general equipment holdings at Fort Jackson, SC, and Fort Hood, TX; and 
to develop repeatable, sustainable real property reconciliation 
procedures for use across the Army. We plan to implement these 
procedures concurrently with GFEBS deployment activities to ensure 
accountability of all Army real property and general equipment assets.
    The GFEBS technology demonstration also improved management of the 
Army's business systems portfolio. We reviewed, analyzed, and 
categorized 198 existing business systems to determine their alignment 
with GFEBS. This review enabled us to identify 87 current systems for 
retirement and subsume their functionality in GFEBS. We found that 25 
additional systems, with some financial management capabilities, are 
scheduled to be replaced by other modernization initiatives. Ten 
systems require further analysis, while the remaining 76 systems are 
now logically catalogued and managed as one portfolio to ensure that 
future investments and software changes are implemented in an effective 
manner that is compliant with DOD's BEA and DBSMC transformation goals.
    By integrating disconnected financial management processes and 
successfully configuring the U.S. Government Standard General Ledger, 
we believe that the Army will be able to generate all required 
financial requirements, including those necessary for audited financial 
statements. The technology demonstration was judged substantially 
compliant with all applicable BEA and FFMIA requirements based on 
independent assessments conducted by the Army Test and Evaluation 
Command, the Army Audit Agency, and the Joint Interoperability Test 
Command. The technology demonstration successfully operated within the 
Army's existing technology infrastructure and demonstrated the ability 
to exchange data with other business systems.
    GFEBS must interact with at least 76 external business systems 
performing disbursing, contracting, human resources, payroll, and 
logistics management functions. Effective alignment between GFEBS and 
these external systems requires a focus on enterprise integration 
across the Army and DOD. We are coordinating with contracting, human 
resources, and logistics systems and process owners to ensure optimal 
alignment at the enterprise level.
    To illustrate this point, the Army's senior financial, contracting, 
human resources, and logistics systems and process owners meet weekly 
to share information, synchronize program management plans, and develop 
approaches to ensure business system alignment. Our program executive 
officer for enterprise information systems meets monthly with 
counterparts from the other services and DOD's Business Transformation 
Agency representatives to discuss alignment issues at the Department 
level.
    In addition to obtaining favorable results with GFEBS, the Army has 
continued to improve financial management accountability by 
implementing the CFO strategic plan. During fiscal years 2005 and 2006, 
we completed 150 of the plan's tasks, resulting in improved financial 
management across the Army. We also aligned our plan with the DOD's 
Financial Improvement and Audit Readiness Plan to ensure that our 
financial improvement objectives are captured and tracked at the 
departmental level.
    The Army's strategic CFO plan focuses on processes and systems, and 
identifies actions necessary to improve financial accountability. 
Completion of each task requires an independent assessment by the Army 
Audit Agency and implementation of an effective control environment to 
ensure that corrective actions achieve desired results. The completed 
tasks enabled the Army to properly account for $8 billion in 
environmental liabilities, to post $12.6 billion in supply and 
equipment transactions to the accounting system in a compliant manner, 
to report over $16 billion of real property assets, to account for 
$149.9 million of government furnished equipment in the hands of 
contractors, and to report $348 million of internal use software.
    We have developed cost estimates for meeting each of the plan's 
requirements, and have assigned responsibility to specific 
organizations for the completion of each task identified in the plan. 
Understanding the cost to complete the plan enables each functional 
proponent to properly budget and establish cost benchmarks. Assigning 
responsibilities to specific organizations establishes an effective 
level of accountability to ensure that required tasks are accomplished.
    The Army will continue to implement GFEBS and complete CFO 
Strategic Plan tasks. Although both are long-term efforts, we expect to 
achieve measurable results over the next 6 to 8 months. With GFEBS, for 
example, we will complete the entire systems blueprint by May 2007. The 
blueprint informs software development requirements and identifies 
opportunities to improve business practices. Business improvement 
opportunities will be captured in our benefits realization model, 
enabling us to develop improvement metrics to measure our progress.
    We are also implementing process improvements in the procure-to-pay 
business process area, which were identified in a recently completed 
business process study. These opportunities include increased reliance 
on electronic commerce and elimination of non-value-added activities. 
Our goal is to increase the use of electronic commerce by 50 percent 
during fiscal year 2007 and to eliminate all non-value-added activities 
over the same period, which will result in higher-quality and lower-
cost financial management.
    Implementation of the GFEBS and synchronization with Army and DOD 
business systems modernization efforts through architectural alignment 
and portfolio management are vital to modernizing our business systems. 
Completion of CFO Strategic Plan tasks, supported by Army Audit Agency 
validation and an effective control environment, is essential to 
improving financial management accountability. Congress has been 
extremely helpful in providing enabling legislation and appropriations 
in support of these efforts. Systems modernization and improved 
financial management accountability require long-term commitments, 
however. We appreciate the support provided by this committee and 
welcome your continued interest in the future as we proceed with this 
difficult transformation of our business systems.

    Senator Ensign. Mr. Wennergren?

 STATEMENT OF DAVID M. WENNERGREN, CHIEF INFORMATION OFFICER, 
                     DEPARTMENT OF THE NAVY

    Mr. Wennergren. Good morning, Mr. Chairman and Senator 
Akaka. Thank you very much for the opportunity to appear before 
you today.
    I come to you today as the CIO for the Department of the 
Navy, and while I've had the honor of working for the Navy for 
26 years, at the end of next week I will take all that I have 
learned from this great institution with me as I begin my new 
job as the Deputy CIO for the DOD.
    Today, though, I want to tell you about how the Navy/Marine 
Corps team is using the power of information technology and 
commercial best practices to significantly increase the 
readiness and effectiveness of our warfighting forces while 
simultaneously transforming our support processes. It's crucial 
to bear in mind that our business transformation efforts are a 
component of our overall effort to increase combat power and 
effectiveness.
    Our ETP focuses on five key efforts. First, we are creating 
the seamless information infrastructure that provides 
consistent access to Navy and Marine Corps personnel around the 
world.
    Second, we are optimizing our processes. We focus first on 
process change to reduce cycle time and improve productivity, 
and then insert technology to deliver value. This approach is 
producing order of magnitude improvements, reducing aircraft 
and engine turnaround time, and improving maintenance 
productivity. We are aggressively applying Lean Six Sigma 
techniques and commands across the Department of the Navy are 
achieving efficiency and productivity improvements averaging a 
four to one return on investment. Our Navy ERP System will 
integrate acquisition finance and logistics capabilities, 
eliminate redundant systems and improve the accuracy of our 
financial information. It's an ambitious undertaking, but its 
scope is necessary to align the activities of the Navy and 
achieve significant efficiencies and process improvements. We 
have built on our successful pilot projects, and now are in the 
process of retiring these limited production systems as we 
implement Navy ERP.
    Third, we are optimizing our investments. Our functional 
area managers have eliminated thousands of local or redundant 
applications in favor of enterprise-wide solutions with 
aggressive targets for further reductions in place for the 
years ahead. The DOD Enterprise Software Initiative, that we 
helped to co-chair, helps us to reduce costs and provide our 
personnel with software they require to do their jobs. As an 
example, our Oracle Enterprise software license consolidated 
over 170 maintenance agreements, providing unrestricted access 
to database software for all Navy personnel and achieving a 
cost avoidance of $58 million.
    Fourth, we are moving our applications to the web. We are 
expanding our warfighters' ability to reach back by migrating 
to web-based solutions to provide secure access anywhere in the 
world. Our distance support portal enables deployed sailors to 
collaborate with technical experts ashore, cutting the number 
of technical assist visits in half. The Marine Corps total 
force administration system is averaging 100,000 self-service 
transactions per month and our Navy knowledge online portal 
provides 500,000 people with online training and career 
development.
    Finally, we are aligning our governance to ensure that we 
work as a single joint enterprise. The work of DBSMC, the DOD 
CIO, and my fellow military department CIOs reflects a level of 
cooperation and sharing of ideas and initiatives that is 
unrivaled in the history of the Department of the Navy. I am 
confident that we have the right leadership and processes in 
place to guide us on this journey.
    Mr. Chairman and Senator Akaka, thank you again for 
allowing me the opportunity to speak to you today. Your 
continued interest has proven to be invaluable in setting the 
course and providing the support to move these transformation 
initiatives forward, and I'm happy to answer any questions that 
you have. Thank you.
    [The prepared statement of Mr. Wennergren follows:]

               Prepared Statement by David M. Wennergren

    Mr. Chairman, Senator Akaka and distinguished members of the 
Readiness and Management Support Subcommittee, thank you for the 
opportunity to speak with you today about Defense Business 
Transformation and the progress that we in the Department of the Navy 
have made toward our transformation goals. Our transformation efforts 
are geared to both: (a) attain our vision of net-centric operations to 
increase combat power and effectiveness; and (b) dramatically transform 
our management and business practices to maintain our competitive 
advantages over current and potential enemies. Improved business 
processes and associated controls are important weapons in our arsenal 
and represent the keys to improved financial accountability. We fully 
recognize the many competing national priorities and are committed to 
getting the most out of every defense dollar that you and the taxpayers 
entrust to us. The successes achieved have made us stronger, more 
efficient, and more effective; the results of our continued action will 
bring us closer to our vision of a naval warfighting team armed with 
the secure, assured, accurate, and timely information needed to fight 
and win.
    The Navy's business transformation vision is to increase 
significantly the readiness, effectiveness, and availability of 
warfighting forces by employing business process change to create more 
effective operations at reduced costs and by exploiting process 
improvements, technology enhancements, and an effective human capital 
strategy to assure continued mission superiority. Our Department of the 
Navy Information Management/Information Technology (IM/IT) Strategic 
Plan links our IM/IT transformation objectives to the strategy laid out 
in our guiding documents, Naval Power 21, Sea Power 21, and Marine 
Corps Strategy 21.
    This vision is outlined in our Enterprise Transition Plan, which 
focuses on five key efforts to achieve our transformation goals.

    1. Create a Seamless Infrastructure. The swift and effective use of 
information will be central to the success of our future operations, 
and so the DOD has made significant progress in aligning our 
information technology infrastructure into a core set of networks that 
support the Navy-Marine Corps team. ONE-NET (OCONUS network), 
Integrated Shipboard Network System (ISNS--afloat network), the Marine 
Corps Enterprise Network (MCEN), and the Navy Marine Corps Intranet 
(NMCI) form the nucleus of a consistent naval network infrastructure 
that enables effective, consistent standards and information access to 
Department of the Navy personnel around the globe.
    2. Create Optimized Processes and Integrated Systems. Process 
change is crucial to successful business transformation, and when done 
correctly, allows for the insertion of new technology to dramatically 
improve processes rather than just to automate inefficient operations. 
Experience in private industry and our own efforts have shown that the 
application of Lean Six Sigma (LSS) techniques can profoundly improve 
process effectiveness and efficiency. We are presently engaged in a 
vigorous campaign to train every leader in the Department of the Navy 
to use these powerful techniques, and under Secretary Winter's 
direction, are executing an aggressive 3-year plan for process 
improvement affecting service, support, and transactional aspects of 
the Navy-Marine Corps enterprise. ``Lean'' embodies methods to identify 
and remove non-value-added activities from processes, reducing cycle 
time and increasing productivity. ``Six Sigma'' methods improve 
quality, reduce variability, and measure performance. Within the Navy 
Secretariat's transactional processes, LSS has resulted in a 48-percent 
reduction in cycle time for Below Threshold Reprogramming actions, 
while the Justification and Approval process for contract awards 
experienced an 87-percent cycle time reduction with significantly 
increased automation. Numerous other Department of the Navy commands 
and activities have achieved efficiency and productivity improvements 
averaging a four-to-one return on investment ratio in 3,300 rapid 
improvement events and projects. Marine Corps Aviation Continuous 
Process Improvement (CPI) is ongoing and has achieved numerous 
successes through a blending of the Theory of Constraints (TOC) with 
Lean and Six Sigma techniques. The following are illustrative of CPI 
successes during the past year:

         Activated 100 percent of all work centers in less than a year 
        and reduced Expeditious Repair (EXREP) items from 26 (average 
        per month) to 4 (average per month).
         Applying lean principles to ordnance supply processes led to 
        reduction in Time to Reliably Replenish (TRR) for over 5,000 
        line items of Armament Weapons Support Equipment (AWSE) and 
        Aviation Armament Equipment (AAE) from 125 days TRR to 12 days, 
        and reduction in backlog from 1,100 to less than 200 items.
         Use of ``kitting'' (i.e., assembling a kit, normally 
        consisting of consumable parts) for power plants reduced 
        ordering time from 10 hours to 40 minutes.

    One of the pillars of the Navy's Sea Power 21 strategy is Sea 
Enterprise, the plan to use lessons learned from industry to create 
efficiencies on the business side of the Navy that will free up 
resources for reapplication on the warfighting side. A key enabler of 
Sea Enterprise is Navy Enterprise Resource Planning (ERP). Navy ERP 
will create speed through integration of our acquisition, finance, and 
logistics capabilities, reduce costs by eliminating redundant systems 
and optimizing inventory postures, and improve the accuracy of our 
financial information. Required changes in the Navy's maintenance 
structure, and other influencing factors, necessitated a reordering of 
priorities and rebaselining of Navy ERP, but the project is moving 
forward. Navy ERP is an ambitious undertaking, but the scope is 
necessary in order to achieve the return we expect. The program has 
built upon our successful ERP pilot projects that executed focused 
business transformation for limited user groups. One pilot, SMART, has 
been retired. The three remaining pilots (SIGMA, CABRILLO, and NEMAIS) 
continue as limited production systems supporting over 23,000 users 
until replacement by Navy ERP. The first retirements are planned for 
fiscal year 2008.
    Navy ERP is the cornerstone of the future business environment, 
providing the ``backbone'' for the majority of required financial 
management capabilities including budget formulation and execution; 
funds distribution; core proprietary, budgetary, and cost accounting; 
and internal Department of the Navy information and reports. Navy ERP 
will, over time, replace all core Department of the Navy accounting 
systems and underlying financial feeder/budget/management information 
systems across the Department of the Navy, including those that 
interface with the Defense Financial Accounting Service. Navy ERP is 
the Navy's primary means of compliance with statutory and policy 
requirements for financial reform, including the Chief Financial 
Officers Act, the Federal Financial Management Improvement Act, and the 
DOD Business Management Modernization Program. Navy ERP Release 1.0, 
Echelon II & III Financials and Acquisition, will encompass General 
Fund and Working Capital Fund activities and enable funds management 
from Echelon I through Echelon III. Navy ERP will provide allocation, 
visibility, tracking, and reporting functionality as well as the 
ability to perform funds execution from distribution through 
disbursement. The program will conduct thorough demonstration and 
operational testing in fiscal year 2007, while concurrently executing 
extensive change management, and user training.
    3. Optimize Investments for Mission Accomplishment. In a concerted 
effort to rationalize the Navy's legacy applications and embrace 
portfolio management best practices, the Department of the Navy 
established senior headquarters functional process owners to serve as 
Functional Area Managers (FAMs). FAMs are responsible for working with 
Echelon II and Major Subordinate commands to align processes and 
identify a minimal set of applications required to execute the 
Department's mission. We are waging an aggressive campaign to eliminate 
legacy networks, consolidate server support, and eliminate redundant 
applications. We will track and manage the remaining portfolio of 
investments to provide the Department with the capabilities required to 
perform its missions with the greatest possible efficiency.
    4. Transform Applications and Data into Web-Based Capabilities to 
Improve Effectiveness and Gain Efficiencies. The replacement of legacy 
applications and isolated processes with Web-based capabilities is key 
to improving business processes and freeing sailors, marines, and Navy 
civilians from administrative functions to focus on core missions. 
Department of the Navy enterprise portals and employment of open 
standards will give sailors and marines access to secure self-service 
transactions from anywhere in the world and enable transformational 
change in our logistics, maintenance, manpower, and financial 
operations.
    5. Align Business Mission Area Governance to Produce a Single, 
Integrated Enterprise. We have taken great strides to ensure our 
organization remains aligned during these transformation efforts. The 
DOD has aligned and integrated Navy and Marine Corps IT governance. The 
designation of Deputy Chief Information Officers (CIOs) for the Navy 
and Marine Corps has aligned policy development with operational 
responsibilities, and established formal reporting relationships with 
information officers throughout the chain of command. The realignment 
of Navy warfighting and warfighting support networks under the Deputy 
Chief of Naval Operations for Communication Networks (N6) integrates 
responsibility for network requirements, resourcing, and development 
under a single authority. Our portfolio management efforts are aligned 
with DOD's Core Business Missions, and executive members of the 
Department of the Navy are assigned as voting representatives of the 
DOD Investment Review Boards corresponding to their staff 
responsibilities to facilitate transformation efforts and the Business 
Transformation Agency investment review process.
    Our annual IT budget execution guidance, and the work performed by 
our Functional Area Managers ensure that organizations' projects 
support the strategy and conform with policy and statute. Recent 
Government Accountability Office reports acknowledge the progress we 
have made in concert with the OSD staff, the Defense Business System 
Management Committee (DBSMC), chaired by the Deputy Secretary of 
Defense, and the Business Transformation Agency (BTA) on IT governance, 
portfolio management, and enterprise architecture development, and 
these efforts continue to move ahead. The DBSMC's capability portfolio 
approach is the right way to tackle the task of getting to the right 
set of investments for the DOD Enterprise. The work of the DBSMC and 
the BTA continues to build momentum, and the strong leadership and 
vigor that Mr. Brinkley and Mr. Modly have brought to Business Mission 
Area transformation have produced excellent results during their 
tenures, and I anticipate that the pace of improvement will continue 
unabated. Similarly, our work with the DOD CIO and my fellow military 
department CIOs reflects a level of cooperation and sharing of ideas 
and initiatives that is unrivaled in the history of DOD. A strong 
partnership also exists in the financial management community, and I 
would now like to address our plans for financial improvement and audit 
readiness.
    The provisions of the John Warner National Defense Authorization 
Act for Fiscal Year 2007 provide opportunities that will serve to 
strengthen and improve our efforts--the goal is to improve the quality, 
timeliness, and accuracy of financial information that our processes 
produce. Our financial improvement efforts have been fully coordinated 
with those infrastructure improvements that I have described earlier. 
They are integrated into the BTA framework of enterprise-wide systems 
and standards, the Navy ERP program, and our legacy system transition 
plan. The Department of the Navy's Financial Improvement Program (FIP) 
is a detailed component of the broader DOD Financial Improvement and 
Audit Readiness (FIAR) Plan. The OSD financial management and system 
transition framework have enabled us to develop practicable and 
executable plans. Our strategy is fully consistent with the 
requirements and intent of section 313.
    We are well into a phase of discovery, identifying deficiencies in 
our business processes and systems, taking immediate action where 
possible, and incorporating remaining corrective actions into the FIP. 
The DOD FIAR and Department of the Navy FIP provide a roadmap that will 
result in improved financial information for management and reporting 
and eventual audit readiness.
    Regarding section 804 and the new reporting requirements for Major 
Automated Information Systems (MAIS), while we believe that DBSMC 
oversight has substantially increased senior level attention on the 
Department's MAIS programs, the additional reporting for programs that 
fail to achieve Initial Operating Capability within 5 years of 
Milestone ``A'' approval is an effective means of focusing executive 
leadership attention.
    In working with the rest of the DOD team on our transformation 
efforts, I have been extremely impressed by the spirit of cooperation 
and determination to deliver improved support to our warfighters. This 
spirit has sustained us during the work that has been accomplished, and 
will serve as the basis for continued improvement. Together, we are 
making great strides toward achieving net-centricity and the business 
process transformation we need to maintain America's warfighting 
advantage into the future. Continued congressional interest and support 
has proven to be invaluable in setting the course and providing the 
impetus to move these initiatives forward. I am confident that we have 
the right leadership and processes in place to guide us the rest of the 
way. The prospects for the Department and the Nation are bright.
    Mr. Chairman, members of the subcommittee, I thank you again for 
allowing me the opportunity to speak to you today. We greatly 
appreciate your support of our business transformation efforts, and 
look forward to our continued cooperation on this important work. I 
would be happy to answer any questions you may have about the 
Department of the Navy's information technology and business 
transformation initiatives.

    Senator Ensign. Mr. Vonglis?

   STATEMENT OF JOHN G. VONGLIS, PRINCIPAL DEPUTY ASSISTANT 
      SECRETARY OF THE AIR FORCE FOR FINANCIAL MANAGEMENT

    Mr. Vonglis. Thank you, Mr. Chairman and Senator Akaka. I 
am honored to sit before you to share successes and to update 
you on our progress towards business systems modernization, 
accountability, and transparency.
    It is no exaggeration to claim that technology is the great 
enabler of our time. But with the notable exception of 
sensitive programs within the DOD, it benefits no one if data 
and information are neither shared nor available to those who 
depend on it. This is particularly crucial in a time of war. As 
such, transparency of processes and systems is something that 
Air Force Secretary Michael Wynne has placed unambiguous 
emphasis on.
    Indeed, he personally chairs a monthly review of 
transparency issues across organizational lines, holding 
leaders accountable for their progress, as well as embarking on 
a strategy known as Air Force Smart Operations for the 21st 
century (AFSO 21) which is a process to eliminate waste--waste 
of time, of money, and of manpower. Within the financial 
management community, and again thanks to technology and the 
hard work of our people, we are now in the delivery phase of 
our transformation efforts.
    For example, we have taken from concept to reality the Air 
Force Financial Services Center (AFFSC) soon to become 
operational at Ellsworth Air Force Base in South Dakota. The 
AFFSC is a modern, secure central processing and contact center 
that consolidates routine support functions from 93 bases 
around the world to one location and delivers 24/7 service to 
deployed airman, all the while saving over $200 million and 
freeing up nearly 600 manpower spaces, which of course the 
Service can use elsewhere.
    We also have established a cost center of expertise in 
Denver. The mission of this S.W.A.T. team-like entity, staffed 
primarily by a core team of cost and economics experts, is to 
assist in reviewing often complicated cost-benefit analyses 
whose infrequent nature does not justify continuous presence of 
resources on base.
    Our pursuit of an unqualified audit opinion is on track 
through a financial information audit reliability plan that 
closely mirrors the OSD plan. Additionally, the Air Force is 
aggressively pursuing business systems modernizations.
    Three examples of this are the Defense Enterprise and 
Accounting Management System (DEAMS); the Expeditionary Combat 
Support System (ECSS); and of course, Defense Integrated 
Military Human Resources System (DIMHRS). All three incorporate 
commercial off-the-shelf components, business process 
improvements, and data standardization to produce accurate, 
reliable, and timely management data for decisionmakers.
    Once operational, we will have total asset visibility, 
available real-time to warfighters. These modernizations reduce 
operating costs associated with reconciling hundreds of systems 
and the associated rework with nonintegrated data bases.
    We also have worked with the OSD joint program office to 
develop a hand portable E-44 electronic device, which replaces 
the old, laborious paper standard form 44. The size of a small 
personal digital assistant, the E-44 has the ability to store 
up to 200 contracts, allows our deployed financial managers 
access to secure vendor lists, and reliably communicate with 
suppliers in six different languages, including, of course, 
Arabic.
    Although we view these accomplishments as significant, no 
doubt there is still work to be done. In the interest of time, 
I conclude by again thanking this committee for your oversight, 
your guidance, and support during these challenging times. 
Naturally an undertaking of this magnitude is a team effort. As 
such may I introduce David Tillotson, the Air Force Deputy CIO 
and also the information technology subject matter expert 
available here to answer any detailed questions you may have.
    We are proud, Senators, to stand by your side, supporting 
our Nation at war. Public money is a public trust and we are 
grateful to serve as Air Force stewards. Thank you.
    [The prepared statement of Mr. Vonglis follows:]

                 Prepared Statement by John G. Vonglis

                              Introduction

    Chairman Ensign, Senator Akaka, and members of the Subcommittee on 
Readiness and Management Support: Thank you for the opportunity to 
appear before you as we discuss the Air Force's progress in support of 
the Department of Defense's (DOD) business systems modernization and 
financial management accountability efforts.
    In November 2004, my predecessor testified before this subcommittee 
to discuss the financial management and business transformation we were 
then planning for the Air Force. I am pleased to report that today's 
Air Force financial management community is acting on those very plans, 
heavily engaged in what we have dubbed the ``Transformation Delivery'' 
phase of our efforts. I am honored, therefore, to sit before you today 
to update you on this progress.
    Transforming the Air Force's business processes, with a focus on 
improved financial management and accountability, is an essential task 
as our Service moves further into the 21st century. Increased mission 
responsibilities around the globe, finite resources, and our goal of 
retaining and achieving cutting-edge combat capabilities in the domains 
of air, space, and cyberspace require intensified investment management 
across the spectrum, particularly in the realm of information 
technology. Though change in any environment can at times be difficult 
and challenging, our people have responded in exemplary fashion.
    Through all of this change and transformation, we have made the 
very conscious effort to ensure that our people must always come first. 
After all, our people drive our transformation, not the other way 
around.
    While maintaining our warrior focus, Air Force financial managers 
appreciate that organizations at all levels of the Air Force have 
responsibilities to execute efficient, business-like operations. As 
such, we are in the midst of enacting processes that take advantage of 
shared information in order to make decisions based on timely, 
accurate, and reliable data--all while continuously working to conserve 
resources.
    We are committed to ever-higher levels of innovation and excellence 
in our business and management processes because in the complex and 
highly technological enterprises we operate, decisions are made in ever 
tighter cycles, and innovation and excellence enables everything we do. 
Transformation of the ``business'' side of the Air Force will not only 
lead to operational efficiencies, attainment of an unqualified audit 
opinion, and improved credibility, but also to more effective and 
timely decisions where they matter most: the warfight.
    To assist in our common goals of improving management and oversight 
of business systems modernization, we offer the following answers in 
response to your 26 October 2006 memorandum to Secretary of the Air 
Force, Michael Wynne.

            AIR FORCE DEFENSE BUSINESS SYSTEM MODERNIZATION

    The Department's Annual Report on Defense Business Systems 
Modernization was built through joint contributions within the Service 
and alongside our sister Services. As the Government Accountability 
Office has noted in its recent reviews, the DOD has continued to mature 
its management of modernization as the real outcomes and the quality of 
these reports have continued to improve. The process has enabled us to 
better manage business system portfolios across the Air Force and 
within the DOD as a whole. We work through the DOD Business 
Transformation Agency (BTA) and the Defense Business Systems Management 
Committee (DBSMC) to produce the report. Our functional organizations 
and major commands contribute to the Annual Report on Defense Business 
Systems Modernization, responding to three key provisions of the act.
    First, we develop, maintain, and use the Business Enterprise 
Architecture (BEA), now available in Version 4.0. The BEA is the 
enterprise architecture for DOD's business information infrastructure 
and includes processes, data, data standards, business rules, operating 
requirements, and information exchanges. The BEA defines the DOD's 
business transformation priorities, the business capabilities required 
to support those priorities, and the combinations of systems and 
initiatives that enable these capabilities. The BEA provides the 
starting point for achieving financial, personnel, acquisition, and 
materiel visibility, common supplier engagement, and real property 
accountability. From the Air Force perspective, the BEA guides and 
constrains the Air Force business system modernization programs by 
imposing these data standards, business rules, operating requirements, 
and information exchanges. The Air Force coordinates closely with the 
DOD BTA by providing subject matter expertise, consulting on the BTA 
architecture federation strategy, and providing input for the DOD Data 
Reference Model.
    In addition, we certify all business systems development and 
modernization spending in excess of $1 million over the Future Years 
Defense Plan (FYDP), using a rigorous and repeatable evaluation process 
that looks at all current and proposed spending to ensure compliance 
with the BEA, eliminate unneeded or redundant capabilities, and ensure 
that spending is aligned to DOD and Air Force priorities. To date, 55 
systems have been reviewed and certified for modernization funding, 
with an aggressive schedule in place to review all Air Force business 
systems modernizations throughout fiscal year 2007, including those 
below the $1 million certification threshold.
    Lastly, we prepare, maintain, and use the DOD Enterprise Transition 
Plan (ETP), linking Air Force and DOD Visions, Goals, and Strategies to 
our transformation priorities, programs, accomplishments, and plans. 
ETP 2006, delivered to Congress by the BTA on September 30, describes 
our Air Force Transition Plan in detail.

                            ACCOMPLISHMENTS

    In the area of process and organizational change across Core 
Business Mission areas (CBMs), the Secretary of the Air Force has 
visibly committed our Service to continuous, efficient process 
improvement, tasking the Air Force Smart Operations for the 21st 
Century (AFSO21) program to apply process improvement disciplines 
across Warfighting, Combat, and Operations support. We have named 
senior-level Process Owners across the Air Force to shepherd our 
reengineering efforts under the auspices of an Air Force Process 
Council chaired by the Air Force Secretary.
    To improve decisionmaking information and integration within and 
between the Air Force and DOD, the Air Force Secretary leads the 
Transparency initiative, which uncovers and makes available functional 
and mission area data currently stored in systems that number in the 
thousands. A Transparency Integrated Product Team, also chaired by the 
Air Force Secretary, oversees this effort, which is currently focusing 
on exposing data to improve information availability and visibility. 
These focus areas include:

          (1) Implementation of the Standard Financial Information 
        Structure (SFIS) pathfinder, which is a working capital project 
        scheduled for initial capability in late December 2006.
          (2) A focused effort to provide logistics information to 
        Combatant Commander's (COCOM 57).
          (3) Our improved readiness and status of forces information 
        (Readiness and Global Force Management), and consolidated 
        Flight Scheduling.

    In 2006, our agile combat support community, which includes 
personnel, comptroller, logistics, acquisition, and medical functions 
made strong progress toward business transformation. Total Force 
Personnel Services Delivery (PSD) was launched successfully in March 
2006, providing our Airmen with ever-increasing access to information 
and services around the clock while reducing the number of personnel 
specialists required to deliver the service. Our logistics community 
prototyped an Item Unique Identification (IUID) plan and implemented it 
across several thousand items, directly supporting DOD Materiel 
Visibility and Financial Visibility Enterprise Priorities.
    In fiscal year 2006, we stood up and achieved initial operational 
capability for our financial management Center of Expertise (COE). The 
COE provides key analytical support including cost estimating, economic 
and business case analysis, and specialized financial analysis to major 
commands, base, and installation decision makers. It capitalizes on 
centralized experts, information technology, and a continuous emphasis 
on cutting edge databases and analytical tools to economically remedy a 
widely recognized and critical skill and resource gap out at our 
operational commands. The COE works on the concept of a few highly-
qualified experts, with the right tools, serving as part-time 
consultants providing specialized, on-call analytical decision 
support--without the expense and inefficiency associated with remote 
locations trying to build and sustain this unique capability. The COE 
has already logged a number of success stories and saved scarce Air 
Force resources. We are thrilled about the opportunity to apply this 
financial management best practice and look forward to full operational 
capability in fiscal year 2008.
    But the COE is only one of our first successful transformations. We 
are making changes equally as dramatic in all areas of Air Force 
Financial Management--particularly important is our new Air Force 
Financial Service Center (AFFSC) at Ellsworth Air Force Base in South 
Dakota. The AFFSC consolidates all of our `back office' transaction 
processing and routine military pay and travel pay queries to one 
location, uniting work now performed at 93 separate locations and again 
reducing the number of specialists required to provide the worldwide 
24/7 customer service our Air Force requires and our people deserve. 
This consolidation saves the Air Force more than $200 million over 10 
years as well as 598 Financial Management manpower spaces, which can in 
turn be used elsewhere by the Service.
    Though the AFFSC allows for a drastic reduction in the number of 
customers we see face-to-face for pay issues and represents a huge 
transformation in the way we provide customer service, we will not 
abandon our people when a personal touch is required. Face-to-face 
customer service will still be available at our Air Force bases around 
the world so that our people can get the financial services they need 
in a manner that works best for them.
    Yet another example that defines our financial management vision of 
the future is a hand-portable, easy-to-use electronic device called the 
E-44 that is truly transformational. By harnessing the power of science 
and information technology while keeping the focus on the safety and 
security of our people, the concept of the E-44 was born. The E-44 
replaces the older labor and paper-intensive Standard Form 44, used for 
purchase and contracting. Today's E-44 was developed by our financial 
experts in collaboration with OSD's Joint Program Office. In fact, the 
latest model is about the size of a small personal digital assistant, 
can store 200 contracts, has a built in camera, and allows our deployed 
financial managers to do things like access secure vendor lists quickly 
and reliably and to communicate with suppliers in six different 
languages (English, Arabic, German, Spanish, Russian, and French). Not 
only does this system reduce organizational burdens, but more 
importantly, it decreases the exposure time of troops to potentially 
dangerous environments wherever our forces may be operating.
    The Joint Services One Stop Kiosk is another unique project enabled 
by technology and is also the direct result of joint and industry 
cooperation. It is a commercial off-the-shelf system that makes the 
lives of our DOD, military, civilian, retired, and Active-Duty 
personnel (particularly those traveling or without easy access to 
computer workstations) a whole lot easier when it comes to accessing 
their financial records and other personnel information when they don't 
have access to a desktop computer. Our first Air Force kiosk was 
installed at Keesler Air Force Base for our students who did not have 
access to personal computers. The units are being installed in 
billeting and other organizations worldwide. Locally, kiosks can also 
be found at places like the Honor Guard dorms at Bolling Air Force Base 
as well as within the Pentagon.
    We are also having success in our evolution to a greater degree of 
transparency of financial systems. In fact, just last week we delivered 
to the Secretary of the Air Force's desktop computer an application 
called the FM Suite Dashboard which provides web enabled visibility of 
financial metrics such as funds execution, interest penalties, and 
government travel card delinquency just to name a few. This application 
draws its information from several databases maintained inside and 
outside the Air Force and will be installed on the computers of those 
in the Air Force who make resourcing decisions and require the most 
current financial execution data. This brings a tremendous paradigm 
shift to the level of transparency under which we will operate and 
makes those who spend dollars more accountable for their resource 
decisions.
    As we continue to have these types of successes in the field, we 
have been able to shut down 16 of 21 legacy systems affecting numerous 
Air Force functional organizations scheduled for elimination through 
fiscal year 2006. We have 23 more systems scheduled for shutdown in 
fiscal year 2007. The Air Force CIO office tracks the status of these 
projects on a monthly basis. The combination of this careful focus on 
investments and new business practices will create better information 
for decisionmakers while eliminating stovepiped and redundant systems 
and tracking shutdown and migration of over 500 systems.

     AIR FORCE PRIORITIES AND CRITICAL MILESTONES, FISCAL YEAR 2007

    All nine Air Force priorities are described in detail in the 
separate Enterprise Transition Plan, in fiscal year 2007, however we 
will maintain a focus on:

          (1) Global Synchronization of the supply chain (people, 
        materiel, and installations) and integration with operations. 
        Critical Milestones include the blueprinting of first-priority 
        Expeditionary Combat Support System (ECSS) modules, Full 
        Operating Capability for Enterprise Environmental Safety and 
        Occupational Health (EESOH), and fielding of the Enhanced 
        Technical Information Management System (ETIMS).
          (2) Delivery of Commanders' resource management capability 
        versus low value-added transactional activity. Critical 
        Milestones include deployment of the Personnel Services 
        Delivery (PSD) initiative's Force Development Tool Kit to 
        Active-Duty Officers and a role-based access/electronic viewer 
        for military personnel records, as modules of the virtual 
        Personnel Services Center (vPSC).

    Details of other near-term plans are laid out in the ETP for each 
of our major domains and for our critical enabling activities, 
including the AFSO21 and Transparency initiatives.

  ASSISTANT SECRETARY OF DEFENSE NETWORKS AND INFORMATION INTEGRATION 
                   (ASD(NII)) COORDINATION AND INPUT

    The Air Force is working in close cooperation with the Office of 
the Assistant Secretary of Defense Networks and Information Integration 
(OASD(NII)) in those areas crucial to the future of Department networks 
and business applications. For example, the Air Force and the office of 
the OASD(NII) are working on a Department-wide approach to metadata 
generation, leveraging lessons learned from a recent Joint Air Force, 
Army, Navy, and Marine Corps effort using test facilities at Joint 
Forces Command. Lessons from this joint collaboration are being used to 
redirect data efforts across the DOD.
    It is critical for organizations that deal with the Global 
Information Grid (GIG) and component infrastructure to coordinate 
future plans, especially when lack of doing so will cause major 
disruptions to large scale Enterprise Resource Programs (ERPs). 
Synchronization of infrastructure with systems is difficult across an 
organization as large as the DOD enterprise. As a result, we have 
recently been discussing how to move in a more agile, federated fashion 
with infrastructure upgrades that allow us to keep these efforts on 
track. We encourage additional discussion on these issues within the 
DBSMC and recommend that OSD/NII adopt the DOD BTA's model of tiered 
accountability aligned to a well understood architecture, working 
through the components to help solve related issues.

                         DOD'S APPROACH TO ERPS

    We believe we have adopted an approach to ERP implementation that 
will allow success. In general, the DOD is not implementing a single 
instance of an ERP that spans the entire DOD enterprise. Benchmarking 
with large corporations indicates that such a monolithic approach would 
be unsuccessful. Instead, each of the components has analyzed the 
effectiveness of ERP systems in its operations, and has recommended 
slightly different approaches. As a result, there is no single ERP 
adoption model. The Air Force recognizes the risks associated with 
moving away from the current IT environment based on hundreds of 
stovepiped and interconnected information systems, and is monitoring 
closely the successes and difficulties of ERP implementations in 
government and in the private sector. We have reduced ERP fielding 
risks to the lowest possible level through senior leadership governance 
and direction, a unified well articulated enterprise vision, use of 
enterprise architecture, process re-engineering with enterprise goals 
in mind, a well thought out change management strategy and use of pilot 
programs to prove, and when necessary, modify processes. Finally, 
accounting for legacy systems that must be phased out over time, 
incremental and synchronized ERP fielding across the Air Force, will 
reduce risk as we move forward. We obtained benchmark information from 
major ERP users and are paying particular attention to our breadth of 
scope and integration with the legacy systems. We believe that these 
measures, combined with strong program management and oversight, will 
enable the Air Force to successfully implement our planned ERPs.
    The Air Force is pursuing two ERP efforts with different scopes. 
The Enterprise Combat Support System (ECSS) focuses on supply chain and 
logistics support functions such as material management, product data 
management, configuration and bill of materials, advanced planning and 
scheduling, customer relationship management, order management, quality 
control, distribution and transportation, repair and maintenance, 
budgeting, facilities management, document management, and decision 
support. ECSS will replace over 400 systems and applications, enable 
worldwide total asset visibility, and support global synchronization of 
the supply chain and integration with operations. Work on the ECSS 
started in early 2003, building a transformation strategy, creating the 
needed enterprise architecture to guide transformation, implementing a 
change management program, and designing a process to capture and 
understand the current information system and data environment. We have 
established integrated product teams to facilitate logistics and 
financial process and information integration between our major ERPs.
    Our second effort, the Defense Enterprise Accounting Management 
System (DEAMS), will handle financial management, including general 
ledger, requirements initiation and fund control, cost and revenue, 
budget, accounts receivable, accounts payable, plant, property and 
equipment. DEAMS will replace current systems supporting both 
Transportation Working Capital Fund (TWCF) and general funds including 
the General Accounting and Fund System (GAFS), Integrated Accounts 
Payable System (IAPS), Automated Business Services System (ABSS), and 
Airlift Services Industrial Fund Integrated Computer System (ASIFICS). 
DEAMS will deliver accurate, reliable, and timely financial information 
for decision makers, incorporating industry leading best practices and 
supporting Chief Financial Officer Act Compliance within the Air Force. 
This ERP, although broad in applicability, has a focused financial 
management scope (General Ledger and associated applications) and will 
not handle many of the transactional processes performed in logistics 
and personnel systems. The re-engineering of financial processes, 
involving an in-depth review of the financial service delivery model, 
is also preceding the system implementation.
    Additionally, the Air Force will leverage the large-scale Global 
Combat Support System--Air Force (GCSS-AF) infrastructure to host the 
ERPs and interconnect systems. We have also created an integrator unit 
within the Air Force Materiel Command, which is specifically charged 
with managing the interoperability of our ERPs between themselves and 
with the legacy systems. The implementation of a service-oriented 
architecture that allows the net-centric exchange of information 
between various systems will further reduce the quantity of point-to-
point interfaces.

                       AIR FORCE FINANCIAL AUDITS

    We wholeheartedly concur with the committee that the most effective 
way to address the Air Force's financial management issues is to focus 
our efforts on our core business systems and processes as embodied in 
section 313, S. 2766, the John Warner National Defense Authorization 
Act for Fiscal Year 2007. This focus is embodied in the DOD Financial 
Improvement and Audit Readiness (FIAR) Plan, a key component of which 
is the Air Force Information Reliability and Integration (AFIR&I) Plan. 
The AFIR&I Plan is the Air Force's roadmap toward financial 
transparency and details our ongoing commitment to ensuring the 
absolute highest level of stewardship of the taxpayers' investments in 
the Air Force. Our financial improvement activities related to the 
preparation, processing, or auditing of financial statements are 
included as part of this plan and are designed to produce sustained 
improvements in our ability to deliver accurate, timely, reliable, and 
complete financial management information.

    MAJOR AUTOMATED INFORMATION SYSTEM (MAIS) REPORTING REQUIREMENTS

    We think the requirements of section 804, S. 2766, the John Warner 
National Defense Authorization Act for Fiscal Year 2007 are a positive 
step in putting more discipline in the process; MAIS implementation 
throughout the Air Force is critical for the automation and integration 
of our business processes. It will provide consistent and timely 
information for decisionmaking and performance measurement. MAIS will 
provide access to data in a near real-time environment and allow the 
Air Force to make official decisions from current, relevant 
information.
    The Air Force has established its own defined and repeatable 
process, with detailed reviews of the modernization efforts occurring 
at several management levels. All systems with modernization funding in 
excess of $1 million over the FYDP require certification and approval 
by OSD. Air Force MAIS systems categorized as business systems are 
reviewed under this process. Each of these business systems (MAIS and 
non-MAIS) undergo a follow-up review annually whereby cost, schedule, 
and performance are evaluated for continued funding. Systems that fail 
to perform within set criteria are required to present risk mitigation 
plans to a senior executive working group or face possible prohibition 
on future modernization funding. A process is being developed whereby 
all defense business systems will be reviewed on an annual basis, 
whether they are modernizing or only sustaining capabilities.
    Consistent with OSD direction the Air Force will revise its 
procedures to ensure MAIS programs are reviewed quarterly with findings 
reported to the designated authority in a manner similar to that being 
utilized on Major Defense Acquisition Programs (MDAPs) in the Selected 
Acquisition Report (SAR).

                    USE OF HIGHLY QUALIFIED EXPERTS

    The Air Force embraces the use of the Highly Qualified Experts 
(HQEs) hiring vehicle per OSD guidance titled ``Employment of Highly 
Qualified Experts'' dated June 27, 2006, and appreciates the authority 
given by Congress to pursue such hires. The Air Force has hired seven 
HQEs so far. Four of these HQEs are currently serving and three have 
left the government at the completion of the projects for which they 
were hired. The Air Force is investigating the hiring of two more at 
this time.
    The guidance for hiring HQEs is controlled by the Air Force 
Executive Resources Board (AF ERB). The AF ERB has never turned down a 
valid application for an HQE hire, nor has the ERB added further 
guidance above or beyond what is found in the June 2006 OSD memorandum. 
Since the OSD memorandum does not dictate how HQEs should be evaluated 
or rewarded, the AF ERB performs due diligence on this process for the 
Secretary of the Air Force.

                               CONCLUSION

    I want to close, Mr. Chairman, by thanking you and members of this 
subcommittee, on behalf of the Secretary and Chief of Staff, for your 
continued support of our airmen and their families in so many areas, 
particularly by providing them what they need to fight the global war 
on terror and defend our great Nation.
    I assure you that the people of the United States can count on 
their Air Force Financial Managers, working together with our 
colleagues throughout the DOD to provide reliable, timely, and accurate 
financial and management information and analysis to enhance 
decisionmaking and customer service throughout the Air Force.
    As financial managers, we understand that Joint operations are not 
the exclusive domain of the battlefield. We must remain ready to tackle 
the ever-changing budget realities of a fiscally constrained 
environment and a vast array of unexpected events, especially those 
brought on by the global war on terror, and disasters--manmade or 
natural--whether at home or abroad. Public money is truly a public 
trust and we are grateful to serve as Air Force stewards.
    I would like to conclude today by thanking the Senate Armed 
Services Committee for your support during this important business 
transformation. We are proud to stand by your side in support of our 
Nation at war.

    Senator Ensign. I want to thank all of you for your 
testimony and I don't want to take away anything personal 
against any one of you that is here today, and I'll let Senator 
Akaka speak for himself, but I personally was very disappointed 
when we asked the Service Secretaries to provide witnesses for 
this hearing that they chose not to send folks who had received 
the advice and consent of the Senate.
    The importance of improving financial management 
accountability, as you just mentioned, being stewards of the 
taxpayers' dollars, in my personal experience in business, is 
if the very top isn't buying into it and showing their complete 
commitment to it, it does not happen. No matter how dedicated 
you all are, if the top isn't buying into it, there won't be 
nearly the commitment to getting things done and seeing those 
things followed through.
    One of the key impediments to reform continues to be this 
cultural resistance to change. Including the military service 
parochialism that's famous and all of the stovepipe operations 
that we continue to see. To address resistance department-wide, 
the OSD has restructured and enjoys the strong leadership and 
support of Deputy Secretary of Defense Gordon England. It 
remains to be seen whether or not we had, given the time, 
Secretary England had asked for that time, Mr. Walker you 
understand this--that he asked for the time before doing what 
you and I had both talked about doing before--creating a Chief 
Management Officer within DOD.
    I want to start with each one of the Services and ask what 
actions that each one of your Services have taken to reshape 
that culture and not from your level, but hopefully you can 
speak for the levels that are above you, to reshape that 
culture, to totally transform what is happening as far as a 
management and information system overhaul.
    I'll start with you, Mr. Argodale.
    Mr. Argodale. Thank you, Mr. Chairman. We've done some 
significant things over the years to align with the changes 
that have been made at OSD.
    First, working directly for the Secretary and Under 
Secretary is a Deputy Under Secretary of the Army for Business 
Transformation and that Deputy Under Secretary is responsible 
for implementing business transformation efforts across the 
Army, particularly under Lean Six Sigma-type program.
    Each organization within the Army has been assigned a 
certain number of Lean Six programs to initiate and a certain 
dollar value of savings associated with those programs. Within 
a financial management community we've recently stood up a 
Deputy Assistant Secretary for Financial Information 
Management. That Deputy Assistant Secretary is responsible for 
coordinating systems approvals with the financial management 
IRB at Defense. That Deputy Assistant Secretary also has 
responsibility for overseeing the Army's financial and business 
systems budgets to ensure that the budget piece aligns with the 
approvals submitted and approved by the IRB and finally, the 
Deputy Assistant Secretary there is also the primary functional 
customer for the General Fund Enterprise Business Systems.
    Our CIO has overall responsibility for ensuring compliance 
with section 332 of the National Defense Authorization Act and 
ensuring that business systems are approved through the IRB and 
DBSMC process.
    Senator Ensign. I know the military's famous for acronyms, 
but try to stay away from them, thank you.
    Mr. Argodale. Okay. I think we've accomplished quite a bit 
in terms of realigning our organizational structure ensuring 
the right level of focus on these problems.
    Mr. Wennergren. Sir, we've taken a number of steps as well. 
We have aligned our information management/information 
technology governing structure within the Department of the 
Navy. The command, control, communications, and computer 
directors of the Chief of Naval Operations (CNO) and the 
Commandant Marine Corps were double-hatted as my Deputy CIOs 
and we have aligned all the command information officers down 
through the two respective chains of command to work as a 
single integrated team.
    We've taken our functional leaders and dubbed them 
functional area managers with the responsibility for all of the 
applications within their functional domains. They work on a 
functional area manager council together with me to make sure 
that we have eliminated the redundant applications, and we've 
eliminated an extra 2,000 applications in just the last year 
alone. They are aligned to the construction of the DOD, 
Business Management Modernization Program, and IRBs.
    We've also put in a whole new approach to how we do 
performance management, to breakdown those very stovepipes that 
you talk about. We operate now a single Naval Aviation 
Enterprise that brings together the different commands that are 
responsible for buying aircraft, maintaining aircraft, training 
the pilots, and operating the forces. They are aligned to a 
single outcome-based performance measure that is aircraft ready 
for tasking. Each of the subordinate commands, even though 
they're a different organization, are aligned with subordinate 
measures to show how they drive to the overall goal that the 
CNO and the Secretary and the Commandant have.
    We also have a Business Transformation Council that we have 
set up with the Under Secretary as the chair with the Vice CNO, 
the Assistant Commandant of the Marine Corps, and our Assistant 
Secretaries of the Navy and the General Counsel to work the 
issues that span the organizational boundaries of the Navy and 
Marine Corps that can't be resolved just within the functional 
area manager council.
    We've also taken some steps to actually fundamentally 
change the organization of the Department. We stood up the 
Commander Navy Installations Command for one of these very 
reasons, bringing together the real property base operating 
support responsibilities of eight different commands into one 
place so that we could take hundreds of disparate stovepipe 
legacy applications and bring them together into a few key 
systems that will drive the operation and management of our 
base operating support across the entire Navy.
    Senator Ensign. Mr. Vonglis?
    Mr. Vonglis. Senator, just going back a little bit to my 
opening statement, I think the single most important thing that 
we've done in the Air Force is to create a culture of 
accountability, of transparency, and of governance, and this is 
perhaps emphasized more so with Secretary Wynne's arrival, but 
even prior to that all the different functionals met on a 
regular basis, broke down those proverbial stovepipes to come 
to a corporate agreement, if you will, on what is the best 
course of action to take in terms of systems and processes and 
modernizations and to make decisions based on tangible goals 
and priorities.
    Internally, we do have, much like the Navy alluded to, a 
group of functional experts. They then report up to a senior 
working level group, that group reports to the IRB, and that 
group in turn answers to the DBSMC. So, we have numerous 
systems and processes in place to look at those exact issues.
    As I mentioned, the Secretary personally chairs a monthly 
meeting of all his direct reports where these issues are 
fleshed out. There's no greater visibility than to have the 
Secretary of the Service meet with these folks on a monthly 
basis.
    Senator Ensign. Mr. Walker, can you give an analysis just 
of the previous three answers, just from GAO's perspective on 
how the Services are doing compared vis-a-vis to the DOD?
    Mr. Walker. I clearly think that progress is being made in 
many different areas within the DOD, but to differing degrees. 
I think as my testimony outlines, our view is, you need to have 
a single integrated plan dealing with business systems 
modernization, including the related enterprise architecture 
component. That has to be done on an enterprise wide level.
    It's fine to employ a federated approach. It's fine to be 
able to provide for responsibility and accountability for 
certain key elements and components at a decentralized level, 
but you need to have that single strategic and integrated 
Department-wide plan. They don't have that yet. I think that's 
important.
    One of the things we have to ask ourselves is, since 
progress is being made--but we're talking about a Herculean 
effort here--it took us a lot of years to get where we are, 
it's going to take us a number of years to get us where we need 
to be.
    One of the key questions, is what needs to be done in order 
to sustain whatever progress is being made. That has to do, not 
just with the need for a plan, it has to do with performance 
metrics, performance management systems and the right type of 
leadership who will provide continuity, both within and across 
administrations on issues that inherently are nonpartisan.
    Good government, economy, efficiency, effectiveness, 
transparency, and accountability don't have a partisan label 
and we need a CMO/COO. Importantly, that's not just for 
business systems modernization. It's for all 14 high risk areas 
and it's not a new layer of management, because this person 
shouldn't be involved in the day-to-day management of DOD. This 
person would be responsible and accountable for making business 
transformation happen. It's going to take years, and it's more 
than a full-time job.
    Senator Ensign. I'll end with this and then I'll turn it 
over to Senator Akaka. I want to applaud the work that is being 
done. I think that all of us understand that the military, 
because these dollars from the taxpayers are so precious, we do 
need to look at every way that we can spend them in a better 
way. We need to have better systems in place, not for the sake 
of having systems, but for the sake of, one, having information 
that goes up and down the line where people can use that 
information, but also where we're using those taxpayer dollars 
where they're not being wasted. We know that there is a 
tremendous amount of waste at all levels of government and it 
is our job as overseers of that to try to put into place that 
accountability in our systems and hold you all accountable for 
the dollars we give you from the taxpayers.
    I want you to continue to do the work, but one of the 
concerns we have at this subcommittee is that each one of the 
Services, you all say that you are complying to a plan, but yet 
you don't have an overall plan that Mr. Walker just talked 
about. So it's hard for us to understand how you are complying 
with a plan when the plan's not in place and the metrics aren't 
in place. It's really important to have metrics, because if you 
don't know what you're measuring against, it's difficult to 
understand what, how well you are doing.
    The purpose of us having these hearings every 6 months was 
so that the DOD and the Services would start setting those 
metrics out. That's the reason I started my questioning with, 
saying that we were disappointed at the level that the Services 
seem to be paying based on even the level of the witnesses that 
were sent here before us today. We are not happy with that and 
I want you to convey to your bosses that we are not happy with 
this.
    We want to see the commitment at the highest levels to this 
business transformation that needs to take place. Mr. Walker is 
exactly right. It's not going to be easy, this is mundane 
stuff, this isn't fighting wars, but this is so we can fight 
wars more effectively, and that our service men and women have 
the tools that they need to fight that.
    We have some very detailed questions that would be very 
difficult for you all to answer, so we're going to have them 
submitted for the record, some very detailed questions on how 
to set up those metrics, what the transformation plan is and so 
that we can get for the record, so we can hold you all 
accountable when Senator Akaka does his first hearing on this 
so that the Services 6 months from now when we come back with 
another hearing if that's when he chooses to do that, that we 
can have better answers and we can measure, we can come back 
and say, here's what you said you were going to measure. Have 
you measured it? Are you complying?
    Senator Akaka.
    Senator Akaka. Thank you very much, Mr. Chairman. I must 
really commend you and what you're doing here to help our 
country save money as well as to try to set up a system to be 
able to do that.
    Let me first commend and praise our Comptroller General, 
Mr. Walker, for all he has done in the years that he's been 
here in that position. You have been working on making this 
system more mature, as you say. I've been able to work with you 
also on it and will continue to do that. I want to compliment 
you for moving this into what we call high risk areas.
    I remember in our chats much earlier, we were looking at 
how do we approach this, and one of your recommendations was to 
look at the risks that each department has in the 
administration, and on that basis, to determine which might be 
considered high risks. You're right, it turned out that the 
particular department we're really looking at did have the most 
high risks that we need to focus on, and this is what we've 
been doing.
    So I really give you the credit for trying to create a 
process of approaching this and trying to find solutions to it. 
The Comptroller General's statement today indicates that the 
enterprise architectures of the military departments, as said, 
is not mature enough to responsibly guide and constrain 
investment in business systems.
    According to GAO, the Air Force has fully satisfied only 14 
of 31 core frame work elements of an enterprise architecture. 
The Navy has fully satisfied only 10 of these elements and the 
Army has fully satisfied only a single core framework element, 
just 3 percent of the total.
    Mr. Argodale, Mr. Wennergren, and Mr. Vonglis, let me ask 
each of you, is the Comptroller General's assessment of your 
enterprise architecture accurate? Also, tell us what steps do 
you plan to take to adjust this problem? Mr. Argodale?
    Mr. Argodale. Senator Akaka, I would tell you that the 
Army's architectures are maturing, they're not at a finished 
state yet, but I will also tell you we are in compliance with 
section 332 of the NDAA, which requires all our business 
systems modernizations costing more than a million dollars to 
be submitted through the Defense IRB for ultimate approval by 
the DBSMC. Part of the requirements checked there is to ensure 
compliance with the Defense BEA. So there is some rigor in the 
process.
    The Secretary of the Army has directed each business domain 
to develop domain transition plans and submit those plans by 
December of this year for approval and publication across the 
Department to guide from a business domain area our 
transformation efforts within the Army.
    So, I would tend to agree with you that our architectures 
aren't as mature as they need to be, but we do recognize that 
there needs to be some work done there and the Secretary's 
involved, the Chief of Staff of the Army is involved, and we 
should see some progress within the next month or so with 
respect to the development of the transition plans that the 
Secretary has requested.
    Mr. Wennergren. Senator Akaka, we too continue to mature 
and refine our architecture efforts. Our functional managers 
have laid out the taxonomies and paths to move from the ``as-
is'' state in each of their portfolios to the ``to-be'' set of 
applications that we will have in the future. We have aligned 
ourselves to the BEA. I am the pre-certification authority for 
the systems that go forward for DBSMC approval and we assess 
each one of those systems against the DOD enterprise 
architecture.
    I also use my Clinger-Cohen Act responsibilities to certify 
and look at each of the systems that comes through, and we make 
sure that they comply with our architectural policies and 
information security requirements. We continue, just as the 
Defense BEA continues to mature and develop, to mature and 
develop the enterprise architecture components inside the 
Department of the Navy and we have just released our new 2006 
version of our own internal Navy/Marine Corps architectural 
products.
    Senator Akaka. Mr. Vonglis?
    Mr. Vonglis. Senator, technically yes, it is accurate; 
however, in terms of one minor clarification, in terms of full 
and partial systems we're looking at 22 of 31. So, yes, 14 are 
fully completed, but we do have another 8 that are in partial 
phases of completion of satisfaction to the GAO report. In 
terms of being the only political at the table, Senator Ensign, 
and at the CFO level, I will tell you that the Air Force has a 
joint process internally, we have functionals and you have the 
major commands that do a combined review of the systems to 
compile the report and comply with section 332. They develop 
and they maintain and they use the BEA. They certify all 
business systems development in excess of $1 million over the 
Future Years Defense Plan. Finally, they prepare and maintain 
the DOD ETP to the Air Force vision strategy, goals, and 
priorities. So, there is a program in place and there are plans 
in place. Are we completely there yet? Absolutely not. There is 
much work to be done, but certainly we believe we are 
progressing.
    Senator Akaka. I take it, Mr. Wennergren and Mr. Argodale, 
that you agree that the Comptroller General's assessment was 
correct?
    Mr. Argodale. Correct.
    Senator Akaka. I want to also at this point tell you that I 
agree with the chairman that I'm glad you're here, however, I 
am unhappy with the level of personnel. We expected high level 
personnel here to testify this morning.
    With that said, I again want to compliment the Controller 
General as he has always said, and maybe he did say it today, 
that for this kind of work we need somebody on the high level 
to be doing it in DOD and at one time when we spoke together we 
felt that for it to move it may have to be on a secretary level 
and not anybody lower than a secretary.
    I say that because in 2001 and together with the 
Comptroller General and after some discussions we did establish 
a Comptroller General's position in DOD and if you remember the 
name, Zakheim, he was appointed to that and served from 2001 to 
2004 and resigned. The reason was he couldn't at that time make 
any headway on what we're trying to do. So we'll continue to do 
this, but again, I want to give the credit to the Comptroller 
General for our progress.
    Over the last several years the DOD has taken a number of 
steps to realign its management structure to expedite and 
enhance its business transformation efforts.
    For example, the DOD has established a new DBSMC, the BTA, 
and the IRBs. The military departments do not appear to have 
taken similar organization steps. Mr. Walker, do you believe 
that the organization structure of the military departments is 
properly aligned to bring about business systems modernization 
and financial management improvements? If not, how should the 
military departments restructure themselves to address this 
issue?
    Mr. Walker. Senator Akaka, this is an issue that we're 
doing additional work on right now. I think we'll be in a 
better position to be able to report fully at the next hearing, 
if you desire to continue this practice under your leadership 
in the next Congress.
    I will say that you must have a person who is clearly 
responsible and accountable at all key levels of the 
organization. People lead, not committees, and you have to have 
persons who are responsible. We have not found a clearly 
identified person within each of the key components that is 
responsible and accountable with regard to this area. That's 
something that we're going to do more work on to try to find 
out, and I expect 6 months from now we'll be able to provide 
more definitive information.
    Frankly, I hope that 6 months from now we would have made 
some progress on the pinnacle position, that is the level two 
official because, for the record, the Defense Business Board 
has concurred with GAO's recommendation that this is needed. 
The Institute of Defense Analysis is supposed to report within 
the next month on this, by law, I expect that they will concur, 
but I don't know for sure. McKinsey & Company, who we're all 
familiar with, which is one of the world's most prestigious 
strategic consulting firms, has also concurred with this, I 
think Congress is going to have to make a judgment under your 
leadership, Mr. Chairman, when you assume responsibility as to 
whether or not we need to go ahead and push legislation that 
deals with the COO/CMO position. We also need to make sure that 
everything else is well-aligned in order to maximize the chance 
of success and to make sure that we can sustain progress, not 
just within administrations, but between administrations.
    Senator Akaka. Thank you very much for your response. The 
problem here as I see it from way out here and as pointed out, 
when you mention a number of systems that we have many, many 
systems in DOD that we'll have to contend with. Thank you very 
much, Mr. Chairman, I do have other questions.
    Senator Ensign. Senator Thune.
    Senator Thune. Thank you, Mr. Chairman, I appreciate your 
holding this hearing and I want to thank the panel for 
appearing today and just indicate as well that we understand 
that the Services' business systems modernization and financial 
management accountability efforts are a huge undertaking and I 
appreciate the level of effort that has been made already by 
all the Services on business transformation and the progress 
that's been made. It's in and of itself a very tough and 
difficult task and I think we fully understand that, but it is 
important that we get rid of inefficiency and waste across all 
of the government. We owe that to the taxpayer and so thank you 
for your efforts, your ongoing efforts.
    There is obviously a lot more work that needs to be done 
and it is going to take leadership commitment across the DOD to 
keep moving down the right path.
    I want to also today, Secretary Vonglis, congratulate you 
on your initiative for the Air Force financial management 
transformation. The AFFSC, that's going to be located at 
Ellsworth Air Force Base, we think it's a perfect location, 
obviously, for that facility, especially with the large 
available workforce and labor pool that we have. We're excited 
about the new mission and that means the modernization of a lot 
of these systems for our members of the Service.
    I want to ask one question with respect to large-scale 
enterprise resource system programs. In your written statement 
you discussed the development of the ECSS which will replace 
hundreds of systems and applications and enable worldwide total 
asset visibility to the supply chain. Where are you in the 
development stage, and when is the projected fielding of the 
system?
    Mr. Vonglis. Thank you, Senator, and thank you for your 
support and I appreciate all your kind comments. ECSS is 
progressing very well. As a matter of fact, in terms of systems 
of that magnitude, if I'm not mistaken, I think 2012 is the 
date that we're looking at for full operational capability and 
it will measure up to exactly what it claims to do.
    Senator Thune. Is the system going to be integrated with 
other systems to provide visibility of common parts that are 
used across multiple services?
    Mr. Vonglis. It will be. Within the Air Force, absolutely. 
Obviously there are pros and cons any time one undertakes an 
ERP, you could have folks that want to obviously err on the 
side of caution, and there are others that want to take a very 
large approach to this. We are of the opinion that even if 
there are some very minor ineffeciencies, it's far better to 
field a system like ECSS along with DEAMS that are 
complementary from both the financial and the logistics 
perspective.
    Senator Thune. Mr. Walker, has GAO's work uncovered any new 
business systems programs that need to be strongly considered 
for termination?
    Mr. Walker. There is absolutely no question that of the 
3,000-plus existing information systems, many should be killed. 
That's part of the purpose of this enterprise-wide coordinated 
effort. It should identify which are the critical stay-in-
business systems, either for military or business operations, 
and which ones are wants rather than needs. How can we make 
sure that we're focused on the ones that are critical needs and 
how can we do it in an integrated fashion so you don't have 
each Service or component doing their own thing. We need to 
come up with an approach that allows for sharing of information 
and minimize the number of systems that we'll have in order to 
generate timely, accurate, and useful information. So yes, 
there are many, and many have been eliminated already. However, 
many more will have to be eliminated in the future.
    Senator Thune. Mr. Chairman, again, I appreciate your 
holding the hearing and I would add my support to your efforts 
to make sure that we provide ongoing oversight and support of 
this effort. It is so important. The bottom line is making sure 
that we're doing the best job. It's a big undertaking, huge 
department, but at the same time, bottom line is making sure 
that the warfighter is most effectively equipped to fight the 
wars and that entails a lot of, in the modern world, 
integration of these systems in making sure that across the 
Services that we have, I think, the interoperability that we 
need--so that the ultimate goal of equipping the warfighter can 
be effectively accomplished.
    So I thank you for your work and for your testimony and I 
expect we'll be hearing more from you and probably have 
additional hearings in the future. Thank you, Mr. Chairman.
    Senator Ensign. Thanks for participating today, Senator 
Thune.
    First of all, Mr. Walker, to let you know obviously we have 
the study from the Institute for Defense Analyses (IDA) on the 
need for a Chief Management Officer within DOD coming out in 
December and between now and the next hearing, whenever Senator 
Akaka decides to call that, we can do some evaluation working 
back and forth and I know I'd like to commit to working with 
you and fully evaluate the IDA study.
    The Secretary asked us to postpone our legislation and give 
him a chance so we'll have some opportunity to evaluate exactly 
what has been done and whether it more effectively will go 
toward what your recommendation has been all along and look 
forward to fully evaluating that.
    Second, to the Services; we have continually asked GAO in 
their oversight responsibility for suggestions and that's where 
the CEO/CMO, that has been one of the major recommendations, 
plus many others, that they've given us as far as legislation 
is concerned.
    I would like to ask the Services now and if you don't have 
any recommendations for the written record it would be fine as 
well, suggestions for the committee to make legislative changes 
to make this job easier. We need to hold you accountable, but 
also need to be a partner in this. If there are things that we 
are doing, sometimes we put on legislation to do one thing, but 
there are unintended consequences that cause other negative 
consequences and turn out to be the impediments to the change 
that actually we want to see up here.
    So, I'm inviting you, you don't have to do it today, or if 
you want to it's fine as well, but for sure at least in your 
written responses, if there are suggestions to us, if you made 
this change in next year's DOD authorization bill, it would 
really help us to be able to make some of the changes much more 
rapidly. This is an impediment, it looks like good government 
type of a piece of legislature, but in its effect it turns out 
to be bad government and we know that there are a lot of those 
regulations and laws out there and if you can help us get rid 
of those, that's really what we're about as partnering with 
you.
    Mr. Vonglis. Thank you.
    Mr. Wennergren. Thank you.
    Senator Ensign. Do you have anything else, Senator Akaka, 
for the hearing this morning?
    Senator Akaka. Yes, Mr. Chairman, I too want to say that 
I'd like to continue your efforts in this respect to pursue 
hearings on financial management and particularly DOD here and 
try to improve the systems and as you pointed out aptly, this 
is a team effort on accountability and transparency and we need 
to move on as fast as we can.
    I'd like to ask one last question here. I have others that 
I'll submit for the record. This has to do with service 
transition plans.
    Section 2222 of title 10 requires that DOD develop a 
comprehensive enterprise architecture and transition plan for 
its business systems by no later than September 30, 2005. 
Section 2222 requires that the transition plan must 
specifically include an acquisition strategy for each new 
business system that will be needed, a schedule for terminating 
each legacy system that will not be needed, and a strategy and 
timeline for making modifications to each system that must be 
upgraded. DOD's approach to its BEA largely delegates this task 
to the military departments. Mr. Walker, have the military 
departments met this requirement?
    Mr. Walker. We do not believe that all the requirements of 
that legislation have been met. We believe that good faith 
efforts have been taken. This may be an area where you may 
receive some recommendation from the DOD as to areas of 
possible streamlining in order to try to accomplish the intent, 
but as I mentioned before, we believe the overall plan has to 
go from the ``as-is'' state to the ``to-be'' state and it has 
to not just deal with department-wide applications, it also has 
to consider the Services and other key components as part of 
that overall framework and that has not fully been done yet.
    At the same time, I will restate that with regard to the 
requirement for submitting investments of $1 million or more, 
we do think there has been a good faith effort to comply with 
that at all levels of the DOD.
    Senator Akaka. Let me ask the Service witnesses whether you 
agree with Mr. Walker's assessment and also to ask you when can 
we expect compliance with the statutory requirements?
    Mr. Argodale. Senator, I agree that we're making a good 
faith effort to comply with the requirements of both section 
2222 and 332.
    First of all, regarding identifying systems that can be 
retired in the financial management business area we've done 
that work, identified 112 systems that will no longer be needed 
in the inventory and the target dates and times that those 
systems can be retired as we develop our financial system 
modernization effort.
    In the human resources business area, we're working very 
closely with the Defense System Management Counsel and the 
newly appointed Defense Business Systems Acquisition executive 
to implement a DIMHRS. That effort has been revitalized and 
reinvigorated. The Army will be the first Service to implement 
DIMHRS and we have identified dozens of personnel systems that 
can come out of the inventory as we develop and implement the 
DIMHRS solution in the Army and I believe we're scheduled to 
start DIMHRS implementation in the spring of 2008.
    So, we're making a good-faith effort to comply and as the 
efforts mature, I think we're going to get there.
    Mr. Wennergren. I agree, sir. We are making a good-faith 
effort and it is a process. We continue to improve the way we 
do oversight development, and modernization funding undergoes a 
much more detailed review, all the way up to the Deputy 
Secretary of Defense now, for relatively small changes. So, 
investments aren't allowed to be started unless they comport 
with the enterprise architecture and with the overall strategy 
and objectives of the DOD. We have created our authoritative 
data source that identifies all of the applications that we 
own. So the work breaks down into two pieces. There is the 
rationalized, the legacy stuff that you have, and that's what 
our functional area managers are doing. They have targets for 
each subsequent year, 30-percent reduction for the legacy 
applications this year. So, applications identified for 
retirement, and then the second piece of the work is 
implementing the new systems. So, again, by implementing, for 
example, an ERP solution, another 300 systems will go away as 
well.
    Mr. Vonglis. Senator, thank you for that insightful 
question. As a matter of fact the Air Force has identified 511 
systems. We've shut down 16 of those legacy systems in 2006 and 
we have another 23 slated for departure in 2007. These are not 
just financial systems. These cross all the domains, all the 
functional areas. As for details on the Air Force transition 
and schedules, I believe they were included as appendices to 
the ETP and they have been submitted.
    Senator Akaka. I want to thank you for your responses. This 
is a huge task. We're moving in the right direction on this and 
look forward to working with you and the chairman and expect to 
continue this effort as well. So I want to tell you that we 
are, and I am, really working hard at this so that we can help 
our troops be the best they can and meet whatever conditions 
are out there for the sake of our country and it's huge. So, 
we're part of this team and look forward to continuing to work 
with all of you. Thank you, Mr. Chairman.
    Senator Ensign. Thank you. This hearing is adjourned.
    [Questions for the record with answers supplied follow:]

               Questions Submitted by Senator John Ensign

                         CERTIFYING COMPLIANCE

    1. Senator Ensign. Mr. Argodale, Mr. Wennergren, and Mr. Vonglis, 
the Ronald W. Reagan National Defense Authorization Act (NDAA) for 
Fiscal Year 2005 required the Department to certify that every 
investment over $1 million in any business system comply with the 
Department of Defense's (DOD) overall systems architecture. We 
understand multiple systems are being certified as complying with an 
overall architecture, but the Services have yet to fully developed 
theirs. Without a well-defined service-level architecture, how are the 
components ensuring that their business system investments will deliver 
the needed capabilities?
    Mr. Argodale. The Army is aligned with DOD's federated approach to 
business system modernization. We established business area domains in 
conformance with the DOD's overall domain structure. The Secretary of 
the Army endorsed transformation plans for each business area domain. 
Mature architectures have been developed for the financial management 
and logistics business areas, with alignment activities in process 
between the two domains.
    During fiscal year 2006, the Army's Chief Information Officer (CIO) 
implemented a disciplined portfolio management process requiring each 
business domain to perform a complete inventory of all business systems 
within their respective domain, and register the systems in a single 
Army-wide portfolio. Within the financial management business domain, 
the Army reviewed and categorized 198 total systems. This analysis is 
captured in the Single Army Financial Enterprise (SAFE) architecture, 
and enabled the identification of 102 systems for elimination by 
planned modernization programs.
    Adopting the DOD's business domain construct and federated approach 
to business system modernization, creating business system transition 
plans, aligning architectures with the Business Enterprise Architecture 
(BEA), and managing business systems investments through a disciplined 
portfolio management process enable the Army to comply with the NDAA 
for Fiscal Year 2005. To date, we have scrutinized and received Defense 
Business Systems Management Council (DBSMC) approval for 82 major 
business system modernization efforts.
    Mr. Wennergren. The Department of the Navy uses a functional area 
portfolio management approach to ensure that our business system 
investments deliver required capabilities without redundancies. We have 
designated general/flag officer/senior executive Functional Area 
Managers (FAM) who are responsible for identifying which investments 
are and are not part of their to-be architectures. The FAMs have also 
developed Operational Activity Taxonomies and all investments must 
identify the taxonomy activities they support. The Department employs a 
number of other mechanisms for ensuring that our investments are 
aligned with our enterprise architecture. Among these is the Navy 
Standards Work Group, responsible for managing technical standards and 
for submitting those standards to the DOD Information Technology (IT) 
standards repository. As investments make their way through the 
acquisition process, their designs are aligned with the standards to 
ensure that only approved and consistent technologies are used.
    Mr. Vonglis. The Air Force has a published enterprise architecture 
that maps to the DOD BEA and to the extent the DOD BEA is complete we 
comply with it. The Government Accountability Office (GAO) recently 
evaluated our architecture and determined we were 71 percent complete 
(45 percent fully compliant, 26 percent partially compliant) indicating 
we are on a par with other Federal agencies. The current DOD BEA is 
effective for certification at a systems level and is becoming more 
detailed and extensive as new versions are released. In fact, the next 
phase of the BEA will drive our certification questions down to the 
data level. We are also working with OSD to put an automated 
architectural analysis tool in place which will make our process even 
more transparent.
    Our continued development of our enterprise architecture is being 
accomplished under a strict governance process led by the Air Force 
CIO, who has been directed by the Secretary of the Air Force to serve 
as the Air Force Pre-Certification Authority (PCA) and to ensure 
appropriate investments in Air Force business systems are thoroughly 
coordinated with DOD Investment Review Boards (IRBs) and presented to 
the DBSMC for their approval. This synchronization of our Air Force 
business processes and systems modernizations with the DOD through 
architectural alignment and rigorous portfolio management have been 
instrumental to modernizing our Air Force business systems.

                   BUSINESS AND FINANCIAL MANAGEMENT

    2. Senator Ensign. Mr. Argodale, Mr. Wennergren, and Mr. Vonglis, 
GAO reports and testimonies present examples demonstrating consequences 
of DOD's failure to improve its business processes and related systems. 
These problems preclude the DOD from producing accurate, reliable, and 
timely information with which to make sound decisions and accurately 
report on its trillions of dollars of assets and liabilities. What 
specific challenges does your component face with regard to 
transforming its business processes, including financial management and 
business systems?
    Mr. Argodale. The primary obstacle is a realistic, integrated plan 
backed up by senior leader commitment. Improvement of the financial 
management processes and business systems requires a clear roadmap and 
senior leaders must drive the achievement of sustainable benefits. The 
Secretary of the Army and Assistant Secretary for Financial Management 
and Comptroller are fully committed to improving the Department's 
financial management processes in order to provide sustainable benefits 
over the long-term.
    In addition to leadership, development and implementation of an 
integrated plan that guides technology and business process change is 
critical to achieving sustainable improvements. The plan must also 
identify the resources needed to develop and implement the required 
technology and business process changes.
    The Army developed and is implementing a strategic financial 
improvement plan containing 1,776 discrete tasks designed to correct 
existing problems and provide long-term financial management 
improvements. To date, 536 of these tasks have been completed with the 
remainder still in process. Our plan integrates technology and process 
requirements and is a key component of the DOD Financial Improvement 
and Audit Readiness (FIAR) Plan and Enterprise Transition Plan (ETP). 
This plan provides a coherent structure and logical methodology 
necessary to guide sustainable financial management improvements.
    Mr. Wennergren. We are endeavoring to build sustainable (and 
auditable) solutions as part of our transformation strategy. Key 
components of that strategy include: deploying Navy Enterprise Resource 
Planning (ERP), eliminating redundant business systems, implementing 
our Department's portion of the FIAR Program, and moving out on our 
Lean Six Sigma initiatives. The complexity and breadth of our business 
operations and managing change in a rapidly evolving environment are 
two of the greatest challenges facing the Department. We are employing 
Lean Six Sigma techniques to craft agile and efficient responses to 
these challenges.
    Mr. Vonglis. The Services within the DOD are working to modernize 
legacy systems. Reduction of manual transactions and limited 
reconciliation through increased automation of systems will further our 
goal to be Chief Financial Officer (CFO) compliant. With new technology 
comes the need to provide clear and sufficient training to a workforce 
steeped in tradition.
    The Air Force is challenged in three major areas:

          Implementing a Standard General Ledger across the Air Force 
        is critical to clean comparable information. As we streamline 
        and standardize our processes we will continue to reengineer 
        our business processes by leveraging technology and eliminating 
        redundancy in the numerous legacy feeder systems.
          Complying with Federal Financial Management Systems 
        Requirements in our ERP modernization programs will fully 
        implement transaction driven functionality as the core 
        capability of our transformation effort. This will help us with 
        managing intra-governmental transactions more efficiently and 
        significantly reducing the by-others clearinghouse process for 
        the accountable organizations for more timely information.
          Making strides in Data Transparency--our FIAR Plans will 
        leverage our ERP efforts to provide long-term support for 
        reliable information to the decisionmaker while reducing 
        material weaknesses in our Annual Statement of Assurance. We 
        are focused and committed to making information transparency a 
        reality.

    3. Senator Ensign. Mr. Argodale, Mr. Wennergren, and Mr. Vonglis, 
what metrics are you using?
    Mr. Argodale. The Army developed and is implementing a strategic 
financial improvement plan that is directly linked to the DOD FIAR plan 
and ETP. Our plan contains 1,776 tasks designed to improve financial 
management and modernize business systems.
    Each task is assigned to an accountable organization and includes a 
schedule for completion. We monitor progress weekly and produce an 
organizational scorecard on a quarterly basis as a method of measuring 
progress.
    Mr. Wennergren. Each of our major initiatives relating to business 
transformation--including Navy ERP, our Financial Improvement Program 
(part of the FIAR), the National Security Personnel System (NSPS), and 
various Lean Six Sigma projects--has detailed performance measures 
built in. Initiatives involving acquisition, such as Navy ERP, have 
program cost, schedule, and performance baselines. Other activities, 
such as our Lean Six Sigma projects, include performance data 
collection and analysis as integral parts of the process.
    Mr. Vonglis. The Air Force has developed numerous business 
management metrics which are routinely reviewed by the Secretary of the 
Air Force and Air Force senior leadership, to guide business 
transformation. They include: (1) legacy systems eliminated; (2) 
workforce transformation; (3) ETP milestone tracking; (4) contract 
reductions; (5) discounts taken; (6) travel voucher timeliness; and (7) 
vendor interest penalties.
    In addition, the Air Force Information Reliability and Integration 
Action Plan identifies steps to fully integrate financial and 
nonfinancial processes and systems which impact fiscal resources in a 
CFO compliant environment. Financial management metrics, available on 
all Air Force senior leaders' desktops, including the Air Force 
Secretary, are routinely being used to make important financial 
decisions. These financial metrics include: (1) vendor and contract 
interest penalty; (2) loan discounts; (3) negative unliquidated 
obligations; (4) unmatched disbursements; (5) government travel card 
delinquencies; (6) travel voucher payment timeliness; (7) military pay 
problem cases; (8) O&M execution; (9) military personnel payment 
execution; and (10) available working capital funds cash. These 
financial metrics also roll-up into DOD's FIAR plan dashboards which 
are regularly presented at the DBSMC.
    The broader business management metrics are being taken up by the 
DBSMC as a point on development over their next several monthly 
meetings. This effort will allow us to shape our business management 
modernization metrics as that evolves.

    4. Senator Ensign. Mr. Argodale, Mr. Wennergren, and Mr. Vonglis, 
what are the top challenges your component must overcome for it to be 
successful in addressing its business management weaknesses and 
transforming its business operations?
    Mr. Argodale. The primary obstacle is a realistic, integrated plan 
backed up by senior leader commitment. Improvement of the financial 
management processes and business systems requires a clear roadmap and 
senior leaders must drive the achievement of sustainable benefits. The 
Secretary of the Army and Assistant Secretary for Financial Management 
and Comptroller are fully committed to improving the Department's 
financial management processes in order to provide sustainable benefits 
over the long-term.
    In addition to leadership, development and implementation of an 
integrated plan that guides technology and business process change is 
critical to achieving sustainable improvements. The plan must also 
identify the resources needed to develop and implement the required 
technology and business process changes.
    The Army developed and is implementing a strategic financial 
improvement plan containing 1,776 discrete tasks designed to correct 
existing problems and provide long-term financial management 
improvements. To date, 536 of these tasks have been completed with the 
remainder still in process. Our plan integrates technology and process 
requirements and is a key component of the DOD FIAR plan and ETP. This 
plan provides a coherent structure and logical methodology necessary to 
guide sustainable financial management improvements.
    Mr. Wennergren. The greatest challenges to the Department are 
embracing and managing change, and providing the appropriate tools to 
our workforce in a rapidly changing global paradigm. Ensuring the 
Department has a well-trained, prepared, and agile workforce are 
challenges to be overcome in making business transformation a success.
    Mr. Vonglis. One of the primary challenges to business 
transformation has been the establishment of a single, top-down 
enterprise approach, guiding our transformation efforts from both a 
process improvement and IT enablement perspective. To overcome this 
challenge, we put in place appropriate governance bodies.
    An Air Force cross-functional Senior Working Group (SWG), made up 
of senior executives and general officers from each Air Force 
functional area guides the implementation of the Air Force enterprise 
transformation of business processes and systems. We provide monthly 
updates on business transformation to the three-star level Transparency 
IPT, chaired by the Secretary of the Air Force, who is also actively 
engaged with DOD's business transformation efforts as a voting member 
of the DBSMC.
    In addition, the Secretary of the Air Force chairs the four-star 
level Smart Operations for the 21st Century (AFS021) process council. 
AFS021 provides the institutional methods for improving end-to-end Air 
Force processes, including combat support and combat operations. These 
top down led process improvement activities serve as a key element 
scoping our business transformation and IT enablement activities.
    The NDAA for Fiscal Year 2005, its ETP requirement, and the BEA are 
powerful tools to enable us to drive our enterprise transformation 
activities. We have implemented the NDAA for Fiscal Year 2005 
activities in our core business transformation processes, which has 
strengthened our alignment around an enterprise-wide approach, 
overcoming the cultural challenges of stove-piped operations. We are 
transforming Air Force business processes to provide Joint and Air 
Force Commanders and airmen with effective decision quality, 
transparent information, and services.

                             ACCOUNTABILITY

    5. Senator Ensign. Mr. Argodale, Mr. Wennergren, and Mr. Vonglis, a 
key element of the DOD's approach to reviewing and approving business 
systems investments is the use of what it refers to as tiered 
accountability. The tiered accountability approach involves an 
investment control process that begins at the component level and works 
its way through a hierarchy of review and approval authorities, 
depending on the size and significance of the investment. What progress 
has your component achieved in implementing the tiered accountability 
process?
    Mr. Argodale. The Army has made significant progress in 
implementing tiered accountability requirements to support business 
systems management and modernization efforts. We established business 
area domains in conformance with the Department's overall domain 
structure. The domain owners developed transition plans that have been 
approved by the Secretary of the Army. These plans provide metrics, 
targeted capabilities, and other information enabling the Army to 
transform business processes. The domain owners represent the first 
tier of accountability.
    Each domain owner is accountable for ensuring that all business 
system investments comply with section 332 of the NDAA for Fiscal Year 
2005. Specifically, each domain owner must submit investment requests 
to the Army's CIO for review and approval. The Army's CIO is the pre-
certification authority for systems modernization investments and is 
the second accountability tier. The Deputy Under Secretary of the Army 
is the third accountability tier, and is the Army's representative to 
the DBSMC. The Deputy Under Secretary presents the Army's modernization 
requirements to the DBSMC for approval and authorization to incur 
obligations supporting modernization efforts.
    This tiered approach assigns accountability at each successive 
layer, and ensures appropriate approvals are obtained for modernization 
efforts. This approach has contributed significantly to improving 
business systems modernization efforts by ensuring investments are made 
based on a thorough review of requirements.
    Mr. Wennergren. The Department of the Navy has fully implemented 
tiered accountability for investment review. The Department of the Navy 
Business Information Technology System PreCertification and 
Registration Guidance (v 2.0), effective December 19, 2005, describes 
the Department's tiered review process. Version 2.0 was published to 
include guidance on so-called Tier 4 and non-Tier investments. Since 
the DBSMC's establishment in the NDAA for Fiscal Year 2005, the 
Department's IT investment review process has been aligned with that of 
the Defense Enterprise level, both to answer NDAA requirements and for 
consistency with the DOD process.
    Mr. Vonglis. The Air Force has made great progress using a 
repeatable, institutionalized, tiered accountability and approval 
process, from program manager, through the Air Force CIO, through the 
Air Force Secretary, and finally to the DBSMC, chaired by the Deputy 
Secretary of Defense for approval. All Air Force business system 
modernizations are assessed for compliance with the DOD BEA, and for 
contribution to the Air Force's ETP using this tiered accountability 
structure.
    Our progress can be measured by real outcomes. Sixteen legacy 
systems have been retired. Twenty-four flight scheduling systems were 
identified as having redundant capabilities, with a detailed review in 
progress to determine a single enterprise service for the Air Force. 
Additionally, we prohibited any further modernization of the Student 
Registration and Records System (SRRS) as a result of OSD's purchase of 
the Enterprise Learning Management tool as part of the Defense 
Integrated Military Human Resources System (DIMHRS). We determined SRRS 
would provide redundant capability at the functional level of our 
tiered accountability process, such that SRRS was not even brought 
forward for certification beyond the Air Force PCA level. The Cargo 
Management Operations System was classified as a legacy system but was 
upgraded to enterprise status due to cooperative work between the Air 
Force, U.S. Transportation Command, and the Business Transformation 
Agency (BTA), a decision that saved the DOD $34 million in costs. This 
tiered process works and has been successfully executed since the 
fiscal year 2006 review period. It continues to mature through the 
active input of participating organizations.

    6. Senator Ensign. Mr. Argodale, Mr. Wennergren, and Mr. Vonglis, 
how will the tiered accountability concept help provide Congress 
reasonable assurance that future business systems will be implemented 
on time, within budget, and with the planned capabilities?
    Mr. Argodale. The tiered accountability approach provides 
reasonable assurance that investments are based on valid requirements 
in conformance with domain transition plans and the Department's BEA. 
Requiring domain owners to ensure systems development and modernization 
requirements align with the BEA, and managing investments in the 
context of a broad portfolio of systems rather than a single system 
approach, provides added discipline to systems development efforts and 
will help to ensure future business systems are implemented on time, 
within budget, and with the planned capabilities.
    In addition to tiered accountability, the Department, under 
leadership of the BTA, initiated the Enterprise Risk Assessment Model 
(ERAM) designed to enable future business systems to deliver business 
capabilities rapidly at a reduced cost by identifying program 
vulnerabilities and providing mitigation solutions. The Army's General 
Fund Enterprise Business System (GFEBS) modernization effort is managed 
through the ERAM process. The ERAM initiative has been extremely 
valuable in helping GFEBS managers identify cost and schedule risks, 
and to develop effective risk mitigation strategies.
    Mr. Wennergren. A core element of the tiered accountability concept 
is annual review of each business system investment to determine if it 
is continuing to meet cost, schedule, and performance goals. Capability 
recently added to the authoritative data source for defense business 
systems, the Defense Information Technology Portfolio Repository 
(DITPR) and its Department of the Navy variant, DITPR-Department of the 
Navy, gives decisionmakers at all levels, from program management to 
Defense Enterprise, access to timely performance information on all 
Department of the Navy business investments and enables leadership to 
take appropriate action to ensure successful outcomes.
    Mr. Vonglis. The Air Force and DOD, empowered by the tools of the 
NDAA for Fiscal Year 2005, have implemented an enterprise-wide tiered 
accountability approach to review each Air Force business system's 
costs, schedule, and performance. All levels of management, from 
program manager to the Air Force Secretary, have a unique and vital 
review role established in a formal, linked governance structure which 
focuses on enterprise goals and milestones, and on developing 
mitigation plans when warranted.
    Key to the tiered accountability approach is the establishment of 
published program milestones and associated costs. Through the linked 
governance structure, the progress of business modernization is exposed 
to the Secretary of the Air Force and to the Deputy Secretary of 
Defense on a monthly basis and measured against those program 
milestones and costs that are published in the DOD ETP and in 
associated program guidelines. This fact-based review galvanizes senior 
leadership focus and drives key decisions early about program 
adjustments, ensuring systems remain on course.

                      ENTERPRISE RESOURCE PROGRAMS

    7. Senator Ensign. Mr. Argodale, Mr. Wennergren, and Mr. Vonglis, 
the Services have massive modernization efforts, called ERPs, but they 
are almost all behind schedule and over cost. Some of the problems 
include: (a) failure to synergize efforts; (b) incomplete requirements 
documentation and scope creep; (c) too much customization; and (d) lack 
of architecture technical standards. What is being done to mitigate 
these risks and ensure that the ongoing ERPs do not encounter the same 
problems?
    Mr. Argodale. The Army's GFEBS is a major ERP modernization effort. 
The GFEBS program is on schedule and on cost. In July 2006, the program 
successfully completed a technology demonstration that proved the ERP 
software can meet the Army's general fund financial management 
requirements and the Department's technical architectural standards as 
defined in the BEA without excessive customization.
    The technology demonstration entailed the configuration of the ERP 
software in support of real property inventory reporting. The 
configuration complied with the BEA, requirements of the U.S. 
Government Standard General Ledger, and applicable accounting 
standards. Proving the software's capability in a technology 
demonstration provided valuable knowledge that will be used in 
mitigating future risks.
    Mr. Wennergren. (a) Within the Department of the Navy, the Program 
Executive Officer for Enterprise Information Systems has oversight 
responsibility for Navy ERP and the Global Combat Support System-Marine 
Corps (GCSS-MC) program. This alignment places both Department of the 
Navy ERP programs under a single executive, fostering collaboration, 
standardization and synergies between the two. Both Department of the 
Navy ERP programs participate in the Executive Steering Group (ESG) 
established by the DOD BTA. The ESG is composed of senior IT 
professionals across the DOD and provides opportunities for synergy 
among the various DOD ERP development efforts. Additionally, Navy ERP 
integrates the Navy's three operational limited production ERP systems 
(SIGMA, CABRILLO and NEMAIS) using the lessons learned from the three 
systems and maximizing return on investment.
    (b)(1) Navy ERP has a comprehensive, detailed requirements 
management process. As the subcommittee will recall, GAO, in the 
executive summary of its September 2005 GAO report, ``DOD Business 
Systems Modernization, Navy ERP Adherence to Best Business Practices 
Critical to Avoid Past Failures,'' found that ``. . . Navy ERP 
management is following an effective process for identifying and 
documenting requirements.'' The program's requirements traceability 
process documents, tracks, verifies, and validates requirements and 
associated work products, deliverables, and artifacts throughout the 
life cycle of the Navy ERP solution implementation.
    The Marine Corps developed a detailed ``to-be'' logistics 
operational architecture that served as a reference guiding support 
development of a GCSS-MC SSS, documenting program requirements. The 
GCSS-MC CDD was approved in May 2005. These documents explicitly define 
program requirements and capability baselines.
    (2) Navy ERP and GCSS-MC maintain requirements baselines by 
employing sound and rigorous requirements and configuration management 
processes. Configuration control boards ensure that appropriate 
management levels approve changes to baseline requirements. Approved 
changes are properly documented and traceable.
    (c) Both Department of the Navy ERP programs use combinations of 
processes to minimize commercial software customization, including 
reviews by functional area experts to determine where business process 
modification can cover perceived capability gaps, rather than 
customizing software to suit old processes.
    After GCSS-MC requirements baselining, analysis revealed that only 
10 percent of identified gaps required customization of standard Oracle 
functionality.
    Through the efforts of the Navy ERP Process Council, business 
process reengineering has limited SAP customization to primarily 
mandated system interfaces, many of which will be retired when Navy ERP 
is fully deployed.
    (d) Both Navy ERP and GCSS-MC are fully compliant with DOD 
technical standards applicable to their respective milestone status. 
Navy ERP compliance is documented in its Program TV-1, approved by the 
Assistant Secretary of the Navy for Research; Development, and 
Acquisition's Chief Engineer. DOD approval is pending Milestone C 
review and approval of the program's ISP. GCSS-MC received DOD 
certifications prior to Milestone A, and BEA 4.0 certification is in 
process. The GCSS-MC ISP was approved in July 2005.
    Mr. Vonglis. To mitigate those risks, the Air Force has taken a 
number of steps.
    To begin, we've taken a top-down enterprise approach to business 
transformation and established the appropriate governance structure. 
This governance starts with the involved leadership of the Secretary of 
the Air Force. We have hired a ``Highly Qualified Expert'' from 
industry to oversee the synergy of our efforts and we employ a flag-
level SWG with representation from each Air Force functional area to 
guide implementation. Our ERP implementation is a key component of our 
enterprise activities. This enterprise approach has allowed us to both 
synergize our ERP efforts and bound them to minimize scope creep and 
customization risks. Additionally, at the acquisition level, the ERPs 
are under a single Air Force Wing which has a dedicated integration 
office to handle the technical and data integration across ERP 
instantiations.
    To ensure sufficient requirements documentation, our enterprise 
approach began early with extensive functional decomposition and 
rigorous reengineering/improvement of Air Force processes. Air Force 
processes were improved/modified in anticipation of and conformance to 
the ERPs. This has allowed us to better select the ERP commercial off-
the-shelf (COTS) packages to exploit their COTS features as part of an 
integrated enterprise approach. We have also put all ERP programs under 
standard acquisition oversight and each is measured by regular program 
reviews.
    Our Air Force policy is clear in regard to customization. We will 
modify and scope our processes to fit ERPs; we will not modify ERP 
software. We are acting on that policy. In the case of the DIMHRS, we 
have pushed through 39 changes to policy as a consequence of program 
reviews instead of driving customization into the ERP software. 
Further, we are implementing a Service Oriented Architecture (SOA) that 
will allow the net-centric exchange of information between various 
systems, reducing the need for both point-to-point interfaces and ERP 
customization.
    We have published technical standards in our Technical and Data 
Reference Models and a detailed architecture, integrated and consistent 
with the BEA to support and direct information exchange between ERPs 
and throughout our enterprise.

    8. Senator Ensign. Mr. Argodale, Mr. Wennergren, and Mr. Vonglis, 
how are you ensuring that the ERPs are aligned to the architecture and 
comply with net centric, security, and other standards for 
interoperability?
    Mr. Argodale. The Army developed the SAFE architecture to provide 
the developmental framework for the GFEBS, the Army's general fund ERP 
modernization effort. The SAFE was developed within the DOD 
Architectural Framework and is aligned with the DOD BEA. We have 
retained a full-time staff of systems architects to ensure the SAFE is 
adjusted when new updates to the BEA are issued.
    Interoperability is a GFEBS key performance parameter. Compliance 
with net centricity, security, and other standards for interoperability 
will be assessed by the Director of Operational, Test, and Evaluation 
(DOT&E), Army Test and Evaluation Command (ATEC), and the Joint 
Interoperability Test Command (JITC). Oversight and assessments from 
these independent test agencies helps to ensure GFEBS meets applicable 
requirements.
    Mr. Wennergren. Both programs' architectural alignment and 
interoperability standards compliance are reviewed at least annually 
through the DBSMC certification and approval process.
    Additionally, the Navy ERP ORD requires compliance with net-
centric, security and interoperability standards. Other reviews and 
certifications include the Defense Information Technology Security 
Certification and Accreditation Process that provides: Authority to 
Operate (security certification) for the development, test, quality 
assurance, and production environments; the testing program developed 
in coordination with the Navy's Operational Test and Evaluation Force 
and the Joint Interoperability Test Command; and review and approval of 
the ISP for a Milestone C decision. At the architectural and 
operational level, Navy ERP is positioning itself to promote the use of 
enterprise services using a SOA, as well as its adoption of Net-centric 
Enterprise Services. SAP's Enterprise Services Architecture (ESA) is an 
enhanced vision of SOA and acts as a blueprint for complete services-
based business solutions, reflecting a commitment to industry standards 
and interoperability.
    GCSS-MC software will employ DOD approved Web service standards and 
adhere to net-centric systems and FORCEnet policy and guidelines. This 
strategy focuses on net-centric data sharing vice proprietary point-to-
point peer interfaces.
    Mr. Vonglis. As stated earlier, in the Air Force all ERPs are under 
the same Program Executive Officer (PEO) structure. We have both 
published architectural standards for infrastructure for all ERPs and 
have called out the use of that common infrastructure in ERP 
requirements and contracts. The Air Force has specific resources 
assigned to the deployment of the ERPs and has implemented cross ERP 
groups (at the functional and PEG level) to ensure interoperability 
between the solutions as they are deployed.
    At the DOD level, at the November DBSMC the issue of Information 
Assurance (IA) was raised and will now become a specific topic across 
the business modernization community. An IA way ahead will be briefed 
to the DBSMC by the Defense Information Systems Agency (DISA) and the 
DOD CIO.

                        CHIEF MANAGEMENT OFFICER

    9. Senator Ensign. Mr. Argodale, Mr. Wennergren, and Mr. Vonglis, 
the GAO has previously testified that the lack of sustained leadership 
is a key underlying cause of the Department's inability to resolve its 
longstanding financial and business management problems. To help 
address these issues and oversee and manage the ongoing transformation 
effort, GAO has proposed that the position of Chief Management Officer 
(CMO) be established. What is your position on having a CMO oversee 
business transformation at the DOD?
    Mr. Argodale. The Deputy Secretary of Defense provides the 
leadership for and oversight of business transformation by leading the 
DBSMC. All Defense Under Secretaries and the BTA are accountable to the 
Deputy Secretary of Defense for their business transformation efforts. 
Relationship and reporting issues between a CMO and the Defense Under 
Secretaries (particularly acquisition, technology and logistics), the 
Service secretaries, the BTA, and the Joint Staff need to be clarified 
prior to making a meaningful assessment of establishing a CMO.
    Mr. Wennergren. The Department has devoted considerable attention 
to the question of how best to ensure that our critical business 
transformation efforts receive sustained executive level attention. The 
Defense Business Board (DBB) has met to consider various options, and a 
report is due to Congress this month (December 2006). I would 
respectfully ask to defer further comment on this subject, while the 
report is pending.
    Mr. Vonglis. We do not believe a CMO is necessary. The present 
senior leadership of the Department, specifically, the Deputy Secretary 
of Defense in the DOD and within the Air Force, the Secretary, drives 
our business transformation activities. Our focus has been to 
institutionalize the governance of business modernization within our 
existing organizational structure. An additional layer of management 
could create additional bureaucracy rather than the institutional 
commitment that is necessary.
    With the Deputy Secretary of Defense's personal leadership in the 
DBSMC, the stand-up of the BTA, and the personal leadership of our past 
and current Secretary of the Air Force, we have been able to score the 
successes that puts business modernization on an institutional (vice 
personal commitment) basis. Out year plans and associated management 
commitment are now aligned with transformation objectives within the 
Air Force Corporate Structure. Our personnel, financial, 
communications, and logistics communities have already taken manpower 
savings, IT systems convergence actions, and are seeking even more 
opportunities on a routine basis. The processes established as a result 
of the NDAA for Fiscal Year 2005 direction have become part of the 
business basis of the Air Force, and the Air Force strategic decision 
process depends on the sound advice coming out of that process. At this 
point, a CMO role would be redundant, overlapping, and potentially in 
conflict with the now proven BTA and Deputy Secretary of Defense-led 
DBSMC process within the DOD as legislated by NDAA for Fiscal Year 
2005.
    The Secretary of the Air Force, with the support of the Chief of 
Staff, is driving business transformation. The Air Force CIO, the 
Secretary of the Air Force's designee for oversight of ETP, actively 
manages the planning and investment processes for IT programs. The CFO 
is actively engaged in implementation of the financial improvements 
required throughout the Air Force. In addition, the Air Force hired a 
HQE to lead the ETP efforts. This individual works closely with Major 
Commands and Air Force functionals to ensure convergence between the 
Air Force component and the DOD ETP.
    Since its inception through the legislation in the NDAA for Fiscal 
Year 2005, the DBSMC, with the Deputy Secretary of Defense serving as 
the chairman of the group, has achieved progress in the Services' 
transformation efforts to deliver against their transformation efforts.

                    ARMY ENTERPRISE RESOURCE PROGRAM

    10. Senator Ensign. Mr. Argodale, the Army is undertaking a massive 
ERP effort to modernize its financial management systems. How soon do 
you expect to see results, and what are your plans to mitigate risk 
should you discover a massive ERP will not work?
    Mr. Argodale. We have achieved significant results in the 
development of the GFEBS, the Army's ERP Financial Management 
Modernization Program. The GFEBS technology demonstration was completed 
on time and on budget in July 2006. This was a live demonstration of 
real property inventory, and complies with the BEA and U.S. Government 
Standard General Ledger. This effort demonstrated the effectiveness of 
a commercial ERP in meeting key business process requirements including 
work order processing, intra-Army reimbursable processes, funds 
receipt, distribution, and controls, and real property capital 
improvements.
    The GFEBS technology demonstration passed all key performance 
requirements as verified by the DOT&E, ATEC, and JITC. The Army Audit 
Agency reviewed compliance with financial management requirements, and 
found the technology demonstration substantially complied with all 
applicable requirements.
    The lessons learned from the technology demonstration will help to 
mitigate risk as the next GFEBS increment is developed. Developing 
GFEBS on an incremental basis also provides significant risk 
mitigation. GFEBS is being developed in four key increments, with the 
technology demonstration serving as the first key increment. The second 
increment supports installation management activities, while the third 
and fourth increments focus on operating forces and sustaining forces. 
As each key increment is developed, assessments are performed, and 
necessary course corrections are made to ensure the increment provides 
the planned capabilities and meets cost and schedule requirements.

    11. Senator Ensign. Mr. Argodale, what is the interaction between 
the Army and the BTA, DBSMC, and other OSD-level organizations?
    Mr. Argodale. The Army interacts with the BTA, DBSMC, and other 
OSD-level organizations on a highly collaborative basis. For example, 
the GFEBS Financial Modernization effort participates in the BTA's ERAM 
project. Through oversight from the BTA, the ERAM will aid the GFEBS 
program in delivering rapid modernization capabilities by helping to 
identify program vulnerabilities and providing mitigating solutions.
    The Army's CIO and Deputy Under Secretary coordinate Clinger-Cohen 
Act compliance and section 332 certification process requirements with 
OSD NII and the DBSMC. The CIO is the Army's PCA for systems 
development and modernization efforts requiring OSD IRB oversight and 
DBSMC approval in compliance with section 332. The Deputy Under 
Secretary represents the Army on the DBSMC.

                       CHIEF INFORMATION OFFICER

    12. Senator Ensign. Mr. Wennergren, I understand you have recently 
been selected to become the DOD's Deputy CIO in the Office of the 
Secretary of Defense for Network Information and Integration. Please 
describe how the Network Information and Integration Office currently 
interacts with the Services concerning business systems modernization, 
and are there any changes or suggestions for change you plan to bring 
with you in your new capacity.
    Mr. Wennergren. The Assistant Secretary of Defense (Networks and 
Information Integration) also serves as the DOD CIO, and in that role, 
has strongly supported the Department's business transformation 
efforts. The DOD CIO team works closely with the BTA and the rest of 
the DOD in a number of ways:

         The DOD CIO drives policy in a wide variety of areas 
        that are essential to the success of business transformation, 
        such as network architecture, data strategy, information 
        assurance, and portfolio management. In each of these areas, 
        the DOD CIO has facilitated transformation by establishing 
        standards that ensure interoperability of systems and/or 
        standardization of process across all mission areas--including 
        business. The DOD CIO actively engages all military departments 
        and defense agencies on policy development, seeking their input 
        and advice as to appropriate Department-wide approaches and 
        providing hands-on assistance in crafting component approaches 
        for compliance with Department standards.
         The DOD CIO is a voting member of the congressionally-
        mandated DBSMC. In this capacity, the DOD CIO ensures all 
        decisions sufficiently consider business process improvement, 
        address Clinger-Cohen Act requirements and are aligned with the 
        Department's vision of net-centric operations.
         The DOD CIO organization is represented on each of the 
        four Business Mission Area (BMA) IRBs. In all instances these 
        voting members ensure issues discussed and programs/solutions 
        certified are consistent with DOD CIO policy regarding issues 
        such as net-centricity, data strategy, and information 
        assurance.
         The DOD CIO has published an IT Portfolio Management 
        Directive and Instruction, requiring that investments in IT be 
        managed as portfolios of capabilities. Four mission areas have 
        been established: warfighting, business, intelligence, and the 
        underlying enterprise information environment. This policy is 
        used by the mission areas as well as the military departments 
        and defense agencies to guide their IT portfolio management 
        processes.
         The DOD CIO has led the development of a single 
        authoritative data source for the inventory of all IT systems, 
        known as the DITPR. DITPR is used to address a number of 
        internal and external reporting requirements and is a critical 
        tool in the BMA's investment certification process, where it is 
        used by both the military departments and defense agencies to 
        create documentation for the process and by the IRB support 
        staff to track systems through the process.
         The DOD CIO organization develops and submits the 
        Department's annual IT budget. The NDAA for Fiscal Year 2005 
        requires that individual business systems be broken out 
        individually in the IT budget. The DOD CIO organization has 
        worked closely with the BMA BTA and the military departments 
        and defense agencies to achieve this objective. The GAO 
        recently recognized the Department's progress in achieving this 
        objective noting virtually all substantial IT programs (budget 
        in excess of $1 million) were broken out separately. We are 
        continuing to work with the components to ensure smaller 
        systems are listed similarly.

    The Department's business systems modernization efforts require 
that the entire DOD team is aligned and working together to transform 
our business processes and leverage technology effectively. In my new 
role as the Deputy CIO, I will build upon the already close 
collaboration between the military departments and the OSD staff to 
continue to accelerate and align our transformation efforts.

                      MAINTAINING REFORM MOMENTUM

    13. Senator Ensign. Mr. Argodale, Mr. Wennergren, and Mr. Vonglis, 
in your opening statements, while you describe progress made, you spend 
little time on obstacles remaining. Can you discuss the work ahead to 
fully transform your Service's financial management?
    Mr. Argodale. The work ahead provides significant challenges. The 
Army must complete 1,240 of the 1,776 documented corrective actions to 
fully modernize our business management systems and processes. To 
ensure progress continues to be made, within the next 6 months the Army 
plans to begin execution of the business domain transformation plans, 
perform an Army-wide review of the business systems portfolio, complete 
the solution-wide blueprint for all remaining increments of the GFEBS, 
and begin software testing for the DIMHRS.
    Mr. Wennergren. We have established a framework that is working, 
incorporating elements of our major enterprise-wide initiatives such as 
NSPS, Lean Six Sigma, Navy ERP, and the Financial Improvement Program. 
Each of these initiatives will support necessary changes in our people, 
processes, and systems. As we implement these changes, use of Office of 
Management and Budget (OMB)-123 documentation, risk assessments, and 
testing will sustain our progress.
    Mr. Vonglis. The Air Force is pursuing a number of major 
initiatives to transform financial management. One of our first orders 
of business is to continue implementing the efforts we have begun and 
are articulated in the ETP. Much of our earlier testimony touches those 
efforts. However, there are four specific areas that we need to drive 
into our solution set.
    Training and education is critical to our success. Throughout these 
efforts, we must ensure our people come first by providing the 
appropriate level of training to transition the skill-sets of our 
workforce and by communicating to all levels of our customer base about 
how to receive financial management services in the future. For 
example, we are revising the curriculum for all of our financial 
schools, with the exception of our most junior enlisted members, to 
ensure that decision support is at the forefront of the training 
process. Recently we began our first course dedicated to the single 
subject of decision support. The Senior Decision Support Workshop will 
build on the decision support skills taught in the financial management 
initial skills and supplemental courses. This course provides 
concentrated training in qualitative and quantitative decision support 
skills to the mid-level workforce and serves as the capstone of 
decision support training. The Air Force's financial management team 
has recently concluded a comprehensive review of officer training and 
will soon conduct a similar review of enlisted training. We have 
considerable work ahead to develop training which will focus 
significantly more effort on developing quantitative skills necessary 
for analytical assessments and improved decision support to further 
optimize use of resources. We are addressing the challenge to affect 
this transformation broadly and rapidly across the Air Force financial 
management community by seeking a wider array of training delivery 
mechanisms. This will allow us to develop training that is widely 
available to the entire Air Force financial management workforce.
    The Secretary and senior staff embraces a culture of continuous 
process improvement with the introduction of Air Force Smart Operations 
for the 21st century (AFS021). The AFS021 program is focused on 
promoting greater efficiency and transparency in the Air Force 
financial management enterprise by leveraging industry best practices 
such as Lean Six Sigma to develop an Air Force culture that streamlines 
processes, eliminates waste, and reduces functional stovepipes.
    Our goals are to identify significant process improvement 
opportunities across functional boundaries and to raise awareness of 
and build participation in AFS021 process improvement events. We will 
pursue improving high value process improvement initiatives, such as 
budget formulation and execution, defined in terms of return on 
investment and the funds they make available for Air Force 
recapitalization. Financial plans, budget justifications, and other key 
components of the budgeting process require significant investments in 
resources. Leaning out these processes can lead to significant 
efficiencies for the Air Force and the DOD.
    Financial transparency is a critical element of our Secretary and 
senior staff. We need to provide accurate, reliable, and timely 
information to decision makers but we also have to do it in a way that 
is actionable. By that we mean provide enterprise and organizational 
data at the decision maker's desk with enough other information to 
provide context. Some of our ongoing efforts include a financial 
dashboard with financial execution and performance metric that will be 
used at every level of the Air Force.
    Last but not least is to provide an integrated systems environment 
that forces standard best business practices across the Air Force 
ensuring the reliability and timeliness aspects of our objectives are 
met. These system efforts are highlighted in our ETP.

    14. Senator Ensign. Mr. Argodale, Mr. Wennergren, and Mr. Vonglis, 
do you have any recommendations that Congress should consider to ensure 
that the progress made endures?
    Mr. Argodale. Congress should continue to provide objective 
oversight, legislative measures, and stabilized funding for key 
transformation initiatives that enable business modernization efforts 
to achieve desired results. The Army will continue to provide candid 
assessments and the transparency necessary for Congress to perform 
oversight functions.
    Mr. Wennergren. As we move forward with business transformation, we 
are continually comparing our improved processing environment with the 
requirements for financial auditability. We recommend that the candid 
dialogue with Congress and GAO that has furthered our efforts to this 
point continue into the future.
    Mr. Vonglis. We have no specific recommendations but strongly 
believe continued congressional oversight will help ensure steady and 
enduring progress. Recurring reporting through the updates to the ETP 
and associated schedule and cost metrics are critical. The maxim that 
what gets measured gets managed is certainly true. Your recurring 
oversight sends a message that business transformation is important to 
the DOD and the Nation and we recommend that reviews be held quarterly 
or semi-annually.

                          FOCUS IN THE FUTURE

    15. Senator Ensign. Mr. Walker, your time and commitment, and the 
efforts of your staff in encouraging improvement in the vital area of 
financial management, have not gone unnoticed. This committee thanks 
you. As we move into the next Congress, do you have suggestions for 
this committee (and the Services) on areas to focus on? Suggestions for 
possible legislation?
    Mr. Walker. As DOD embarks on large-scale business transformation, 
we believe that the complexity and long-term nature of these efforts 
requires the development of an executive position capable of providing 
strong and sustained change management leadership across the department 
and over a number of years and various administrations. One way to 
ensure such leadership would be to create by legislation a full-time, 
executive-level position for a CMO. This position would elevate, 
integrate, and institutionalize the high-level attention essential for 
ensuring that a strategic business transformation plan as well as the 
business policies, procedures, systems, and processes that are 
necessary for achieving successful transformation are implemented and 
sustained, both within and between administrations. I would also 
recommend that Congress focus on GAO's High Risk List (most recently 
issued in January 2005 with update planned for January 2007), GAO's 
21st Century Challenge report (issued in February 2005), and my recent 
letter suggesting oversight topics (issued in November 2006).
                                 ______
                                 
               Questions Submitted by Senator John McCain

                        CHIEF MANAGEMENT OFFICER

    16. Senator McCain. Mr. Walker, in your statement you stress the 
need for the DOD to create a CMO who would be primarily responsible for 
the business system transformation within DOD. What progress has been 
made toward the creation of such a position?
    Mr. Walker. While DOD has established certain leadership and 
oversight mechanisms to address transformation, it still lacks the 
clearly defined, focused, and sustained leadership at the right level 
needed to achieve successful and sustainable transformation. The 
Secretary of Defense, Deputy Secretary of Defense, and other senior 
leaders have clearly shown a commitment to business transformation and 
addressing deficiencies in the Department's business operations. During 
the past year, DOD has taken additional steps to address certain 
provisions and requirements of the Ronald W. Reagan NDAA for Fiscal 
Year 2005, including establishing the DBSMC and creating the BTA to 
support the DBSMC, a decisionmaking body. However, these organizations 
do not provide the sustained leadership at the right level needed to 
successfully achieve the needed overall business transformation. The 
DBSMC's representatives consist of political appointees whose terms 
expire when administrations change. Furthermore, it is important to 
remember that committees do not lead, people do. Thus, DOD still needs 
to designate a person to provide sustained leadership and with the 
overall responsibility and accountability for this effort if it wants 
to maximize the chance of success in the business transformation 
effort.

    17. Senator McCain. Mr. Walker, what obstacles still need to be 
overcome to ensure the creation of a CMO position?
    Mr. Walker. I continue to believe that DOD's senior leadership is 
committed to transforming the Department and has taken a number of 
positive steps to begin this effort. Over the years, our work has 
identified several institutional obstacles to business transformation 
that end up reinforcing the status quo, such as bureaucratic resistance 
to change, service parochialism, and stovepiped operations. However, 
DOD's senior leadership has not fully embraced the need for a CMO to 
guide business transformation efforts, and instead continues to rely on 
the initiative and efforts of the Deputy Secretary of Defense and other 
organizational entities, such as the DBSMC and BTA, to move the 
Department along. As I have frequently testified, the complexity and 
long-term nature of DOD's business transformation efforts require the 
full-time attention of a single person at a high level with sufficient 
authority, accountability, and tenure to act as the focal point and 
strategic integrator. The person filling this position, working with 
the Deputy Secretary of Defense and other senior leaders, would provide 
the sustained leadership needed to guide, integrate, plan, and manage 
the Department's overall business transformation efforts. As required 
by law, DOD is studying the feasibility and advisability of 
establishing a CMO to oversee the Department's business transformation 
process. As part of this effort, the DBB, an advisory panel, examined 
various options and, in May 2006, endorsed the concept of a CMO. Also, 
under contract with DOD, the Institute for Defense Analysis has 
prepared a study, but DOD has not yet released its results. In 
addition, McKinsey and Company recently endorsed the CMO concept.
    During his confirmation hearing, the incoming Secretary of Defense 
did not take a position on establishing a CMO. He did, however, commit 
to review DOD's efforts to study the issue. We look forward to 
continuing to work with Congress and the new Secretary of Defense on 
this important issue. In my view, the CMO concept should be evaluated 
and implemented in 2007. After 60 years of major business challenges, 
the time for action is now.

    18. Senator McCain. Mr. Walker, in addition to oversight of the DOD 
business systems transformation, for what other oversight 
responsibilities should a CMO be held accountable?
    Mr. Walker. In our view, the CMO would be responsible and 
accountable for overseeing all aspects of business transformation 
within DOD, not just the modernization of business systems. Business 
transformation is much broader, and encompasses not only the technology 
(systems), but also the people, planning, management, organizational 
structures, processes, and accountability mechanisms related to all of 
DOD's business areas, including all 14 defense related areas on GAO's 
high risk list. For example, these include areas like support 
infrastructure management, human capital management, financial 
management, planning and budgeting, weapons systems acquisition, 
contract management, and supply chain management as well as business 
systems modernization. The CMO would have sufficient authority and 
level to work with the Secretary of Defense, the Deputy Secretary of 
Defense, the Under Secretaries of Defense, and the Service Secretaries 
to make business transformation a reality. Importantly, the CMO would 
not be involved in supervising the Under Secretaries of Defense, the 
Service Secretaries, or other DOD officials in connection with the day-
to-day management of the Department. Instead, the CMO would be 
responsible and accountable for planning, integrating, and executing 
the overall business transformation effort. As such, this position 
would elevate, integrate, and institutionalize the attention essential 
for addressing key stewardship responsibilities such as strategic 
planning, enterprise architecture development and implementation, IT 
management, and financial management while facilitating the overall 
business management transformation effort within DOD. The CMO would 
also develop and implement a strategic plan for business 
transformation. Importantly, the CMO is a strategic leadership not an 
operational management position. Therefore, the CMO would not represent 
a new layer of management within DOD.

    19. Senator McCain. Mr. Walker, what is the relationship between 
the CMO and the Under Secretary of Defense for Acquisition, Technology, 
and Logistics (AT&L)? Please describe how there will not be overlap in 
their respective duties so as not to burden the weapon systems 
acquisition process.
    Mr. Walker. In our view, the CMO would be responsible and 
accountable for overall business transformation, not policy-related 
issues such as military transformation. This responsibility would 
involve planning, integrating, and executing the overall business 
transformation effort and would be a full-time position. The CMO would 
not assume the responsibilities of the Under Secretaries of Defense, 
the Service Secretaries, or other DOD officials for the day-to-day 
management of business activities. Just as the CMO's responsibilities 
for overall business transformation is a full-time job, we believe that 
the day-to-day management functions are so demanding that it is 
difficult for DOD managers to maintain the oversight, focus, and 
momentum needed to implement and sustain needed business reforms. 
Likewise, the breadth and complexity of DOD's management problems and 
their overall level within the Department preclude the Under 
Secretaries, such as the DOD Comptroller, from asserting the necessary 
authority over selected players and business areas while continuing to 
fulfill their other responsibilities. Since the CMO and DOD managers 
would have clearly delineated roles and responsibilities, creating a 
CMO would not be adding another hierarchical layer to oversee the day-
to-day management of the Department. As we envision it, the roles and 
responsibilities of a CMO would be more clearly defined and have the 
added feature of a term of office that spans administrations, which 
would serve to underscore the importance of taking a professional, 
nonpartisan, sustainable, and institutional approach to this business 
transformation effort.

    20. Senator McCain. Mr. Walker, in your statement you highlight the 
DOD's recent strategy for federating or extending its architecture over 
the Services and defense agencies. In the absence of a CMO, who is 
currently spearheading this effort?
    Mr. Walker. The responsibility for defining and implementing this 
effort rests with the BTA, which is led by Acting Director David Fisher 
and overseen by Paul Brinkley, Deputy Under Secretary of Defense for 
Business Transformation, and Thomas Modly, Deputy Under Secretary of 
Defense for Financial Management.

    21. Senator McCain. Mr. Walker, in your opinion, shouldn't this 
type of transformation be conducted by a CMO in order to ensure the 
proper accountability and ultimate success of such an endeavor?
    Mr. Walker. Yes. Development and implementation of the DOD's BEA 
should be one of the key transformation control mechanisms that fall 
under the purview of the CMO.

    22. Senator McCain. Mr. Walker, isn't DOD putting the cart before 
the horse by starting this initiative prior to establishing the CMO 
position?
    Mr. Walker. While we believe that establishing a CMO to lead the 
DOD's business transformation efforts is key to success, we do not 
believe that extending the architecture should wait until a CMO is 
established. The architecture serves as the authoritative frame of 
reference for transforming business processes and modernizing 
supporting systems in a way that maximizes interoperability and 
operational efficiency and effectiveness and minimizes wasteful 
overlap, inconsistency, and duplication. The sooner the Department has 
a complete, federated architecture for its BMA, the better off it will 
be.

    23. Senator McCain. Mr. Walker, to date, what progress has been 
made with this federating initiative? Do you think there is merit in 
such a plan?
    Mr. Walker. As discussed in my testimony, DOD released its BMA 
federation strategy and roadmap in September 2006. This strategy is 
intended to define how DOD will extend its BEA across the military 
services and defense agencies. We support the development of a 
federated architecture and currently have ongoing work for this 
committee and others looking at, among other things, how the Department 
plans to implement the federated strategy and the challenges that it 
faces in doing so.

    24. Senator McCain. Mr. Walker, what obstacles must be overcome to 
ensure the success of this initiative?
    Mr. Walker. As discussed in my testimony, much remains to be 
accomplished before a well-defined federated architecture is in place. 
One challenge facing DOD is the relative immaturity of the military 
services existing enterprise architecture efforts. For example, we 
found that the Departments of the Air Force, the Army, and the Navy had 
not satisfied about 29, 55, and 29 percent of the core elements in our 
Enterprise Architecture Management Maturity Framework, respectively. In 
addition, the Army had only fully satisfied 1 of the 31 core elements 
(3 percent). The 31 core elements in our framework reflect research by 
us and others showing that architecture programs should be founded upon 
institutional architecture commitment and capabilities, and measured 
and verified products and results. To address the Services' challenges 
in this area, we have recommended that the Services develop and 
implement plans for fully satisfying each of the conditions in our 
framework. Another challenge is the lack of a BEA program management 
plan that would define, among other things, what content is to be added 
to the BEA, when it is to be added, and who is accountable for adding 
it. To this end, we have recommended that the Department develop such a 
plan. Our ongoing work for this committee and others looking at, among 
other things, the Department's efforts to implement its federated 
strategy may reveal further challenges.

                        FINANCIAL ACCOUNTABILITY

    25. Senator McCain. Mr. Walker, in your statement you highlight 
that DOD currently bears responsibility, in whole or part, for 14 of 26 
high-risk areas and DOD shares responsibility for 6 government-wide 
high-risk areas. What is the cost to the taxpayers for this lack of 
financial accountability in DOD's major business operations?
    Mr. Walker. We have not assessed the cost to the taxpayers for the 
lack of accountability in DOD's major business operations, but it 
clearly involves billions of dollars each year.

    26. Senator McCain. Mr. Argodale, Mr. Wennergren, and Mr. Vonglis, 
the DOD Inspector General (IG) reported in June that it had identified 
about $23 million in improper payments related to the procurement of 
fuel during fiscal year 2005. DOD did not report this information to 
the OMB in its required performance and accountability report (PAR) 
since the improper fuel payments did not exceed 2.5 percent of program 
payments. Don't you see something wrong with the system, when a $23 
million overpayment is not required to be reported?
    Mr. Argodale. Any improper payment, regardless of the dollar 
amount, is a serious issue that should be reported and resolved within 
a reasonable time. In this specific instance, the DOD IG reported that 
the Defense Finance and Accounting Service (DFAS) made fiscal year 2005 
improper payments of about $22.5 million in the $10.1 billion fuels 
program managed by the Defense Energy Support Center. Post payment 
contract audits and reconciliations should be conducted to identify 
potential erroneous payments. The necessary corrective actions should 
be taken to eliminate erroneous payments and recoup overpayments when 
they occur.
    Mr. Wennergren. Any improper payment or overpayment is 
unacceptable; the Department has an established internal control 
program, covering both general controls and those over financial 
reporting, that is our primary risk mitigation measure. The report 
cited here addresses payments from DLA. However, our Department is 
subject to similar risks, and we seek to minimize similar occurrences, 
as DFAS makes millions of dollars of payments on our behalf each day.
    Mr. Vonglis. The current process allows us to prioritize and take 
appropriate action based on the severity of the program's improper 
payments. Yes, $23 million in improper payments is serious, but because 
this represents .02 percent of the program and doesn't meet the 2.5 
percent threshold, the DOD IG position of medium risk signals to DFAS 
and DESC to take appropriate action within the constraints of limited 
resources. Specifically, DFAS prioritized their efforts by creating a 
reconciliation/pre-validation team and standard procedures to reconcile 
fuels contracts. We are also encouraged with the cooperation between 
DESC and DFAS to develop an electronic control system--a vehicle to 
permit both agencies to request and obtain contract-specific data. 
These efforts have already led to correcting $19 million of the $23 
million. This example validates that the current reporting system 
applies the proper level of attention in relation to the extent of the 
program's problems.

    27. Senator McCain. Mr. Argodale, Mr. Wennergren, and Mr. Vonglis, 
does this reflect a problem with DOD's reporting or with how OMB 
defines ``improper payments''?
    Mr. Argodale. This situation does not represent a problem with 
DOD's reporting or how OMB defines improper payments. The critical 
issue regarding improper payments is the Department's responsibility to 
deploy systems and processes that mitigate the occurrence of improper 
payments, and to take immediate corrective actions when improper 
payments occur. The amount of outstanding improper payments should be 
isolated and reported in the Department's financial statements. Actions 
should be taken to immediately recoup improper payments.
    Mr. Wennergren. In this instance, the improper payment cited was 
not captured due to dollar-value thresholds. As mentioned before, we in 
the Department of the Navy use managers' internal control processes, 
supplemented by oversight mechanisms (such as the audit programs 
executed by the Naval Audit Service, the DOD IG and GAO) to evaluate 
whether such controls are adequate.
    Mr. Vonglis. We do not feel there is a problem with DOD's reporting 
or how OMB defines improper payments. OMB requires reporting high risk 
information when the amount of improper payment is $10 million and at 
least 2.5 percent of the respective program. With the reconciliation of 
nearly $19 million of the $22.5 million in question and increased 
internal controls, we do not perceive this risk as high. Further, the 
DOD IG identified the risk as medium. DESC has also given DFAS direct 
access to the fuels billing database for increased integration of the 
fuels validation process. Our folks are hard at the task of managing 
all monies appropriated by Congress and will continuously work to 
mitigate any potential loss of opportunity through improper payments. 
The Air Force has been proactive in areas even where we didn't exceed 
the OMB threshold. For example, we requested our Air Force Audit Agency 
(AFAA) to determine whether or not we meet the OMB threshold in travel 
payments. Although we did not exceed the threshold, the AFAA identified 
several areas where added attention to detail would minimize over- or 
underpayments and we are addressing and implementing changes across the 
Air Force to minimize our risk for over or under travel payments.

    28. Senator McCain. Mr. Argodale, Mr. Wennergren, and Mr. Vonglis, 
GAO reported in 2004 that requiring PARs does not sufficiently curtail 
improper departmental purchasing and spending. Please explain how these 
reports can be improved or suggest to this committee a replacement that 
will lead to better spending practices.
    Mr. Argodale. The performance accountability report provides a high 
level assessment of the Department's program performance. The report 
can be improved by disclosing applicable material weaknesses and 
associated corrective actions designed to correct documented weaknesses 
including those associated with improper purchasing and spending.
    Mr. Wennergren. The Department of the Navy's Statement of Assurance 
identifies this to be a priority for us and includes specific areas of 
acquisition that need strengthening.
    Mr. Vonglis. The audit report in question (Project No D2005-D000FJ-
0206.000) points out that this improper payment was incorrectly 
reported as being correct. We believe proper reporting of material 
weaknesses is the correct action to ensure that it gets worked to 
resolution. To lower the 2.5 percent threshold to .02 percent ($23 
million) would create an almost infinite amount of detail workload with 
questionable cost/benefits of the PAR reporting process. Again, the Air 
Force has taken actions in concert with DFAS to improve its medium and 
low risk programs. Improper fuels payments are significantly the result 
of Extensive Manual Processes. Solutions include: Identify backlog, 
prioritize reconciliation with dedicate resources, and improved 
integration with DESC. To resolve the improper fuels payment material 
weakness, DFAS Columbus developed a better validation methodology to 
estimate improper payments. Air Force concurs with DOD plan to have the 
Fuels Payment Division prioritize contract reconciliation into the 
daily workload. Further, the Fuels Payment Division has taken on an 
initiative to establish a reconciliation/pre-validation team. Improved 
data query capability for analyst will be provided by enhanced query 
capability within the Automated Voucher Examination Disbursing System. 
Finally, testing of internal controls under FMFIA is receiving high 
visibility and institutionalization as we implement OMB 123.

    29. Senator McCain. Mr. Argodale, Mr. Wennergren, and Mr. Vonglis, 
what do you intend to do to bring better accounting into DOD 
purchasing?
    Mr. Argodale. The Army identified oversight of service contracts as 
an Army-wide material weakness in the fiscal year 2006 Annual Statement 
of Assurance. A corrective action plan and milestones was established 
to correct this weakness. When completed, these corrective actions will 
help the Army to improve the oversight of service contracts.
    The Department has taken actions necessary to ensure the Standard 
Procurement System (SPS) meets documented financial management 
requirements. The Department relies on SPS for procurement management 
functions, with about $93 billion of procurement actions processed in 
SPS during fiscal year 2005. In a draft report issued in November 2006, 
the Army Audit Agency reported that SPS substantially complies with all 
102 applicable financial requirements.
    The Army is also reviewing the entire end-to-end procure-to-pay 
process to identify process improvement opportunities. We completed a 
review and documented the `as-is' process, enabling us to identify 
process variability and areas where we can improve. We identified 
increased use of electronic commerce, such as wide area work flow, as 
an area in need of improvement.
    Finally, the Army is implementing the GFEBS to modernize financial 
management systems and improve accounting of purchasing and other 
general fund programs. The integrated processes offered in the 
commercial software supporting GFEBS comply with applicable accounting 
standards and will provide improved financial management within the 
Army's general fund.
    Mr. Wennergren. Defense purchasing is a process that must be 
reviewed continually to identify areas of vulnerability and opportunity 
for improvement. All elements of the process, not just accounting, must 
be well-documented, automated where possible, and regularly tested for 
controls. The major elements of business process transformation all 
combine to support these kinds of improvements.
    Mr. Vonglis. We are already well on our way to bringing better 
accounting practices into DOD purchasing. The Air Force continues to 
take action on improving the payment processes under our direct 
control. In the commercial pay area, we will continue improvements in 
the receipt and acceptance process for our officials who receive goods 
and services through expanded utilization of the automated receiving 
report system called Wide Area Workflow. Our efforts in implementing 
standard document numbers will increase accountability by allowing 
accurate cradle-to-grave transaction tracking. A new system release 
(Database Expansion And Restructure) to our Integrated Accounts Payable 
System will increase accuracy by allowing automated transaction pass-
through and elimination of manual re-key stroking of data.
    For the long-term solution set, the Air Force is pursuing two major 
initiatives. One vehicle we're using for better accounting is our 
Defense Enterprise Accounting and Management System (DEAMS) initiative, 
which is an ERP effort. Capitalizing on the benefits of ERP, DEAMS is 
being integrated to our second major program, the Expeditionary Combat 
Support System. This system is designed to enable the future logistics 
vision through the same Oracle COTS IT suite we have in DEAMS. Through 
the COTS Oracle procure-to-pay module suite, DEAMS provides an 
enterprise, cradle-to-grave view of purchased assets, enabling tracking 
of related transactions through their entire life cycle. The Oracle 
module builds policy enforcement into every transaction from 
requisition through payment. Configurable approval management and 
workflow ensures every purchase receives the correct approvals required 
by policy for time, purpose, amount, requester, organization, and 
project. Support for key accounting methods, including budgetary funds 
control, ensures correct fiscal control and validation of funds 
availability in real-time. With built-in policy enforcement, required 
compliance is improved and exceptions are immediately highlighted for 
additional management review.

    [Whereupon, at 10:40 a.m. the subcommittee adjourned.]

                                 
