[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
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COMMITTEE ON ARMED SERVICES
JOHN WARNER, Virginia, Chairman
JOHN McCAIN, Arizona CARL LEVIN, Michigan
JAMES M. INHOFE, Oklahoma EDWARD M. KENNEDY, Massachusetts
PAT ROBERTS, Kansas ROBERT C. BYRD, West Virginia
JEFF SESSIONS, Alabama JOSEPH I. LIEBERMAN, Connecticut
SUSAN M. COLLINS, Maine JACK REED, Rhode Island
JOHN ENSIGN, Nevada DANIEL K. AKAKA, Hawaii
JAMES M. TALENT, Missouri BILL NELSON, Florida
SAXBY CHAMBLISS, Georgia E. BENJAMIN NELSON, Nebraska
LINDSEY O. GRAHAM, South Carolina MARK DAYTON, Minnesota
ELIZABETH DOLE, North Carolina EVAN BAYH, Indiana
JOHN CORNYN, Texas HILLARY RODHAM CLINTON, New York
JOHN THUNE, South Dakota
Charles S. Abell, Staff Director
Richard D. DeBobes, Democratic Staff Director
______
Subcommittee on Readiness and Management Support
JOHN ENSIGN, Nevada, Chairman
JOHN McCAIN, Arizona DANIEL K. AKAKA, Hawaii
JAMES M. INHOFE, Oklahoma ROBERT C. BYRD, West Virginia
PAT ROBERTS, Kansas BILL NELSON, Florida
JEFF SESSIONS, Alabama E. BENJAMIN NELSON, Nebraska
SAXBY CHAMBLISS, Georgia MARK DAYTON, Minnesota
JOHN CORNYN, Texas EVAN BAYH, Indiana
JOHN THUNE, South Dakota HILLARY RODHAM CLINTON, New York
(ii)
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
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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.
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\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.
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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.
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\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).
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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.
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\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).
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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.
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\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.
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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\
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\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.
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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.
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\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).
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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.
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\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).
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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\
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\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.
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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.
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\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).
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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.
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\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).
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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.
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\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.
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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.
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\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).
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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.
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\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.
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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.
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\25\ GAO-06-658.
\26\ 10 U.S.C. 2222(d).
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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.
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\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).
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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.
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\30\ GAO-06-658.
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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.
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\31\ GAO-06-219.
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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.
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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\
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\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).
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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
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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.
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\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.
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\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.
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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.
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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.
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\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.
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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.
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\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).
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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.
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\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).
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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).
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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).
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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\
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\48\ Pub. L. No. 109-163, 376, 119 Stat. 3136, 3213 (2006).
\49\ Pub. L. No. 109-364, 321, 120 Stat. 2083 (2006).
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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\
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\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.
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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.
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\52\ Pub. L. No. 107-107, 1008, 115 Stat. 1012, 1204 (Dec. 28,
2001).
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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.
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\53\ GAO, Defense Acquisitions: Assessments of Selected Major
Weapon Programs, GAO-06-391 (Washington, DC: Mar. 31, 2006).
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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:
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\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.
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\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).
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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.
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\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).
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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\
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\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).
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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.
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\62\ GAO, Military Housing: Management Issues Require Attention as
the Privatization Program Matures, GAO-06-438 (Washington, DC: Apr. 28,
2006).
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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.]